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Updated: December 27, 2012 23:44 IST

Guard against policy logjam: Montek

Special Correspondent
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Montek Singh Ahluwalia
Montek Singh Ahluwalia

The Centre and the States will have to focus on policies that promote different components of investment

In a pragmatic assessment of the current economic situation at home and abroad, the Planning Commission, on Thursday, projected a scaled-down growth target of 8 per cent for the XII Plan (2012-17) from 8.2 per cent proposed earlier and held out a warning that any ‘policy logjam’ would slow down the GDP (gross domestic product) expansion further to as low as 5-5.5 per cent during the five-year period.

In his address at the National Development Council (NDC) meeting convened here, under the chairmanship of Prime Minister Manmohan Singh to endorse the draft Plan document, Planning Commission Montek Singh Ahluwalia said: “Growth outcomes will depend upon the extent to which we are able to take the difficult decisions needed to intervene at key leverage points to generate inclusive growth.”

Presenting three different scenarios with varying levels of economic growth — the third being the worst-case situation afflicted by ‘policy logjam’ — Mr. Ahluwalia said: “This is the scenario where there is very little progress on the different decisions identified. In this case, growth could be stuck between 5 and 5.5 per cent.” In the second scenario, wherein policies move in the right direction but do not get fully implemented, the level of economic growth would remain limited in the range of 6-6.5 per cent with correspondingly lower progress on inclusiveness.

Mr. Ahluwalia pointed out that the first scenario pertaining to strong inclusive growth was the only “scenario that will meet the aspirations of the people.” But here too, the 8.2 per cent annual growth projected earlier for the five-year period till 2016-17 would require modification in view of the Finance Ministry’s growth projection of 5.7-5.9 per cent in 2012-13, coupled with the United Nations’ assessment that the global economy would be significantly weaker in 2012 and 2013.

“In view of these developments, growth rate associated with scenario one could be scaled down to 8 per cent…I would like to emphasise that achieving an average of 8 per cent over five years, following a first year growth of, say, 5.8 per cent (2012-13) and say something over 7 per cent in the second year, will involve a sharp acceleration in the last three years of the Plan,” Mr. Ahluwalia said.

To achieve this ‘aspirational’ growth level, however, the Centre and the States would have to focus on policies that promote different components of investment and increase their efficiency. As for investments, while the public sector accounts for about 25 per cent, the balance 75 per cent of investment in the economy has to come from private sources such as the household sector and corporates.

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