(Sample Materials) Economic Survey & Government’s Plan, Programme & Policies – “Twelfth Plan : An Overview”


 

(Sample Materials)
Economic Survey & Government’s Plan, Programme & Policies – “Twelfth Plan :
An Overview”


Contents of the Chapter:

  • Introduction
  • Managing Natural Resources and the Environment
  • Vision and Aspirations
  • Enagement with the World
  • Developing Capabilities
  • Key Policy Initiatives Needed

INTRODUCTION

India’s 1.25 billion citizens have higher expectations about
their future today, than they have ever had before. They have seen the economy
grow much faster in the past 10 years than it did earlier, and deliver visible
benefits to a large number of people. This has understandably raised the
expectations of all sections, especially those who have benefited less. Our
people are now much more aware of what is possible, and they will settle for no
less. The Twelfth Five Year Plan must rise to the challenge of meeting these
high expectations.

The Initial Conditions

Though expectations have mounted, the circumstances in which
the Twelfth Plan has commenced are less favourable than at the start of the
Eleventh Plan in 2007–08. At that time, the economy was growing robustly, the
macroeconomic balance was improving and global economic developments were
supportive. The situation today is much more difficult. The global economy is
going through what looks like a prolonged slowdown. The domestic economy has
also run up against several internal constraints. Macro-economic imbalances have
surfaced following the fiscal expansion undertaken after 2008 to give a fiscal
stimulus to the economy. Inflationary pressures have built up. Major investment
projects in energy and transport have slowed down because of a variety of
implementation problems. Some changes in tax treatment in the 2012–13 have
caused uncertainty among investors.

These developments have produced a reduction in the rate of
investment, and a slowing down of economic growth to 6.5 per cent in 2011–12,
which was the last year of the Eleventh Plan. The growth rate in the first half
of 2012–13, which is the first year of the Twelfth Plan, is even lower. The
downturn clearly requires urgent corrective action but it should not lead to
unwarranted pessimism about the medium term. India’s economic fundamentals have
been improving in many dimensions, and this is reflected in the fact that
despite the slowdown in 2011–12, the growth rate of the economy averaged 7.9 per
cent in the Eleventh Plan period. This was lower than the Plan target of 9 per
cent, but it was marginally higher than the achievement of 7.6 per cent in the
Tenth Plan. The fact that this growth occurred in a period which saw two global
crises, one in 2008 and another in 2011, is indicative of the resilience which
the economy has developed.

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The Policy Challenge

The policy challenge in the Twelfth Plan is, therefore,
two-fold. The immediate challenge is to reverse the observed deceleration in
growth by reviving investment as quickly as possible. This calls for urgent
action to tackle implementation constraints in infrastructure which are holding
up large projects, combined with action to deal with tax related issues which
have created uncertainty in the investment climate. From a longer term
perspective, the Plan must put in place policies that can leverage the many
strengths of the economy to bring it back to its real growth potential. This
will take time but the aim should be to get back to 9 per cent growth by the end
of the Twelfth Plan period.

The preparation of a Five Year Plan for the country is an
opportunity to step back, take stock of the ‘big picture’, identify the
strengths that can be leveraged to enable the country to move forward, and the
constraints that could hold it back, and on this basis develop a strategic
agenda. In developing such an agenda, the Planning Commission has relied on four
key elements.

  • First, the strategy must be firmly grounded in an
    understanding of the complexities of the development challenges that India
    faces, recognising the transformation that is taking place in the economy
    and in the world. This understanding of the ground reality must be used to
    identify the critical leverage points where government action could have the
    maximum impact. The focus must be on identifying the strategic leverage
    points where successful action could trigger many supportive reactions
    rather than fixing everything everywhere.

  • Second, progress will be achieved through a combination
    of government action in both policies and public programmes, and the efforts
    of many private actors that are important in the economy. Much of the
    inclusive growth we hope to achieve depends on investment in the private
    sector which accounts for over 70 per cent of total investment. This
    includes not only the organised corporate sector, but also Micro, Small and
    Medium Enterprises (MSMEs), individual farmers and myriads of small
    businessmen who add to Gross Domestic Product (GDP) and create jobs. The
    dynamism of this segment, and its ability to seize economic opportunities,
    is critical for inclusive growth and the Plan must address the constraints
    faced by all these private actors in achieving better results.

  • Third, the outlay on government programmes has to
    increase in many areas but this must be accompanied by improved
    implementation. For this, it is necessary to focus on capacity building and
    governance reforms, including system change that will increase
    accountability in the public sector. The Twelfth Plan must back this focus
    by making specific allocations to improve the ability of government to work
    better.

  • Finally, the planning process must serve as a way of
    getting different stakeholders to work together to achieve broad consensus
    on key issues. These stakeholders include (i) different levels of the
    government sector: Centre, States and Panchayati Raj Institutions
    (PRIs)/Urban Local Bodies (ULBs); (ii) the private sector, both big
    companies and small businesses, whose investments will drive our growth and
    (iii) citizens’ groups and the voluntary sector, who bring the key element
    of people’s participation and can greatly help improve the quality of
    government action.

VISION AND ASPIRATIONS

The broad vision and aspirations which the Twelfth Plan seeks
to fulfil are reflected in the subtitle: ‘Faster, Sustainable, and More
Inclusive Growth’. The simultaneous achievement of each of these elements is
critical for the success of the Plan.

The Need for Faster Growth

Planners are sometimes criticised for focusing too much on
GDP growth, when the real objective should be to achieve an improved quality of
life of the people across both economic and non-economic dimensions. The Twelfth
Plan fully recognises that the objective of development is broad-based
improvement in the economic and social conditions of our people. However, rapid
growth of GDP is an essential requirement for achieving this objective.

There are two reasons why GDP growth is important for the
inclusiveness objective. First, rapid growth of GDP produces a larger expansion
in total income and production which, if the growth process is sufficiently
inclusive, will directly raise living standards of a large section of our people
by providing them with employment and other income enhancing activities. Our
focus should not be just on GDP growth itself, but on achieving a growth process
that is as inclusive as possible. For example, rapid growth which involves
faster growth in agriculture, and especially in rain-fed areas where most of the
poor live, will be much more inclusive than a GDP growth that is driven entirely
by mining or extraction of minerals for exports. Similarly, rapid growth which
is based on faster growth for the manufacturing sector as a whole, including
MSME, will generate a much broader spread of employment and income earning
opportunities and is therefore more inclusive than a growth which is largely
driven by extractive industries.

The second reason why rapid growth is important for
inclusiveness is that it generates higher revenues, which help to finance
critical programmes of inclusiveness. There are many such programmes which
either deliver benefits directly to the poor and the excluded groups, or
increase their ability to access employment and income opportunities generated
by the growth process. Examples of such programmes are the Mahatma Gandhi
National Rural Employment Guarantee Act (MGNREGA), Sarva Siksha Abhiyan (SSA),
Mid Day Meals (MDMs), Pradhan Mantri Gram Sadak Yojana (PMGSY), Integrated Child
Development Services (ICDS), National Rural Health Mission (NRHM), and so on.
This is also relevant for the sustainability objective since programmes aimed at
making development more sustainable also involve additional costs.

Growth Prospects

The Approach Paper to the Twelfth Plan, approved by the
National Development Council (NDC) in 2011, had set a target of 9 per cent
average growth of GDP over the Plan period. That was before the Eurozone crisis
in that year triggered a sharp downturn in global economic prospects, and also
before the extent of the slowdown in the domestic economy was known. A realistic
assessment of the growth prospects of the economy in the Twelfth Plan is that it
concludes that the current slowdown in GDP growth can be reversed through strong
corrective action, including especially an expansion in investment with a
corresponding increase in savings to keep inflationary pressures under control.
However, while our full growth potential remains around 9 per cent, acceleration
to this level can only occur in a phased manner, especially since the global
economy is expected to remain weak for the first half of the Plan period. Taking
account of all these factors, the Twelfth Plan should work towards bringing GDP
growth back to an inclusive 9 per cent in the last two years of the Plan, which
will yield an average growth rate of about 8.2 per cent in the Plan period. The
outcome is conditional on many policy actions as is described in scenario one.

Within the aggregate GDP growth target, two sub-targets are
especially important for inclusiveness. These are a growth rate of 4 per cent
for the agricultural sector over the Twelfth Plan period and around 10 per cent
in the last two years of the Plan for the manufacturing sector.

The Twelfth Plan’s strategy for growth depends crucially on
productivity gains as one of the key drivers of growth. Productivity is the
additional contribution to growth after taking account of the effect of capital
accumulation and growth in labour. These traditional sources of growth are not
likely to be enough for India in the coming years and we must therefore focus
much more on productivity improvements among all constituents: big businesses,
MSMEs, farmers and even government. This can be done by improving the business
regulatory environment, strengthening the governance capacity of States,
investing more in infrastructure rather than subsidies, and by using Science and
Technology (S&T) to drive innovation.

Alternative Scenarios

The projection of 8.2 per cent growth in the Twelfth Plan
period should not be viewed as a ‘business as usual’ outcome that can be
realised with relatively little effort. It is in fact a projection of what is
possible if we take early steps to reverse the current slowdown and also take
other policy actions needed to address other key constraints that will otherwise
prevent the economy from returning to a higher growth path. Failure to act
firmly on these policies will lead to lower growth and also poorer outcomes on
inclusiveness.

To illustrate the consequences of inaction on key growth
promoting policies, the Planning Commission has undertaken a systematic process
of ‘scenario planning’ based on diverse views and disciplines to understand the
interplay of the principal forces, internal and external, shaping India’s
progress. This analysis suggests three alternative scenarios of how India’s
economy might develop titled, ‘Strong Inclusive Growth’, ‘Insufficient Action’
and ‘Policy Logjam’.

The first scenario ‘Strong Inclusive Growth’, describes the
conditions that will emerge if a well-designed strategy is implemented,
intervening at the key leverage points in the system. This in effect is the
scenario underpinning the Twelfth Plan growth projections of 8.2 per cent,
starting from 6.7 per cent in the first year to reach 9 per cent in the last
year and the second scenario ‘Insufficient Action’ describes the consequences of
half hearted action in which the direction of policy is endorsed, but sufficient
action is not taken. The growth in this scenario declines to around 6 per cent
to 6.5 per cent. The third scenario ‘Policy Logjam’, projects the consequences
of Policy Inaction persisting too long. The growth rate in this scenario can
drift down to 5 per cent to 5.5 per cent.

The Meaning of Inclusiveness

Inclusiveness means many different things and each aspect of inclusiveness
poses its own challenges for policy.

Inclusiveness as Poverty Reduction

Distributional concerns have traditionally been viewed as
ensuring an adequate flow of benefits to the poor and the most marginalised.
This must remain an important policy focus in the Twelfth Plan. It is worth
noting that the record in this dimension of inclusiveness is encouraging. The
percentage of the population below the official poverty line has been falling
but even as that happens, the numbers below the poverty line remain large.
According to the latest official estimates of poverty based on the Tendulkar
Committee poverty line, as many as 29.8 per cent of the population, that is, 350
million people were below the poverty line in 2009–10. Questions have been
raised about the appropriateness of the Tendulkar poverty line which corresponds
to a family consumption level of `3900 per month in rural areas and `4800 per
month in urban areas (in both cases for a family of five). There is no doubt
that the Tendulkar Committee poverty line represents a very low level of
consumption and the scale of poverty even on this basis is substantial. An
Expert committee under Dr. C. Rangarajan has been set up to review all issues
related to the poverty line keeping in view international practices.

It is well established that the percentage of the population
in poverty has been falling consistently but the rate of decline was too slow.
The rate of decline in poverty in the period 2004–05 to 2009–10 was 1.5
percentage points per year, which is twice the rate of decline of 0.74
percentage points per year observed between 1993–94 and 2004–05. Normally, large
sample surveys used for official estimates of poverty are conducted every five
years, but because 2009–10 was a drought year, the National Sample Survey Office
(NSSO) felt that it would tend to overstate poverty and it was therefore decided
to advance the next large sample survey to 2011–12. The results of this survey
will yield an official estimate of the extent of poverty in 2011–12, that is,
the position at the end of the Eleventh Plan period, but this will be available
only in mid-2013. However, preliminary results from the survey have been
published and they suggest that the percentage of the population in poverty will
decline significantly compared to 2009–10. According to some non-official
estimates, the rate of decline in poverty between 2004–05 and 2011–12 will be
close to 2 per cent per year, which was the Eleventh Plan target. If this turns
out to be the case, it can be claimed that the Eleventh Plan has indeed
delivered on inclusiveness.

Inclusiveness as Group Equality

Inclusiveness is not just about bringing those below an
official fixed poverty line to a level above it. It is also about a growth
process which is seen to be ‘fair’ by different socio-economic groups that
constitute our society. The poor are certainly one target group, but
inclusiveness must also embrace the concern of other groups such as the
Scheduled Castes (SCs), Scheduled Tribes (STs), Other Backward Classes (OBCs),
Minorities, the differently abled and other marginalised groups. Women can also
be viewed as a disadvantaged group for this purpose. These distinct ‘identity
groups’ are sometimes correlated with income slabs—the SCs and STs, for example,
are in the lower income category—and all poverty alleviation strategies help
them directly. Women on the other hand span the entire income spectrum, but
there are gender-based issues of inclusiveness that are relevant all along the
spectrum.

Inclusiveness from a group perspective obviously goes beyond
a poverty reduction perspective and includes consideration of the status of the
group as a whole relative to the general population. For example, narrowing the
gap between the SCs or STs and the general population must be part of any
reasonable definition of inclusiveness, and this is quite distinct from the
concern with poverty, or inequality. For example, it is perfectly possible for
anti-poverty strategies to be reducing income poverty among SCs and STs without
reducing the income gap between these groups and the general population.

Inclusiveness as Regional Balance

Another aspect of inclusiveness relates to whether all
States, and indeed all regions, are seen to benefit from the growth process. The
regional dimension has grown in importance in recent years. On the positive
side, many of the erstwhile backward States have begun to show significant
improvement in growth performance and the variation in growth rates across
States has narrowed. However, both the better performing and other States are
increasingly concerned about their backward regions, or districts, which may not
share the general improvement in living standards experienced elsewhere. Many of
these districts have unique characteristics including high concentration of
tribal population in forested areas, or Minorities in urban areas. Some
districts are also affected by left wing extremism, making the task of
development much more difficult.

In the Twelfth Plan, we must pay special attention to the
scope for accelerating growth in the States that are lagging behind. This will
require strengthening of States’ own capacities to plan, to implement and to
bring greater synergies within their own administration and with the Central
Government. As a first step, the Planning Commission is working with it’s
counterpart Planning Boards and Planning Departments in all State Governments to
improve their capabilities. An important constraint on the growth of backward
regions in the country is the poor state of infrastructure, especially road
connectivity, schools and health facilities and the availability of electricity,
all of which combine to hold back development. Improvement in infrastructure
must therefore be an important component of any regionally inclusive development
strategy.

Inclusiveness and Inequality

Inclusiveness also means greater attention to income
inequality. The extent of inequality is measured by indices such as the Gini
coefficient, which provide a measure of the inequality in the distribution on a
whole, or by measures that focus on particular segments such as the ratio of
consumption of the top 10 per cent or 20 per cent of the population to that of
the bottom 10 per cent or 20 per cent of the population, or in terms of
rural–urban, such as the ratio of mean consumption in urban versus rural areas.
An aspect of inequality that has come sharply into focus in industrialised
countries, in the wake of the financial crisis, is the problem of extreme
concentration of income at the very top, that is, the top 1 per cent and this
concern is also reflected in the public debate in India.

Perfect equality is not found anywhere and there are many
reasons why it may not even be a feasible objective. However, there can be no
two opinions on the fact that inequality must be kept within tolerable limits.
Some increase in inequality in a developing country during a period of rapid
growth and transformation may be unavoidable and it may even be tolerated if it
is accompanied by sufficiently rapid improvement in the living standards of the
poor. However, an increase in inequality with little or no improvement in the
living standards of the poor is a recipe for social tensions. Static measures of
inequality do not capture the phenomenon of equality of opportunity which needs
special attention. Any given level of inequality of outcomes is much more
socially acceptable if it results from a system which provides greater equality
of opportunity. As a society, we therefore need to move as rapidly as possible
to the ideal of giving every child in India a fair opportunity in life, which
means assuring every child access to good health and quality education. While
this may not be possible to achieve in one Plan period, the Twelfth Plan should
aim at making substantial progress in this dimension.

Inclusiveness as Empowerment

Finally, inclusiveness is not just about ensuring a
broad-based flow of benefits or economic opportunities, it is also about
empowerment and participation. It is a measure of the success we have achieved
in building a participatory democracy that people are no longer prepared to be
passive recipients of benefits doled out by the Government. They are slowly
beginning to demand these benefits and opportunities as rights and they also
want a say in how they are administered. This brings to the fore issues of
governance, accountability and peoples participation to much greater extent than
before. This also covers areas like access to information about government
schemes, knowledge of the relevant laws and how to access justice. The growing
concern with governance has also focused attention on corruption. How to tackle
corruption is now at the centre stage of policy debates.

Inclusiveness through Employment Programmes

One of the most important interventions for fostering
inclusion during Eleventh Plan was the MGNREGA. While its achievements in
ameliorating poverty and preventing acute distress during times of drought have
been recorded and appreciated, there are also some complaints against MGNREGA,
primarily on the grounds that it is a dole, involving huge expenditures that
could have been spent more productively. There are also complaints that it is
leading to increase in wages of agricultural labour and construction workers.

The view that rising wages by themselves represent a problem
is not credible since this is the only mechanism through which landless
agricultural labour can benefit from economic growth. If rising wages squeeze
farm profitability, the solution lies in raising farm productivity to
accommodate higher wages. In any case, rural labour relations in large parts of
the country continue to be feudal, and use of migrant labour for both
agriculture and construction continues to be exploitative. These inequities
would not get corrected by themselves. We should not be looking to perpetuate a
situation where low-cost labour provides the necessary profit margins for
farmers, removing incentives to invest in efficiency improvement.

The main point to note is that employment schemes are not new
in India, and they have a wellestablished poverty reducing impact. With National
Sample Survey showing an eightfold increase in employment in public works after
MGNREGA, there is no doubt that its impact on rural wage earnings and poverty
has been much larger than all previous rural employment schemes. What is less
appreciated is that this has been achieved with a rather modest increase in the
share spent on rural employment schemes out of total Central Plan expenditures.
It has increased from an average of 11.8 per cent in the three years before
MGNREGA (2002–03 to 2004–05) to 13.3 per cent in the last three (2009–10 to
2011–12). This means that although MGNREGA is not free of leakages, these have
declined considerably. Thus, far from opening a bottomless pit as some critics
still claim, the provision of employment as a legal right, has greatly improved
the share of intended beneficiaries in what government spends for development of
rural areas.

There is also evidence that wherever land productivity has
improved and greater water security been delivered, small and marginal farmers
working in MGNREGA sites have reverted back to farming and allied livelihoods.
There is also evidence that MGNREGA is enabling crop diversification,
particularly into horticulture, wherever it has adequately converged with
schemes of Agricultural Departments. An important lesson from this experience is
that it is the quality of assets created, which will determine whether MGNREGA
can go beyond the safety net to become a springboard for entrepreneurship, even
at the lowest income levels.
Each of the dimensions of inclusiveness discussed above is relevant, and public
attention often focuses on one or the other at different times. We should aim at
achieving steady progress in each of these dimensions. Accelerated growth in
recent years has yielded distinct benefits to many and the prosperity which this
has generated is visible to all, raising the expectations of all sections of the
population, and creating a demand for a fair share of the benefits of growth.
Policymaking has to be watchful of developments in each dimension of fairness
and be quick to take corrective steps as soon as the need arises. Box 1.1
provides an assessment of trends in some key variables which point to the
greater inclusiveness of growth in recent years.

Environmental Sustainability

While striving for faster and more inclusive growth, the
Twelfth Plan must also pay attention to the problem of sustainability. No
development process can afford to neglect the environmental consequences of
economic activity, or allow unsustainable depletion and deterioration of natural
resources. Unfortunately, the experience of development in many countries, and
our own past experience in some respects, suggests that this can easily happen
unless appropriate corrective steps are taken at early stages. The Twelfth Plan
must devise a strategy of development which effectively reconciles the objective
of development with the objective of protecting the environment.



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