With economic growth tripping to nine-year low in 2011-12 and initial signals for the current financial year not encouraging, the Planning Commission on Thursday admitted that the average annual growth target of nine per cent for the 12th Five-Year Plan (2012-17) was “simply not possible” to achieve and it, in all probability, would scale it down to 8-8.5 per cent.
The Approach paper to the 12th Plan has set a target of nine per cent growth rate for the five-year period and even talked of another optimistic scenario of 9.5 per cent growth rate. The final document for the FYP is being readied.
Even 8.-8.5 per cent would be a “commendable” achievement, Planning Commission deputy chairman Montek Singh Ahluwalia said on Thursday. This would require steps to boost investor sentiments, he told reporters here.
“...having a target of average annual growth rate of nine per cent is simply not feasible (in the 12th plan), but I would place the growth target to somewhere around 8-8.5 per cent," he said.
Ahluwalia clarified that this is his own assessment and the target would be formally pegged after through discussions with Prime Minister Manmohan Singh, who heads the Planning Commission, and all concerned.
A day after Manmohan Singh called for reviving “animal spirits” in the economy, Ahluwalia said steps would soon be announced to perk up the sagging investor sentiments.
He has emerged as the key policy maker after the PM took additional charge of the finance portfolio. On Thursday, Vodafone India non-executive chairman Analjit Singh and United Breweries group chairman Vijay Mallya, promoter of beleaguered Kingfisher Airlines, met Ahluwalia.
Tomorrow, the chairman of a pharma multi-national is coming to have a meeting with him.
Ahluwalia pegged economic growth to be in the range of 6.5-7 per cent this financial year, and 0.75 percentage points higher in 2013-14. “In that case, the average GDP growth of the first two years of the 12th Five Year Plan is likely to be around 7 per cent,” he said. “In that scenario, it should be remembered that even if we achieve 8-8.5 per cent growth, we will be doing a commendable job for which we do need to take a number of measures.”
India’s economic growth slipped to a nine-year low of 6.5 per cent in 2011-12. For the current financial year, which is the first of the 12th FYP, the budget had assumed the growth to be 7.6 per cent. Economic Survey had projected an 8.6 per cent growth for the next financial year. Both these projections are not going to be met, according to Ahluwalia.
Economists described even 8 per cent growth target as ambitious. “We can no longer think of 9 per cent average annual growth in the near future; hence scaling down is the right thing for them to do,” CARE Rating chief economist Madan Sabnavis. “I feel 8 per cent average annual growth is slightly ambitious.”
If the economy indeed grows by just 7 per cent in the first two years of the Plan period, the next three years would have to deliver an average growth rate of around 9.5 per cent so that average annual growth rate comes to 8.5 per cent in the plan period. The approach paper to the 12th Plan had also talked of another optimistic scenario of 9.5 per cent growth rate during the period.
“A lot of things have changed between the time approach paper was prepared and now when the final document is in its last stages of preparation,” Ahluwalia said. “The global situation has changed and domestically also we have some constraints.”
The 11th FYP (2007-12) had originally set the target for annual average growth at nine per cent, and the concluding year expected to yield 10 per cent growth rate. In fact, the first year of the Plan started with a growth rate of 9.3 per cent. But, then the global financial crisis had ripple effects on the Indian economy, bringing down the growth rate to 6.7 per cent the following year.
As such in the mid-year assessment for the XI FYP, the Planning Commission revised the target to 8.1 per cent. But, when the final figures came, even 8 per cent was not achieved. From the original 10 per cent, growth rate climbed down to 6.5 per cent in 2011-12, lower than even global financial crisis period.
As even 8-8.5 per cent growth rate in the 12th Plan required steps to boost investor sentiments, Ahluwalia said some actions on that front are on the cards. “I do feel that the prime minister has publicly said that we need to restore investors confidence. We should see some action on it very soon,” he said. Ahluwalia said his advice to investors would be to “wait and watch” and “see what is in store” for them.
Investors are awaiting a wide range of reforms, including permission to have foreign direct investment in multi-brand retail, hike in the FDI limit from 26 per cent to 49 per cent in private insurers and pension reforms. They also want that the Centre and states cooperate to bring in goods and services tax (GST) from April 1, 2013. “Tax reforms are an important part of general reform process,” Ahluwalia said. “GST is the biggest tax reform that should happen.”
