The Planning Commission has finally set a growth target of nine per cent per annum for the 12th Five-Year Plan (2012-17). When the same target was set for the 11th Plan (2007-12), not only was there great optimism that the target would be attained, but it was also felt that India would be poised by the end of the 11th Plan for a double-digit growth target in the 12th Plan. The optimism of 2007 was based on the impressive nine per cent growth performance during the period 2003-07 and a sanguine view of the global environment. Prime Minister Manmohan Singh had then said famously, “The world wants India to do well, our challenges are mainly at home.”
Then came 2008. The transatlantic financial crisis and the global economic slowdown have meant that against a target of nine per cent growth, the 11th Plan may end with a growth rate of 8.5 per cent at best. Apart from the adverse external environment, the past two years have also been impacted by what many have described as a “drift” in economic policy and governance at home. This year, a combination of a worsening external economic environment and a muddied domestic political environment may produce a growth rate of no more than 7.5 per cent. If this reversal has to be checked and the economy has to return to an average nine per cent growth trajectory, three crucial policy goals should be met: fiscal consolidation and sustainable balance of payments; higher factor productivity in agriculture and manufacturing; and political stability and effective governance. Though all three goals are possible, they are not easy to achieve. They will require political leadership and greater social cohesion.
Addressing a meeting of the full Planning Commission on Saturday, Prime Minister Manmohan Singh cautioned that “even a nine per cent target is feasible only if we can take some difficult decisions”. He should spell out what these “difficult decisions” are sooner rather than later. The government is as obliged to pursue policies that will sustain higher growth as it is to adopt policies that reduce corruption. Amid all the focus on fighting corruption and improving governance, we should not lose sight of the urgent necessity to step up the rate of investment in the economy, increase productivity of investment and of factors of production, and push for higher growth. The best, in the matter of improving governance, should not become the enemy of the good, in the matter of pursuing higher economic growth.
The approach adopted by the 12th Plan – ensuring higher output and income growth in agriculture and increased spending on health, education and infrastructure, enabling an easing of the demand constraint, rational pricing of energy and infrastructure services, which will ease supply constraints, and ensuring that the difficulties posed by an inhospitable global environment are minimal – should help India stay the course on the nine per cent growth trajectory. To move beyond this to the so-called “double-digit growth” rate may come with a price tag that India is not ready to pay. However, if within the global economic and the local political context India is able to sustain nine per cent growth, it would still be a creditable achievement.
