Important signals on the government’s economic policy imperatives and priorities have emerged from the macro-economic framework the Planning Commission has outlined for the Twelfth Five Year Plan starting next April. These indicate that our planners have already acknowledged the unlikelihood of any major step-up in the speed of policy change in the coming few years.
Consider what the planners have projected on the government’s efforts to raise revenue from disinvestment of its equity in public sector undertakings. Non-debt capital receipts, which largely constitute disinvestment proceeds, are likely to hover at Rs 54,500 crore to Rs 57,000 crore per year during the entire five-year period of the Twelfth Plan.
In other words, the share of such non-debt capital receipts will come down from 0.54 per cent of gross domestic product or GDP in the first year of the Plan to 0.32 per cent of GDP in 2016-17, the terminal year of the Plan. This estimate assumes nine per cent real GDP growth and five per cent inflation every year. It is interesting to note the reason the planners have cited in support of their conservative estimate of such receipts. Non-debt capital receipts, the draft Approach Paper to the Twelfth Plan says, are expected to fall “partly because the scope for disinvestment is now limited if government equity cannot be diluted below 51 per cent.”
You may call this conservative planning. If the government does manage to push through a policy on divestment of its equity to bring it below 51 per cent or simply privatise the public sector units, there will be a substantial upside to the Union government’s resources. You could also see this as the Planning Commission’s misplaced faith in the government’s ability to sell its equity in public sector organisations.
Remember that of the Rs 55,000 crore of non-debt capital receipts planned for 2011-12, as much as Rs 40,000 crore will come from disinvestment. With barely Rs 1,150 crore raised through sale of shares in only one public sector undertaking in the first five and a half months of the current financial year, the government will not be able to meet its target.
Indeed, the government missed the disinvestment target of Rs 40,000 crore for last year also, when it mobilised only about Rs 22,800 crore. In 2009-10 also, it missed the target by a similar margin, raising only Rs 23,553 crore, which was the highest amount raised through disinvestment in any single year since the exercise began in 1991-92.
Thus, the logical question is whether the planners, too, have miscalculated their assumptions. If the highest amount the government has raised from disinvestment in the last 20 years is only Rs 23,553 crore, why should the Twelfth Plan assume annual non-debt capital receipts of Rs 54,500-57,000 crore in the next five years? This is particularly puzzling because the draft Approach Paper also recognises the limited scope for raising disinvestment proceeds in view of the current policy constraints.
There is yet another area in which the Planning Commission document exposes the government’s ambivalent thinking on the future course of economic reforms. Using the same assumptions of nine per cent real GDP growth and five per cent inflation, the planners have projected that the Union government’s non-tax revenue would decline from 1.1 per cent of GDP in 2012-13 to 0.88 per cent of GDP by 2016-17. In the current financial year, the government’s non-tax revenues are estimated at Rs 1.25 lakh crore, or 1.4 per cent of GDP.
The Planning Commission document attributes the declining ratio to the “absence of any prospects of large revenues as from spectrum proceeds”. Now take a look at the finance ministry’s macro-economic statement released every year when the annual Budget is presented. In that document the finance ministry is keen on raising fees on a large number of services it offers. Additionally, it has mooted the idea of pricing mineral resources in a manner that the government’s revenues from such natural resources increase over the next few years.
Clearly, the Planning Commission does not have much faith in the finance ministry’s ability to push through such changes, which would help the government mobilise more non-tax revenues from services and mineral resources. You may compliment the planners for their realism. But what does such thinking mean for the next phase of reforms? This is disturbing because without any faith in the prospects of reforms, the planners have shown no reluctance to project nine to 9.5 per cent growth for the Indian economy in the next Plan period.
The idea of the Indian economy jumping from an estimated $1.95 trillion in 2011-12 to $3.84 trillion by 2016-17 sounds appealing. But can these figures be achieved without planning for the next phase of economic reforms?
