Every Five-year Plan that India has devised has faced unique challenges. At the beginning of the Plan process, the question was about industrialization. In due course, agriculture and other areas, too, received attention. But one thing was assumed constant: the government’s ability to change things for the better.
Today, on the verge of a new, 12th Plan, the challenges are of a very different order. No longer is it a simple question of investment and allocation priorities. With 8% plus growth, finding the resources for power plants, highways and other vital physical assets is a relatively simple matter. If recent preoccupations, within and outside the government, are anything to go by, inclusive growth may turn out to be a key concern.
At a theoretical level this shift in emphasis is understandable; for the private sector is the main driver of the economic growth and its share of the economy is well over 50%. Today, unlike the age of planning raj, the private sector’s involvement in the economy is well-diversified: from aviation to ports to defence production and much more. No longer are there entire swaths that are “reserved” for the public sector. So a change on this count was certainly overdue.
Whether practically it will make a difference is questionable. At one plane, the sheer scale of the problem when contrasted with the government’s ability to deliver very basic services raises doubts. Some of India’s “inclusiveness” indicators are quite dismal: poverty—even the most optimistic estimates—remains high. One tentative estimate, highlighted by Planning Commission deputy chairman Montek Singh Ahluwalia, pegs it at 32.2% for 2009-10. Access to basic facilities such as school education, primary healthcare and more complex problems such as inequalities in consumption show great divergence between individuals, states and groups—be they based on caste, religion or other classifications. These may sound necessary reasons for the government to “do something”, but they are hardly sufficient ones for a government with limited abilities.
There are other, deeper, limitations on what can be done in this respect that are yet to be appreciated. In a globalized world where governments chase investment, there are acute inequality versus poverty trade-offs that are beyond any government’s control. Attempts to raise resources by taxing businesses are limited: capital and investment mobility poses severe constraints. Corporate taxation beyond a global average could see investors flying elsewhere. There are indicators that this process may have already set in.
A change of course in planning as the economy shifts gears is certainly welcome. But that should not be dictated by policy fashions.
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