Wednesday, March 16, 2011

Poverty of ideas hurting India's planning process


Poverty eradication remains on top of agenda even after 63 years of Independence

Sopan Correspondent / New Delhi

Planning Commission will have a formidable task to prepare the blue print for development for the five-year period ending March 2017 in view of the host of problems and challenges being faced by the country - some of its own making and others being forced on it on account of external factors.

The major issues that the Twelfth Plan (2012-17) will have to deal with include poverty alleviation, re-distribution of wealth, inflation, economic growth, agriculture sector, industrial production, infrastructure, corruption and governance deficit.

Although the challenges before the nation are many, the Commission under the deputy chairmanship of Montek Singh Ahluwalia, will have to ensure that all efforts are made to address the basic problem - poverty alleviation. It is nothing but a matter of deep concern and regret that even after more than half a century of independence four out of ten Indians are poor. India has more poor than those in whole of Africa.

The face of India cannot change unless appropriate policy initiatives are backed by sincere efforts to eradicate poverty. The Commission, this time again will be needing to focus on eradicating poverty, especially in rural areas where people have yet to taste the fruits of economic reforms initiated by the then Finance Minister and currently Prime Minister Manmohan Singh in 1991.

To achieve the broader objective of poverty alleviation, the Commission will have to not only ensure growth but also put in policies that encourage distribution of fruits of development among the neglected sections of society.

The starting point of the exercise will be to raise economic growth to about 10 per cent during the Twelfth Plan period. Prime Minister Singh, who is also the head of the Commission, had already indicated to the Plan panel to contemplate double-digit growth in the next plan.

The Commission had projected an annual growth rate of 9 per cent in the Eleventh Plan (2007-12). Although the initial years of the Plan recorded over nine per cent growth rate, the projections went hay wire following the global financial meltdown triggered by collapse of the America's iconic investment banker Lehman Brothers in September 2008.

The economic growth rate fell to 6.8 per cent in 2008-09 from over nine per cent in the preceding three years. To help the industry combat the impact of the global financial crisis, the government announced several stimulus packages, while the Reserve Bank relaxed the monetary policy.

The growth picked up to 8 per cent in 2009-10. To the comfort of the policy planners, economic recovery was faster than anticipated. The Gross Domestic Product (GDP) is likely to record a growth rate of 8.6 per cent in the current financial year and 9 per cent during 2011-12, which will be the last year of the Eleventh Plan.

The unanticipated slowdown prompted the Planning Commission to scale down the annual growth target of Eleventh Plan to 8.1 per cent from 9 per cent. These figures, however, will have to be re-worked keeping in view the economic recovery towards the close of the Plan period.

In order to achieve this growth, the focus will have to be mainly on industry, agriculture, services and export sectors. Besides, special efforts would have to made to improve infrastructure to sustain high growth rate of 10 per cent in the medium to long term.

Singh had already indicated that investment target for infrastructure sector will be doubled to USD 1 trillion from USD 500 billion in the Eleventh Plan period. The funding for infrastructure sector, which will broadly include roads, power, airports, port etc, will come from government, private and foreign sources. The contribution of the private sector for development of infrastructure will increase as the government will be expected to earmark more funds towards social sector programmes like MGNREGA, Sarva Shiksha Abhiyan, proposed food security law etc.

In infrastructure sector too the focus of development must be rural areas rather than building more fly-overs and metro trains in cities which are more developed. The rural focus is essential not only to root out poverty but also to fight the menace of inflation which has become a major economic problem impacting the lives of everyone. According to a World Bank report, released ahead of the G-20 meeting of the Finance Ministers and the Central Bank Governors at Paris in February, rising global commodity prices have pushed 44 million people into poverty. Inflation is the worst kind of tax which eats the purchasing power.

The food inflation crossed 20 per cent mark during the last financial year, while the headline inflation remained above 10 per cent. Towards the close of 2010, there have been some moderation in the food as well as headline inflation rates, but there is no room for complacency as the political crisis in the Middle-East and rising global commodity prices will impact the rate of price rise in the coming months.

Although the reasons for rising inflation are many, in the Indian context two are important – rising purchasing power and supply constraints. The government has no control over the global developments, but it can definitely put in place a strategy to minimize the impact of such developments on domestic economy.

The challenge before the Planning Commission is to suggest a credible and appropriate strategy to effectively deal with the menace of inflation and also check inflationary expectations. The focus of the strategy should obviously be to increase farm productivity. Allowing duty free import of essential goods and tightening of monetary policies will not provide any long-term solution to the problem of inflation.

At the same time, it needs to be emphasized that the scope for increasing farm productivity is enormous considering the fact that in India per acre output of foodgrain, vegetables and fruits is very low as compared to even developing nations. This can be done by increasing rural infrastructure and making available to farmers inputs like good seeds, fertilizers etc.

Besides, the government should ensure time availability of credit, crop insurance at reasonable cost, transport and marketing support facilities for the farm sector. In addition to the economic side, the Planning Commission will have to lay special focus on law and order problem and the governance deficit which has been adversely impacting the performance of the government schemes and programmes.

Focus on law and order is needed to deal with problem of naxalism and development of the backward regions of the country. However, both will have to go together to prevent the problem from deteriorating further. The other big problem that the Commission must deal with squarely is the governance deficit. The series of scams that have come to light during the past two years, suggest that there is something seriously wrong with the way the government is conducting its business. If things continue like this, people will lose faith in the government and its ability to deal with the problems of the country. It is essential that the problem is addressed without delay.

Corruption is not something that can be checked by policing alone. The Commission must find out the reasons for growing corruption, much of which can be attributed to the wrong and misplaced policies of the government. Although a group of minister under Finance Minister Pranab Mukherjee was set up to suggest legislative and administrative measures to check corruption, the Planning Commission can contribute its might in fighting the menace by recommending changes in the policies that promote corrupt practices..

The tasks before the Commission, which has to prepare the blue print for development during 2012-17 are many and varied. The priority should be given to the rural sector to decisively fight poverty and combat the impact of global crisis, may it be rising commodity prices or slowdown of exports. These national objectives, however, will not be achieved unless sincere efforts are made to bridge governance deficit and check corruption.

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