As the debate over whether the slowing growth in interest rate-sensitive sectors would expand to the whole economy continues, the Planning Commission feels the bigger concern is the rate of economic expansion in five-10 years. This is because supply is not keeping pace with growing demand and investments are being postponed.
In this environment, the approach paper to the 12th Five-Year Plan (2012-13 to 2016-17), to be ready early next month, would focus on enhancing the supply of goods and services to meet the high demand and sustain medium-term growth. After is finalised, the approach paper would be presented to the Cabinet, and then to the National Development Council.
“The approach paper would look to put supplies to meet the demand in agriculture, infrastructure and health...so that growth can be sustained for a longer period,” Commission member Saumitra Chaudhuri, who is involved in preparing the paper, told Business Standard.
However, the issue of different growth estimates for the current financial year, including the forecast by the Prime Minister's Economic Advisory Council (PMEAC), in which Chaudhuri is a member, looms large. PMEAC had, in February, projected nine per cent growth for the current financial year, the same as the estimate in the Economic Survey. However, the finance ministry is now in the process of scaling down that estimate. Chaudhuri said, “We must remember the concern is not so much about the current year growth. We will do reasonably well. We can keep on quarreling about it, but we will do okay. The real issue is what will happen to medium-term growth.” He added the concern was the investment climate was somewhat subdued. “People have been ascertaining which way the country is going to go, where the policy is going to be headed, should they invest or not...These questions have been troubling the investment community.”
When companies — both big and small — look at asset creation, they take risks and want to be assured about the investment climate. “These questions are bothering them. Put yourself in their shoes. If you are not certain about the situation six months down the line, you will wait. Once I am committed to projects, I am committed. But once I am not committed, I can always postpone it. So, there has been some deferment. There has been postponement. There is no pucca number. The general feeling is the people want to see, they want to watch,” he said.
Investors are concerned about domestic problems that have taken much of the government’s time and energy. “Earlier, they were watching the double-dip recession — whether the crisis was over or not. In the last six months, agitations are back...That has been a bad thing, as far as investment beyond this year is concerned,” he said.
| LOOKING AHEAD |
| * Initial Eleventh Plan (2007-08 to 2011-12) targeted nine per cent growth on an average a year, with terminal year reaching to 10 per cent |
| * After global financial crisis, mid-term appraisal of the plan targets a growth of little over 8 per cent an average in the Eleventh Five Year Plan |
| * The Plan lowers growth in terminal year to nine per cent from 10 per cent earlier |
| * In Economic Survey for 2010-11, Prime Minister's Economic Advisory Council projects economic growth at nine per cent in 2011-12 |
| * Finance ministry in the process of revising down growth. PMEAC Chairman C Rangarajan has already talked about 8.5 per cent growth in 2011-12 |
| * However, World Bank expects Indian economy to grow by 8.2 per cent this financial year |
| * RBI, considered conservative, projects the economy to expand by around eight per cent this financial year |
| * In the first four years of the Eleventh Plan, economy expanded by 8.15 per cent |
| * If economy expands by 8.5 per cent, average annual growth would be 8.2 per cent in the Eleventh Plan |
| * PlanCom presentation at full Plan meet talked of 8.2 per cent average growth for the current Plan |
| * Approach paper to talk of 9-9.5 per cent growth for Twelfth Five-Year Plan (2012-13 to 2016-17) |
| * PlanCom presentation says even nine per cent would need strong action to solve sectoral problems |
Asked whether the approach paper would stick to 9-9.5 per cent growth, as was talked about in the full Planning Commission meeting chaired by Prime Minister Manmohan Singh in April this year, Chaudhuri said the paper would stick to that growth estimate for the next five financial years.
“Lots of people have taken growth for granted. You know, eight per cent, nine per cent mil jayega. Nine per cent nahi mila to eight per cent mil jayega (if not nine per cent, we will surely get eight per cent) — there is this feeling. I am afraid growth cannot be taken for granted,” he said, adding growth resulted from transformation of the country, since earlier, a large part of the country was pre-modern and involved in agriculture and low-productivity outside agriculture.
Asked whether the Reserve bank of India's monetary policy should also be blamed for choking growth, he said to control inflation in the short term, monetary tools were appropriate instruments. Macro-stability was required to maintaining high growth and price stability was one of the pillars for that.
