The Planning Commission is likely to suggest lowering the target for average annual GDP growth rate over the 12th Five-Year Plan (2012-13 to 2016-17) to eight per cent from the earlier pegged 8.2 per cent, in the meeting of the National Development Council scheduled on Thursday.
The council is to finalise the Plan. The meeting would be chaired by Prime Minister Manmohan Singh and attended by senior union ministers and chief ministers of almost all states.
If the reduction is approved, this would be the third occasion when the average annual growth target would be lowered, due to a changed global and domestic economic scenario. The latter includes a lower-than-expected growth rate in the first two years of the Plan period. The changes in the draft document could be incorporated at later stages. The Commission initially set the target at 9-9.5 per cent yearly, while finalising the approach paper last year. This was lowered to 8.2 per cent in September.
The economy grew by 5.4 per cent in the first half of this financial year, the first year of the 12th Plan. For all of 2012-13, GDP growth is estimated in the mid-year analysis of the finance ministry at 5.7-5.9 per cent.
Even if the economy grows 6.5 per cent in the next financial year, which only optimists among economists expect, GDP needs to expand almost 9.2 per cent on an average in the final three years of the Plan period to deliver an eight per cent annual average for 2012-13 to 2016-17. So, even an eight per cent yearly target is ambitious.
If the growth is lowered to eight per cent in the Plan period, it would be in line with a trend. In the 10th and 11th Plans (2002-03 to 2006-07 and 2007-08 to 2011-12), the average annual growth rate was 7.7 per cent and 7.9 per cent, respectively.
However, the lower growth target might draw flak from opposition-ruled states, such as from Gujarat Chief Minister Narendra Modi, coming to the NDC after an unprecedented third-in-a-row victory in the Assembly elections. When the growth rate fell to a nine-year low of 6.5 per cent in 2011-12, Modi had charged the central government with policy paralysis.
The Planning Commission’s draft envisaged a growth of 8.2 per cent a year on an average in the 12th Plan, contingent on policy initiatives to be taken by the government. It, however, warned the growth could slip to 6-6.5 per cent if the policy measures needed were not taken, as the government would not be able to solve the conflict between subsidies and financial stability. In the draft of the 12th Plan document, the average annual growth rate of 8.2 per cent was based on annual industry growth rate of 8.1 per cent, services growth of 9.1 per cent and agriculture growth rate of four per cent.
In the 11th Plan, the average annual growth of 7.9 per cent was achieved with industry growing at 6.6 per cent, services at 9.8 per cent and agriculture at 3.3 per cent. However, the document had first envisaged annual growth at nine per cent. The mid-plan review truncated the target to 8.1 per cent.