The Hindu Business Line : Setting store by faster and more inclusive growth

Infrastructure constraints in electricity, ports and other sectors have begun to surface. Skill constraints are also emerging. If we don’t address them, sustaining even 8.5 per cent growth will be difficult. The Plan document proposes a determined effort to overcome these constraints.

MR MONTEK SINGH AHLUWALIA, DEPUTY CHAIRMAN, PLANNING COMMISSION

G. Srinivasan

The National Development Council (NDC) meeting on December 19 is primarily to get the imprimatur of the States for the Eleventh Five-Year Plan (2007-12) document that sets store not only by faster economic growth but also inclusive growth so that the fruits of development reach the aam aadmi, the ubiquitous common man. Nearing the end of the penultimate quarter of the first year of the Eleventh Plan, the need for setting direction and ensuring results from various players in the economy has been engaging the attention of the Plan panel for the last couple of years.

For emerging economies such as India, the stakes are high in terms of translating the aspirations of millions of young people into concrete opportunities for advancement, even as the authorities wrestle with endless problems of poverty, illiteracy, poor health services and crumbling infrastructure.

To get an idea of how the Eleventh Plan proposes to remedy the structural rigidities in the economy and make it vibrant and responsive to the rising expectations of a billion-plus population, Business Line spoke to the Plan panel’s Deputy Chairman, Mr Montek Singh Ahluwalia. Always an optimist with a firm conviction in the soundness of public-private partnerships (PPP) in the creation and maintenance of infrastructure, both social and physical, Mr Ahluwalia never shirks from expressing inconvenient propositions — be it the need to reduce untargeted subsidies or to raise domestic petro product prices to reflect the high cost of global crude oil.

“At some point, you have to make a call. A rational energy pricing policy is essential for growth and to combat climate change. We have laid out a policy framework that allows subsidies, but clearly targeting them”.

To a specific remark that often, in NDC meetings, pious declarations are made with little follow-up, Mr Ahluwalia said that in every area the Plan panel deals with, such as education, health, infrastructure, agriculture and rural employment, things have been happening. “In terms of generating employment, we said skill development is very important. We hope that the Skill Development Mission will be cleared by the Cabinet quickly”, he said.

Here are some excerpts from the interview:

On the economy

It is in a very good shape. We are entering the Eleventh Plan in a situation where the economy has very strong fundamentals, a four-year growth record of 8.5 per cent, which will be achieved in the current year, the first year of the Eleventh Plan.

We are well set to achieve the 9 per cent growth target for the Eleventh Plan. We have been concerned not just with growth acceleration but also with moving towards more inclusive growth. Some of the initiatives taken in the last few years, and which are also emphasised in the Eleventh Plan, would ensure that this growth is much more inclusive than in the past.

One of the most important areas is agriculture. I am happy to state that if you take three years ending in the current year, we are likely to have an average growth rate of 4 per cent, which is double that achieved from 1997 to 2003. Mere three-year growth is not enough to compensate the many years of slow growth but it is a very healthy start.

We also made a good beginning on education. The UPA government gave a lot of emphasis to primary education in the form of Sarva Shiksha Abhiyan, getting extra funds through the education cess and subsequently increasing the cess to fund higher education.

A sign of our strong thrust is that the share of total Plan resources going to education would increase from 7.8 per cent in the Tenth Plan to 19.4 per cent in the Eleventh Plan. This is critical for sustained prosperity in the rural areas. Just as important are the schemes of the National Rural Health Mission, which lays out a very ambitious programme for expanding health services.

The Plan puts a lot of emphasis on infrastructure, both rural and urban. This is important for accelerating growth and making it inclusive. Many people think of infrastructure as relevant only for faster growth; it is also relevant for inclusiveness. If you want to spread the benefits of modern economic activity across the rural areas, road connectivity is crucial.

This is especially true as agriculture moves from a dominantly foodgrains-oriented economy to one that is much more diversified, and where growth will come from horticulture, floriculture, marine products, dairy and poultry. These are all sectors that produce perishable products and for their development, there is a need for seamless connection between farm and the market. We need logistics, cold chain which in turn need rural electrification and market linkages. All these things are happening and the Plan aims at giving these developments a boost.

On the modest growth of 8.5 per cent for the inaugural year of the Eleventh Plan

I would be very happy if the growth rate exceeds 9 per cent in the first year. But I think it is a good idea to be modest, for a couple of reasons. First, the high growth rate of the last four or five years has occurred in an environment where the global economy was very buoyant.

Today, there is uncertainty about the short-term prospects of the global economy in the next 12 months. However, our target of an average of 9 per cent is over a five year period and a short-term dip should not worry us.

Second, I don’t think we are currently on a sustainable 8.5 per cent because infrastructure constraints in electricity, ports and other sectors have already begun to surface. Skill constraints are also emerging. If we don’t address them, sustaining even 8.5 per cent growth will be difficult.

The Plan document addresses these issues precisely and proposes a very determined effort to overcome these constraints. We need to expand investment in infrastructure from 5 per cent of GDP in 2006-07 to 9 per cent of GDP in the final year of the Eleventh Plan, a four percentage point GDP increase in infrastructure investment. In terms of money, we estimate this at $500 billion in the five-year period.

Against this, if we have a ‘business-as-usual’ approach — and, by that, I mean taking into account some growth in investment — the amount will only be $350 billion. The challenge before us is how to get additional investment of $150 billion over and above the business-as-usual scenario. It is difficult but it is not impossible either.

Some of the additional investment will have to come from the public sector but a lot has to come from private sector also. That is why we are emphasising public-private partnerships. The world sees India as on the cusp of a take-off. They recognise that infrastructure is a critical constraint and if we have the right policies which make infrastructure investment financially sustainable and create an attractive investment environment, capital is available. Getting $150 billion extra into India’s infrastructure over five years is not impossible.

Whether private investment in infrastructure is really feasible

Investment in infrastructure is taking place already. Recently, three ultra mega power projects have been bid out to the private sector amounting to 12,000 MW capacity. In the entire Tenth Plan period, the total additional capacity was only 21,000 MW.

Investment is taking place in airports, ports, roads and the railways too. However, there is no doubt that we need much more if we are to achieve our targets. This is where additional efforts are needed.

On State governments

States have shown a very significant increase in revenues which is reflected in the reduction of their fiscal deficit. But the quality of expenditure is not as good and implementation is also not as good.

Expenditure monitoring and enough delegation or devolution of funds at the panchayati raj levels would help improve quality in basic services provisioning.

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