12th Plan GDP growth target likely to be lowered to 8.5%

The Planning Commission is likely to scale down the targets for average annual industrial and services growth, which, in turn is likely to yield 8.5 per cent overall economic expansion for the 12th Five-Year Plan (2012-13 to 2016-17), down from nine per cent pegged in the approach paper.

Economists say even 8.5 per cent growth is an optimistic target, which could not be met, unless the government pushes for economic reforms.

The draft final document for the 12th Five-Year Plan has lowered the average annual industrial growth target to 9 per cent from 9.6 per cent pegged by the approach paper. Similarly, the services sector is projected to grow by 9.5 per cent against 10 per cent estimated earlier.

However, farm growth is retained at 4 per cent a year on an average in the five-year period, beginning the current fiscal.

The draft final document has been sent to the ministries for feedback.

Industrial growth at even 9 per cent seems too optimistic, economists said, given performance of the secondary sector that grew at an average of 6.7 per cent a year in the 11th five-year plan. (2007-08 to 2011-12).

Initial signs of industrial activity do not show any recovery for this fiscal. Industrial production contracted 0.1 per cent in the first quarter of this fiscal year-on-year.

As far as the services sector is concerned, the draft final document has showed a realistic picture since the tertiary sector grew by 9.9 per cent a year on an average in the 11th Five-Year Plan.

After it became clear that the economy would not grow 7.6 per cent this fiscal, as assumed in the Budget, and external sector not showing signs of revival, the Planning Commission said 9 per cent growth in the 12th Five- Year Plan would not be feasible.

If the economy grows at the rates projected in the economic survey — 7.6 per cent in 2012-13 and 8.6 per cent in 2013-14 — even then the economy would require to expand by over 9.5 per cent in the next three years to deliver 9 per cent growth in the 12th Plan.

Now, no one talks about 7.6 per cent growth for this fiscal. In fact, the most optimistic projection by the Prime Minister's Economic Advisory Council is 6.7 per cent. Prime Minister Manmohan Singh himself have pegged the economic growth at slightly more than 6.5 per cent for the current fiscal.

The Reserve Bank of India has lowered its economic growth projections to 6.5 per cent from the earlier 7.3 per cent, while Planning Commission Deputy Chairman Montek Singh Ahluwalia talked about the economy growing by six per cent if a weak monsoon impacts the agriculture sector severely. Most other economists predict the economy to grow at sub-six per cent this fiscal.

Deloitte India senior director Anis Chakravarty is not optimistic about the economy growing at 8.5 per cent in the 12th five year Plan unless the government push for economic reforms. He pegged the economy to grow in the range of 7.5-8 per cent in the current Plan.

Several reforms, including 51 per cent FDI in multi-brand retail, raising FDI cap in insurance from 26 per cent to 49 per cent, the Pension Fund Regulatory and Development Authority (PFRDA) Bill, Banking Regulation (Amendment) Bill, introduction of Goods and Services Tax, are pending.

“I think sustained economic growth in the range of 7.5 to 8 per cent a year would be much better than spurts of too high growth,” Chakravarty said.