12th Five-Year Plan approved by the National
Development Council last week is well written and forward-looking.
It is also forthright about failures to implement various aspects of the
11th Plan and openly nuances various claims the government has
made recently — for example, about the likelihood that investment in agricultural
cold chains is sufficiently win-win and that it would be a magic bullet
for agricultural marketing. The prime minister, in his speech at the NDC,
recognised that the “aspirational” Plan target of eight per cent required a
steep increase in growth in the last three years of the Plan period. This is asking
for a great deal. As the Plan points out, India will have to return to 2007-
08’s gross fixed capital formation rate of 35 per cent of gross domestic product
from the current 32 per cent. This is proposed through a sharp increase in
private corporate investment, from 11 per cent at present to nearly 15 per cent
in the last year of the Plan, while public investment stays static at 8.2 to 8.4 per
cent of GDP. This will require a sharp turnaround in business sentiment.
However, the chapter on industry provides some clues as to how this can
be achieved, aside from those already known, such as improving power supply.
First, a shift towards an industrial policy that deepens government-business
co-ordination is outlined and advised. Second, a reminder is provided of
the importance of National Industrial Manufacturing Zones, areas that could
serve to incubate competitive industry. Third, it is advised that private sector
retrenchment of workers be freer, and that the threshold employment for
labour legislation to kick in be made 300 immediately. Fourth, that compliance
with labour laws be easier, through online self-certification. And fifth, that
contradictory business regulations be harmonised through a Bill; that all regulations
be mandatorily reviewed after a specific period; and that all regulatory
information be placed online to benefit smaller businesses. If the government
succeeds to introduce the last three changes without delay, a
turnaround in sentiment is possible.
Much attention has rightly focused on rural performance in the 11th Plan
period. Agriculture grew at 3.3 per cent per annum and rural wages increased,
helping achieve unprecedented reduction in poverty levels. Less remarked
upon but equally important is the sustained decrease in the variability of this
growth; agriculture has not shrunk output since 2002-03, and variability is a
third of its peak in past decades. The 12th Plan proposes a further increase to
four per cent growth. But, as it recognises, this is more difficult to achieve at
higher productivity levels without new technology, especially since recent
growth has been resource-intensive —intermediate inputs have grown at twice
the rate they did in 1981-1997. The Commission admits that public investment
in agriculture has missed 11th Plan targets by a mile. Private investment grew
faster than the Plan targets — but that may be a sign of distress, too, the document
suggests. Thus, there is no replacement for greater public investment
—and the money should come from reducing the relative value of subsidies,
the Plan says. The latter are now insufficiently inclusive, and over 90 per cent
of power and fertiliser are used in areas that are already intensively farmed.
The Plan suggests focusing on rain-fed areas — the east, in particular. These
major shifts in focus must be carried out immediately.
The Plan document is certainly ambitious. And the question is whether
these changes – incremental and doable – can be carried out as soon as they
should be by this government.
Development Council last week is well written and forward-looking.
It is also forthright about failures to implement various aspects of the
11th Plan and openly nuances various claims the government has
made recently — for example, about the likelihood that investment in agricultural
cold chains is sufficiently win-win and that it would be a magic bullet
for agricultural marketing. The prime minister, in his speech at the NDC,
recognised that the “aspirational” Plan target of eight per cent required a
steep increase in growth in the last three years of the Plan period. This is asking
for a great deal. As the Plan points out, India will have to return to 2007-
08’s gross fixed capital formation rate of 35 per cent of gross domestic product
from the current 32 per cent. This is proposed through a sharp increase in
private corporate investment, from 11 per cent at present to nearly 15 per cent
in the last year of the Plan, while public investment stays static at 8.2 to 8.4 per
cent of GDP. This will require a sharp turnaround in business sentiment.
However, the chapter on industry provides some clues as to how this can
be achieved, aside from those already known, such as improving power supply.
First, a shift towards an industrial policy that deepens government-business
co-ordination is outlined and advised. Second, a reminder is provided of
the importance of National Industrial Manufacturing Zones, areas that could
serve to incubate competitive industry. Third, it is advised that private sector
retrenchment of workers be freer, and that the threshold employment for
labour legislation to kick in be made 300 immediately. Fourth, that compliance
with labour laws be easier, through online self-certification. And fifth, that
contradictory business regulations be harmonised through a Bill; that all regulations
be mandatorily reviewed after a specific period; and that all regulatory
information be placed online to benefit smaller businesses. If the government
succeeds to introduce the last three changes without delay, a
turnaround in sentiment is possible.
Much attention has rightly focused on rural performance in the 11th Plan
period. Agriculture grew at 3.3 per cent per annum and rural wages increased,
helping achieve unprecedented reduction in poverty levels. Less remarked
upon but equally important is the sustained decrease in the variability of this
growth; agriculture has not shrunk output since 2002-03, and variability is a
third of its peak in past decades. The 12th Plan proposes a further increase to
four per cent growth. But, as it recognises, this is more difficult to achieve at
higher productivity levels without new technology, especially since recent
growth has been resource-intensive —intermediate inputs have grown at twice
the rate they did in 1981-1997. The Commission admits that public investment
in agriculture has missed 11th Plan targets by a mile. Private investment grew
faster than the Plan targets — but that may be a sign of distress, too, the document
suggests. Thus, there is no replacement for greater public investment
—and the money should come from reducing the relative value of subsidies,
the Plan says. The latter are now insufficiently inclusive, and over 90 per cent
of power and fertiliser are used in areas that are already intensively farmed.
The Plan suggests focusing on rain-fed areas — the east, in particular. These
major shifts in focus must be carried out immediately.
The Plan document is certainly ambitious. And the question is whether
these changes – incremental and doable – can be carried out as soon as they
should be by this government.
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