Planning Commission's growth target based on optimism

Prodded by Prime Minister Manmohan Singh, the Planning Commission is likely to come out with a target of 10 per cent average annual growth in the 12th Five Year Plan (2012-13 to 2016-17).

However, that goal is based on optimistic assumptions, particularly on manufacturing.

The panel is also likely to come out with another scenario, in which the economy is likely to expand by nine per cent a year on an average for the five years. Even this feat has not been achieved so far in any Plan.

The two scenarios are likely to be there in the approach paper of the 12th Plan, to be taken up for adoption by the full Planning Commission meet on Thursday, to be chaired by the Prime Minister.

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The double-digit average per year growth is likely to be based on assumptions that the country will have yearly farm output expansion of 4.5 per cent and manufacturing growth of 12.4 per cent in these years.

This is highly optimistic, a key official told Business Standard.

The other target, of nine per cent yearly growth, is based on farm production growing four per cent a year and manufacturing by 9.8 per cent. This is relatively less optimistic, the official said.

Background

In fact, India's economy had expanded by 10 per cent (10.2 per cent to be precise) only once since 1950-51, in 1988-89, according to official data.

To expand this exceptional growth to every year for five years, may be bit promising, the official said.

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Of the first four years of the ongoing Plan, agriculture grew by more than this number during 2010-11 (advance estimates) and 2007-08.

During 2007-08, farm production expanded by 5.8 per cent, while during 2010-11, it is estimated to grow by 5.4 per cent.

However, farm output expanded by just 0.4 per cent during 2009-10 and, in fact, had fallen by 0.1 per cent during 2008-09.

So far as manufacturing output is concerned, in none of the four years of this Plan has the economy expanded by 12.4 per cent.

The highest that industry grew was 10.3 per cent during 2007-08. After that, the growth fell to 4.2 per cent the following year and 8.8 per cent during 2009-10.

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This year, too, manufacturing is estimated to grow by 8.8 per cent, according to advance estimates.

As such, a nine per cent yearly growth target for the economy looks more feasible, but that when manufacturing would grow by 9.8 per cent and agriculture by four per cent a year, the official said.

Need

The Prime Minister had said the country should aim at 10 per cent yearly growth during the XIIth five-year plan.

"An annual 10 per cent growth rate should be targeted to eliminate poverty and provide productive employment for the country's young people," Singh had said.

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The PC had initially targeted nine per cent growth a year during the ongoing XIth Plan (2007-08 to 2011-12).

But the impact of the global financial crisis that became discernible from September 2008 forced it to cut the target to 8.1 per cent.

"If the economy achieves 8.5 per cent in 2009-10 and accelerates to nine per cent in the last year (2011-12) of the 11th Plan, the average rate of growth in the Plan period could be a little over eight per cent.

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Although this is below the original 11th Plan target of an average of nine per cent growth, it would be better than the 7.8 per cent attained in the 10th Plan period, the mid-term appraisal of the XIth Plan had said.

In the first three years of this Plan, the economy had expanded by 9.3 per cent, 6.8 per cent and eight per cent, respectively.

Advance estimates had pegged economic growth at 8.6 per cent last year.

For this year, 2011-12, the economic survey projected the economy to grow by nine per cent, but many doubt this, due to hardening interest rates and high global crude oil prices.