An ambitious Plan

Last Updated: Sun, Dec 30, 2012 20:20 hrs

The draft of the 12th Five-Year Plan approved by the National Development Council last week is well written and forward-looking. It is also forthright about failures to implement various aspects of the 11th Plan and openly nuances various claims the government has made recently — for example, about the likelihood that investment in agricultural cold chains is sufficiently win-win and that it would be a magic bullet for agricultural marketing. The prime minister, in his speech at the NDC, recognised that the “aspirational” Plan target of eight per cent required a steep increase in growth in the last three years of the Plan period. This is asking for a great deal. As the Plan points out, India will have to return to 2007-08’s gross fixed capital formation rate of 35 per cent of gross domestic product from the current 32 per cent. This is proposed through a sharp increase in private corporate investment, from 11 per cent at present to nearly 15 per cent in the last year of the Plan, while public investment stays static at 8.2 to 8.4 per cent of GDP. This will require a sharp turnaround in business sentiment.

However, the chapter on industry provides some clues as to how this can be achieved, aside from those already known, such as improving power supply. First, a shift towards an industrial policy that deepens government-business co-ordination is outlined and advised. Second, a reminder is provided of the importance of National Industrial Manufacturing Zones, areas that could serve to incubate competitive industry. Third, it is advised that private sector retrenchment of workers be freer, and that the threshold employment for labour legislation to kick in be made 300 immediately. Fourth, that compliance with labour laws be easier, through online self-certification. And fifth, that contradictory business regulations be harmonised through a Bill; that all regulations be mandatorily reviewed after a specific period; and that all regulatory information be placed online to benefit smaller businesses. If the government succeeds to introduce the last three changes without delay, a turnaround in sentiment is possible.

Much attention has rightly focused on rural performance in the 11th Plan period. Agriculture grew at 3.3 per cent per annum and rural wages increased, helping achieve unprecedented reduction in poverty levels. Less remarked upon but equally important is the sustained decrease in the variability of this growth; agriculture has not shrunk output since 2002-03, and variability is a third of its peak in past decades. The 12th Plan proposes a further increase to four per cent growth. But, as it recognises, this is more difficult to achieve at higher productivity levels without new technology, especially since recent growth has been resource-intensive — intermediate inputs have grown at twice the rate they did in 1981-1997. The Commission admits that public investment in agriculture has missed 11th Plan targets by a mile. Private investment grew faster than the Plan targets — but that may be a sign of distress, too, the document suggests. Thus, there is no replacement for greater public investment — and the money should come from reducing the relative value of subsidies, the Plan says. The latter are now insufficiently inclusive, and over 90 per cent of power and fertiliser are used in areas that are already intensively farmed. The Plan suggests focusing on rain-fed areas — the east, in particular. These major shifts in focus must be carried out immediately.

The Plan document is certainly ambitious. But it is not unbelievable. The only question is whether these changes – incremental and doable – are carried out as soon as they should be by this government.

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