Chasing a mirage

IT IS GOOD to be ambitious about the targets for economic growth, but such ambitions must be based on what is possible and not the impossible. The assumptions underlying the target of an 8 per cent growth a year during the Tenth Plan (2002-07) are so unrealistic that it does not require a crystal ball to predict that the goal will not be met. A similar unrealism afflicted the framing of the Ninth Plan (1997-2002) target of a more modest growth of 6.5 per cent a year, which is now sure not to be achieved. The full meeting of the Planning Commission which has approved the Approach Paper target of an 8 per cent growth may have covered up the differences between the Commission and the Finance Ministry, but the basic problems with the formulation of the Tenth Plan will not go away.

The Planning Commission's inability to come up with a growth scenario that would conform to the suggestion of the Prime Minister, Mr. Atal Behari Vajpayee, of an annual growth target of as much as 9 per cent was made out to be an example of a concern with feasibility. But this is not the case with even the lower growth target. The Approach Paper assumes a substantial increase in domestic investment and a large improvement in productivity. Although there has been little change in productivity in the economy in spite of the push to competition over the past decade, it is the assumption of the jump in investment that is most problematic. The Centre is expected to find the resources for public investment by a combination of resource mobilisation and savings in expenditure. But it is in resource mobilisation that the assumptions are the weakest. The tax-GDP ratio of the Centre is expected to rise to 11.7 per cent of the GDP and the gross budgetary support (GBS) for the Plan to 5 per cent of the GDP in 2006-07. The annual growth of the GBS is assumed to be as much as 18 per cent. It was the failure in precisely these two areas that contributed to the investment shortfall and therefore to the growth slippage during the first three years of the Ninth Plan. The Planning Commission had only recently completed the long- delayed mid-term appraisal of the Ninth Plan which had highlighted the 9 per cent shortfall in the GBS to the Central and State Plans (with the deficit in the Central Plan as much as 50 per cent) and a continued sluggishness in tax collections as contributing to investment falling behind the target in the Ninth Plan. This has not changed since then and the Union budget for 2001-02 even on paper did not make any provision for a dramatic improvement in the last year of the current Five Year Plan. It is no wonder that the Finance Ministry has been less than positive about the Planning Commission's numbers.

The three Governments that were involved in the formulation of the Ninth Plan were silent about the heroic assumptions which were made then on savings and investment and a projection of a 4.5 per cent growth in agriculture. The assumptions were unrealistic and the projections exaggerated. Yet no lessons have been learnt from that failure. Even if the public sector no longer occupies the ``commanding heights'' of the economy, the planning process retains a certain relevance because it is acknowledged that public investment in all sectors, and at both the Centre and in the States, continues to play an important role in driving growth. Indeed, there is now a recognition of the need to make up for the neglect in this area in recent years. But if the basic parameters underlying resource mobilisation for public investment are built on such weak foundations, there cannot be much hope for accelerated growth in the Tenth Plan. Only a mirage can be built on far-fetched assumptions.

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Section  : Opinion
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