The Planning Commission of India recently released it's approach paper to the 12th plan (2012-2017) titled "Faster, Sustainable and More Inclusive Growth". Though lacking in vision and imagination the paper provides an opportunity and the material for others to evaluate the goals and outcomes of our previous plan. It is neither forthright in acknowledging the past mistakes and contradictions nor is it bold in determining our priorities. Still, the paper manages to sensitize us to the magnitude of challenges India will have to face in the coming decade.
The role and the clout of the Planning Commission post the economic reforms of 1990's has been diminished given the transition the Indian economy made from a public-sector led economy to a more market-friendly, private sector led economy. The views and the policy prescriptions of the Planning Commission today are more indicative in nature and since the Commission is chaired by the Prime Minister and all appointments are made by the Cabinet, these views are also reflective of the views of our national political leadership. Similar to the annual budget speech of the Finance Minister and the annual Economic Survey (which is too massive), this approach paper too consists of a stock taking exercise and presents what in it's opinion might help us overcome the challenges facing the Indian economy. Having achieved an average growth rate of 8.2% during the 11th plan, a target of 9% has been set for the next plan period. This growth rate is pegged on a very optimistic assumption of the inflation rate dropping from the current double-digit levels to around 4.5%. The trade-off between growth and inflation has become amply clear from the inflation centric monetary policy being followed by the RBI, which sacrifced growth to curb inflation. The paper has categorically stated that the inflation situation currently prevailing in the country, and in particular the food inflation are due to supply side constraints. One would have thought the prevailing inflation situation would have forced our economists to focus on the issues of reforms, productivity and easing of supply bottlenecks, instead, they have continued to prioritize these issues below the dogma of inclusive growth. I call it dogma because the commission itself admits that inclusiveness is inherently multi-dimensional and cannot be measured. Despite this admission, the plan goes on to promise us "More" inclusive growth (See plan title).
Labour, employment and livelihood
One of the most remarkable findings reported in this paper are the numbers of the 66th round NSSO survey on employment. The survey has reported that between the years 2004/05 and 2009/10 the overall labour force in the country expanded by a mere 11.7 million. The labour participation has fallen from 42% to 39.2% over ve years. The prevailing consensus on this issue as echoed by the paper and other economists like Swaminathan Aiyar, is to explain
this by by the enhanced enrollment of working-age(15-24) population in educational institutions, which has doubled from 30 million in 2004-05 to 60 million in 2009-10 and the large scale withdrawl of the female population from the workforce. This could have been viewed as a positive development, but for the categorical admission in the paper that general education in India is of poor quality and has failed to equip the gradates with the necessary skills. So in the coming decade not only will India have to be prepared to provide jobs for the millions that will join our workforce but will also have to cope with the higher expectations of that workforce. The paper expects 250 million additional income seekers to join the workforce in the next 15 years. The challenge is enormous. The scheme of action endorsed by the paper is to generate atleast 100 million jobs in the manufacturing sector and accommodate the others in construction and a few in the services sector. Given the low productivity of the agriculture (which must be expected to release more labour) this seems to be the only available option. Now let us look at the present reality about the manufacturing sector in India, Since the 1990's the manufacturing sector has grown at almost the same rate as that of the Indian economy and it's share in the GDP has been almost constant and around 15%. During the last 5 years when the manufacturing industry grew at an impressive 9.5%, the overall employment in the manufacturing sector actually decreased. The paper tries to celebrate the increased productivity of the manufacturing industries without considering the other flip-side. This creates the right context to pop the question – Are our expectations from manufacturing realistic even at a conceptual level ? If yes, it will take an enormous amount of political focus
to translate this proposition into reality.
A double whammy called NREGA
In the last 7 years this scarce commodity called political focus
has been singularly squandered on bad ideas like NREGA and paper reforms. During the 11th plan the Indian government has incurred an expenditure of 7 lakh crores on all the Centrally Sponsored Schemes. The largest source of this expenditure was as expected the NREGA, on which the government spent almost 1.6 lakh crores of taxpayer money. While other schemes like PMGSY, NRHM, SSA etc have a specied goal of creating assets (roads) or providing a service (health, education), the NREGA is not designed to create any measurable impact. The paper accepts that the programme has failed to create assets or build competence. So, on the one hand this scheme is presenting a bill as large as 1.6 lakh crore and on the other locking up a resource as crucial as labour in unproductive tasks, clearly it is a double whammy. While no amount of tweaking can fix these manifest failures of an idea as flawed as NREGA, the paper calls for a few reforms. The one incrementally positive idea mooted is to account for the impact of NREGA on farming and on artisans in the villages. The impact of NREGA on traditional art forms was very well brought out
by Smt Nirmala Seetharaman. The other is to raise a dedicated cadre of skilled individuals with domain knowledge, collectively referred to as barefoot-engineers
, to look after the NREGA projects. One hopes this idea doesn't manufacture a shortage of semi-skilled/skilled workers in the country.
A plan that seeks to create 100 million jobs in the manufacturing sector in 5 years is bound to worry about our poor performance on the infrastructure front. Energy is one of the vital inputs to any manufacturing facility. While the eleventh plan had targeted a creation of 78.7GW of additional capacity we seem to have added only about 50GW of capacity. Our failure in meeting our targets on the power front directly arise out of our failures in many other domains like coal, crude oil, natural gas, nuclear energy and policies related to energy pricing. This section of the paper is in my opinion the most candidly written and clearly exposes the lack of intent at the highest level of decision making to do the right thing. The Integrated Energy Plan (IEP) approved by the cabinet in 2009 had sought to align the domestic fuel prices with the global prices, which is yet to be implemented. Currently the kerosene prices and LPG prices are70% and 50% lower than the market prices. The paper strongly advocates for targeted fuel subsidies and also given the levels of fiscal deficit it seems quiet clear that targeting will be the new mantra for subsidies in India. One hopes Shri Nandan Nilekani will be able to put the right systems in place for us to make this transition. The paper has criticized the failure of the administration to hand over the coal blocks for mining, and the poor performance of the New Exploration Licensing Policy (NELP) to increase the domestic production of oil and natural gas. On the topic of roads and highways there is nothing concrete in this paper. However, it makes a crucial point that the existing highways are not being maintained properly due to lack of funds, which in turn arises because of maintainance falling in the category of non-plan funds.
In keeping with the times even the Planning Commission has called for a host of reforms. But by now we all realize that advocating for reforms on the paper is the first and the easy part of any reforms, the really tough and the crucial part is to convince the political leadership of it's urgency and then to implement it effectively. Are we blessed with such capable bureaucrats ? The other and the more eective mechanism to bring about reforms, is to make it a part of the political agenda. I think the time has come for each one of us to think deeper and gain a better understanding of what we mean by reforms. Everyone from the NAC to IAC is trying to hijack the word reforms. It is important to qualify this word more qualitatively. For starters, reform is NOT the same as deform. Sample this proposal by the Planning Commission, the paper lectures the state government to devolve more and more powers to the local Panchayati Raj institutions and lauds the Union Finance commission for coercing the state govts to do so. One is reminded of an attempt by the Rajiv Gandhi-Mani Shankar Aiyar duo to undermine the state governments and directly transfer funds to the local bodies. The scheme that tries to empower the local bodies without strengthening the existing federal structure can only deform our 3 tier structure of governance, it cannot be called a reform. The Planning Commission must pose itself the following question, "If grand policies like Integrated Energy Plan (IEP) and NELP can fail why should we expect our new National Water Policy (NWP) or National Expressway Authority to achieve their targets ?". For policies to make real impact they need some minimum amount of political attention and political focus. At a time when the political leadership is determined to keep hands off policy decisions (unless a dire fiscal deficit like situation arises), even a well thought out policy is bound to fail. Another very interesting suggestion in the Planning Commission was to separate the activities of policy making and implementation. It could be targeted at either the idea of NAC or even on technocrat led government bodies like the UIDAI. It is clear that the generalists who steer the policy of the country are irked by the large presence of activists and specialists in Delhi.
Planning Commission will not solve our problems. But atleast this paper has helped us realise the type and scale of problems we will have to face in the coming years. It is quiet clear that without a pro-active political leadership and with status-quoists at the helm every good idea will end up stagnating in either a standing committe or a ministry.