The draft of the 12th Five Year Plan covering the period 2012-13 to 2016-17, approved by the National Development Council last week, aims to achieve an annual average growth rate of 8 per cent, scaled down from 8.2 per cent. The Prime Minister has called the target “aspirational,” while a few Chief Ministers, notably Narendra Modi, found it lacking in ambition. Political statements apart, it is clear that the focus on growth rates has tended to distract attention from the rest of the planning exercise. In retrospect, most official projections have been over-optimistic. The approach paper of the 12th Plan talked of an annual average growth rate of between 9 and 9.5 per cent. The Prime Minister had gone even further, hoping for double-digit growth rates during the latter part of the Plan. What made those projections totally unrealistic was the fact that the economic slowdown was already getting reflected in successive quarterly GDP data. The Union Budget (2012) projected an ambitious growth rate of 7.6 per cent, way above what most other forecasters had estimated at that time. The government has been slow in lowering the forecasts even when conclusive evidence of deceleration has been coming in. True to form, the government expects the economy to grow by between 5.7 and 5.9 per cent this year — the first year of the 12th Plan — when the growth during the first half has been at just 5.4 per cent. Considering that a revival in manufacturing where the slowdown is most pronounced cannot happen that quickly, an annual average rate of 8 per cent over the plan period can be achieved only if the growth rate in each of the last three years is well above 9 per cent.
The Planning Commission is banking on reinvigorating a few existing policies while expecting vastly improved performance in certain key areas: gross fixed capital formation rate to go up to 35 per cent from the present 32 per cent, with the private sector playing a major role in catalysing such investment; a new look industrial policy that focuses on better coordination between the government and the private sector to vastly improve business sentiment; stressing the importance of national industrial manufacturing zones in a scheme of reviving industrial output. More controversial are suggestions to “streamline” labour laws by increasing the threshold employment for labour legislation to 300. The case for increasing agricultural growth to 4 per cent largely through technology absorption is unexceptionable. Yet all these and more may not be sufficient to achieve an annual growth rate of 8 per cent. Since any likely shortfall will reflect adversely on the planning process itself, the question then is: is the obsessive focus on growth rates counterproductive?