True, economic growth slipped to a nine-year low of 6.5 per cent in 2011-12 and nobody is now talking of 7.6 per cent economic expansion for the current financial year, as was assumed in the Budget. Even so, the Planning Commission is not going to dilute the target of 9-9.5 per cent average annual economic growth for the 12th five-year Plan (2012-17). The Commission, though, is likely to add a strong rider, in its final Plan document, that the country will have to resort to fiscal discipline if it is to meet nine per cent growth rate.
Officials in the Commission said it would be difficult to reach the targeted growth, unless strong steps are taken to rein in the Centre’s fiscal deficit.
The final Plan document, though, might not immediately scale down the target, according to a senior official working in preparing the final document. This is “in view of the changed global and domestic economic scenario, but it will surely have a mention of the difficulties that the economy could face,” he adds.
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The approach paper to the 12th Plan had pegged economic growth at 9-9.5 per cent with a strong rider that even the lower range of the band was an ambitious but achievable target, provided the country had the political will to undertake strong reform measures.
In fact, even nine per cent growth rate seems difficult now, analysts say, since the Budget had assumed just 7.6 per cent growth rate for this financial year, and the Economic Survey has projected the economy to grow 8.6 per cent in 2013-14. Even if one assumes both the growth projections are achieved, the economy needs to grow by much over 9.5 per cent in the remaining three fiscal years of the Plan.
Economic growth slipped to 6.5 per cent in 2011-12 after the fourth quarter economic expansion fell to a 32-quarter low of 5.3 per cent. Initial indications like almost flat growth in industrial production in April, and contraction of exports and imports in the first two months of this financial year have not been very encouraging. These data cast doubts on even 7.6 per cent growth for 2012-13. Now, nobody is talking of 7.6 per cent growth rate for the current financial year.
Prime Minister Manmohan Singh, returning from the G-20 meetings in Mexico and the Earth Summit in Brazil, said he was confident that the economy could grow by seven per cent this financial year. In Mexico, Planning Commission Deputy Chairman Montek Singh Ahluwalia had said he never projected the economy to grow 7.6 per cent in FY13.
The approach paper said fiscal deficit had to come down to an average of 3.25 per cent of the GDP in the 12th Plan, against 5.7 per cent in 2011-12 and Budget estimates of 5.1 per cent in 2012-13. Even the finance ministry’s documents, presented as part of the Fiscal Responsibility and Budget Management Act, pegged fiscal deficit to come down to 3.9 per cent by 2014-15. This means, much would be required to bring down fiscal deficit to the targeted level in the remaining two years of the Plan.
The paper will form the basis of the final Plan document which is expected to be put for final approval of the National Development Council (NDC) in September.
The official says to usher in fiscal disciple, the government should rationalise subsidies and look at enhancing its revenues so that growth does not slip.
Officials says that the thinking within the Commission is that oil subsidies needs to rationalised first, followed by others.
Recently, major global rating agencies like Standards and Poor’s and Fitch warned India on a rating downgrade for lack of political will to undertake major reform measures.
Some major reforms like foreign direct investment in multi-brand retail and decontrol of diesel prices have got stuck because of lack of political consensus, prompting many experts to question the country’s ability to grow faster.
