Centre may double spending in 11th Plan

Centre may double spending in 11th Plan

New Delhi: The various departments and programmes of the Union government could spend, in the five years to 2012, double of what they did in the period between 2002 and 2007, but a large portion of this may be aimed at the so-called social sector in an effort to ensure that economic growth, estimated at over 9% a year over these five years, is “inclusive".

According to experts, analysts and government officials, this could be the direction and strategy adopted by the Planning Commission, India’s apex planning body, which meets on Thursday to finalize the 11th Plan, a sort of road map for departmental budgets and programmes over five years to 2012. The meeting will be chaired by Prime Minister Manmohan Singh, who is also chairman of the commission.

“This is the first time that the Planning Commission has set such elaborate targets in one of its plans," said a Planning Commission official who did not wish to be identified because he is not authorized to speak to the media.

Once approved by the full meeting of the Planning Commission, the document will be put before the National Development Council, which includes representatives of all state governments and the Centre, in early December.

The 11th Plan comes at a critical time in India’s economic history, according to government officials. The macroeconomic fundamentals of the economy have never been better, but the country faces challenges, including infrastructure constraints, rising income inequalities, social unrest and regional growth imbalances, said the officials who did not wish to be identified.

They added that it was imperative that the 11th Plan focus on “tackling poverty by generating productive employment".

Continued relevance

With challenges such as these, the Planning Commission is still relevant, these officials argued.

Some experts have questioned the relevance of the commission, especially since state-owned companies are no longer the primary drivers of the economy. The Planning Commission was set up in 1950, when India was pretty much a command-and-control economy.

With liberalization, however, the commission’s focus has moved more towards ensuring balanced growth than industrial progress.

“Left to the market and private sector, growth in priority sector will not happen. Companies will never invest in primary education, sanitation or drinking water. Besides, the private sector itself has to be regulated as its concern lies only in making profits," said N.J. Kurien, former adviser, Planning Commission, who is now director, Council for Social Development, a think tank. Kurien added that the 11th Plan’s “primary focus is inclusiveness", making the commission and the Plan that much more relevant today.

The official at the commission said its definition of inclusiveness went beyond poverty alleviation and included such objectives as empowering and providing equal opportunities to women and minority communities and groups.

As a result, the 11th Plan is expected to set 27 national targets in the areas of health, education, women and child development, infrastructure, environment, and income and poverty. Of these, 13 targets will be for the state governments.

The Centre, on its part, will target an average growth rate of 9% a year. It will also look to generate 70 million new jobs; reduce the gender gap; correct the sex ratio’s skew against women; reduce infant mortality rate (IMR) to 28 and maternal mortality rate (MMR) to one per 1,000 live births; halve anaemia among women and malnutrition among children; achieve the World Health Organization (WHO) standard of air quality; and increase forest and tree cover by 5%.

The targets specified for states include improving agricultural growth; reducing the gender gap; addressing child malnutrition; improving the sex ratio; and reducing anaemia amongst women and girls.

In keeping with these targets, the Planning Commission proposes to substantially increase Union government spending on health, education, rural development, agriculture, irrigation, infrastructure and energy. These will account for three-quarters of the total spending of Rs14.21 trillion. In the 10th Plan, this proportion was 55%, while total spending was Rs8.1 trillion.

Power and infrastructure

In realization of the fact that poor infrastructure could crimp growth, the Planning Commission has projected raising investment in infrastructure from 5% of the gross domestic product (GDP) to 9%. It has projected total investments at $475 billion (Rs20 trillion) over the next five years and proposed a public-private partnership (PPP) model to make up for resource shortfall in the public sector.

Power sector analysts, however, believe these targets, especially in power, may be missed because some critical reforms are yet to be undertaken. Referring to the 40% loss in power due to theft and pilferage, Anil Razdan, Union power secretary said: “No system in the world can absorb such a loss."

The 11th Plan also proposes that budgetary support from the Centre for public sector undertakings (PSUs) operating in the infrastructure space be further reduced.

“This is a step in the right direction. Power companies should be able to generate their own resources. The basic idea of creating the Power Finance Corp. (PFC) was to raise funds from the markets. Only infrastructure projects that cannot generate their own resources should be made part of plan allocations," said Pronab Sen, chief statistician of India and former adviser Planning Commission.

Still, some experts have expressed reservations on the emphasis in the 11th Plan on PPPs in infrastructure. According to Jayesh Desai, director of audit and consulting firm Ernst & Young Pvt. Ltd’s transaction advisory services practice, of the $475 billion investment needed in infrastructure, the government expects about $130-140 billion to come from the private sector. “Typically, about 30% of the infrastructure cost is in equity. So, effectively, what you are asking for is about $40 billion in equity. The problem is not whether the equity is available; the problem is, are there enough bankable projects?," he asked.

With the idea of enhancing skill levels, the 11th Plan is also expected to call for a big increase in Central spending on education. This is likely to be around Rs2.75 trillion.

Sen said that creating 70 million jobs (which is what the commission wants to do over the next five years) is a good idea as it will accommodate not just the growing number of people seeking jobs but also people who are currently unemployed.

“However, how many candidates will be suitably qualified to take up these jobs will be the question. So, if the Planning Commission is proposing creation of skill development, I suppose that will help," said Sen.

Money and politics

Some experts question the ability of the Centre to increase its spending and say this could affect its ability to adhere to annual fiscal targets it has set for itself. Any setback in revenues or increase in spending on subsidies and other giveaways would imply that there would be lesser resources and hence cut back in spending. Since the bulk of the spending is directed at the priority sector, this sector would be worst hit by this.

In a letter addressed to the Prime Minister’s Office, deputy chairman of the Planning Commission Montek Singh Ahluwalia has said: “The assumption about controlling non-plan expenditure including subsidies may prove difficult to realise. There is mounting pressure on subsidies at present and there are obvious uncertainties associated with the Pay Commission."

Representatives of the main opposition party, the Bharatiya Janata Party, and a key ally of the ruling United Progressive Alliance, the Left Front, welcomed the focus on inclusion, but while one said this government’s track record at creating infrastructure, especially in rural areas, was not as good as the previous government’s, another said the government could do still more in terms of social sector investments.

“The 11th Plan document may reflect the government’s pre-election imperatives, but there has been a definite slowdown in rural roads and other infrastructure projects driven by the Centre," said Rajiv Pratap Rudy, a spokesperson of the the Bharatiya Janata Party.

“If you reduce subsidies under pressure of the World Trade Organization at the same time, the net result may not be beneficial. What is needed, therefore, is allocation of fresh money over and above the ongoing schemes," said G. Devarajan, national secretary of the All India Forward Bloc, one of the four Left parties that support the UPA government from outside.

Ashish Sharma, Utpal Bhaskar and Rahul Chandran contributed to this story.