Saturday, 7 July 2012

12th FYP: Approach Paper

Extract from 12th Five Year Plan Approach PaperOVERVIEW

The Eleventh Five Year Plan (2007-08 to 2011-12) had aimed at achieving faster and more inclusive growth. Rapid GDP growth, targeted at 9.0 per cent per annum, was regarded necessary for two reasons: 
(a) to generate the income and employment opportunities that were needed for improving living
standards for the bulk of the population; and
(b) to generate the resources needed for financing social sector programmes, aimed at reducing poverty and enabling inclusiveness.

The economy has performed well on the growth front, averaging 8.2 per cent in the first four years. Growth in 2011-12 is likely to be around 8.0 per cent. The economy is therefore, likely to achieve an average GDP growth of around 8.2 per cent over the Eleventh Plan period, which is lower than the 9.0 per cent targeted originally, but higher than the 7.8 per cent achieved in the Tenth Plan. This implies a nearly 35 per cent increase in per-capita GDP during this period. It has also led to a substantial increase in government revenues, both at the Centre and the States, resulting in a significant step-up of resources for the programmes aimed at inclusiveness.
The acceleration in the growth in the Eleventh Plan period compared with the Tenth Plan is modest,but it is nevertheless a good performance, given the fact that a severe global economic crisis depressed growth in two of these five years, and also that in the year 2009 India had the weakest monsoon in three decades. The slowdown in 2011-12 is a matter of concern, but can be reversed if the investment climate is turned around and fiscal discipline is strengthened.

The progress towards inclusiveness is more difficult to assess, because inclusiveness is a multidimensional concept. An important consequence of the focus on inclusion during the Eleventh Plan has been heightened 
awareness about inclusiveness and empowerment amongst people. A greater desire to access information
about the rights and entitlements made available by law and policy, and eagerness to demand accountability
from the public delivery systems augurs well for the future.

One important feature of the growth experienced in the Eleventh Plan, which is relevant for
inclusiveness, is that high rates of economic growth have been more broadly shared than ever before across
the States. While most States have shown sustained high rates of growth, several of the economically
weaker States have demonstrated an improvement in their growth rates. Amongst them are Bihar, Orissa,
Assam, Rajasthan, Chhattisgarh, Madhya Pradesh, Uttarakhand and to some extent Uttar Pradesh. According to the available data, no State has averaged GSDP growth of less than 6.0 per cent during the 
Eleventh Plan period. However there is growing concern about the backwardness of individual districts, several of which are located in States that are otherwise doing well. Many of these districts are also affected by Left-wing Extremism. The Backward Regions Grant Fund (BRGF) and various other regional initiatives have been specially designed to address this problem.

Progress in Reducing Poverty
Reducing poverty is a key element in our inclusive growth strategy and there is some progress in that regard. A summary assessment is that the pace of poverty reduction has accelerated, though it may still be short of the target. Nevertheless, it is heartening to note that looking ahead; India is well poised to meet the Millennium Development Goal target of 50 per cent reduction of poverty between 1990 and 2015.

One critical parameter to examine the degree of inclusiveness is to see what has happened to the real
farm wages in the rural areas.  It is comforting to see that during the period 2007-10 (calendar years), the average real wage rates increased by 16.0 per cent at the all India level. The growth was the fastest in Andhra Pradesh (42%) and Orissa (33%). 

The country’s total population, as recorded in Census 2011, at 1.21 billion, is slightly more than what was forecast. But the population growth rate has decelerated from 1.97 per cent per annum (1991-2001) to 1.64 between 2001 and 2011. Notably, it declined in almost every State including those of the populous Gangetic plains. The deceleration reflects a much-needed decline in the Total Fertility Rate (TFR) which is estimated to have fallen to 2.6 per cent and is expected to decline to 2.3 per cent in the first half of the present decade.
Also India is experiencing a demographic dividend. This ‘demographic dividend’ can add to growth potential, provided two conditions are fulfilled. First, higher levels of health, education and skill development must be achieved. Second, an environment must be created in which the economy not only grows rapidly, but also enhances good quality employment/livelihood opportunities to meet the needs and aspirations of the youth.

Employment and Livelihood
For growth to be inclusive it must create adequate livelihood opportunities and add to decent employment commensurate with the expectations of a growing labour force. As noted above, India’s young age structure offers a potential demographic dividend for growth, but this potential will be realised only if the extent and quality of education and skill development among new entrants to the workforce is greatly enhanced. The  National Sample Survey Organization (NSSO) survey on Employment (2009-10) has shown that the numbers of young people in education, and therefore, out of the workforce, has increased dramatically causing a drop in the labour participation rate.[The total number of young working-age (15-24) people who continued in educational institutions doubled from about 30 million in 2004-05 to over 60 million in 2009-10]. The survey also shows that between 2004-05 and 2009-10, the overall labour force expanded by only 11.7 million.

The lower growth in the labour force is not expected to continue in future and we can assume that much larger numbers of educated youth will be joining the labour force in increasing numbers during the Twelfth Plan and in the years beyond. The clear implication of this is that the pace of job/livelihood creation must be greatly accelerated. Part of this must come from a significant boost to the manufacturing sector of the economy, such that it grows at a rate that is faster than most other parts of the economy.However, this may not be enough.There is a potential for an accelerated pace of creation of more durable rural non-farm jobs/livelihood opportunities. Such job opportunities could come from faster expansion in agro-processing, supply chains and the increased demand for technical personnel for inputs into various aspects of farming that is undergoing steady modernisation, and also the maintenance of equipment and other elements of rural infrastructure. The service sector too has to continue to be a place for creation of decent jobs/livelihood opportunities, in both rural and urban areas.

Growth in the farm sector (agriculture and allied activities) at 3% in the 11th Plan, though better than in the Tenth Plan, remains short of the 4.0 per cent Plan target. Still, with half of our population dependent on agriculture  and allied activities, we need faster farm sector growth to benefit poor farmers, many of whom are women. The below target growth in this sector is one of the reasons for increase in food prices over the last two years. Global development experience, especially from the BRIC countries, reveals that one per centage point growth in agriculture is at least two to three times more effective in reducing poverty than the same magnitude of growth emanating from non-agriculture sector. 

Since agriculture is a State subject, the Centre will have to work hand in hand with the States to bring coherence in policies and strategies. Higher levels of investments in agriculture, both by the public and private sector can yield much better results if the reforms are undertaken to streamline not only the incentive 
structures for the farmers, but also the institutional framework in which agriculture and related activities
take place.

The 11th Plan had expressed the necessity of allocating additional resources to health and laid down monitorable targets for parameters relating to Infant Mortality Rate (IMR), Maternal Mortality Rate (MMR), institutionalised delivery, extent of full immunisation, etc. Data on these parameters, available for the first three years of the Eleventh Plan, show some improvement. 

In the Eleventh Plan, the total public expenditure on health in India by Centre and the States was less than 1.0 per cent of GDP and it needed to be increased to 2.0 or 3.0 per cent.We should aim to increase total health expenditure as per centage of GDP to 2.5 per cent by the end of Twelfth Plan.

The Eleventh Plan had articulated the need for expanding educational facilities and improving quality of education, as key instruments for achieving faster and inclusive growth. There has been notable success in expanding capacity, but the challenge of improved quality still persists. The Right to Education (RTE) Act, which became operational in 2009, has laid a solid foundation on which we need to build. A major achievement is that most children are now in school. The ASER 2010 report shows that for the age group 6–14 years in all of rural India, the percentage of children who are not enrolled in school has dropped from 6.6 per cent in 2005 to 3.5 per cent in 2010. 

We now confront the greater challenge of improving the quality of school education. This means extensive and improved teacher training, upgrading curriculum and enforcing of accountability in teachers’ attendance. As increasing number of children finish elementary school, there will be need to expand capacity in secondary and higher secondary schools. Envisaging universalisation of secondary education by 2017 should be a priority in the Twelfth Plan. The Eleventh Plan had outlined a threefold strategy of expansion, equity and excellence for higher education- this effort should be continued in the 12th Plan.

Infrastructure Development
Inadequate infrastructure was recognised in the Eleventh Plan as a major constraint on rapid growth. The total investment in infrastructure (which includes roads, railways, ports, airports, electricity, telecommunications, oil gas pipelines and irrigation) is estimated to have increased from 5.7 per cent of GDP in the base year of the Eleventh Plan to around 8.0 per cent in the last year of the Plan. Efforts to attract private investment into infrastructure through the PPP route have met with considerable success.

Compared to other developing countries, India has been slow to urbanise, but the pace of urbanisation is expected to accelerate over the next two decades. Since it takes time to create urban infrastructure, it is necessary to have a sufficiently long term focus on urban planning in the Twelfth Plan.

The Energy Challenge
The energy needs of rapid growth will pose a major challenge since these requirements have to be met in an environment where domestic energy prices are constrained and world energy prices are high and likely to rise further. For the GDP to grow at 9.0 per cent, commercial energy supplies will have to grow at a rate between 6.5 and 7.0 per cent per year.

Rational energy pricing is critical for both effective demand management and a healthy supply response.The Integrated Energy Policy, which was approved in 2009, had enunciated principles of energy pricing that equalize domestic energy prices with the prices of imported energy, while allowing for targeted subsidy to the needy and poor. The Twelfth Plan must address the challenge of aligning domestic energy prices with the global price trends. Our ability to sustain high growth in the Twelfth Plan will depend critically upon our ability to make this adjustment.

Natural Resource Management – Water, Land and Forests
Management of water resources poses increasingly difficult challenges that will require attention in the Twelfth Plan. There is some scope for increasing water availability. While these opportunities must be fully exploited, the real solution has to come from greater efficiency in water use.

Agriculture accounts for 80.0 per cent of water needs at present, and there is considerable scope
for increasing efficiency of water use in this area. This requires:
a. better water management in areas of large and medium irrigation projects. 
b. requires putting in place more holistic aquifer management strategies. 
c. Separation of electricity feeders for agriculture and domestic use can help limit the availability 
of electricity for pumping ground water thus breaking the vicious cycle between free energy and excess
use of groundwater.
Wherever this has been done in combination with large-scale watershed programmes, there is evidence that groundwater levels have recovered. 

Normally, efficient use of scarce resources requires appropriate pricing, but pricing of water is a sensitive issue.  This problem can be solved by providing ‘lifeline’ water supplies for drinking and cooking
at very low prices, while charging appropriately for additional water use by domestic consumers.

The availability of land has become a major constraint on expansion of infrastructure, development of mineral resources, industrialisation and urbanisation. A new modern law is needed to govern the acquisition of land for industrial use, infrastructure development and urbanisation. This should also contain provisions for resettlement and rehabilitation. A bill to this effect has been introduced in Parliament.

The protection and strengthening of our natural forests is another critical area. This is also linked to conservation of soil and treatment of watersheds, which have a bearing on the way we deal with our water resources, particularly drinking water. They also impact on the availability of energy for the economy,since most of the country’s coal resource lies under forest. Since rapid economic growth will require a commensurate growth in energy supply and most of our electricity generation is expected to be coal based, there are potential conflicts between protecting the forests and ensuring an adequate supply of energy to the economy. It will be necessary to evolve mechanisms through which a suitable balance can be struck between the energy requirements of development and the need for environmental protection.

Implementation, Accountability and Governance
An over-arching challenge that requires much greater attention in the Twelfth Plan is that of ensuring better implementation and improved accountability. There are four aspects of governance that are important.

a. better governance is crucial for translating the large outlays of our flagship programmes into enduring outcomes on the ground. Total Quality Management, innovative use of IT and other technologies which improve monitoring and supervision. 
b. ‘Project management’ capabilities must be improved for the country to get better returns from public investment in infrastructure and also in the social sectors. Project management, with a view to  deliver on time and within cost, is a learnable capability that can be institutionalised, as demonstrated by the development 
experiences of Japan, Korea, Singapore and China.
c. the broader issue of how to rid the system of corruption, which is both morally abhorrent and imposes economic costs? A number of initiatives need to be urgently pursued. Several legislative measures are needed. These include the establishment of an effective Lokpal, introduction of a law on public procurement  and transparency, and the creation of a legislative framework governing the functioning of regulatory institutions so as to ensure both functional autonomy and accountability.
d. Finally, to combat corruption, it is imperative to ensure speedy prosecution and trial in corruption 
cases. The long delays in the judicial process are an important factor behind the growing cynicism about
the rule of law in our system. Reforms in the legal process need to be put in place without further delays.

The Global Context
India’s growth prospects depend largely on an ability to tackle supply side constraints in the domestic economy, but they cannot be viewed in isolation from developments in the world economy, if only because our economy is now much more globally integrated. The share of exports of goods & services in GDP has increased from 14.0 per cent in 2000-01 to 22.0 per cent in 2010-11 and India is now viewed as an important destination for FDI.

The changes taking place in the world economy, with a shift in economic strength towards emerging markets and especially in Asia, are inherently favourable for India.India has the potential to become the third largest GDP in the world in two decades. However, to realise this potential we must ensure sustained rapid growth. China has grown around 10.0 per cent per year in real terms for 30 years and is now expected to slow down. India is currently behind China, but the evidence suggests that India has now developed the potential for sustained rapid growth over the next two decades, provided appropriate supportive policies are put in place. These policies must promote and support changes in many sectors. Our infrastructure, industrial sophistication, management of cities, and also management of a whole range of knowledge promoting institutions, particularly the universities, will have to change dramatically. Institutional changes will be necessary. These changes take time to bring about, but it is important to begin now if we want the Indian economy to occupy its rightful potential in the world.

Prospects for the Twelfth Plan
The message emerging from this overview is that the economy has gained in strength in many dimensions and is therefore well placed to achieve faster, sustainable and more inclusive growth. Having achieved 8.2 per cent growth during the Eleventh Plan, it is reasonable to aim at 9.0 per cent growth for the Twelfth Plan. To achieve rapid growth, the economy will have to overcome constraints, but it is not impossible, if we have the political will to do what is necessary. Economic reforms over the last twenty years have resulted in the citizens of India having high expectations. The Twelfth Plan has to meet the aspirations of millions of young men and women. This cannot be done by following a business-asusual approach. All sections of society – government, farmers, businesses, labour and concerned citizens – have to adopt newer, more effective ways of pursuing their activities, so that we can collectively achieve our lofty goals.

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