When the Planning Commission's then deputy chairman went to the Prime Minister of the time, Atal Bihari Vajpayee, with a 7 per cent growth target for the 10th five-year Plan (2002-07), Mr Vajpayee demanded 8 per cent and sent him back with a flea in his ear. The numbers were quickly reworked, the target magically became 8 per cent, and as things have turned out the economy even more magically will have done more than 8 per cent GDP growth for the last four years of the Plan period (the first year managed barely 4 per cent). Now, in a similar burst of optimism, the Commission has upped its growth target for the next five years from the 8.5 per cent that it had projected initially, to 9 per cent""and going up to 10 per cent towards the end of the Plan period. The question is whether the projection of further acceleration is realistic, or floating on a wing and a prayer. Given the momentum in exports, and the efficiency gains in industry, with the hope that infrastructure constraints will ease over time, there is no reason to doubt that acceleration is possible""short of semi-catastrophic events like oil at $100/barrel, or a significant slowdown in the world economy as a whole. But it is also good to recall that the average rate of growth in the 8th Plan (1992-97) was 6.7 per cent, and dropped in the 9th Plan (1997-2002) to 5.4 per cent. So no one should assume that the needle on the speedometer moves in only one direction. | |
| Certainly, it would be foolhardy to underestimate the challenges, and the different parts of the orchestra have to come together to achieve the 9 per cent target. Agricultural growth is slated to double, and is a daunting task given the state of the extension network and the poor progress in increasing irrigation, credit and the availability of quality seeds, and the reluctance to allow market incentives to work. Considering the shrinking contribution of agriculture to GDP, what happens here will make little difference to the macro growth numbers, but the farm sector is still the primary determinant of general economic welfare and the reduction of poverty and distress. Infrastructure remains the other question mark, and investment here will provide a non-cyclical demand source. That may be why the Planning Commission hosted an infrastructure conference, inaugurated by the Prime Minister himself with all the economic ministers in tow. But signalling commitment is one thing, and getting good regulation in place another""the still troubled electricity sector is yet to see genuine competition and the creation of a market. There is, then, the question of financing Plan investment. The Commission had initially mooted the idea of relaxing the constraints imposed by the law on fiscal responsibility, but the Prime Minister shot that down on Wednesday. It will be interesting to see how the numbers are now made to add up. Finally, there is the issue of the effectiveness of government spending, an issue which was raised without providing any answers in the draft Approach Paper that was circulated some weeks ago. |
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