Unrealistic agenda

The draft Tenth Five Year Plan document, approved by the Planning Commission on October 5, represents a good, but unrealistic, roadmap for reforms.

ON October 5, when the Planning Commission approved the draft Tenth Five Year Plan document proposing an 8 per cent growth rate, in terms of economic calculations it appeared to be the right step. The lacuna was that the document failed to spell out how the government proposes to bridge the gap between ground reality and performance.

Launching the Tenth Plan (2002-2007), Prime Minister and Planning Commission Chairman Atal Behari Vajpayee was at his rhetorical best. Concluding his speech he said: "The issue before us is not whether we can achieve a significantly higher growth rate; rather, it is whether we can afford not to.'' It may not be known if there was a Doubting Thomas in the Prime Minister's group of ten which shared the dais with him. All of them seemed to be stirred by his strong words. The Prime minister shared the platform with Deputy Chairman of the Planning Commission K.C. Pant, Finance Minister Jaswant Singh, External Affairs Minister Yashwant Sinha, the six full-time members of the Commission and Minister of State in the Prime Minister's Office Vijay Goel.

The measures Vajpayee spelt out were effective labour reforms which would remove legal and other restrictions in the evolution of a national market; acceleration of the tax reforms process with a quick transition towards an integrated Central and State value-added tax (VAT) system; removal of infrastructure constraints by means of the introduction of power sector reforms; public-private partnerships to leverage private sector resources for development and wide-ranging governance reforms.

On the face of it there is nothing wrong with the proposals. What is not clear is whether and how the government will find the political will to implement these proposals. Ironically, when it comes to implementation, the loudest dissent comes not from the political allies of the Bharatiya Janata Party but from among the disparate elements of the Sangh Parivar itself. Fireworks have accompanied each reform effort by the government in recent times. The latest instance relates to the privatisation effort, where the government has managed to sell only about 2 per cent of its total equity holding in public sector enterprises. Some of these pulls and pressures have been reflected in the Plan document, more so in the two sectors of employment generation and foreign direct investment (FDI).

The state of the world economy today is such that no economy on the planet other than China's is witnessing an 8 per cent growth. The Indian economy has registered a growth rate of 5.5 per cent in the last five years. Given the fact that more than seven months of the current fiscal year have passed, the GDP (gross domestic product) growth rate for the whole year cannot be higher than 5.5 per cent. This then means that if the 8 per cent average rate of growth for the Plan period as a whole is to be achieved, an average rate of growth of 9 per cent will have to be managed. The prospect of this happening seems bleak.

It also remains to be seen whether the government will be able to pick up the kind of "speed'' that will be needed to bring about a dramatic increase in the tax-GDP ratio or in the overall savings and investment rates in the economy or improve productivity levels to an extent where they in turn may accelerate progress in the fields of literacy and health care.

The full meeting of the Planning Commission took place with some of these questions looming in the background. A major question related to the approach that the government would adopt with regard to employment generation whether it would be based on Montek Singh Ahluwalia's pro-liberalisation recommendations or S.P. Gupta's "swadeshi" recommendations.

The message at the end of the Commission's meeting was clear: that the Prime Minister was in no mood to oppose the Sangh masters. He emphasised the need to speed up the development of agriculture, agro-industries, small scale and cottage industries in order to create five crore additional employment opportunities in the next five years. This set of measures had been spelt out by S.P. Gupta in his report.

Later in the evening, addressing a press conference, K.C. Pant emphasised: "For employment generation, Dr. Gupta's recommendations identify specific sectors, hence we have followed this report.'' Pant was replying to a question on which of the two sets of recommendations were being followed by the Planning Commission.

Vajpayee played down the role of FDI and privatisation in the economy. On FDI he emphasised the need to look "inwards'', and to "increase trade and technology cooperation with other countries''. Clearly seeking to allay the apprehensions aired by the Rashtriya Swayamsewak Sangh (RSS) chief K. S. Sudarshan with regard to a liberal FDI policy and privatisation of the public sector units, Vajpayee said, "We have to achieve our developmental goals by our own efforts and primarily harnessing our own resources.''

The final Tenth Plan document lowered the annual FDI target to $7.5 billion from the $8 billion that was set in the approach paper (Frontline, August 3, 2001). The government has obviously overlooked Commission member N.K. Singh's report on FDI, which is yet to come up before the Cabinet, in which he had sought an even more liberal FDI regime so as to enable annual FDI inflows of $8 billion.

THE Tenth Five year plan comes in three volumes. The first volume, titled `Dimensions and Strategies', has a broad perspective and discusses a strategy of development, macroeconomic and economy-wide issues relating to growth, investment and employment and makes certain general observations on institutional design, governance and implementation methodologies. The second volume, titled `Sectoral Policies and Programmes', gives details of policies and programmes that are necessary to attain the Plan objectives. A third volume, titled `State Plans Concerns and Strategies', has been introduced for the first time. It traces the development of key sectors and spells out strategies for the Plan.

Another first-time inclusion in the Plan is the chapter on disaster management. Historically, Five Year Plans have not included a consideration of issues relating to the management and mitigation of natural disasters. This is because in the traditional perception calamity relief is seen as a non-Plan item of expenditure. The Plan emphasises the disaster mitigation components to be built into all developmental projects. In order to save larger outlays on reconstruction and rehabilitation, it emphasises the need for a mechanism to allow components that specifically help projects coming up in highly disaster-prone areas to withstand the impact of natural disasters as part of approved project cost for projects financed under the Plan. Another first-time inclusion in the Tenth Plan is a State-wise breakup of broad developmental targets, including targets for growth rates and social development, that are consistent with the national targets.

The Plan recognises the fact that the industrial sector has reached a stage of maturity where it no longer requires focussed attention by the government, whether it is in the matter of promotion or protection. It underlines the fact that in the industrial sector the government only needs to play "a facilitative role by creating a conducive policy environment through better governance''. It identifies the linchpin of the development strategy to be the agriculture sector and its associated activities such as animal husbandry and agro-forestry. It emphasises the need for large investments in irrigation, strengthening of agricultural research and a development system with a special focus on biotechnology and a marketing infrastructure for agricultural products.

Do these measures amount to too little and too late? Sceptics say so, especially based on the results of the Ninth Five Year Plan. The Ninth Plan showed that the shortfall in overall GDP growth occurred mainly owing to the poor performance of the farm sector. Worse, the poor performance in the farm sector during the Plan period was not as much due to natural calamities as it was due to a declining trend of capital formation.

Plan expenditure on agriculture, rural development and irrigation was brought down to 20 per cent of the total during the Ninth Plan. Expenditure on agricultural research in India has been no less than 0.3 per cent of the agricultural GDP. All this has resulted in slowing industrial growth as well, which depends on consumer demand, which in turn depends on the purchasing power of the rural masses whose main source of income is agriculture.

The truth remains that over the decades the government has come to direct less and less investment in the economy. The Centre's budgetary support to the plan during this term is estimated at Rs. 7,06,000 crores. The level of fall in investment has occurred because consecutive governments have become progressively bankrupt with no money on their own to invest. They have also exhausted the option of borrowing, given the level of public debt. A quarter of a century ago, close to 60 per cent of Plan investment was in the public sector. It now stands at 30 per cent. The remaining 70 per cent of the proposed investment is to come from the private sector. It is also a fact that private investment will be driven by a more realistic assessment of how fast the Indian economy will grow. The Planning Commission in that case can only be lauded for bringing out a good but unrealistic roadmap for reforms.