Must act or face 5% growth in 12th Plan period, warns govt

Says policy logjam may hurt economy 8.2% average growth target set, worst case scenario seen as 5%

A day after the government announced big-bang FDI reforms, the government today cautioned that even the truncated target of average annual economic growth of 8.2 per cent for five years starting from the current fiscal could not be taken for granted and required concrete policy measures.

The draft document for the 12th Plan (2012-13 to 2016-17), adopted at the full Planning Commission meeting chaired by Prime Minister Manmohan Singh today, set an average growth target of 8.2 per cent, way below the earlier target of nine per cent set in the approach paper.

While the approach paper, in fact, talked of another scenario of 9.5 per cent growth, the document referred to two alternative scenarios that might pull down India’s economic growth to even five per cent. (Click here for charts)

The document warned the projection of 8.2 per cent growth in the 12th Plan period should not be viewed as a business-as-usual outcome that could be realised with relatively little effort.

It should be mentioned here that foreign direct investment in multi-brand retail, announced yesterday is contingent upon the will of state governments. State governments along with the Centre will decide the fate of the Plan document at the National Development Council meeting slated next month. Before that, the Plan document would be approved by the Cabinet and there may be minor tweaks.

If adequate policy steps are not taken, the average annual growth in the 12th Plan period may slip below 8.2 per cent. In such a scenario of insufficient action, the average annual growth might fall to 6-6.5 per cent, the Plan document said.

There is another pessimistic scenario of a policy logjam that could result in five per cent growth in the 12th Plan period. If indeed the growth rate were to fall to that level, it would be the lowest figure after the 1990-91 annual Plan delivered a 3.4 per cent growth rate.

“If the logjam continues for any length of time, vicious cycles begin to set in and growth could easily collapse to about five per cent per annum, with very poor outcomes on inclusion,” the Prime Minister, who is chairman of the Planning Commission, said at the meeting. The economy grew 7.9 per cent in the 11th Plan (2007-08 to 2011-12) against the revised target of 8.1 per cent. The original plan was to have nine per cent growth in the 11th Plan.

“The full planning commission has endorsed the view that the growth target has been lowered and it was also noted that in order to achieve the target we have to undertake a lot of tough steps,” Planning Commission Deputy Chairman Montek Singh Ahluwalia said at a press conference after the meeting. Ahluwalia said achieving four per cent growth in agriculture was critical for achieving the overall target of 8.2 per cent.

The plan document fixed manufacturing growth at 10 per cent a year on average in the five years from the current fiscal, which analysts said was an optimist target given that it contracted 0.6 per cent in the first four months of the current fiscal (the first year of the 12th Plan).