What can one say in one page about the economy of a vast country undergoing great change within itself, amid uncertainty in the world around it? The mid-term appraisal of India’s 11th Plan provides good insights for such a précis.
The Indian economy is doing well. With the growth rate returning to 9% per annum next year, average growth in the 11th Plan will be 8.1%, higher than 7.7% in the 10th Plan, in spite of the global economic slump and the drought. The investment rate in the economy has reached 36%, with savings a little lower. With small increases in these rates, the economy can continue to grow at 9% per annum. The finance minister intends to rein in the fiscal deficit. This should enable more funds to flow to the private sector and also attract more funds from abroad. Therefore, the macroeconomic picture is conducive to begin thinking of 10% growth.
Illustration: Jayachandran / Mint
The Plan itself has done quite well, too. With allocations already made for the first four years, and reasonably good prospects for the fifth, it appears that total outlays in the 11th Plan will be 96% of original intentions. This is the first time in India’s history that a Five-Year Plan has exceeded 90% of its intent. India’s infrastructure juggernaut, though it has a long way to go yet, is also rolling at last. Total investments in infrastructure have more than doubled since the 10th Plan, with private sector investments increasing threefold. Further investments in infrastructure will give the economy the boost to grow at 9%-plus, compensating for the slack in exports due to sluggishness in the West.
The hard infrastructure is a-building now. What about the soft, social infrastructure? As much as 45% of total outlays in the Plan are for the social sector: the Mahatma Gandhi National Rural Employment Guarantee Scheme (NREGS) being the largest component. Of concern, though, are the lags in outlays for health and education. Without dramatic improvements in these sectors, sustainable growth at 9%-plus cannot be assured, no matter what the macroeconomic projections may suggest, because India’s growth is predicated on its “demographic dividend”—that is, the hundreds of millions of young people who are expected to be productively employed in the next two decades. If these persons are not educated, healthy and employed, not only will they not earn and save as forecasters expect them to, but social and political tensions will impede economic growth. Therefore, more money is required for education and healthcare. The finance minister, with fiscal prudence in mind, is concerned about where it will come from if other social sector schemes cannot be curtailed. Reduction of subsidies for fertilizers and fuels, a huge drain on the exchequer, will help.
The political challenge is to convince the aam aadmi that it is worth giving up subsidy—birds in hand for birds in the bush—benefits from government schemes in areas such as health and education. The evidence so far has been that money spent in most social sector schemes, whether for food supply, healthcare or education, does not deliver enough to the people. Not only the aam aadmi, even government officials know this. Throwing more resources into such schemes will not help. And more audits will only confirm that things are not working, which we know already. The way out is to improve implementation to get more bang for the buck. This requires innovative solutions.
Innovations in institutions and delivery processes can provide high-quality services at low cost to the masses. Innovations in its delivery model enable Narayana Hrudalaya to perform hundreds of thousands of heart surgeries a year for very poor people at standards equal to the best in the world. Similarly, Aravind Eye performs millions of eye operations, 70% free, and yet makes a good operating profit to plough back into its expansion. Moreover, in two opposite corners of India—Kerala and Nagaland—and in several other places in between, local self-governance has improved the quality of various services for the community while reducing wasteful government expenditure. People know best what they really need; they also know when they are getting it and when not; therefore, they are in the best position to manage and monitor.
The institutional innovation to improve delivery must be to strengthen local self-governance organizations and give them a larger role in services for the people. The 73rd and 74th amendments of the Constitution require devolution of powers to local bodies. Progress has been tardy. Whereas functions have been devolved, finances and functionaries have not. Therefore, local bodies are ineffective. With the desire to retain control at the top, their general ineffectiveness justifies retention of control. Political will is required to withdraw wasteful subsidies; it is also required to strengthen the role of local bodies in governance. To play their role, these bodies need training and they need tools, including information technology tools. Whereas public-private partnerships, which are partnerships between government agencies and corporations, may be a sufficient approach to build the hard infrastructure, people must be principal partners for improvements in the social sector. Models of people-public-private collaboration must be propagated for social sector improvements, which is the principal challenge now. With its focus on inclusive growth, the mid-term appraisal recommends this approach in rural and urban sectors.
Other areas of concern highlighted in the mid-term appraisal are agriculture and water resources. The problems in agriculture are fairly well known: small land holdings, deteriorating soil conditions, low yields, an inefficient market structure and fragmented supply chains. Merely pumping in more fertilizer and water will not increase yields much further—indeed, this is becoming counter-productive. It is becoming clear that in addition to innovations in seeds, agricultural methods and water use, sustainable growth of agriculture requires innovations in institutions for aggregating land to attract investments and for collaboration between stakeholders to reduce “last mile” costs in marketing. The condition of the country’s water resources is even more critical and needs urgent attention. The mid-term appraisal points out that investment in old engineering and technical paradigms will not work. Holistic, socio-technical solutions, with innovations in institutions of governance, are required in the approach to water management. In both agriculture and water, involvement of local communities must be a component of the institutional innovations required.
The mid-term appraisal has noted that innovations are required in almost all spheres for India to accelerate inclusive growth with fiscal responsibility. It also points out that innovation is required in the concept of innovation itself. The Western paradigm of innovation, with its emphasis on expensive research and development, scientists and patents, is unlikely to produce the solutions India needs. Therefore, the mid-term appraisal examines the ecosystem India needs to produce innovative, low-cost, high-quality products and services as well as innovations in institutions required for inclusive growth. It locates the links in the innovation ecosystem that need strengthening.
Indians are surprisingly innovative. They find new uses for the little they have, by concocting jugaads (frugal innovations). The Honey Bee Network has documented around 100,000 such inventions by grass-roots innovators. There is no dearth of good ideas in India. The challenge is to scale them up. The financial ecosystem does not have sufficient “angel funds” to support small innovations to the stage where they become attractive to larger venture funds. A “national fund for inclusive innovation” will catalyse the growth of angel funds in various sectors. Networks of complementary resources are required to scale up innovation. More collaboration is necessary between the formal research and development system of government laboratories and industry to convert ideas into scaled-up applications for the needs of people. A “national innovation portal” that enables innovators, including the tiny ones, and their complementary resources to connect with each other will induce clusters around projects and themes. Sectoral planners in the Planning Commission can analyse opportunities for innovation by such clusters: areas in which needs are large and conventional solutions are too expensive or are ineffective—in healthcare, education, low-cost housing, urban services, and so on. Thus, the weak links in the innovation ecosystem can be strengthened, thereby accelerating innovation for inclusion in economic growth.
Times change, institutions evolve. The Planning Commission marked its diamond jubilee in March. Moving towards the 12th Plan, the commission is considering innovations in the processes of planning itself. Planning within uncertainty requires new concepts, especially when the uncertainty is in the reaction of the people whose future is being planned. The Prime Minister has said that “planning must be an essay in persuasion”. Less top-down and abstract: It must increasingly involve the people with their real issues. By engaging them with alternative scenarios of the future in terms they can understand, they may be persuaded of the strategies they must support in their own interests. This is the planners’ task.
Arun Maira is a member of the Planning Commission. Comment at email@example.com