On Thursday, Chief Ministers of all States will descend on the national capital to discuss a draft 12th Plan document, which has set an average annual growth target of 8.2 per cent for the period from 2012-13 to 2016-17. This is lower than 9 per cent rate in an earlier ‘approach paper’ that was even approved last year by the National Development Council (NDC), presided over by the Prime Minister and consisting of all Union Ministers and Chief Ministers. The new draft projects a 9 per cent growth to happen only in the final two years of the Plan, which means that the average for the entire Plan period would work out to only 8.2 per cent. Even that is subject to a best-case “Strong Inclusive Growth” scenario. In the alternative scenarios of “Insufficient (policy) Action” and “Policy Logjam”, the growth could drift down further to respective ranges of 6 to 6.5 per cent and 5 to 5.5 per cent.
What is striking about the above growth projections, perhaps, is their sheer meaninglessness in the current context. The 11th Plan period had logged an average growth of 7.9 per cent in favourable circumstances, with both government finances as well as corporate balance sheets in pretty good shape. That, in turn, enabled a step-up in fixed investments in the economy to 31.4 per cent of GDP, from the 27.7 per cent during the preceding five years. Sound financial health of Government and corporates, in conjunction with robust domestic investment activity, also helped the country to weather the 2008 global economic crisis. Today, the external environment looks even more uncertain, while domestically, it is not just the Government, but corporates, too, that are struggling under mountains of debt. Either way, it makes raising money for fresh investments difficult. To project under these circumstances, a higher growth rate of 8.2 per cent or a doubling of infrastructure investments to $ one trillion during the current Plan period is, at best, an exercise in intellectual speculation or a serious waste of tax-payers’ money, at worst.
The planners need to, instead, come down to earth and focus on a few areas where concerted policy action would yield growth dividends in the long run. These include moving to system of making all government payments (including subsidies) through direct transfers in the next three years; coming out with a clear policy framework with regard to land acquisition and environment/forest clearances especially for infrastructure and mining projects; creating truly independent regulators for fixing of Rail and electricity tariffs; and instituting a nationwide goods and services tax regime that includes removing trade-distorting local levies on farm produce. Most of these would require cooperation from the States, which is precisely why the NDC needs to be made a more effective forum. It is better to have a Plan focusing on these key reform areas than pontificating on growth scenarios that nobody can realistically vouch for.