The Planning Commission is likely to scale down the average growth rate for the eleventh plan period (2007-12) to 8 per cent from an earlier projection of 9 per cent.
The downward revision in the mid-term review of the Plan, that is to be finalised tomorrow, has been primarily guided by the effect of the global economic downturn in 2008-09 and 2009-10. The Planning Commission has pegged the growth for the next financial year 2010-11, at 8.5 per cent.
One of the major challenges during the Plan has been the stunted growth in agriculture. In the first year of the Plan, the sector grew 4.9 per cent but slowed considerably in the later years.
In the current financial year, agricultural growth is projected to show a decline of 0.2 per cent. While it has been 2.1 per cent between 2007 and 2010, the overall economic growth has been 7.7 per cent.
“The target of 4 per cent growth has not been achieved except in purchasing power of GDP, which factors in improvement in agricultural terms of trade,” states the chapter on agriculture in the mid-term review.
Moreover, the mid-term appraisal is likely to focus on reducing the subsidy burden on the government and strengthening the subsidy delivery system. As a policy correction, the mid-term review has suggested linking prices of fertilizers with the minimum support price (MSP) of wheat, rice and sugarcane. The review reasons that during the last five years, MSP of wheat and rice has risen by more than 50 per cent while prices of urea have remained constant, adding to the subsidy burden of the government.
It observes that fertiliser subsidy as a ratio to the value of the crop output, was around 3-3.5 per cent between the period 2000-2006, and fertiliser subsidy as a ratio increased to 10 per cent in 2008-09 from 6 per cent in 2007-08. The review states that the reason for high fertiliser subsidy has been the nominal constant prices for a long period of time.
The plan review has also asked that the MSP system be made more flexible and delinked from the procurement price. It states that MSP has prevented farmers from diversifying into crops other than foodgrains. Moreover, the planning commission has also recommended that government accept the recommendations of the committee headed by Kirit Parikh on petroleum pricing.
The plan panel review has taken into consideration the constraint in government resources as it charts out a path of fiscal consolidation after observing the high expenditure path in recent years.
