As the Planning Commission starts preparing itself to approach the 12th Five-Year Plan, its Deputy Chairman Montek Singh Ahluwalia identifies issues like urbanisation, energy as well as water management and environment-friendly growth as much bigger challenges than at the beginning of the current Plan.
“(These are) four critical challenges facing the economy in the Twelfth Plan, which are perhaps more serious than they were at the start of the Eleventh Plan,” Ahluwalia has written in an article, to be published in Economic and Political Weekly next week.
Besides, challenges like employment generation, macro-economic stability, better farm policies, infrastructure development and financial sector reforms have to be addressed in the 12th Plan, will starts from the next financial year, to sustain nine per cent growth, he writes. Tackling crony capitalism, market manipulation and corruption are other prominent issues that have to be tackled, as greater reliance upon market forces have yielded higher growth and efficiency but is also seen to have produced these negative traits, he says.
The issue will hit the stands on Monday.
Ahluwalia admits that there has been a slower progress in ensuring inclusion than on accelerating growth, though many parameters on inclusive growth showed much progress. “This contrast (of slower progress in inclusion and accelerating growth) feeds the public perception that rapid growth has only led to a concentration of income and wealth at the upper end,” he says.
The Commission’s deputy chairman also attributes this perception to the media, especially electronic media, which keeps on showing extremes of success at the top end and poverty at the other.
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“Both extremes are understandably viewed as newsworthy, but in focusing disproportionately on them, the steady improvement in living standards of the very substantial population in the middle, and the associated rise of a growing middle class, receives much less attention than it should,” he says.
Ahluwalia says inequality is normally discussed in terms of inequality of incomes, but in India it can only be measured on the basis of distribution of consumption. However, there was only a modest increase in inequality in urban areas in reforms period and no similar trend is available for rural areas, he says.
He says one of the concerns about economic reforms was that the richer states would benefit, while the poorer ones might become poorer, which was not borne out by the facts.
To buttress his point, he cites an example of Punjab which was the richest of the major states until a few years ago, but has grown more slowly than average and has fallen behind Haryana, Gujarat and Maharashtra.
He recognises that inflationary pressures over the past three years is a weak spot of economic performance, for both growth and inclusiveness. “A modest rate of inflation is tolerable, and may even be necessary to accommodate relative price changes that have become unavoidable. However, inflation beyond the tolerable level — usually put at 5 to 6 per cent by the government and 4 to 5 per cent by the central bank — is regressive,” he says.
The average rate of inflation stood at 7.4 per cent in the first four years of the Eleventh Plan (2007-08 to 2010-11) whereas it has averaged 5.3 per cent in the Tenth Plan, he says. The Eleventh Five-Year Plan is in its terminal year during 2011-12. Ahluwalia also said the reforms had increased the growth potential of the economy and the large agenda of financial sector reforms could produce further gains if they were implemented.