Growing against the odds
Despite the ICOR remaining much above the envisaged target and agriculture and allied sectors performing below the mark, the tenth five-year plan registered an impressive growth rate on account of phenomenal investment and savings, with the industry and services sectors performing brilliantly
We saw in the previous article on the ninth plan that the growth targets were not met on account of a number of factors, such as high fiscal deficit, fall in the savings and investment numbers, the 1997 Asian financial crisis, slowdown in global demand, the Kargil war etc. On the positive side, the liberalisation of the economy continued, with the private sector being encouraged to participate more in the economy, import tariffs falling and exports being encouraged.
On the political front, the plan was punctuated by another government change after the elections of 2004. In the 2004 elections, the Congress party emerged as a single-largest party and formed a coalition government. Manmohan Singh, who was one of the architects of the 1991 economic reforms, emerged as the Prime Minister in 2004.
The tenth plan was launched in 2002 under the guidance and leadership of the then Prime Minister AB Vajpayee. He gave two targets to be achieved in the next ten years: doubling of the per capita income and generating 100 million jobs. To do so, he suggested a four-fold strategy: improving administrative, judicial and internal security systems of governance in order to foster a vibrant market economy; removing inter-state and intra-state barriers to trade; removing controls and restrictions on businesses; and strengthening panchayats for effective delivery of services.
At the time of the launch of the tenth plan, some positives were already there in the bag: the population growth rate had dipped below 2 per cent by the end of the 1990s and literacy rate stood at 65 per cent. Furthermore, the growth rate in the last ten years covering the eighth and ninth plans averaged around 6.1 per cent, which was higher than the 5.7 per cent in the 1980s. On the downside, the aggregate demand needed to be pushed up, underemployment and disguised unemployment were persistent issues, the power sector continued to face financial woes, as a result of which targets of adding capacity could not be met in the ninth plan, there was poor coverage of drinking water and sanitation, along with land and forest degradation, overexploitation of groundwater and rising pollution in the cities.
On the political front, the Vajpayee government, which had drawn up the tenth plan, was voted out in the 2004 elections, and Manmohan Singh became the Prime Minister in 2004. This, however, ensured that liberal economic policies would continue.
The tenth plan set an 8 per cent target for the growth rate, which was significantly higher than the 5.35 per cent achieved in the ninth plan. For the first time, targets for important parameters were also set, which were:
* Reduction of poverty ratio by 5 percentage points by 2007, and by 15 percentage points by 2012;
* Providing gainful and high-quality employment, at least to the addition to the labour force over the tenth plan period;
* All children in school by 2003; all children to complete five years of schooling by 2007;
* Reduction in gender gaps in literacy and wage rates by at least 50 per cent by 2007;
* Reduction in the decadal rate of population growth between 2001 and 2011 to 16.2 per cent;
* Increase in literacy rates to 75 per cent within the plan period;
* Reduction of Infant mortality rate (IMR) to 45 per 1000 live births by 2007 and to 28 by 2012;
* Reduction of maternal mortality ratio (MMR) to 2 per 1000 live births by 2007 and to 1 by 2012;
* Increase in forest and tree cover to 25 per cent by 2007 and 33 per cent by 2012;
* All villages to have sustained access to potable drinking water within the Plan period;
* Cleaning of all major polluted rivers by 2007, and other notified stretches by 2012.
Another avowed objective of the tenth plan was ensuring balanced regional development, for which state-wise targets of growth and social sector parameters were clearly stated.
The outlay of the tenth plan was Rs 15,92,300 crore, which was an increase of 67.2 per cent over the ninth plan levels (at 2001-02 prices). Out of this, the Central share was Rs 9,21,391 crore and the States/UTs’ share was Rs 6,71,009 crore. As for sectoral allocations, the agriculture, rural development and irrigation sectors were allocated 20 per cent; energy 26.5 per cent; transport 14.8 per cent; communications 6.5 per cent and social services 22.8 per cent.
A critical analysis
As noted above, two ‘headline’ targets, as advised by the Prime Minister, were doubling per capita income and generating 100 million jobs in the next ten years. For doubling per capita income, a target growth rate of 8 per cent was set for the tenth plan, which implied a 9.3 per cent growth rate for the eleventh plan. As discussed above, even this 8 per cent target was rather ambitious, being more than the 5.35 per cent achieved in the ninth plan.
Furthermore, to achieve the 8 per cent growth, a substantial rise in investment was a necessary condition. To illustrate: if the ICOR is assumed to be 4 (the same level as in the 8th and 9th plans), then a 2 per cent increase in growth rate would need an 8 per cent rise in the investment rate. If a part of this, say 2 per cent, comes from foreign direct investment, and if the balance 6 per cent has to come entirely from domestic investment, savings would have to rise by 6 per cent. Obviously, such high increases in savings were not feasible, and the only way in which the 8 per cent target growth rate could be achieved was through increased efficiency. For this, the ICOR would have to be lower than 4.
The tenth plan ended up with a target ICOR of 3.58, a target domestic savings rate of 26.8 per cent and investment rate of 28.4 per cent. A bulk of the savings (20 per cent) were to be expected from the household sector. Export growth was targeted at 12.38 per cent and import growth at 17.13 per cent.
Similarly, to achieve the target of generating 100 million jobs in the next ten years, the Special Group on Employment Generation stated that relying on 8 per cent growth rate won’t suffice. This would generate only 30 million jobs, which was not enough to meet even the backlog of unemployed 35 million people. With an additional 35 million expected to join the workforce, the unemployed numbers would stand at 70 million. Accordingly, special employment generating programmes were planned. In addition, policy constraints to growth of employment such as repealing of the Sick Industrial Companies Act, completion of on-going projects and privatisation, were taken up. Further, the Special Group also suggested to look at sectors with labour intensive production such as agriculture, food processing and horticulture, rural industries and the service sectors such as health, education, transport, IT and communications.
The growth target of 8 per cent per annum was thought to be excessive, more so since growth in the first year was about 5 per cent and it would require the economy to grow at around 9 per cent in the last four years of the plan. The ICOR target of 3.58 was also thought to be unrealistic and devoid of any investment planning. The plan was also ambivalent about achieving the growth target and suggested that if the assumptions of investment (particularly private investment) and savings were not met, 8 per cent growth won’t materialise. Consequently, the 50 million jobs won’t be generated. As it turned out, the economy ended up growing at 7.7 per cent overall, and at 8.7 per cent in the last four years. It nearly met the targets and also was the fastest growth rate clocked by the economy since independence. This was possible largely because of the sharp increase in investment to 32.4 per cent of the GDP and in savings to 30.9 per cent of the GDP. Most of the growth came from industry and services, which grew at more than 9 per cent. Agriculture continued to be a sign of worry, with growth at only 2.3 per cent. Interestingly, the growth rate of 7.7 per cent came even though the ICOR was at 4.3, which was much higher than the target of 3.58. In other words, the economy could have grown faster, if ICOR had improved and more efficiency gains were achieved.
The tenth plan ended with an impressive growth rate, which was achieved on the back of a high investment and savings rate. While industry and services were the shining spots, it became clear that the agriculture and allied sector needed much work. The tenth plan had set a twin target of doubling per capita income and generating 100 million jobs over the next ten years. In other words, the stage was already set for the eleventh plan in setting these targets.
The writer is Addl. Chief Secretary, Dept of Mass Extension Education and Library Services, Govt of West Bengal.