Aiming high in the 12th Plan

The Planning Commission, under the chairmanship of Prime Minister Manmohan Singh, has fixed an average growth target of 9 per cent for the 12th Five Year Plan (2012-17), the same as the one set for the 11th (2007-12). The identical growth targets for the two successive plans ought not to hide the fact that there have been changes in the macroeconomic environment in the meantime. It is not that that India's growth trajectory that looked very promising — at one point in time the Prime Minister was visualising a double digit growth rate — has suddenly nose-dived. Rather, it is a change in the sentiment both within the country and outside that has made the achievement of a 9 per cent growth look daunting and contingent on the government taking some “difficult decisions.” Economic growth in the United States and Europe has petered out and there is a real danger of major economies slipping into another recession. India's growth slowed to 6.7 per cent in 2008-09 after exceeding 9 per cent for three consecutive years. Since then, it has ranged between 8 per cent and 8.5 per cent, which is still respectable in relation to what obtains in most other countries.

Yet the outlook for the current year has changed for the worse in the eyes of most forecasters. It is not just the external environment, but also the policy drift and indecision in government in recent months that have dampened sentiment. Improving governance will be a critical and necessary condition for growth to accelerate. Unfortunately the Planning Commission has been silent on the many issues that are crying out for reform. The approach paper ought to have been the forum for initiating debates on the more politically difficult subjects of reform. Fiscal consolidation, achieving a sustainable balance of payments position, and boosting productivity in agriculture and industry have remained unexceptionable goals. Fiscal prudence is absolutely necessary for long-term stability without which higher growth rates are not possible. Although the size of the current account deficit is estimated to be well within the prudential range of 2.5 per cent to 3 per cent of the GDP, the financing requirements are large, and at the current juncture, policymakers cannot take capital inflows for granted. Finally, monetary measures to curb the persistent inflation will necessarily entail sacrificing some of the growth momentum, at least over the short-term. Will the targeted 9 per cent growth be as elusive as the double digit growth was during the 11th Plan?