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With even optimistic analysts on the government side pegging economic growth at 5.5% in the current financial year, the Planning commission's projection of 8% annual average growth in the 12th plan (2012-13 to 2016-17) is all set to go awry. However, the Commission can take credit of also projecting lower numbers in case policy actions are not forthcoming.
As the Centre's fiscal deficit touched 63% of Budget estimates in just four months of 2013-14, there is every likelihood of a hefty cut in the plan expenditure in the current financial year as well that will derail the numbers on this front for the 12th plan. And since economy might not grow by the estimated 8% a year on an average, pegged investment in infrastructure might also come down from projected over Rs 56 lakh crore.
Economic growth crashed to a decade low of 5% in 2012-13, which was the first year of the 12th five year plan. The gross domestic product (GDP) is expected to grow 5.5% by Prime Minister Manmohan Singh in the current financial year, after it plunged to over four-year low of 4.4% in the first quarter.
“I sincerely hope that the growth rate will be 5.5% in the current financial year,” the prime minister had said in the Rajya Sabha.
Even as economists doubted this optimism, let us assume that the economy indeed will grow by 5.5% in the current financial year. Even then, it will require the next three years to deliver 9.8% growth on an average per annum. This is a feat, not achieved by the Indian economy even when it grew 9% or more in the three successive years prior to the global financial crisis of 2008-09. The highest growth achieved those years was 9.6% in 2006-07. Planning commission deputy chairman had hinted that 8% average annual growth in 12th plan period may be difficult.
Besides giving a larger scenario of 8% growth a year on an average in the 12th five year plan, the Commission had given two other scenarios. In its plan document, it gave second scenario of economic growth coming down to 6.5 to 7% a year on an average in the 12th plan, if policy actions are not sufficiently taken. In case of policy logjam or the the third scenario, the growth may fall even further to 5-5.5%.
Officials admitted that economic growth may come down to what was envisaged in the second scenario. However, in the first two years of the plan, economic growth is expected to decline to the third scenario of policy logjam. This was despite the government rushing for a slew of economic reforms including the recently passed bills like Companies Act, Land Acquisition, Pension Fund Regulatory and Development Authority, etc in recent months, and opening up of floodgates for FDI a few months back.
Economists believed that results of these would come after a lag, and the current slow down is the result of past policy inaction coupled with uncertain global recovery.
Economists believed that results of these would come after a lag, and the current slow down is the result of past policy inaction coupled with uncertain global recovery.
As the Centre's fiscal deficit already ballooned to Rs 3.41 lakh crore till July of 2013-14, constituting 62.8% of
Budget Estimate of Rs 5.42 lakh crore, the government might again resort to heavy cuts in plan expenditure. The deficit was
reduced to 4.9% of GDP in 2012-13 against revised estimate of 5.2% and the previous year's 5.7%, this
was mainly achieved by slashing of plan expenditure by 20.48% of the Budget Estimates. Plan expenditure was slashed to Rs 4.14 lakh crore from Budget Estimate of Rs 5.21 lakh crore. The actual expenditure was lower by 3.5% over even the Revised Estimates of Rs 4.29 lakh crore.
Whether the government will cut plan expenditure by over 20% is yet to be seen, but it is widely assessed that it might resort to similar cut of around 17.85% of the Budget Estimate, as was done in 2012-13.
If that is done, plan expenditure size will reduce to Rs 4.56 lakh crore this year compared to Budget Estimate of Rs 5.55 lakh crore.
Plan expenditure stood at Rs 1.49 lakh crore in the first four months of the current financial year, constituting 27% of Budget Estimate. The proportion had stood at 22% in the corresponding period of last financial year. Generally, the cuts are made in the last quarter of the financial year, depending on unspent amount with the ministries and departments.
Taken together, plan expenditure might turn out to be Rs 8.10 lakh crore in the first two years of the plan. Total plan expenditure for the 12th five year plan was projected at Rs 35.68 lakh crore. This means that Rs 27.58 lakh crore was to be spent on the last three years to achieve the projections for the 12th plan. This means over Rs 9 lakh crore a year, which is more than what was spent in the first two years. Here, it should also be noted that plan expenditure is bound to increase year after year. For example, it was raised to Rs 5.55 lakh crore in the Budget Estimate of this year, which was higher than even Rs 5.21 lakh crore in the Budget Estimate of 2012-13, though by just 6.52%.
Cut in plan expenditure this year may compress even GDP growth further. If GDP does not grow at required rate than projected for the 12th plan, investment in infrastructure might also not come up at the required level of Rs 56.31 lakh crore for the 12th plan. In dollar terms, it is pegged at $one trillion. However, at recent rates of the rupee at over 60 a dollar makes it comes to less than a trillion dollar.
At the National Development Council (NDC) meeting in December last year, a prominent opposition leader is understood to have ridiculed the Centre for organising such a large gathering for just 0.1% higher growth in 12th-five-year plan at 8% compared to 7.9% in the previous one. The very same leader, expected to be catapulted to a contender for the top slot in government in a few days, might get further ammunition to attack the Centre if the plan targets for growth in terms of first scenario are reduced. However, these might come after general elections.
