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The difference between the approach paper to the 12th Five Year Plan and the final Plan, as approved by the National Development Council recently, is quite stark. It is not just the tone and tenor that are different but the basic design and formulation of the Plan too are distinct.

The approach paper, presented more than a year ago, held the promise of a change in the Plan strategy by attempting to graft markets and market participants on the development plan strategy. It also sought to insulate key stakeholders’ interests from market failures in specific sectors. Not only have these promises been belied, the 12th Plan has turned out to be the same old story of investment allocations across sectors and segments.

In fact, this time around matters are much worse than the earlier Plans as there is no macroeconomic growth strategy or any sound analytical principle of distribution that underlies the Five Year Plan. At best, there is a public expenditure policy that has determined Plan allocations. This shows up clearly in the health and education sectors.

In the absence of a well defined strategy, the Plan has become focused on one number—the planned rate of growth of output. It is much like the central bank’s monetary policy announcements that are concerned with the rate of interest and the annual budget that now revolves around the fiscal-deficit mark. The 12th Plan now completes the triad of “one wonder number" policy formulations. The end result is the loss of focus on the how of achieving the desired growth rate.

The highlight of previous Plans was not the growth number but the manner in which growth was achieved. Indeed, each plan was based on a macroeconomic developmental model. Other than the famous second Five Year Plan which was based on the Feldman-Mahalanobis model, all Plans have been based on some well defined analytical construct.

All this was not so much about economic theory; these models drew out strategic choices relating to planning in line with the existing constraints as perceived by policymakers. Accordingly, planning instruments and methodologies were devised to develop a policy framework that would enable growth.

Indeed, four types of strategies have defined the growth and direction that Indian economy took. First, spanning from the second to the fifth Plans was the emphasis on public investment planning and material balances of the economy. In the second phase, including the fifth and the sixth Plans, income generation was replaced by income distribution as the basic strategy. In the third stage, from the seventh Plan onwards, sectoral planning strategies were the main drivers of policy choices. The fourth phase, starting with the ninth Plan, attempted to meet Plan objectives through policies such as tariff reforms, increasing domestic competition in priority sectors, dual pricing and tax reforms. From this perspective, the 12th Plan has sunk to new depths: it lacks the academic flavour, the empirical rigour, the analytical detailing and the policy innovativeness of previous Plans.

A change in Plan formulation and financing along the lines that has been seen earlier is needed because the fiscal regime, indeed the entire macroeconomic policy regime, has undergone fundamental changes during the last decade or so.

If inclusive growth represents the political agenda under which the Planning Commission is seeking to establish pillars of policy, then it has once again failed not in articulation but in the very formulation of strategy.

To make growth inclusive, the most important change needed is to move away from output to employment. All the Plans, so far, have focused on aggregate growth of output. This is important but there have been changes in the structure of growth and the economy which make the issue of employment generation an important one.

While policymakers have hoped and indeed predicted that growth will generate employment, the fact is that neither the expected level nor the kind of employment that is required has been forthcoming.

What is now required is to target employment growth as a key variable and not as a derived variable. In addition to sectoral allocations—which have to be made on an employment intensity basis—direct interventions will be needed to redress the situation. If Plans continue to be formulated in terms of growth rates, no matter how serious and sincere the efforts at implementing the Mahatma Gandhi National Rural Employment Guarantee Scheme, the desired results will not be forthcoming.

The implication of this change is that the growth scenarios projected by the Commission will have to keep in mind growth and desired employment elasticity, in addition to revenue buoyancy estimates. The crucial point will be to maximize employment elasticity within each growth scenario.

If this is done, we may well find that a growth of 7.5% will be more meaningful than the dreamy rate of 9%. There will be trade-offs but some decisive choices have to be made.

Haseeb A. Drabu is an economist, and writes on monetary and macroeconomic matters from the perspective of policy and practice. Comments are welcome at haseeb@livemint.com

To read Haseeb A. Drabu’s earlier columns,go to www.livemint.com/methodandmanner -

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