Indian Economy, 5th edition (15 page)

Till date, the Government has been evaluating the achievements of all the Developmental programmes, courtesy the youngest PM of India. Somehow, democracy and development got connected with a major change in the thinking of the political elite whichf decided to go in for democratic decentralisation to promote development. It laid strong foundations for itself as the constitutional Amendments—the 73
rd
and 74
th
were possible by the early 1990s.

Though the economy had better growth rates throughout the 1980s, specially in the latter half, yet it was at the cost of bitter fiscal imbalances. By the end of the Plan, India had a highly unfavourable balance of payments situation. Heavy foreign loans on which the governmental expenditures depended heavily during the period, the economy failed to service.
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The Plan was not laid with a strong financial strategy which put the economy into a crisis of unsustainable balance of payments and fiscal deficits.
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India basically tried to attend its growth prospects by commercial and other external borrowings on hard terms which the economy failed to sustain. In the process of liberalisation, an expansion of internal demand for the home market was permitted without generating equitable levels of exports and ultimately Indian imports were financed by the costly external borrowings. Such an ‘inward looking’ fiscal policy proved to be a mistake when the external aid environment for the economy was deteriorating.
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Two Annual Plans:

The Eighth Plan (whose term would have been 1990–95) could not take off due to the ‘fast-changing political situation at the Centre’.
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The pathbreaking and restructuring-oriented suggestfions of the Eighth Plan, the sweeping economic reforms ensuing around the world as well as the fiscal imbalances of the late 1980s were the other important reasons for the delay in the launch of the Eighth Plan. The new Government, which assumed power at the centre in June 1991, decided to commence the Eighth Plan for the period 1992–97 and that the fiscals 1990–91 and 1991–92 should be treated as two separate Annual Plans. The two consecutive Annual Plans (1990–92) were formulated within the framework of the approach to the Eighth Plan (1990–95) with the basic thrust on maximisation of employment and social transformation.

Eighth Plan:

The Eighth Plan (1992–97) was launched in a typically new economic environment. The economic reforms were already started (in July 1991) with the initiation of the structural adjustment and macro-stabilisation policies necessitated by the worsening Balance of Payments (BoP), higher fiscal deficit and unsustainable rate of inflation.

This was the first plan which went on for an introspection of the macro-economic policies which the country had been pursuing for many decades. The major concerns and pathbreaking suggestions
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which this Plan articulated may be summarised as follows:

(i)
an immediate re-definition of the state’s role in the economy was suggested;
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(ii)
‘market-based’ development advised in the areas which could afford it i.e., a greater role for the private sector in the economy;
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(iii)
more investment in the infrastructure sector specially in the laggard states as the ongoing emphasis on greater private sector investment could not be attracted towards these states;

(iv)
rising non-plan expenditure and fiscal deficits need to be checked;

(v)
subsidies need restructuring and refocussing;

(vi)
planning immediately needs to be ‘decentralised’;

(vii)
special emphasis on ‘co-operative federalism’ suggested;

(viii)
greater focus on ‘agriculture’ and other ‘rural activities’ was suggested for which the Plan cited empirical evidences as they encourage the economy to achieve enhanced standard of living for its people and to promote the cause of balanced growth, a shift in the mindset of planning.

As the economy moved towards liberalisation, criticism came from every quarter against the move. The process of planning was also criticised on the following counts:

(i)
As economy moves towards the market economy, the planning becomes ‘irrelevant’;

(ii)
When the state is ‘rolling back’, planning makes no sense;

(iii)
Planning process should be ‘re-structured’ in the era of liberalisation; and

(iv)
There should be increased thrust on the ‘social sector’ (i.e. education, healthcare etc.)

Ninth Plan:

The Ninth Plan (1997–2002) was launched when there was an allround ‘slowdown’ in the economy led by the South East Asian Financial Crisis (1996–97). Though the liberalisation process was still criticised, the economy was very much out of the fiscal imbroglio of the early 1990s. With a general nature of the ‘indicative planning’ the Plan not only did target an ambitious high growth rate (7 per cent) but also tried to direct itself towards time-bound ‘social’ objectives. There was an emphasis on the seven
identified Basic Minimum Services (BMS) with additional Central Assistance for these services with a view of obtaining complete coverage of the population in a time-bound manner. The BMS
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included:

(i)
Safe drinking water;

(ii)
Primary health service;

(iii)
Universalisation of primary education;

(iv)
Public housing assistance to the shelter-less poor families;

(v)
Nutritional support to children;

(vi)
Connectivity of all villages and habitations; and

(vii)
Streamlining of the public distribution system.

The issue of fiscal consolidation became a top priority for the Governments starting from this Plan, for the first time which had its focus on the following
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related issues:

(i)
Sharp reduction in the revenue deficit of the Government, including centre, states and the PSUs through a combination of improved revenue collections and control of inessential expenditures;

(ii)
Cutting down subsidies, collection of user charges on economic services (i.e electricity, transportation, etc.), cutting down interest, wages, pension, PF, etc;

(iii)
Decentralisation of planning and implementation through greater reliance on states and the Panchayat Raj Institutions (PRIs).

Tenth Plan:

The Plan (2002–07) commenced with the objectives which had greater participation of the NDC in their formulation. Some of the highly important steps
were taken during the plan which undoubtedly points out a change in the planning policy mindset of the economy, major ones being:
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(i)
Doubling per capita income in 10 years;

(ii)
Accepting that the higher growth rates are not the only objective—it should be translated into improving the quality of life of the people;

(iii)
For the first time the Plan went to set the ‘monitorable tragets’ for eleven select indicators of development for the centre as well as for the states;

(iv)
‘Governance’ was considered a factor of development;

(v)
States’ role in planning to be increased with the greater involvement of the PRIs;

(vi)
Policy and institutional reforms in each sector i.e. reforms in the PSUs, legal reforms, administrative reforms, labour reforms, etc;

(vii)
Agriculture sector declared as the prime moving force (PMF) of the economy;

(viii)
Increased emphasis on the social sector (i.e education, health, etc.);

(ix)
Relevance between the processes of economic reforms and planning emphasised; etc.

The Mid-term Appraisal of the Plan was approved by the NDC in June 2005. The assessment gives a mixed picture regarding its performance. As per the Appraisal, the country performed well in many areas and these gains needed to be consolidated but there were some important weaknesses also, which, if not corrected can undermine even the current performance level.
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Eleventh Plan:

The Plan targets a growth rate of 10 per cent and emphasises the idea of ‘inclusive growth’. In the approach Paper, the Planning Commission shows its concern regarding realising the growth targets on account of the compulsions towards the Fiscal Responsibility and
b
udget Management Act. In recent times some aberrations in the economy have started to increase the Government concerns in meeting the Plan target of 10 per cent growth. The major concerns are:

(i)
A higher inflation (above 6 per cent) led to the tightening of the credit policy forcing lower investment in the economy (which will lower the production);

(ii)
A stronger rupee is making export earnings shrink fast;

(iii)
Costlier foodgrains and other primary articles playing havoc for the poor masses;

(iv)
Costlier oil prices becoming a burden for the national exchequer; etc.

Not only the Government but the
c
onfederation of Indian industry (CII) as well as the World Bank expressed doubt in the Eleventh Plan realising the ambitious 10 per cent growth.

Eleventh Plan: Performance

The Planning Commission (PC) had attempted the mid-term appraisal of the Plan which was considered and approved by the National Development Council in July 2010. The appraisal document reviewed the developments and provided a comprehensive assessment of the performance of the economy during the Eleventh Plan period so far in different sectors, together with suggested mid course corrections. It has drawn attention to the problems in some selected areas and identified constraints that would be of relevance for the balance period of the Eleventh Plan and also for the Twelfth Plan. These include inter-alia:

(i)
Restoring dynamism in agriculture,

(ii)
Managing India’s water resources,

(iii)
Problems in achieving power generation targets,

(iv)
Issues pertaining to urbanisation, and

(v)
Special problems of Tribal Development.

In respect of
agriculture,
the Mid-Term Appraisal notes that though agriculture performance and the rate of growth in the Eleventh Plan is likely to be better than that in the Tenth Plan, it may, however, not reach the target of 4% per year. The need for attention to agriculture and other critical issues mentioned above would require
concerted action
by the Centre and the States.

The Review by the PC regarding the
Poverty Estimates
is also important when the issue has become a matter of debate in the country. The Planning Commission is the nodal agency for estimating poverty in the country both at national level and across the States. The Planning Commission estimates the poverty on the basis of poverty line defined in terms of monthly per capita consumption expenditure. The Commission has been estimating poverty line and poverty ratio since 1997 on the basis of the methodology contained in the report of the Expert Group on ‘Estimation of Number and Proportion of Poor’ (known as
Lakdawala Committee Report
). The Head-count poverty ratio has been estimated by using the above mentioned poverty lines from a large size sample survey of household consumption expenditure carried out by the National Sample Survey Office with an interval of 5 years approximately.

The Planning Commission constituted an Expert Group in December, 2005 under the chairmanship of Prof. Suresh D Tendulkar to review the methodology for estimation of poverty. The Expert Group submitted its report in December 2009. While acknowledging the multi dimensional nature of poverty, the Expert Group recommended moving away from anchoring the poverty lines to the calorie intake norm, adopting the Mixed Reference Period (MRP) based estimates of consumption expenditure as the basis for future poverty lines, adopting MRP equivalent of urban Poverty Line Basket (PLB) corresponding to 25.7% urban headcount ratio as the new reference PLB for rural areas. On the basis of above methodology, the all-India rural poverty headcount ratio for 2004-05 was estimated at 41.8 %, urban poverty headcount ratio at 25.7% and all India level at 37.2%. It may however be mentioned that the Tendulkar Committee’s estimates are not strictly comparable to the present official poverty estimates because of different methodologies. As has been indicated in the Mid Term Appraisal of the Eleventh Five Year Plan, the revised poverty lines and poverty ratios for 2004-05 as recommended by the Tendulkar Committee have been accepted by the Planning Commission. The Tendulkar Committee has specifically pointed out that the upward revision in the percentage of rural poverty in 2004-05, resulting from the application of a new rural poverty line, should not be interpreted as implying that the extent of poverty has increased over time. These estimates, as reported by the Committee, clearly show that whether we use the old method or the new, the percentage of the population below poverty line has declined by about the same magnitude.

The performance on the
Fiscal Scenario
, according to the PC, the expansionary fiscal measures taken by the Government in order to counter the effects of the global slowdown were continued in 2009-10 and this led to further increase in the key deficit indicators. The fiscal deficit of the Centre which was 2.5% in 2007-08 increased substantially to 6.0% in 2008-09 and further to 6.4% in 2009-10 but it declined to 5.1% in 2010-11 (RE) and the Budget Estimates for 2011-12 put the fiscal deficit at 4.6% of the GDP. Similarly, the revenue deficit of the Centre increased from 1.1% in 2007-08 to 4.5% in 2008-09 and further to 5.2% in 2009-10 and declined to 3.4% for 2010-11 (RE). As per 2011-12 (BE), the revenue deficit is projected at the same level of 3.4% of GDP. The increase in the deficit levels of the Centre owes to revenue foregone on account of reduction in indirect tax rates and enhanced public expenditure in order to boost demand in the economy amidst global meltdown.