Paved with good intentions

The schizophrenia that marked the economic policy pronouncements of the United Front Government seems to be dramatically evident in the draft Ninth Five-Year Plan document. Nevertheless, it contains insights into specific economic problems.

POSSIBLY the last official act of the previous Government was the release of the draft Ninth Five-Year Plan document on March 1, only the day before the counting of election results began.

There was certainly a purpose in bringing it out, at the end of the Government's curtailed tenure, and it was not done only because the members of the Planning Commission were working towards it in the past year. It could also be seen as an attempt by that Government to provide a definitive economic policy statement; and if the document were to provide a clear and persuasive indication of how that Government wished to direct the future course of the economy, it could also play an important political role. Unfortunately, the schizophrenia that has marked the economic policy pronouncements of the United Front Government seems to be most dramatically evident in this document as well, and this makes any possible effectiveness much more limited.

The introductory chapter begins with the usual line-up of pious intentions, although it must be said that they are mostly expressed in clear and well-constructed prose, unlike many other such documents. The main focus is said to be "human development", or - to adopt the unwieldy jargon beloved in official circles - "Growth with Social Justice and Equity". The specific objectives in turn contain many of the usual suspects, that is: priority to agriculture and rural development with a view to generating adequate productive employment and eradication of poverty; accelerating the growth of the economy with stable prices; ensuring food and nutritional security for all, particularly the vulnerable sections of society; providing the basic minimum services of safe drinking water, primary health care, universal education, shelter and connectivity (?) to all in a time-bound manner; ensuring environmental sustainability of the development process through social mobilisation of people at all levels; empowerment of women and the socially disadvantaged groups; promoting and developing people's participatory institutions; strengthening efforts to build self-reliance.

What is not really made clear is how these eminently worthy goals are to be achieved through the planning process. There is a delightfully vague sentence which supposedly identifies the modality, which "involves working out of a consistent and desirable development path, the identification of emerging trends and deriving policy measures to bring about a confluence between the two." (Volume I, page 23).

But the Government's liberalisation strategy thus far has involved the progressive abandonment of instruments that could hope to send appropriate signals to markets to bring about this desired confluence, and the document is silent on the nature of the required policy instruments, or on whether they require a reorientation of economic strategy.

Indeed, the nature of the public-private interaction, which is currently one of the most important issues of economic policy that needs to be thrashed out, has been inadequately dealt with, and the discussion has rarely gone beyond generalities. This is explicitly admitted, with the formulation avoiding "a deterministic relationship between the Plan and economic performance... The details of the actual policies and the manner of implementation will need to be worked out from time to time."

OBVIOUSLY, in a major policy document of this kind there is a whole host of issues that are addressed and that need to be considered carefully in any assessment. But it may be worthwhile to focus on only one - productive employment generation. This is the single most glaring failure of the new economic strategy since 1991, and a major area of imperative public action. The importance of this issue has been recognised by this Planning Commission. "The need for providing adequate work opportunities for the growing labour force and also to reduce the base level of unemployment significantly has been taken as the most pressing task for determining the minimum required growth performance of the economy" (Volume I, page 30).

But the way the Commission has dealt with the problem is bizarre in the extreme. It has simply decided upon some sectoral employment elasticities of output for the next five years, and chosen sectoral and overall rates of growth that will allow for more employment generation. This has determined the preference for 7.5 per cent rate of growth overall rather than the baseline scenario of 6.5 per cent. In the preferred version, "not only are the additions to the workforce gainfully absorbed and the backlog of unemployment is removed, but also that the realisation of full employment is likely to occur significantly earlier than the 15-year time horizon" (sic). The investment requirement of the preferred alternative is not much more than the baseline figure, at 29.5 per cent of GDP rather than 27.4 per cent, and the main shift is the increased requirement of public savings from 1.7 per cent of GDP to 3.4 per cent. So, if the Planning Commission is to be believed, this is all that is really required to solve the country's unemployment problem.

THIS sounds too good to be true, and so it is. How does this favourable result emerge? The answer lies in the combination of assumed employment elasticities and projected growth rates across sectors. It turns out that the main sector that is to create more than half of the new jobs is agriculture, for which employment elasticity is projected to increase from 0.43 per cent in the period 1987-88 to 1993-94, to 0.5 per cent in the Plan period 1997-2002. Interestingly, in most of the other sectors, including manufacturing, construction and services, employment elasticities are projected to decrease quite substantially. The increased employment elasticity in agriculture presumably comes from some assumptions about the increased regional spread of agricultural growth along with greater reliance on more labour-intensive techniques, but these are not elaborated in detail.

The contribution of agriculture to employment generation also depends upon the assumed rate of growth in agriculture, which is targeted to increase to 4.5 per cent per annum, up from 3.21 per cent per annum average growth for the period 1980-1994 and from the lower rates of around 2 per cent experienced through most of the 1990s. This significantly higher growth is to come from increased irrigated area, more fertilizer use, and better land management. All of this requires more investment, and so the Ninth Plan projects a 40 per cent increase in investment in agriculture over the Eighth Plan.

This would be indeed impressive if the Plan then allocated substantially more public resources to this goal. The break-up between public and private outlays shows that out of a required investment in agriculture of Rs. 195,000 crores, 60 per cent is to be provided by the private sector. This must be described as a fond hope, given the declining private investment ratios in agriculture. Even the Eighth Plan document envisaged an enlarged public investment outlay in agriculture, but the expectation was belied by experience. The shortfall of actual from planned public investment in agriculture in the Eighth Plan amounted to 59 per cent, which is by far the greatest such gap of all the sectors. So some degree of cynicism about such investment targets is inevitable.

Other than this Panglossian reliance on growth and buoyant employment elasticity, the Ninth Plan draft does not envisage any other policy initiative that would systematically address the problem of unemployment. If the problem could actually be wished away in this manner, then of course such an exercise would be profitable. But in its present form it is only likely to underline the growing irrelevance of the Planning Commission in the formulation of economic policy.

However, the document does contain many insights into specific economic problems, and recognises the need for much greater public discussion of economic policy issues. It points out that "the single largest generator of data and information in the economic system is the Government itself. More openness and transparency in making such data available to the public is an area of immediate concern" (Volume I, page 15). In the context of such awareness, it is ironic that this draft document is only for limited circulation, not available in the public domain, and very much in the tradition of secretive bureaucracy rather than open discourse.