Growth sans inclusivity
Amid a global economic downturn, the 11th plan managed to register a ‘commendable’ growth rate of eight per cent but the slowing down of poverty reduction and unabating unemployment, coupled with suboptimal agricultural performance, defied the idea of ‘inclusive growth’
The tenth plan ended on a high note with an impressive growth rate of 7.7 per cent, which was achieved with a high investment rate of 32.4 per cent and savings rate of 30.9 per cent. This was a clear break from the past, with the economy growing at more than 8 per cent in the last four years of the tenth plan. Such high levels of investment and savings were also witnessed for the first time. On the downside, agriculture continued to be an area of concern, growing at only 2.3 per cent in the tenth plan.
On the political front, there were a number of challenges by the main opposition party, Bharatiya Janata Party (BJP), which won elections to many state assemblies in 2008. The 2G spectrum case, which broke in 2007-08, also caused a lot of embarrassment to the government. On the international front, oil prices rose steeply in 2006, and remained at a high level. More worrisome was the global financial crisis of 2008, which originated in the US property market and spread globally like wildfire.
The 11th plan set an ambitious growth target of 9 per cent per annum through the plan, which was to be scaled up to 10 per cent per annum by the end of the plan. The average investment rate was to rise from 32 per cent in the 10th plan to 37 per cent in the 11th plan, and rise to 39 per cent by the end of the plan. A bulk of this investment was to be driven by the private sector. The domestic savings rate was to rise from 30.9 per cent in the 10th plan to 34.8 per cent in the 11th plan. The current account deficit would be at the level of two per cent of GDP. ICOR was pegged at 4.1, which was an improvement over 4.3 of 10th plan.
The 11th plan was not all about growth, and realised the importance of inclusiveness. This was to be achieved through an emphasis on the agriculture sector; improved access to health, education and skill development; infrastructure development; environmental sustainability; special focus on disadvantaged groups such as SCs, STs and OBCs; and good governance — with a greater role for Panchayati Raj institutions in the implementation process.
The 11th plan was explicit in promoting the agriculture and allied sector. It argued that unless there was a higher growth in the agriculture sector, which provides sustenance to the majority of our population, our goal of inclusive growth could not be achieved. This was to be done through better water resource management, more finances and equal importance to non-food activities such as animal husbandry and fisheries. Towards this end, the Accelerated Irrigation Development Programme, National Horticulture Mission, and Rashtra Krishi Vikas Yojana were launched. On the demand side, the National Food Security mission was launched to raise pulses and cereal production.
For more inclusive growth, the 11th plan also adopted 27 monitorable targets at the national level, which related to the following: (i) income and poverty; (ii) education; (iii) health; (iv) women and children; (v) infrastructure; and (vi) environment. Some of these national targets were also disaggregated into 13 state-level targets. It is worth noting that the 11th plan focused more than the earlier plans on areas such as health, education and women and children development, which are the domain of the State governments.
The inclusive vision of the 11th plan was captured in the following para from Chapter one, Volume 1 of the plan document:
This broad vision of the 11th Plan includes several interrelated components: rapid growth that reduces poverty and creates employment opportunities, access to essential services in health and education especially for the poor, equality of opportunity, empowerment through education and skill development, employment opportunities underpinned by the National Rural Employment Guarantee, environmental sustainability, recognition of women’s agency and good governance.
The total public sector outlay for the 11th plan (both Centre and States) was estimated at Rs 36,44,718 crore. Out of this, the share of the Centre was Rs 21,56,571 crore (59.2 per cent) and the share of the States and UTs was Rs 14,88,147 crore (40.8 per cent). The growth rate of agriculture was set at 4 per cent, which was up from the 2 per cent achieved in the 10th Plan. Similarly, industry growth rate was stepped up to 10-11 per cent, and services growth rate to 9-11 per cent. In keeping with the past trend, private sector investment was to rise from 24.1 per cent in the 10th plan to 28.7 per cent in the 11th plan.
As for the sectoral allocations, agriculture was to get 20.4 per cent, energy 22.4 per cent, social services 27 per cent, transport 16.3 per cent and communications 5.1 per cent. In social services, education was to get 9.5 per cent and health 5 per cent.
A critical analysis
The 11th plan was launched at a time when the Fiscal Responsibility and Budget Management (FRBM) Act was operative, and had mandated that the fiscal deficit of the Central government would have to be 3 per cent during the 11th plan. In addition, there was the pressure of increased expenditure as a result of the Sixth Pay Commission which was announced in 2006. Furthermore, the award of the 12th Finance Commission was underway (2005-2010), and a major restructuring of the finances and assistance to the states had been recommended. Add to that the global financial crisis that unraveled from 2008 onwards.
Another major head of expenditure was the budgetary support to Centrally Sponsored Schemes (CSS) that was started in the 10th plan. In the current plan, too, expenditure on CSS along with other central assistance amounted to about 55 per cent of the Central government budgetary support to the states in 2007-08, and stayed at that level throughout the plan. The main schemes financed by this were the Rural Employment Guarantee Scheme, Sarva Shiksha Abhiyan, Bharat Nirman etc.
As it turned out, the Indian economy grew at 8 per cent during the 11th plan, which was mainly because of the slowdown in 2011-12 — the last year of the plan — when the growth rate fell to 6.2 per cent. Even so, this was the highest growth ever achieved by the Indian economy.
As a result of the global financial crisis, a large demand boost was given by the government to ensure that the credit cycle doesn’t collapse. This led to a very high fiscal deficit, reaching about 5 per cent towards the end of the Plan. The current account deficit was also much higher, and against the target of 2.3 per cent, it reached a level of 4.2 per cent by 2011-12. This was mainly on account of the import of gold in 2011. Moreover, this deficit was mostly financed by short-term portfolio inflows, as opposed to the more desirable foreign direct investment. Combined with a high balance of trade deficit, this led to a payments crisis in 2011, and a steep depreciation of the rupee in 2012.
Other areas of concern in the 11th plan outcomes were a slowdown in the reduction of poverty. As for addressing the challenge of unemployment, the plan was not able to fulfill the modest target of 58 million jobs. Finally, the plan was not able to break the agriculture jinx: the agriculture sector grew at 3.3 per cent, against the target of 4 per cent.
The tagline of the 11th plan was “higher and faster, but inclusive growth”. While the growth rate of 8 per cent was commendable, since it came during crisis years, the goal of inclusive growth was far from realised. This was mainly because the rate of reduction of poverty had slowed down. Moreover, the challenge of unemployment was waiting to be addressed. Furthermore, the agriculture sector needed a kick-start if higher growth rates were to be achieved in the future. With the country facing macroeconomic challenges in the form of a high fiscal deficit and a high current account deficit amid an uncertain global economic scenario, the work for the twelfth plan was cut out.
The writer is Addl. Chief Secretary, Dept of Mass Extension Education and Library Services, Govt of West Bengal.