The Hindu Business Line : Tenth Plan: Sky-high projections

The Planning Commission's revised approach paper on the Tenth Plan projects an 8 per cent annual growth rate from 2002-03 to 2007-08 — for which the growth rate should rise 70 per cent! With disinvestment targets moving farther away, and unrealistic projections on gross saving and investment rates and the incremental capital-output ratio, this seems a rather tall order of average increase, says P. R. Brahmananda.

THE Planning Commission has put out the slightly revised approach paper on the Tenth Five-Year Plan, the draft of which had earlier been endorsed by the National Development Council. The Plan seeks to achieve an 8 per cent annual growth rate over the period 2002-03 to 2007-08. It has spelt out the expected yearly growth rates on the assumption that the required resources for each year's achievement are available.

The yearly growth rate is sequentially (and bravely) projected to rise from 6.7 per cent for 2002-03 to 7.3 per cent for 2003-04, 8.1 per cent for 2004-05, 8.7 per cent for 2005-06 and 9.2 per cent for 2006-07. The average for the average growth rate for the last three years of the Tenth Plan will be 8.7 per cent. Over the five years, the growth rate is expected to go up by 37.3 per cent between 2002-03 and 2007-08.

If we take the growth rate for 2001-02 at 5.4 per cent, for the projection to come true, over the five years, the rate should rise about 70 per cent. Graph 1 indicates the actual growth rates during the Ninth Plan (for 2001-02, the growth rate has been optimistically pegged at 4 per cent.) and the projected growth rates, year on year, for the Tenth Plan. But the revised approach paper, though presented in the first week of October, pegs the projected growth rate for 2002-03 at 6.7 per cent! The Planning Commission members are probably not aware of, or have largely ignored, the implications of the severe macro-drought during 2002-03!

The Tenth Plan is expected to involve a public sector outlay at 2001-02 prices of Rs 15,92,300 crore, or roughly Rs 16 lakh crore. The Central Plan outlay will be Rs 9.22 lakh crore, and the States and Union Territories will spend about Rs 6.71 lakh crore. The tax-GDP ratio, presumably the net tax-GDP ratio, of the Central Government is expected to go up from 8.6 per cent to 10.6 per cent, and the non-Plan expenditure is expected to decrease from 11.3 per cent to 9.0 per cent of GDP.

Disinvestment proceeds are expected to contribute Rs 78,000 crore. Actually, according to the latest public finance statistics of the Finance Ministry, the Centre's net tax-GDP ratio, as per Budget estimates, was about 7 per cent of GDP in 2001-02. The gross ratio was 9.89 per cent that year. Here also, the Planning Commission does not seem to have arrived at the correct Central net tax-GDP ratio.

Taking the five years of the Tenth Plan together, the average per year of the macroeconomic projections are as given in the Table. The main instruments for the 48 per cent increase in the growth rate during the Tenth Plan compared to the Ninth Plan are two:

1) the gross saving and investment rates have to go up by 30 per cent and 36 per cent respectively.

2) the incremental capital-output ratio is expected to come down by about 8 per cent.

Raising the average savings ratio over the Plans by about 30 per cent is a huge task; actually, this would involve a great measure of austerity in the public and private sectors and a substantial increase in real interest rates.

Actually, the system is encouraging conspicuous consumption in a big way. Thrift and austerity have become dirty words in India. It is unproductive expenditure that is getting boosted. Apart from all this, by indirectly encouraging violent conflicts within society, we are spending much more on law and order than we would normally have done had we eschewed populism and appeasement of the majority cult.

In fact, by allowing the opening up the political front against secularism we seem to have aroused powerful passions that are the opposite of those required for steady high growth. Economic issues have been pushed into the background; unless these become central concerns of the system, high growth rates will remain mostly a dream. How a nation like India can make the leap from poverty and inequity to prosperity and uniform growth is the biggest challenge to all those who think about the future of our children and grandchildren.

We do not have the details of the commodity-wise growth rates projected. From newspaper reports it seems the agricultural output growth rate, on an average, will be 4-4.5 per cent during the Tenth Plan period, against a 0.4 per cent average growth rate during the Ninth Plan. This is a rather tall order of average increase.

Industrial production is expected to go up on an average of 10 per cent per annum during the Tenth Plan, against the average growth rate in the industrial index of about 5.04 per cent. This is also a rather tall order of increase. One would have liked to have had detailed components of these gargantuan projected growth rates.

It seems that some giants have formulated the Tenth Plan targets. In the process of drawing up the earlier Plans, there used to be a panel of economists from outside who would be taken into confidence on the projected drafts. The Ninth and Tenth Plan documents seem mostly to have been endogenously projected. There is probably only one trained economist member in the Planning Commission; he, at least, seems to have moderated the Ahluwalia Report on Employment Growth. But the way the overall projections have leapfrogged the reality of the immediate past requires some explanation.

In the theory of rational expectations, which has now become a rage in macro-economics, at every point of time, we are supposed to make full use of available information. The Planning Commission would surely have the largest volume of information on all aspects. Why they have not made use of all this is another question. The deputy Chairman is an engineer and the distinguished Chairman is a poet. (The great Shelley desired that the world should be run by poets.).

Economists and engineers, unless the latter are trained in economics, hardly go together. Engineers usually make blueprints without reference to cost and feasibility. One should not blame them if they are not fully conscious of the factors that determine the measure of probability of their blueprints being fulfilled.

But economists have no excuse for escaping real constraints in their projections. These constraints are largely economic, but we now also have political constraints.

The Tenth Plan has these targets:

Reduction in poverty ratio from 26 per cent to 21 per cent by 2007;

Growth in gainful employment to, at least, keep pace with addition to the labour force;

All children to be in school by 2003, and all children to complete five years of schooling by 2007;

Reducing gender gaps in literacy and wage rates by 50 per cent;

Literacy rate to increase from 65 per cent in 1999-2000, to 75 per cent in 2007;

Decadal population growth to reduce from 21.3 per cent in 1991-2001 to 16.2 per cent in 2001-11;

Infant mortality rate to be reduced from 72 in 1999-00 to 45 in 2007;

Maternal mortality ratio to be reduced from 4 in 1999-2000 to 2 in 2007;

Forest/tree cover to be raised from 19 per cent in 1999-2000, to 25 per cent in 2007;

Potable drinking water to be provided in all villages, and

Cleaning of major polluted river stretches

Of the above, 1 and 2 are vital, and both depend on the postulated leap in growth and investment rates. Currently, the employment situation is worsening because of retrenchment and capital-intensive imports.

Targets 5 to 8 are largely demographic targets. If the population growth rate goes down, and even with given real expenditures on education, health, etc., some of the targets will be automatically achieved.

Points 9 to 11, in a sense, concern the environment. But a scheme to increase aggregate accessible water supply is not a key target. This requires major schemes, such as linking of rivers through dams, barrages and channels.

A major ongoing investment process over a rather long period is required. That will also help to solve unemployment at various levels, and promote afforestation.

We have to shift our priority from railways and roads to irrigation, desilting, flood control, etc., The long future requires long-term investments and, if the orbit for the former is not lifted, we will continue to survive as a polity from day to day and year to year.

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