Should the Tenth Plan growth target be recast?

Mohan Guruswamy Chairman, Centre for Policy Alternatives

The economic results of the past two years make a recast of Tenth Plan goals inevitable. The Plan, which envisaged an annual GDP growth rate of 8.1 per cent, now appears to be a bad case of day-dreaming by the previous regime.

Against an annual envisaged growth of 7 per cent in the first two years, what has been achieved is 6.4 per cent. The growth in the current year, after the delayed and patchy monsoon, oil price rise and tax roll-backs, will be hard-pressed to achieve even that.

To achieve the Tenth Plan's growth goals GDP growth has to better 11 per cent in each of the last two years. This would be almost twice the new Hindu growth rate and the probability of that is extremely bleak.

The performance of the national economy still depends on the agricultural sector. Real investments to expand and modernise the agricultural infrastructure stopped four Plans ago.

Today we fritter away almost Rs 70,000 crore each year on unproductive and undeserved sops like procurement and fertiliser subsidies and free, if not heavily subsidised, power and water, instead of investing in productive and lasting assets.

Given this and the fact that we are even more dependent on the mercies of the weather gods "" there must be more than one, for sure "" it seems the 4 per cent annual growth of agricultural GDP required to hit the Tenth Plan target can only be a dream best reserved for a much later Plan.

There are other, more disquieting trends emerging on the farm front. The number of cultivators with less than one hectare of land has risen to exceed 50 per cent of the total.

This will further impede higher farm productivity that is possible either by additional private investment or modern technology. Clearly, there is a need for the state to assume greater responsibility. This will call for a mid-term recast of the Plan.

Another matter of grave concern, and it is shocking that none of our politicians or policy wonks have shown any concern about it, is that the decadal growth rate of agricultural labourers "" the poorest of our poor "" has almost doubled from 23.51 to 43.16 per cent in the last decade of the previous millennium.

This is the first decade of the so-called reforms that are largely credited to the present prime minister. This one indicator is enough to suggest that something has gone very wrong with the economy and that it needs to be set right at once. A mid-term recast of the Plan becomes central to this.

But the Planning Commission will be quick to tell us that the percentage of poor is on the decline. Mark the use of the term percentage, because the absolute numbers have never declined in the history of independent India.

This is despite having the most absurd and self-serving definition for poverty in the world. It is only in India that poverty is defined by caloric value of food intake each day.

There is no reference in our definition to basic human needs or even a modicum of physical quality of life. It does not seem to matter to our planners, thinkers, and political and bureaucratic leaders if the majority of our people live in sub-human conditions.

The adoption of an enlightened standard to define poverty will no doubt burden the policy makers by creating new national challenges. The time to do this is now.

The present Plan was the handiwork of the previous regime. Their hollow economic optimism was rightly jeered by the then Leader of the Opposition as "Mungeri Lal ke haseen sapne".

The present Leader of the Opposition seems unconcerned with this and is pre-occupied with the decadal growth rate of Muslims, which for the fifth time running outstrips that of the Hindus.

Besides, the Tenth Plan is his party's plan and so it is extremely unlikely that he or his party would want the Tenth Plan programme to be changed in any way. But with Mungeri Lal gone to enjoy his dreams in private, isn't it time the Government got real?

(email: mguru@sify.com)

S P Gupta Former member, Planning Commission

As I understand, the mid-term appraisal of the Plan has just been initiated. The growth rate in the Plan is primarily based on the need to fulfil the aspirations of the people and the capability of the economy to take up that challenge; therefore, it is an end-product. Hence, a consideration for reducing the growth rate even before entering into detailed appraisals, is rather inappropriate.

The debate has probably been initiated on the ground that against the five-year average of 8 per cent growth rate targeted, the achieved 6 per cent growth rate on an average over the first two years is too low. But, if we look into the earlier Plans, the Seventh Plan achieved a growth rate of only 4.3 per cent a year over the first two years of the Plan. It means there has been significant growth escalation over the last years of the Plan "" of around 55 to 56 per cent. Indeed, the growth rate increased from 4.3 to 6.7 per cent over the last three years of this Plan.

Similarly, in the Eighth Plan, the growth rate achieved was 6.8 per cent a year over the five-year period; but the average achieved over the first two years was 5.5 per cent, which means the growth acceleration was nearly 30 to 40 per cent in the later years. Therefore, to take seriously the growth rate of the first two years as indicator of the whole Plan is rather simplistic. In the Ninth Plan, the growth rate of the first two years remained the same as the last three years.

In most cases where there has been growth acceleration in the later period, it has been noticed that the acceleration in the later period came from agricultural or manufacturing growth.

In this light an anticipated level of 4 per cent growth in agriculture and 10 to 12 per cent in manufacturing and industry in general in the Tenth Plan will help to attain the 8 per cent growth rate of the Plan. The sum and substance is, don't be pessimistic for a 6 per cent growth rate average over the first two years of the Eighth Plan and jump to revise the overall target downwards.

Second, it is often mentioned that there is a lagging demand in the market that may affect significant acceleration in growth. But since the new regime has come to power, it has recommended new programmes that are growth supporting "" for instance, in the export and import policies, doubling the Indian share in the world market implies more value addition and higher growth in the country.

Similarly, the government is thinking of inviting more foreign direct investment (FDI), which along with the excess in the domestic capital market, will increase the resource base to support the likely expansion of potential stipulated in many of the policies.

But if you plan for reducing GDP growth, it will mean only an increase in the capital intensity of the country. As is often asserted, growth is a necessary condition for employment generation. Both a lower GDP growth and higher capital intensity will affect employment and many of the facets of the Common Minimum Programme.

It is often observed that placing more resources will not increase growth because it is not getting absorbed. The reason is the potential demand and opportunities in most of the new areas have a different kinds of risks and uncertainties.

Unless our financial system changes its mindset and becomes less risk-free and takes some of the social obligations more seriously, this may turn up as a factor affecting growth.

Lastly, the 2001 Census has shown higher population growth over the Tenth Plan period than what was built in the Plan formulations, along with higher growth of youth and senior citizens, which means a need for more schools, hospitals, social services and infrastructure. Under these circumstances, it will be a pity if a recommendation is made to reduce the growth of the economy.