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Falling short of targets

The 12th five-year plan, which would ultimately be intercepted by the formation of NITI Ayog, started with a vision of ‘faster, sustainable and more inclusive growth’, which seemed to be a distant possibility at the time of the plan’s dissolution

Falling short of targets
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We saw in the last article that India’s economy grew on average at 8 per cent per annum through the 11th plan, which was one of the highest growth rates recorded in the post-independence era. This growth, however, came at a price: the fiscal deficit at the end of the 11th plan was about 5.89 per cent and the current account deficit stood at 2.6 per cent in the terminal year. Furthermore, inflation was at a high level of 6 per cent towards the end of the 11th plan. Agriculture continued to be a worry, having clocked about 3 per cent growth against the target of 4 per cent. The global economy was also slowing down, which would pose a challenge to our exports and, therefore, to the current account deficit.

Inclusive growth, which was the declared objective of the 11th plan, saw some achievements in terms of the backward states growing fast. However, much remained to be done on benefits percolating to the less privileged, namely SCs, STs, women and minorities.

One source of comfort was the investment rate of 36.4 per cent and savings of 34 per cent, which was an indication that the trend rate for these parameters was on an upward trajectory.

On the political front, the central government was faced with a number of challenges in the form of allegations of corruption in the 2G and coal scams. With elections due in 2014, there was an element of uncertainty.

Key features

The 12th plan departed from the conventional practice of projecting a single growth target. Instead, it put forth three scenarios: 8 per cent growth with ‘strong inclusive growth’, 6-6.5 per cent with ‘insufficient action’ and 5-5.5 per cent with ‘policy logjam’. Overall, it set a growth target of 8 per cent for the whole plan period. It may be recalled that the Approach to the 12th plan paper had outlined two scenarios: of 9 per cent growth and of 9.5 per cent growth. The first scenario was predicated on faster growth in agriculture, electricity, gas and water supply and manufacturing, while the others were more pessimistic on implementation issues. The 12th plan was, again, strong on policy action on inclusiveness, which included action on poverty, inequality, regional balance, empowerment and rural employment. It also laid emphasis on developing capabilities through a focus on health, education, nutrition, skill development etc.

The overall 8 per cent growth was to be achieved with a target of 4 per cent growth in agriculture, 7.6 per cent in industry and 9 per cent in services. The investment rate to achieve this growth was pegged at 34.2 per cent (comprising public, household and private corporate investment) and the savings rate at 33.6 per cent (again comprising public, private and household savings). The current account deficit projected for the 12th plan was 3.4 per cent, which was to be financed through stable long-term foreign direct investment and foreign portfolio investment.

Some of the other targets were: reducing poverty by 10 per cent, raising higher education seats by 20 lakhs, reducing child malnutrition, reducing mortality rate, increasing the access to safe drinking water, adding 50,000 MW of electricity capacity and increasing green cover by one million hectares.

Furthermore, the onus of providing the extra jobs would have to be on manufacturing and services, because agriculture would simply be unable to generate such a number of jobs, even if it achieved its growth target.

The size of the public sector in the 12th plan was Rs 80,50,123 crore. Out of this, the Centre’s share was Rs 43,33,739 crore and the States/UT’s share was Rs 37,16,835 crore. Of the Centre’s share, Rs 27,10,840 crore was to be provided as Gross Budgetary Support (GBS) and Rs 16,22,899 crore as Internal and Extra Budgetary Resources (IEBR). The fiscal deficit at the end of the plan was pegged at 3 per cent of GDP.

The 12th plan’s public sector funds were finalised based on the experience of the 11th plan, wherein the Centre’s balance from current revenues, revenue receipts and IEBR fell far short of the original estimates. On the other hand, expenditure rose more than planned. The States/UTs experience was somewhat similar. As a result, the fiscal deficit touched a high of 5.89 per cent at the end of the 11th plan. Moreover, there was a slowdown in growth after the 2008 global crisis, which meant reduced revenue receipts. Add to this the effects of the 13th Finance Commission Award (with greater devolution to the States), the Sixth Pay commission implementation, the continuing high energy bills and the constraints of the FRBM Act.

On the political front, the general elections in 2014 saw the emergence of the Bharatiya Janata Party as the single largest party, which also got a majority on its own. The National Democratic Alliance (of which the BJP was the main party) formed the government, with Narendra Modi as the Prime Minister. One important decision taken in 2015, with respect to planning, was the formation of the NITI Aayog and doing away with the Planning Commission. The Prime Minister was to be the chairman of the new body, and Arvind Panagariya, a market-friendly economist from Columbia University, was appointed as the first vice chairman of NITI Aayog.

A critical analysis

The 12th plan had a tagline of ‘faster, safer and inclusive growth’, towards which it focused all throughout, reaching 9.1 per cent by the end of the plan, with a greater focus on poverty reduction, physical infrastructure, health and education to all — bridging regional/social/gender disparities and ensuring that the marginalised and weaker sections get the benefits of development. Accordingly, there was a big jump in the Centre’s allocations to health, education, child development and urban development. There was a substantive jump in the allocation to the agriculture sector so that it could meet the growth target of 4 per cent.

Another important feature of the 12th plan was the change in the nature of private sector participation. While the private sector was welcome to invest directly, there was a push for Public-Private Partnership Projects (PPP). The thrust on infrastructure, which had begun in the 11th plan, continued in the current plan as well. A noteworthy feature was the increasing contribution of the private sector in this effort. While this was true for all sectors ranging from roads, electricity, railways and ports to telecom, water, oil pipelines and irrigation, it was in telecom that the private sector share went up because of the 3G auctions. In the 12th plan also, the proposal was to get the private sector to contribute the lion’s share in infrastructure investment. The public sector investment in infrastructure was about Rs 29,00,000 crore (Rs 16,00,000 crore by the Centre and Rs 13,00,000 crore by the States/UTs) and Rs 27,00,000 crore by the private sector (about 48 per cent of the total).

To encourage the PPP model, an institutional structure was also set up, including: a Cabinet Committee on Infrastructure, an Appraisal Committee for PPP projects, provisions for viability gap funding, model concessionaire agreements and a sound regulatory structure for all sectors.

The economy grew at 5 per cent in the first year of the plan and 6.5 per cent in the second year of the plan. To achieve an average of 8 per cent over the whole plan, the economy would need to grow at 9 per cent plus in the last three years. As it turned out, there was a government change in 2014, and in 2015, the Planning Commission was dissolved and NITI Aayog was created. There was an appraisal of the 12th plan by the NITI Aayog in 2017, wherein it stated that the economy would achieve a growth rate of 7-7.75 per cent in the last years of the plan. It appears that the growth target in 12th plan was not achieved. Furthermore, GDP rebasing happened in 2015, which meant that the base year was now changed to 2011/12.

Conclusion

The 12th plan started with a promising vision of ‘faster, sustainable and more inclusive growth’. It was inspired by the failings of the past plans, as also the emphasis on sustainable and inclusive growth in the UN Millennium Development Goals, which India was implementing. As we saw above, despite all efforts, the 12th plan was unable to meet its targets. To be sure, there were a number of headwinds such as a slowing global economy and high energy prices. Furthermore, there was a major policy change which created Niti Aayog in 2015 and the Planning Commission stood dissolved.

The writer is Addl. Chief Secretary, Dept of Mass Extension Education and Library Services, Govt of West Bengal.

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