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Tuesday, March 09, 2021

Few take-offs on this jet Plan

The NDC approved the Tenth Plan last week, almost nine months into the first year of Plan. What should we look for in a Five Year Plan? Most...

Written by Shankar Acharya |
December 28, 2002

The NDC approved the Tenth Plan last week, almost nine months into the first year of Plan. What should we look for in a Five Year Plan? Most of the world would say ‘nothing’, since they gave up national planning as a futile activity many years ago! But since we still sustain this activity it’s reasonable to pose the question. If we must have it, a Five Year Plan should be assessed in three key dimensions. First, does it contain a good medium-term perspective on crucial macroeconomic and sectoral policies, including a road map for strategic priorities? Second, does it provide a realistic and consistent set of medium-term projections or scenarios for economic growth (including of major sectors), savings-investment, fiscal balances, external trade and payments, employment, poverty and so forth? Third, how sound are the public expenditure allocations it recommends?

I won’t say anything on the third issue since long experience has taught me that, in practice, Union expenditure secretaries will have far greater influence on government spending priorities than the Plan document! Let me essay a few comments on the other two dimensions.

The Tenth Plan is strong on policy content. It is hard to find any area of economic policy or activity on which Plan does not proffer advice—and most of the advice is quite sound and sensible. All the usual suspects have been rounded up for its reform agenda, including fiscal responsibility, VAT, expenditure control, labour laws, disinvestment, inter-state barriers to commerce, exit policies for sick industries, financial sector reform, customs tariff reductions, new electricity bill, competition in infrastructure provision, rural infrastructure, civil service reform and so on.

The value of articulating good advice should not be underestimated. Getting sensible statements of policy intent included in the Plan can be important for subsequent policy-making. But I did miss a sense of strategic priorities. The Plan does not, unfortunately, highlight the five or six key policy priorities which are essential to reverse the Ninth Plan slowdown in industry and agriculture or to stem the creeping fiscal crisis in the states, which is undermining their development role in education, health and employment. Pity.

What about the realism and coherence of the Plan’s macroeconomic projections? In particular, what about the 8 per cent growth target (the Plan reaffirms that economic growth remains ‘the most important summary measure of the degree of success of the development strategy’)? I propose three simple tests of realism. First, what does the 8 per cent target entail for growth of major sectors? Well, it would require agricultural growth to double from the 2 per cent annual rate experienced in Ninth Plan. And remember in the first year (2002/03) we may have negative growth because of drought. Industrial growth would also have to double from the sedate 4.5 per cent recorded in the Ninth Plan. The rapidly growing services sector is called upon to grow even faster. All this is a tall order.

Second, what does an 8 per cent national economic growth imply for the development of India’s states? As Manmohan Singh used to say ‘India lives in her states’. Well, the BIMARU States of Bihar, MP, Rajasthan and UP (which account for almost two-fifths of India’s population) grew at an average of only 4 per cent a year during the Ninth Plan. To be consistent with the national 8 per cent target, these states are now expected to grow like East Asian tiger economies at 7 per cent plus! That’s another tall order.

Finally, at the national level, let’s apply the test of history. The fastest growth ever attained by the Indian economy in five consecutive years was 6.7 per cent. And that was in the Eigtht Plan period (1992-97), in the heyday of economic reforms. As the Tenth Plan admits, growth slowed in the Ninth Plan to 5.3 per cent. Getting it back up to 6.7 per cent will be hard enough. Getting it up to 8 per cent, especially when the first year of the Tenth Plan might record less than 5 per cent, well…perhaps I could use a cricket metaphor. It would be like expecting the Indian team to score 400 runs in fifty overs (8 runs an over!) on a seaming, green-top wicket! They haven’t ever done it, but you never know.

(The writer is a former economic advisor to the Union government)

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