Manmohan Singh in New Delhi on Thursday. Picture by Prem Singh
New Delhi, Dec. 27: Prime Minister Manmohan Singh has warned that growth may slow down and the target for 2012-17 of 8 per cent growth may prove “ambitious” if India did not shrug off its “business as usual” attitude. As a beginning, he pitched for cutting down the subsidy bill through phased increases in energy prices.
“Achieving an average of 8 per cent growth, following less than 6 per cent in the first year, is still an ambitious target,” Singh said, inaugurating the 57th meeting of the National Development Council (NDC).
Montek Singh Ahluwalia, deputy chairman of the Planning Commission, warned that policy logjams could slow down growth to as low as 5-5.5 per cent.
“We must remember that we are still a low-income country. We need 20 years of rapid growth to bring it to middle income level,” Singh said, pushing for more reform measures.
The blunt speech and the attempt to hasten the pace of business did not go down well with the chief ministers who attended the NDC, the highest planning body of the country. Gujarat chief minister Narendra Modi slammed the plan document and said that he was pained at “the unmistakable sense of pessimism in the 12th Plan document”.
The Centre has pared down the growth target from 9 per cent to 8.2 per cent and then to 8 per cent after realising that even to get to the revised growth target, India needs to grow at over 9 per cent in the last three years of the plan period and perhaps at more than 11 per cent in the last year.
Last year, India grew 6.5 per cent, while this year, growth slowed further and is expected to be between 5.7 percent and 5.9 per cent.
Planning Commission officials had earlier made available state growth figures which show that Gujarat, the fastest growing state in 2001-05, had been overtaken by Nitish Kumar’s Bihar during 2006-10, growing at 10.9 per cent compared with Gujarat’s 9.3 per cent.
“These developments indicate the strength of our economy,” the Prime Minister said.
“However, the high growth scenario will definitely not materialise if we follow a business-as-usual policy. Our first priority must be to reverse this slowdown. We cannot change the global economy but we can do something about the domestic constraints which have contributed to the downturn,” the Prime Minister said.
Singh’s government has, after hesitating for quite a long time, started cutting oil subsidies by hiking diesel prices and capping the number of subsidised gas cylinders a family can have.
It has opened up the retail market to global giants such as Walmart, Tesco and Carrefour, allowed foreign airlines to pick up to 49 per cent stake in India’s airlines and put on the block shares of blue-chip state-run companies.
The government has also set up a Cabinet Committee on Infrastructure to fast-track big ticket investments.
Singh also underlined what many expect to be his next big reform step — a phased increase in energy price increase.
“Our coal, petroleum products and natural gas are all priced well below international prices. This also means that electricity is effectively underpriced, especially for some consumers. Immediate adjustment of prices to close the gap is not feasible, I realise this, but some phased price adjustment is necessary,” Singh said.
He said energy experts are unanimous that “we cannot expect to achieve rapid, inclusive and sustainable growth if we are not willing to undertake a phased adjustment in energy prices to bring them in line with world prices.”
Another key reform area is the nation wide goods and services tax whose introduction could lead to an increase in growth by 1-2 per cent, besides leading to an increase in tax revenues of both the state and central governments.
“Early implementation of the Goods & Services Tax is critical ... I hope we will have the co-operation of states to introduce GST as quickly as possible,” Singh said.