| Not quite eye to eye: Jaswant and Pant
New Delhi, Oct 4: A meeting between Prime Minister Atal Bihari Vajpayee and Plan panel deputy chairman K. C. Pant held on Thursday on the Tenth Five-year Plan decided to jettison N. K. Singh’s ambitious plans to throw open various sectors to FDI in a bid to raise $ 20 billion a year and instead set a far more modest FDI target of just $ 7.5 billion.
The decision to raise the FDI target by 25 per cent over current inflow levels is significant as it clearly implies that the pro-reform faction within the Cabinet will not be able to ram through Singh’s controversial plans now to lift FDI caps on insurance, telecom, aviation and real estate indiscriminately. What’s more, it shows this has the PM’s seal of approval.
Pant’s meeting with the PM, which was a precursor to the full Plan panel meeting slated for Saturday, also decided that the Tenth Plan will reduce GDP growth target by 10 basis points to 7.92 per cent from an earlier targeted 8 per cent in view of the erratic monsoon and continued global recessionary trends.
The decision to set far more reasonable FDI targets was spelled by the Plan panel’s argument that higher levels of FDI flows would mean greater levels of dollar outflows in subsequent years which would go out as income on bonds and shares issued by Indian companies and picked up by foreign investors.
“We have doubts that we will be able to absorb FDI amounting to 8-10 per cent of total investment recommended by Singh. Only Brazil has done something like this and it today faces a foreign exchange payments crisis. We can’t risk that,” a Plan panel member pointed out.
However, the Plan will stay with the unusually high target for disinvestment earnings during the five-year period 2002-07 of Rs 75,000 crore, as it feels that cannot be dispensed with to fund the Plan unless taxes are raised significantly or more people are brought within the tax net.
At his meeting with Vajpayee, Pant said he would not be able to sustain the higher levels of GDP growth that the Prime Minister was pushing for unless that finance minister agrees to release sufficient funds from the Budget for the Plan.
Pant hinted that the finance minister was not keen on releasing the Rs 1,34,000 crore needed for next year’s Plan component. Planning Commission officials said they have had several tough sessions with finance ministry officials on this issue and the latter did not seem keen on higher plan spends.
The Plan panel deputy chairman also bluntly told Vajpayee that unless money was made available, the government’s ambitious plan to reduce poverty by 5 per cent and create 10 million new jobs would go awry. Similarly, infrastructure sectors like the railways, power and roads and social sectors like education and health too would be hit badly.
Even worse for federal relations, state finances which were already under strain, would be severely constrained. In fact, in a separately delivered letter to Vajpayee, Pant has underlined these very fears and warned “we cannot afford to have a smaller plan. The far graver social and economic consequences clearly outweigh the nominal financial savings this might yield.”
Pant and finance minister Jaswant Singh have already been at loggerheads over Central funding for a Bihar package and this current bout just before the Plan is cleared by the full Plan panel and the Union Cabinet seems to be an extension of it.