Faster, Sustainable and More Inclusive Growth | India's Twelfth Year Plan

In the last decade, the Indian economy moved to a higher growth path. Between 2005 and 2008, the economy grew at around 9.5 per cent per annum. This made India one of the fastest growing nations in the world. The global financial crisis brought the growth down to 6.8 per cent in 2008-09, though even then India remained a growth leader in the world. This was followed by a strong recovery and the Indian economy grew by 8 and 8.5 per cent in the subsequent two years. Data for the first quarter of 2011-12 indicate a growth rate of 7.7 per cent. While there may be some moderation in growth in the current fiscal, the fundamentals of the economy are intact and the medium-term growth prospects remain buoyant. But the renewed uncertainty in the global economy, due to sluggish US growth and worsening of the Euro-zone sovereign debt crisis and weak business sentiments and persisting high inflation at home, poses considerable challenges to our economic growth.

Over the last two decades the Indian economy has become increasingly integrated with the global economy. It is indeed a matter of pride that the world views India today as a major driver of growth. But globalization also has a downside. It means that when the world sneezes, India runs the risk of catching a cold. Not surprisingly, the economic crisis in Europe and the slowdown in the US are impacting us adversely. As an important contributor to the global growth process, we are playing an increasing role in the international policy arena.

Growth target for the Plan
The Approach Paper outlines two alternative growth scenarios - 9 per cent and 9.5 per cent. There are good reasons, as has been outlined in the document before us, to pitch for a 9 per cent average growth for the plan period. Yet we need to retain a certain flexibility in our planning to consider raising the growth target to above 9 per cent, should the global environment improve and we make good progress in strengthening our domestic growth drivers in the initial years of the Twelfth Plan. We have achieved 9 per cent plus growth prior to the global slowdown. Our ability to deepen and broad-base the inclusion of the marginalised and vulnerable segments of our society in the economic mainstream, hinges crucially on sustaining buoyancy in our resource mobilisation and sustaining high growth path.
It is also important that more of this growth takes place in the backward areas of our country. There is already evidence that some of the slow growing states in the past have improved their performance in the recent years. This trend should be further reinforced. The objective of making growth more inclusive cannot be realised unless we are able to narrow down the regional imbalances and disparities. 

Fiscal consolidation
The budgetary support for the 11th Plan was targeted at Rs 16.08 lakh crore in nominal terms and has been fully financed by the Government. However, this was possible at high fiscal costs. After bringing down the fiscal deficit to 3.3 per cent of GDP in 2007-08 we had to breach fiscal targets and incur fiscal deficit of 7.8 per cent and 6.5 per cent of GDP in 2008-09 and 2009-10 respectively. The fiscal impact of these deviations will be felt in years to come in terms of high debt servicing requirements. We could afford this deviation to tide over the global economic crisis without any solvency concerns only because of the fiscal space we had created during the period 2004 to 2008. That fiscal space for manoeuvrability is no longer available. 

The States’ finances have been improving steadily in recent years.The States’ share in central taxes has been showing an upward trend: this share was 29.5 per cent during the Eleventh Finance Commission period (2001-2005); it was raised to 30.5 per cent during the Twelfth Finance Commission period (2005-2010) and currently stands at 32 per cent for the period 2010-15.

The flow of resources to the local bodies has been stepped up and made more buoyant during 2010-15, as the Thirteenth Finance Commission has linked grants to local bodies with the quantum of taxes collected by the Union Government. Reforms at the local body level have been incentivized through additional grants.

There has been a decline in the aggregate debt to GDP ratio for the States from 28.4 per cent in 2007-08 to an estimated 23.7 per cent in 2011-12. The estimated aggregate fiscal deficit of States in 2010-11 was 2.5 per cent of GDP, which was within the FC-XIII target of 2.6 per cent. The 2011-12 Budget Estimates of the States show an aggregate fiscal deficit of 2.2 per cent of GDP, which is well within the target of 2.5 per cent set by FC-XIII. The aggregate revenue surplus of States in 2011-12 is about 0.3 per cent, again ahead of FC-XIII projections. It is expected that the improved fiscal health of the States will result in their taking up more responsibilities for developmental activities at the State level, particularly in bridging the infrastructure gap during the Twelfth Plan period. 

Infrastructure Development
In the Eleventh Plan, the investment target in infrastructure was about Rs 20.5 lakh crore, with an attendant objective of increasing the share of private sector in the total investments, from around one-fourth to one-third. We have been successful in scaling-up infrastructure investments. According to Planning Commission estimates, in the first four years of the current Plan, the infrastructure investment will be around Rs.15.26 lakh crore. Gearing up to sustain the momentum during the next plan period commencing in 2012, would be a greater challenge. Issues like land acquisition, environment clearance and resettlement and rehabilitation will have to be addressed to de-risk both green-field and brown-field project development. We have to be focused on creating an enabling environment to facilitate investments. 

A major challenge in this context would be to manage the funding requirement of the sector. We have to collectively plan for meeting the investment target of US $ 1 trillion during the Twelfth Plan, with half of the proposed investment coming from the private sector. 

Power sector
In the context of Power generation, the recent concerns relate to supply constraints regarding fuel, coal and natural gas. Issues like land acquisition, deteriorating health of the state electricity boards and environmental clearances have also been adversely affecting this sector. On the distribution front, aggregate technical and commercial (AT & C) losses on an average, exceed 40%. This is not acceptable. The operational efficiency of the distribution utilities has to be improved. The States will have to review and revise the tariffs regularly to ensure the financial health of these utilities. Urgent action is needed on both fronts to ensure that the cumulative losses of utilities do not ultimately devolve on State Governments.

We have initiated two major steps in the area of tax reforms. The first pertains to the DTC and the second to the Goods and Services Tax (GST). The DTC Bill was introduced in August, 2011 and has been referred to the Parliamentary Standing Committee. The Committee is planning to submit its report by the Winter Session of the Parliament, and thereafter seek to get the legislation passed during the Budget session. By amalgamating several taxes levied by the Centre and the States at different stages of the value chain, the GST would mitigate cascading and make Indian industry competitive in domestic as well as international markets. It would also improve compliance and make the level of taxation transparent to the end consumers.

The introduction of GST requires a Constitutional Amendment to enable the Centre to levy a tax on the distribution of goods beyond the manufacturing stage and to empower the States to levy a tax on supply of services. A Constitutional Amendment Bill to this effect has already been introduced and is currently with the Parliamentary Standing Committee.

Food Security
Ensuring the food and nutritional security for all Indians is the collective responsibility of the Centre and the States. The implementation of the National Food Security Act will be the joint responsibility of the Centre and States. Both have to work together to procure the required quantity of food grains and ensure distribution of the food grains to the beneficiaries through an effective delivery system. Revamping the PDS is a necessary pre-requisite for the effective implementation of the proposed National Food Security Act. The Supreme Court has also directed an end-to-end computerization of PDS. The Task Force under Shri Nilekani is working on direct transfer of subsidy that will eliminate leakages and will minimize the distortion of prices. As soon as this is available the States/UTs should draw up a time bound action plan for computerization of Supply Chain Management. 

Government's Role in Twelfth Year Plan
First, government must provide a policy environment in which the creative spirit of our farmers and entrepreneurs is given full support and encouragement. This includes an environment of macro-economic stability, efficient functioning markets which ensure competitive discipline on private sector producers, a sound financial system for allocating financial resources, good governance with transparency and effective enforcement of the rule of law.

Second, the government has a very big role to play in developing the infrastructure needed in both rural and urban areas to support broad and inclusive growth.

Third, the government must have special programmes for livelihood support for the poor and vulnerable, aimed at directly increasing their income earning capabilities and at mainstreaming them in the overall growth process.

Fourth, government must ensure that every citizen must have access to essential public services of acceptable quality in health, education, skill development, provision of safe drinking water and sanitation. Without such services, effective inclusion is simply not possible. 

source :Complied from the speech of PM and FM on the National Development Council Meeting