The Hindu Business Line : NDC meeting ahead — Time for treating economic ills

The Mid-term Appraisal of the Tenth Plan is an important exercise as it lists the deficiencies in implementation of the Plan schemes as also the constraints plaguing the economy. Its suggestions for mid-course correction need to be shared with the chief stakeholders of development — the States.

AS THE country's principal policy-making body that also fosters cooperative federalism, the Planning Commission cannot be dismissed as a relic of the socialist era when central planning held sway. Even after India's bid to liberalise and go global, during the 1990s, the Plan panel had managed to retain its relevance at a time when market forces began to resolve the efficient resources allocation with the Government playing the part of a facilitator.

In this milieu, the United Progressive Alliance (UPA) Government, headed by Dr Manmohan Singh, convenes for the first time a meeting of the National Development Council (it is 51st for the body) on June 27.

For a day and half, the interaction between the Centre and the States via the Plan panel will be in full play. The NDC is to give its seal of approval to the Mid-Term Appraisal Report of the Tenth Five-Year Plan (2002-07) even if the document is being presented in the first quarter of the penultimate year to the Plan period; the General Elections of 2004 and the subsequent change of government at the Centre prevented the earlier tabling of the report.

As the MTA documents the deficiencies in the implementation of various Plan schemes as also the shortcomings and constraints plaguing the economy, its suggestions for mid-course correction need to be shared with the chief stakeholders of development — the States. With 36 hours barely enough for the effective interchange of ideas between the Plan panel and the Chief Ministers, the NDC is to have a presentation by the Planning Commission Deputy Chairman, Dr Montek Singh Ahluwalia, of the 318 recommendations and 59 policy initiatives in the 513-page MTA. The diagnoses and suggestions contained in the MTA became public knowledge when the draft report "leaked out" of the Yojana Bhavan.

Though Dr Ahluwalia's pet theme of using the bulging foreign exchange reserves for infrastructure projects did not find favour with the Finance Ministry, the MTA suggests that the level of foreign exchange reserves — $140.4 billion as on March 11, — creates an opportunity for funding a part of the huge financial requirement for creating world-class infrastructure. It merely notes thus: "The extent to which we can draw down foreign exchange reserves for this purpose will depend upon our perception of the need for reserves to cover balance of payments risks and the possibility of utilising them in a non-inflationary manner".

Considering the zooming crude oil prices, at $59 a barrel; the trade deficit reaching $27 billion last year; and with the current account slipping into deficit after a few years of modest surplus, the dice is heavily loaded against any proposal that would even moderately drain forex reserves. Some economists wonder if the Government could, ideally, have made over a part of the forex reserves to buy oil acreages abroad to ensure uninterrupted supply, particularly when our dependence on imported oil is substantial and the bill is getting heavier by the day.

The MTA is an important report as it deals with bread-and-butter issues of millions of people. Thus the Plan panel states that the objective of accelerating GDP growth to 8 per cent in the years ahead, and achieving a more inclusive spread of benefits, relies critically upon "a reversal of recent trends in agriculture where growth has decelerated sharply from 3.2 per cent between 1980-81 and 1995-96 to a trend average of 1.9 per cent subsequently".

The industrial sector, which had a lacklustre show in the first two years of the Tenth Plan, seems to have turned around last year with a growth rate of 8.1 per cent in the first 11 months (April 2004 to February 2005). Still, the average for the first three years is unlikely to exceed 7 per cent — much better than the average of 4.5 per cent in the Ninth Plan but well short of the Tenth Plan target of 8.9 per cent.

The social sector indicators remain a problem area, with India comparing poorly with the levels achieved by East Asian countries 25 years ago, when they first began to grow rapidly. The employment situation presents a `serious problem' as the MTA projections, using sectoral growth rates and estimated employment elasticities, are that the unemployment rate would have increased from 8.87 per cent in the base year 2001-02 to 9.11 per cent in 2004-05. This implies that total employment increased slower than labour force growth.

On the key issue of labour reforms, the Plan panel is for building a consensus for amendments to labour laws to remove some of the rigidities that affect the competitiveness of industry. Sans such a consensus, selective exemption from the applicability of some of the laws could be considered for Special Economic Zones and export-oriented units (EOUs). But, then, when Parliament passed the SEZ Act, a clause providing for selective exemption of labour laws was dropped, apparently at the behest of the Left parties.

The MTA concedes that the availability of resources in the public sector to meet targeted levels of Plan expenditure is a major area of weakness. Neither the Centre nor the States has been able to mobilise the resources needed to keep outlays in line with Tenth Plan projections and this has led to significant under-funding in many sectors. Taking the Centre and the States together, Plan outlays will be lower than expected by 2 percentage points. This is despite the fact that the Centre and the States have relied much more on borrowed resources than was intended, leading to a rise in public debt.

With the UPA Government not averse to propping up ailing public sector undertakings, the Plan panel notes that bankability must be a prerequisite for taking forward rehabilitation proposals of sick Central public sector units. "The norm in developing the financial package must be that the government takes the responsibility for strengthening the equity base while financial institutions provide the loans (without the need for government guarantee)" it said, leaving the accountability aspect nebulous.

Unfazed by the dreaded word disinvestment, the MTA says that "in view of the resource constraints facing the Central government, it is necessary to exploit fully the room provided by the NCMP for sale of minority equity stakes in profit-making public sector enterprises while retaining government equity at 51 per cent. Systematic pursuit of this option could yield substantial resource mobilisation in the years ahead".

With the quibbling over whether the NCMP actually provides for disinvesting from profit-making PSUs, the Plan panel seems to back the Government's stake sell-off idea.

The Plan panel's pitch for allowing foreign direct investment (FDI) in retailing and mineral exploration and mining; reviewing the subsidy scheme for geographically disadvantaged States and phasing out of the industrial subsidy scheme in the next two years, dereserving items meant for the small scale sector; re-examining fertiliser subsidies and moving to uniform PDS pricing in the place of differential pricing for below- and above-poverty line segments is bound to raise the hackles of the allies supporting the Government from within and outside.

Will the coalition Government take up the slew of correctives suggested, especially if they rub the key stakeholders — the States — the wrong way or prove to be a cause for avoidable embarrassment for the UPA Government itself?

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