The Planning Commission has cut the target for annual average growth in gross domestic product (GDP) in the 12th five-year Plan to eight per cent. However, economists believe the new goal, too, is difficult to achieve, given the uncertain global economic environment and the late start to the reform process, which may fail to gather momentum, as the 2014 general elections draw close.
The initial draft of the approach paper to the 12th Plan had set a target of 9-9.5 per cent growth, depending on the global economic scenario. However, this was later cut to 8.2 per cent. At the National Development Council meeting held recently, the target was again lowered to eight per cent.
If the economy grows 5.9 per cent (the upper band of projections in the finance ministry's mid-year analysis) in 2012-13 and 6.5 per cent in 2013-14, which most economists estimate, the last three years of the Plan period would have to record average growth of 9.2 per cent. Since the planning process began in 1951, the economy has seen growth of more than nine per cent only in five years. In 1976-77, GDP grew nine per cent; in 1988-89, it grew 10.2 per cent and in 2005-06, 2006-07 and 2007-08, it grew 9.5 per cent, 9.8 per cent and 9.3 per cent, respectively.
Most economists say eight per cent growth in the 12th Plan period would be "extremely difficult", adding the country might manage growth of only 7.1-7.2 per cent in this period. If that is the case, growth in the 12th Plan would be the lowest in three Plan periods.
"I expect the economy to expand at not more than 8-8.2 per cent in the last three years," said Arun Singh, senior economist, Dun and Bradstreet. He, however, added achieving eight per cent growth during the 12th Plan would be possible only if the government acted immediately to remove structural bottlenecks and develop infrastructure. "Given the 2014 elections, it would be extremely difficult to implement tough reforms," he said.
D K Joshi, chief economist, Crisil, termed the eight per cent growth target for the 12th Plan "a stretched target". "Given the adverse global economic environment, India would have to work really hard and clear bottlenecks," he said, adding to stimulate private investment, rules on land acquisition had to be made clear and predictable.
Recently the Cabinet had cleared the formation of the Cabinet Committee on Investment (CII) to expedite clearances to projects worth more than Rs 1,000 crore. The committee would monitor progress in decision making and implementation of projects. Crisil's Joshi argued CCI would work only if private investment was revived.
Madan Sabnavis chief economist, CARE Ratings, said, "It will take time for CCI to become functional in reviving growth and infra development. There are bureaucratic clearances and decision-making required for that." He added at best, the economy would grow an average 7.2 per cent in the Plan period. "In the last three years, we will see growth of about seven per cent, 7.5 per cent and eight per cent," he said.
Economists said uncertain global economic conditions, particularly in the Euro zone, which has plunged into recession, may also come in the way of boosting India's economic growth. World Bank chief economist Kaushik Basu had recently stated European banks would start repaying debt of $1.3 trillion to creditors by the end of 2014 or early 2015.
The Indian economy grew 5.4 per cent in the first half of this financial year, the first year of the 12th five-year Plan. For 2012-13, the finance ministry's mid-year analysis has pegged GDP growth at 5.7-5.9 per cent, the lowest in ten years.
Average economic growth of eight per cent in the 12th Plan is not substantially higher than the growth seen in the previous two Plans. In the 11th Plan, the economy saw average annual growth 7.9 per cent; the 10th Plan saw average annual growth of 7.8 per cent. In the 9th Plan, it stood at 5.5 per cent.