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Planning for realistic growth rates

Thursday 21 April 2005

The Prime Minister, Manmohan Singh’s recent statement that the economy will not grow by more than 7 per cent during the Tenth Five Year Plan period (2002-07) has not come as a surprise. Presiding over the full Planning Commission meeting called to approve the Plan’s mid-term appraisal, Dr. Singh stated that even though economic growth will be impressive by most yardsticks, it will still fall short of the targeted 8.1 per cent assumed in the Tenth Plan document. During the Ninth Plan period the economy grew by 5.35 per cent while the target was 6.5 per cent. The scepticism is justified by the actual trends during the first three years of the Tenth Plan when the GDP growth averaged 6.5 per cent. To reach the targeted rate for the whole plan period, the economy must grow by 10.5 per cent during the last two years. Quite apart from the sheer impossibility of reaching such targets, there is the problem with arithmetic averages. Recent trends show that economic growth has been uneven: during 2002-03 it barely touched 4 per cent because of a deficient monsoon. The next year saw a flattering growth rate of 8.2 per cent, but that was possible only because of the lower base of the previous year. For 2004-05 the growth is expected to be around 7 per cent which is quite reassuring as it will be on top of an exceptional performance in 2003-04.

Dr. Manmohan Singh’s analysis of the causes that inhibit growth and the policy correctives he suggested reflect the broad thrust of the mid-term appraisal. So far, the Tenth Plan has not succeeded in its primary objective of reversing the trend in agriculture, where growth has averaged just 1.5 per cent during the first three years of the Plan. Agricultural performance holds the key to a sustained growth. The Prime Minister has visualised a much greater role for the private sector in infrastructure areas for which the right policy environment will have to be created. Public funds will then be freed for investment in the social sectors, particularly education and health.

The issue of having annual plans as well as long-term perspective plans side by side with the five year plans is topical. Many of the outcomes of the mid-term appraisal will naturally spill over to the Eleventh Plan period. Some see political messages in the Prime Minister’s economic growth prognosis. After all the draft Tenth Plan document incorporating the high growth forecasts was prepared when the National Democratic Alliance Government was in office. However, that is taking too narrow a view of what has essentially been a technical discussion on economic growth prospects. The fact remains that, as the pre-Budget Economic Survey noted, the Indian economy now seems to have moved to a higher growth path and is capable of achieving a sustained growth rate of 7 per cent. That might not meet the Tenth Plan target but would still be among the highest in the world.

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