8% growth out of reach: Plan panel

Private investment still tentative despite pick-up signals.

The Planning Commission has said that the lower than projected growth of 7 per cent during the first two years of the Tenth Plan would make it difficult to achieve the 8.1 per cent growth in gross domestic product (GDP) during the remaining three years of the plan period (2002-07).

According to the approach paper to the mid-term appraisal of the Tenth Plan, "The shortfall in the first two years appears modest but the disturbing fact is that the momentum for acceleration, which was essential to achieve the 8.1 per cent target has not been achieved."

"The current year's GDP growth is likely to range between 6 and 6.5 per cent so the achievement of the Plan target is only possible if GDP growth in the last two years averages 11 per cent, which is clearly not feasible."

The economy grew at 6.4 per cent during the first two years of the Plan and the government had projected a growth of around 7 per cent during the current fiscal. Agriculture was not expected to grow in excess of 1.5 per cent this year, the paper said.

It added that the 4 per cent growth target for agriculture seemed "nowhere near being achieved".

Similarly, industrial growth of 10 per cent and above in the remaining period was difficult to achieve. The rate of investment had also been slow, it pointed out.

The Planning Commission said growth during the remaining years of the plan period depended on renewal of private capital formation and public investment in infrastructure.

Private investment still appeared tentative despite indications of a pick-up. The paper called for reforms in the financial sector to achieve the investment rate of 28 per cent.

Structural factors had resulted in locking up capacities and the paper proposed to address issues like winding up of the Board for Industrial and Financial Reconstruction, bankruptcy and foreclosure laws, reform of the Industrial Disputes Act and release of excess land held by public sector companies and privatisation of sick PSUs.

The Planning Commission also underlined the need to remove bottlenecks holding up foreign investment flows.

It also proposed to review the effectiveness of the programmes for rural development and agriculture and give special emphasis to promote public investment in rural areas. This would also help in absorbing unemployed labour.

Allocation of resources to the Centre and states had been below expectations with the Central Plan for the first three years averaging 44.2 per cent of the total plan size as against the expected 54 per cent.

It said that state finances were in a bad state on account of lower than anticipated devolution.

The reasons cited were slow economic growth, low growth in the Centre's tax-GDP ratio, losses of the state electricity boards and the debt burden because of the Pay Commission.