A quantum jump from the traditional Hindu Growth Rate of about 3-3.5 per cent to about 5.5 per cent now is not considered enough for the Indian economy. At a time when the economic growth slowed down from 6.7 per cent annually during the Eighth Plan period to 5.35 per cent annually in the Ninth Plan period, the government is still pegging the growth target of eight per cent during2002-07. It is indeed an ambitious target, acknowledges the Deputy Chairman of the Planning Commission Mr. K. C. Pant after getting Union Cabinet’s approval for the Draft Tenth Plan document.

Compared to ground realities, the new growth target could be termed as ‘pipe dreams’ by many. Even the draft paper, to be presented before National Development Council shortly for approval of the Tenth Plan, acknowledges that the medium term performance of the economy over the past several years suggests that the demonstrated growth potential is only about 6.5 per cent. “Nevertheless, the NDC (in the approach paper for the Tenth Plan) affirmed its faith in the latent potentialities of the Indian economy by approving the Eight per cent growth target,” says the draft plan document.

Admittedly the economy has performed relatively well since 1990s despite the external and internal turmoils. Fundamentals of the economy had never been so good with inflation well under control, burgeoning foreign exchange reserves, bursting food grain stocks and to top it all ushering in of the soft interest regime which is aimed at ridding the economy from high cost factors. However, economic think tanks, economists, industry and even the RBI refuse to share the optimism about the growth that has been exhibited and repeated by the government.

In the course of just six months, the apex banks have lowered the growth projections for the economy for current financial year by one percentage point from 6-6.5 per cent forecast by it in April. Attributing the diminished growth prospects to poor rains, RBI feels that the foodgrain production could be lower by about five per cent this year. Echoing the sentiments, economic think tank National Council of Applied Economic Research also lowered its growth projections for the economy to 4.8 per cent for the current financial year from earlier estimated 5.5 per cent.

The mid-term review of the economy, brought out by NCAER annually, also cautions that lack of growth in agriculture would also push the prices by about five per cent. However, the silverlining is that the adverse impact of poor monsoon on the overall economy will be offset to some extent by government spending on drought relief. Lower then the targeted growth rate coupled with higher government would lead to significantly higher gross fiscal deficit at 6.3 per cent as against the budget target of 4.5 per cent.

By reckoning of both the RBI and the NCAER, improvement in industry and services sector would give some semblance of respectability to the economy. Stating “there are indications of recovery in industrial production during April-September 2002” and exports have turned around posting over 13 per cent growth in the first five months against a negative 0.6 per cent growth, RBI predicts that inflation will remain benign at below four per cent. Likewise, NCAER projected industrial output to rise by 5.6 per cent mainly due to higher government expenditure. Services sector has been projected to grow strongest by 6.9 per cent.

If the present performance is any indicator, then the policy planners will have to come out with some strong prescription for spurring the economy for attaining at least 10 per cent industrial growth. According to the Federation of Indian Chambers of Commerce and Industry the weak demand idle capacity was leading to lower investment and was in turn clouding the prospects of the economy. Releasing the findings of a survey where 426 respondents with a turnover ranging from Rs. one crore to Rs.2, 500 crore participated, FICCI said that overall stance of the industry was that of ‘cautious optimism’. A majority of 62 per cent of the respondents felt confident that overall economic conditions in the next six months would be “substantially to moderately better”. Attributing the decline in economic growth to drought, the recent hardening of oil prices and slowdown in the pace of second generation reforms, the participants felt that international credit rating agency S&P’s downgrading of rupee debt was unjustified.

Idle capacity was also acknowledged by the Planning Commission as one of the factor for lower growth during the Ninth Plan period but still a 30 per cent of industry representatives in the survey planned for higher investment in the next six months. Voicing the sentiments of the industry FICCI SG Dr. Amit Mitra felt that the cautious optimism has to be turned into bouncing optimism by way of promoting infrastructure projects, reducing taxes for increasing the purchasing power and cut in interest rates.

By no means the eight per cent economic growth target set by the Planning Commission for the next five years is going to be easy. It is perhaps in this context that the Draft Plan emphasis that high priority be given to improvement in efficiency through adaptation of suitable policies. The Tenth Plan must, therefore, give high priority to identifying efficiency, enhancing policies both at the macro level and also at the sector level. These policies will often involve a radical break from past practices and even institutional arrangement. In many cases they will involve policy decisions, which can easily become controversial given the compulsion of competitive policies,” it warns. The Commission, therefore, is clear in its prospective that the Tenth Plan can only succeed in achieving the targeted 8 per cent growth if sufficient political will is mobilized and a minimum consensus is achieved. This alone will enable significant progress in critical areas, failing this growth will be correspondingly lower.