The full meeting of the planning commission has adopted the tenth plan (2002-07) document. And the prime minister used the occasion to push for a six-point reform agenda, including disinvestments, tax reforms, fiscal prudence, labour reforms, power reforms and an open policy towards foreign direct investment. This may be music to a reformer’s ears, but there is more to reform than making soothing noises. Real gross domestic product growth-target of 8 per cent seems non-feasible, especially since the ninth plan (1997-02) only clocked 5.35 per cent. What will jack up growth from 5.35 per cent to 8 per cent' The prime minister’s argument that India needs 8 per cent and “cannot afford to set a lower target” is neither here nor there. The target of attaining 50 million new jobs in five years is also conditional on growth. Although employment generation is also conditional on composition of growth, 10 million new jobs a year require at least 7.5 per cent GDP growth. The domestic savings rate is expected to increase from 23.3 per cent in the ninth plan to 26.8 per cent in the tenth. This may well be possible, certainly towards the terminal years of the plan. A current account deficit to GDP ratio of 1.57 per cent (annual FDI inflow of 7.5 billion dollars) then implies an investment ratio of 28.4 per cent. However, the incremental capital-output ratio during the ninth plan was 4.5. With this ICOR, even with an investment rate of 28.4 per cent, GDP growth will be marginally over 6 per cent. Nowhere near 8 per cent.
Will the ICOR drop to 3.6 and will required efficiency-inducing reforms take place' Will the tax-GDP ratio increase from 8.6 per cent to 10.3 per cent and will the share of non-plan expenditure in GDP decline from 11.3 per cent to 9 per cent' Will there be adequate budgetary support for the plan' Will Rs 78,000 crore (Rs 15,600 crore per year) be received through disinvestments' Even if agriculture and allied activities (not just agriculture) grow at 4 per cent, that adds 1 per cent to GDP growth. Services have grown by around 7 per cent in the ninth plan and a growth rate of 8 per cent for services implies 4 per cent contribution to GDP growth. To reach the elusive 8 per cent GDP growth target, industry (not just manufacturing) will thus have to grow at 12 per cent, against the present trend of 4.5 per cent. Is it surprising that everyone is sceptical'
Socialist planning insisted on setting unattainable targets and the prime minister seems to have imbibed that mindset. Some social sector targets are indeed attainable, such as a drop in the poverty ratio from 26 per cent to 21 per cent. These are the extrapolation of past trends and will be attained even if growth chugs along at 6 per cent. Not that 8 per cent is impossible. It is improbable. As long as India looks for external scapegoats and refuses to acknowledge the lack of domestic reforms, 8 per cent will always remain an unattained potential. If domestic reforms get going, 8 per cent will happen even if there is no tenth plan document and no planning commission. That is an option worth considering.