Economic plans are often the product of an optimistic appraisal of resource availability and constraints at hand. The objectives, as a result, have a lofty air about them. Perhaps it would not be amiss to call the planning process an exercise in heightened optimism.
As India prepares for its 12th Plan (2012-17), a similar sense of deja vu can be discerned. The goal of the Plan is “faster, sustainable and more inclusive growth”. As an ideal, there can be nothing but appreciation for the goal. But what about ground realities?
The goal of faster growth—at the rate of 9-10% annually—is certainly feasible. The savings rate in the country and the demand for output make this eminently possible. The only bottleneck on the horizon is that of factor supplies one that is linked to the second goal, that of sustainability.
This is likely to prove the key challenge for India’s growth in the years, if not decades ahead. There are no reliable estimates of resource-use intensity for the country as a whole. While incremental capital output ratio data, a measure of how efficiently or inefficiently capital is used, is available, more specific data (for example, on the use of hydrocarbon resources) is often missing. But it is no one’s case that India is quite a laggard in resource-use efficiency. As the world exhausts natural resources such as oil and other “free” resources such as the freedom to pollute or release greenhouse gases, higher growth could be the first victim. How any Plan, let alone governmental diktat, can ensure resource-use efficiency is something that is not clear. The only way to do so would be to price these resources appropriately. There is great reluctance, if not active resistance, to such measures mostly in the name of equity. This is a first class problem with great potential to kill growth.
Finally, there is the question of inclusive growth. As such there is no problem with the ideal: If your growth is of a high order, plenty of resources are available for redistribution. In India, however, the problem is that redistribution has the potential to outpace growth. The extraordinary levels of government borrowing of the last three to four years have the potential to hit savings and, in turn, growth. Much of this borrowing is politically mandated.
In most countries, resource availability is the key constraint to growth. In India, this is less of a problem and frittering away of resources a bigger issue. Resolving that is a big challenge for the 12th Plan.
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