New Delhi: The government on Thursday approved the draft 11th Plan that pegs the country’s annual growth rate at 9% per annum.

This was done at the meeting of the full Planning Commission chaired by Prime Minister Manmohan Singh.

Plain speaking: Prime Minister Manmohan Singh.

But Singh did some plain speaking, warning that rising subsidies may force a cutback on priority spending, especially in settting up schools and hospitals and agriculture investment, which would challenge the central premise of the 11th Plan that seeks to make growth “inclusive".

“We need to address the problem of mounting subsidies in food, fertilizers and now, in petroleum, which is a recent phenomenon. Over Rs1,000 billion are going to be spent this year alone on these three items," Singh said in his opening address.

As reported in Mint on 7 November, more than three-quarters of the total projected allocation of the Rs14.21 trillion in the draft Plan will be for the priority sector.

In the 10th Plan, it was 55%, while total spending was Rs8.1 trillion. With inclusiveness as the focus, the 11th Plan emphasizes poverty reduction, tackling regional imbalance, creating 70 million jobs and skill development.

Deputy chairman of the commission Montek Singh Ahluwalia said the 11th Plan was drafted at a time when international crude prices were at $80 (Rs3,144) a barrel but they now stood at $98. “The only viable solution to this is that the burden is passed on to the consumers and only the poor are subsidized," he said at a press conference after the meeting.

“Though I am not a politician, the PM might be signalling to the Left to give up its opposition on increasing petroleum prices in order to spend more on the social sector," Govind Rao, director, National Institute of Public Finance and Policy, said.

According to him, the draft will be finalized incorporating some of the suggestions made by members of the cabinet in another 10 days and then put before the National Development Council, comprising the PM, his cabinet colleagues and chief ministers, next month.

Ahluwalia also added that with tax reforms and buoyancy in revenues, 9% growth can be delivered in the 11th Plan. However, he said non-performing programmes will be restructured so that spending on them yields results.

But the commission would not revisit its decision to scale back Central spending on infrastructure. Its share in total spending is down from 10.18% to 8.45%. “We aim to raise the investment in this sector through public-private partnership and with the public sector undertakings raising internal resources as also raising money through borrowings," said Ahluwalia.

He also said the commission is committed to improving the state of education. The allocation to education has been raised from 7.68% in the 10th Plan to 19.36%. He added that while poverty has declined, the decline is not steep.

Udit Mishra and PTI contributed to this story