A political growth target

FM did well to pour cold water on Plan numbers

It is customary for most organisations that map future scenarios to offer a high-growth, a business-as-usual and a low-growth scenario. This is something that the Planning Commission has now done, in offering three scenarios for the 2012-17 quinquennium; the figures are 8.2 per cent, 6-6.5 per cent, and five per cent. Mercifully, the 9-9.5 per cent growth target mentioned last year in the Approach to the 12th Five-Year Plan has been dropped. Having thereby bowed to reality, it is understandable if the Commission then opts for the most ambitious of the three new scenarios; it would hardly do to target medium-term growth that is significantly lower than the last decade’s annual average growth of 7.8 per cent. That, however, does not make achieving it any more likely.

If one starts with the growth figure for the current year at six per cent, which is the figure mentioned by the deputy chairman of the Planning Commission, then the remaining four years of the Plan would require average growth of 8.75 per cent, if the five-year average is to be 8.2 per cent. India has not seen that high figure in any year since 2007-08; to ask for it as a four-year average simply begs too many questions in the context of a still shaky global economy. So the finance minister did well to pour cold water on some of the more fanciful numbers.

The prime minister, on his part, seemed to have taken heart from the many positive responses to his decisions on opening up three sectors to more foreign direct investment (FDI), and perhaps from the assessment that the tub-thumping by some political allies is a charade. So he talked of the need for courage and risk taking, seemingly oblivious to the irony of having wasted the last three years twiddling his thumbs and thereby having brought the economy to the dangerous pass that he spelt out on Saturday. One would be justified in asking, who exactly was he advising on the need for courage and risk taking? And will he now grasp the nettle on labour policy, energy pricing, tax reform, administrative reform and so many of the other issues that have to be tackled if rapid growth is to be achieved? More FDI is not a substitute for facilitating domestic investment.

Important as they are, ambitious resource-raising targets are the smaller part of the story, because the keys to rapid growth are correct policy and an enabling environment — for the bulk of Plan investment gets done by the private sector. The public sector Plan outlay of Rs 84.86 lakh crore, even if achieved, will be relatively small beer because much more will have to be invested by the private sector. This means sorting out the messy rules that have made public-private partnership a synonym for scandal. But some published reports suggest that the government is chary of even mentioning crony capitalism as a problem that needs to be addressed.