PlanCom optimistic on manufacturing

Likely to peg the sector's growth for 12th five-year Plan at 9.2%, despite 0.7% contraction in June quarter

The Planning Commission is likely to peg manufacturing growth for the 12th five-year Plan at 9.2 per cent. This is aimed at average annual economic growth of 8.7 per cent during the period, compared with the earlier projection of nine per cent.

Though the estimate in the draft of the Plan’s final document is lower than 9.8 per cent projected in the approach paper to the 12th Plan, this, too, seems optimistic, given the factory sector’s performance in the recent past.

The catch, however, is the draft document circulated to the ministries for comments has pegged growth in gross domestic product (GDP) for this financial year at 7.6 per cent, the Budget estimate. However, even the government has admitted this target would not be met. Planning Commission Deputy Chairman Montek Singh Ahluwalia has said economic growth in this financial year may fall to six per cent if agriculture was hit by poor monsoon. Prime Minister Manmohan Singh and the chairman of his economic advisory council, C Rangarajan, are, however, confident the economy would record growth more than 6.5 per cent this financial year. GDP growth in 2011-12 stood at 6.5 per cent.

Officials admitted these numbers may be slightly tweaked. Overall GDP growth for the 12th five-year Plan (2012-13 to 2016-17) may be pegged at 8.5 per cent, and the estimated growth in manufacturing might also be altered in the final document, they said.

In what seems rather optimistic, in the draft Plan document, manufacturing is projected to grow at double-digits in the two concluding years — 10.7 per cent in 2015-16 and 11.3 per cent in 2016-17. Currently, however, the scenario is vastly different. Manufacturing contracted 3.2 per cent in June, primarily due to a fall of about 27 per cent in capital goods, while in the quarter ended June, it fell 0.7 per cent.

In the first four years of the 11th five-year Plan (2007-08 to 2010-11), manufacturing grew at eight per cent. However, in the terminal year, it expanded just 3.9 per cent, lowering the average for the 11th Plan period to 7.1 per cent, compared with 9.3 per cent in the 10th Plan.

The draft document for the 12th Plan states as consumption demand rises, manufacturing must grow faster. It adds infrastructure must be upgraded to build the economy, and this requires input from manufacturing. The draft also states manufacturing has the potential to create millions of quality jobs. Setting up manufacturing industry was linked with the availability and cost of land, as well as regulatory burdens, it added.

The document also referred to criticism that the cost of doing business in India was high, on account of higher costs and low availability of electricity and other infrastructure facilities, as well as complex procedures. These problems, it said, were compounded by difficulties associated with the availability of land.