Twelfth Five Year Plan (2012-13 to 2016-17)

The below mentioned article provides an Overview on the Twelfth Five Year Plan (2012-13 to 2016-17) of India. After reading this article you will learn about: 1. Subject-Matter of Twelfth Five Year Plan (2012-13 to 2016-17) 2. An Overview of the Economy 3. Growth Targets for the Twelfth Plan 4. Financing of Public Sector Plan under Twelfth Five Year Plan and Others.  

Subject-Matter of Twelfth Five Year Plan (2012-13 to 2016-17):

In a full planning commission meeting held on 21st April, 2011 under the chairmanship of Prime Minister Manmohan Singh, the Deputy Chairman of the Planning Commission Montek Singh Ahluwalia presented an outline on the “Issues for approach to the 12th five year plan”.

In the meeting, the planning commission made argument in favour of higher inflow of foreign capital and also stressed on the importance of increasing the pace of economic reforms so as to reach the milestone of attaining 9.0 to 9.5 per cent growth rate in its economy.

The meeting also agreed that under the regime of economic reforms to attain all round development of the economy it is essential to reach the specific target of growth both agriculture and manufacturing industry. Likewise, it is also important to make necessary changes in the foreign trade policy of the country.

The Planning Commission expects that during five years of Twelfth Plan the attainment of economic growth rate would reach between 9.0 to 9.5 per cent.

In order to attain the targeted growth rate, the Planning Commission feels that the following primary conditions need to be fulfilled:

1. The door for foreign investment should be opened more to attract investment in different important sectors including infrastructure.

2. For the interest of development, the issues of foreign trade regulations need to be revisited under the present regime of economic liberalisation.

3. Additional importance should be given on development of agriculture for attaining at least 4 per cent growth rate. For that purpose the area under Rashtriya Krishi Vikash Yojana (RKVY) needs to be expanded.

4. Manufacturing industries has failed to fulfill the target during the Eleventh Plan. Thus this sector should try to attain 11 to 12 per cent growth rate.

5. More stress be given on health, education and infrastructure.

6. After petrol, the price of diesel needs to be deregulated or decontrolled and be kept under market determined price mechanism.

7. Burden of subsidy on LPG cylinder and Kerosene needs to be reduced. Subsidy should only be given on these two items only for people lying below the poverty line.

8. During the five year period (2012-17) of the twelfth plan, the country will require at least 1 lakh MW of electricity. Considering the shortage of coal, more importance should be given on atomic energy and also on non-conventional sources of energy. Thus the presentation by the Planning Commission in its meeting to find out approaches to the Twelfth Five Year Plan wants to give stress on attaining economic growth at a more faster rate, more inclusive and in a sustainable manner.

An Overview of the Economy:

On the eve of Twelfth Plan, the Overview of Indian Economy is characterised by strong macro fundamentals and to some extent good performance over the Eleventh Plan period, though clouded by some slowdown in its economic growth in recent years with continuing concern about inflation and a sudden increase in degree of uncertainty about the global economy.

Some of the challenges faced by the economy emanate from the transition of the economy to a higher and more inclusive growth path, the structural changes that come with it and the expectations it generates. Moreover, there are external challenges arising from the fact that the global economic environment is now much less favourable than it was at the beginning of the Eleventh Plan.

All these challenges call for renewed efforts on multiple fronts, on the basis of experiences gained and also keeping in mind the global developments.

Inclusiveness:

Attaining inclusiveness is an important agenda of economic development. The progress towards inclusiveness is more difficult to assess, because inclusiveness is a multi-dimensional concept. Inclusive growth should result in lower incidence of poverty, broad based and significant improvement in health outcomes, universal access for children to school, increased access to higher education and improved standards of education, including skill development.

It should also be reflected in the form of better opportunities for both wage employment and livelihood and also in improvements in basic amenities like water, sanitation, roads, housing, electricity etc. and special attention for backwards sections of population, like ST, SC and OBC, for women and children, minorities and other excluded groups.

Available evidence suggests that there have been considerable gains comparatively on many of these fronts along with shortfalls which need special attention in future plans.

Reducing Poverty:

One of the key elements in the Country’s inclusive growth strategy is reduction of poverty and the country has attained some progress in this regard. The percentage of population lying below the poverty line declined from 45 per cent in 1993-94 to 37 per cent in 2004-05. It is observed that the pace of poverty reduction has accelerated although it is still short of the target.

However, India is well poised, to meet the Millennium Development Goal target of 50 per cent reduction of poverty between 1990 and 2015.

Reforms:

Reforms in implementation of various schemes under plan are a priority and it should receive focused attention during the Twelfth plan. There is urgent need for more flexibility in the design of the schemes, provisions for encouraging innovation and to promote convergence at the level of implementation for preventing duplication and also create synergies that improve the quality of outcomes.

Demographics:

The growth rate of population in India declined from 1.97 per cent per annum during 1991-2001 decade to 1.64 per cent per annum during 2001-2011 decade. Total Fertility Rate (TFR) also declined to 2.6 per cent and is expected to decline to 2.3 per cent in the first half of the present decade.

Moreover, India has a younger population as compared to the advanced and developing economics and thus enjoying ‘demographic dividend’ which can add to growth potential provided the country could achieve higher levels of health, education and skill development and could enhance good quality employment/livelihood opportunities in order to meet the needs and aspirations of the youth.

Employment and Livelihood:

During the period 2004-05 to 2009-10, overall labour force in the country expanded by 11.7 million. During the same period, 18 million job opportunities were created on current daily status basis. Thus in absolute terms, unemployment come down by 6.3 million and unemployment rate which increased from 6.06 per cent in 1993-94 to 7.31 per cent in 1999-2000 and then to 8.28 per cent in 2004-05, come down to 6,60 per cent in 2009-10.

Prospects for the Twelfth Plan:

The overview of the economy suggests that the economy has gained in strength in many dimensions and is therefore well placed to achieve faster, sustainable and more inclusive growth. By achieving around 8.0 per cent growth during the Eleventh Plan, it is reasonable to aim at achieving 9.0 per cent growth for the Twelfth Plan.

However, this is a feasible target from a macro-economic perspective but it cannot be viewed as an assured outcome. Presently, global economic conditions are very uncertain and energy prices are likely to remain at high level.

In order to achieve rapid growth, the economy will have to overcome constraints posed by limited energy supplies, increase in water scarcity, shortages in infrastructure, problems of land acquisition for industrial development and infrastructure, and the complex problem of managing the urban transition associated with rapid growth.

In respect of inclusive development, greater efforts also need to be made in agriculture, health and education for ensuring inclusion of the most excluded and sometimes invisible parts or sections of our population.

All these difficulties suggest that a 9.0 per cent growth target for the next five years is ambitious but not difficult to attain. Economic reforms over the last twenty years have resulted in the citizens of India having high expectations.

The Twelfth Plan has to meet the aspirations of millions of young men and women by following innovative approaches. All sections of society government, businesses, labour, farmers and concerned citizens—have to adopt newer, more effective ways of pursuing their activities, so that we can collectively achieve our desired lofty goals in a systematic manner.

Growth Targets for the Twelfth Plan:

Setting the growth targets for the Twelfth Plan is an important and difficult task for the Planning Commission under the present difficult economic scenario. The Planning Commission has explored two alternative targets for economic growth in the Twelfth Plan.

The first is a restatement of the Eleventh Plan target of 9.0 per cent growth, which has yet to be achieved. The second is an even higher target of 9.5 per cent average growth for the Twelfth Five Year Plan. Several macro-economic models have been used to examine the feasibility of these targets in terms of internal consistencies and inter-sectoral balances.

The sectoral growth rates broad consistent with the 9.0 per cent and 9.5 per cent alternatives are presented in Table 11.14. The 9.0 per cent target requires a significant acceleration in growth in agriculture; in electricity, gas and water supply; and also in manufacturing.

Agricultural growth has always been an important component for inclusiveness in India, and recent experience suggests that high GDP growth without such agricultural growth is likely to lead to accelerating inflation in the country, which would jeopardize the larger growth process. However, even if such agricultural growth is achieved, it is unlikely that the agricultural sector will absorb additional workers.

Thus, the main onus for providing additional jobs to the growing labour force will rest on manufacturing and construction and on the services sectors. The target set for the mining sector, mainly reflecting additional production of coal and natural gas, is also very demanding, but is necessary to meet the primary energy requirements without resorting to excessive imports.

As shown in Table 11.12, taking the growth rate to 9.5 per cent would require much faster growth in the manufacturing, as well as in electricity, gas and water supply sectors. The feasibility of achieving such large acceleration in key sectoral performance needs to be considered carefully before the growth targets for the Twelfth Plan are fixed.

Table 11.12 reveals that taking 9.0 per cent as growth target in its GDP, the Planning Commission fixes the sectoral growth rates as 4.0 per cent for agriculture, 8.0 per cent in mining and quarrying, 9.8 per cent in manufacturing industry, 10.0 per cent in construction, 8.5 per cent in Electricity, gas and water supply, 9.6 per cent in industry as a whole and 10.0 per cent for the services sector.

Considering the inflationary situation, the plan takes into account the macro balancing needed for attaining 9.0 per cent growth and accordingly wanted to provide a framework for managing aggregate demand in line with the potential growth in supply for moderating the inflationary pressure.

Financing of Public Sector Plan under Twelfth Five Year Plan:

It would be better to look at the financing pattern of public sector plan under the Twelfth Plan. Having established the macro-economic feasibility of 9.0 per cent GDP growth in terms of investment-saving balances and the current account deficit, it is necessary to consider the likely size of the Public Sector Plan. A detailed assessment of the size of the Central and State Plans will be possible only at the time of finalization of the Twelfth Plan.

A provisional assessment of resource availability for the Centre has been made by the Working Group on Centre’s Resources. This is presented in Table 11.12 (which shows absolute value in rupees) and Table 11.12 (which shows the same data as a percentage of GDP) below.

Table 11.12 reveals that the gross budgetary support for Twelfth Plan is fixed as Rs 3,603,360 crore (39.3 per cent) out of aggregate resources of Rs 9,160,248 crore. Total central assistance for States and UTs for the Twelfth Plan is earmarked as Rs 845,558 crore and the total resources for the Central Plan is estimated at Rs 2,757,802 crore. Total plan resources for the Centre is also estimated at Rs 4,709,822 crore which stands at 6.86 per cent of Gross domestic product for the entire period.

Table 11.13 shows projection of Centre’s resources for the Twelfth Five Year Plan (as per cent of GDP) The projections in Table 11.13 envisage Gross Budgetary Support (GBS) for the Plan increasing from 4.92 per cent of GDP in 2011-12 to 5.75 per cent to GDP by the end of Twelfth Plan period.

The increase in the GBS as a percentage of GDP over a five year period is only 0.83 per cent of GDP. There as several sectors where Plan allocations must increase as a percentage of GDP, notably health, education and infrastructure.

Preliminary work shows that allocations for these sectors should ideally increase by around 1.5 percentage points of GDP. Given the limited increase projected in the Central GBS, this implies strict prioritization will have to be enforced, which implies resources for other sectors will expand more slowly than GDP.

Financing Private Investment during the Twelfth Plan:

It is also important to look at pattern of financing of private sector investment during the Twelfth Plan. Since more than two-thirds of the investment in the economy is by private sector (households and corporate). It is necessary to ensure that the financial system is able to translate the otherwise favourable macroeconomic investment-savings balances into effective financing of the private sector investment needed for 9.0 per cent GDP growth.

For this, we need a financial system capable of mobilising household savings and allocating them efficiently to meet the equity and debt needs of the fast expanding private corporate sector. This depends upon the efficiency of the financial system as a whole, which at present consists of a large number of financial institutions, such as banks, non-bank finance companies, mutual funds, insurance companies, pension funds, private equity firms, venture capital funds, angel investors, micro-finance institutions etc.

Special attention must be paid to the financing needs of private sector investment in infrastructure. Infrastructure investment (defined as electricity, roads and bridges, telecommunications, railways, irrigation, water supply and sanitation, ports, airports, storage and oil-gas pipelines) will need to increase from about 8.0 per cent of GDP in the base year (2011-12) of the Plan to about 10.0 per cent of GDP in 2016-17.

The total investment in infrastructure would have to be over Rs 45 lakh crore or $ 1 trillion during the Twelfth Plan period. Financing this level of investment will require larger outlays from the public sector, but this has to be coupled with a more than proportional rise in private investment.

Private and PPP investments are estimated to have accounted for a little over 30.0 per cent of total investment in infrastructure in the Eleventh Plan. Their share may have to rise to 50.0 per cent in the Twelfth Plan.

Some important steps that need to be taken in the Twelfth Plan period are as follows:

(i) Equity markets are now well regulated. However, pension and insurance reforms have been pending and need to be undertaken on a fast-track basis. Mutual funds, insurance and pension funds are not only efficient routes through which household savings can be mobilised for corporate investment, but also vehicles that provide financial security to a large section of our population, hitherto excluded from the befits of modern financial services.

(ii) A large part of household savings are currently absorbed by the government to finance the fiscal deficit. As fiscal consolidation is undertaken and household savings remain high, more funds are likely to be available for corporate debt investment. The creation of a vibrant and liquid corporate bond market should be taken up on priority basis.

Reform of the government securities market is also essential for the establishment of a Government Securities (G-Sec) yield curve for all maturities against which corporate bonds can be priced. The creation of public debt management office outside the RBI has been under consideration and should be expedited to free the RBI from the role of a debt manager, and to facilitate building up of institutions and use of technology to allow an integrated bond market to develop.

(iii) Since investment in infrastructure has to increase as a percentage of GDP and about 50.0 per cent of the investment is projected to be in the private sector, the institutional mechanisms for supporting such investment deserves strong support. The Finance Ministry has announced guidelines for establishing infrastructure debt funds.

This will help infrastructure companies to refinance short term bank debt with long term debt thereby freeing banks to finance new corporate investment. This will not only help leverage private investment in infrastructure, through speedier financial closure of public private partnerships, but also crowd-in private investment to propel Indian economy to a high growth path.

(iv) The public sector banking system needs to achieve economies of scale through both capital infusion and consolidation. If government ownership of equity in public sector banks cannot be diluted below 51.0 per cent, there is no alternative to providing budgetary resources to build up the capital of the public sector banks.

(v) Financial inclusion still remains a matter of concern. Until now, the approach was to open more and more rural branches, which involves very high costs. Fortunately, mobile and information technology permits the use of the banking correspondents model to improve financial access for ordinary households in under-served areas. This must be expedited in the Twelfth Plan.

The main conclusion that emerges from this analysis is that despite the slowdown in growth in the current year, GDP growth target of 9.0 per cent for the Twelfth Plan is feasible from a macro-economic perspective. However, while growth at the pace is feasible, it cannot be said to be a forgone outcome. There are several imponderables, including considerable short-term uncertainties in the global economy, and also formidable supply constraints in energy and some other sectors on the domestic front.

While there are possible downsides to this scenario, we should aim at an average 9.0 per cent GDP growth for the Twelfth Five Year Plan at the state. We should however, build in some flexibility in our planning so that at the time of Mid-term Appraisal of the Twelfth Five Year Plan, we could consider raising the target rate of growth, if the global environment improves, and policy reforms, which could raise the growth potential of our economy, become a reality by that time.

Thus the financing of private sector investment needs to be much more flexible and market oriented.

Resource Allocation Priorities in Twelfth Plan:

Planning Commission has identified the following priorities in resource allocation for the Twelfth Plan:

1. Health and Education received less than projected in Eleventh Plan. Allocations for these sectors will have to be increased in 12th Plan.

2. Health, Education and Skill Development together in the Centre’s Plan will have to be increased by at least 1.2 per cent point of GDP.

3. Infrastructure, including irrigation and watershed management and urban infrastructure will need additional 0.7 percentage point of GDP over the next 5 years.

4. Since Centre’s GBS will rise by only 1.3 percentage points over 5 years, all other sectors will have a slower growth in allocation.

5. Must reduce the number of Centrally Sponsored Schemes (CSS) to a few major schemes. For the rest, create new flexi-fund which allows Ministries to experiment in other CSS areas.

6. Use of PPP must be encouraged, including in the social sector, i.e. health and education. Efforts on this front need to be intensified.

7. Distinction between plan and non-plan being reviewed by Rangarajan Committee.

Twelfth Plan (2012-17) Outlay and Heads of Development:

The allocation of plan outlay under different heads gives a clear picture about the strategy of the plan. The following table shows proposed public sector outlay and the plan allocations under different heads for the Twelfth Plan.

The Planning Commission has fixed total outlay for the Twelfth Plan at Rs 76,69,807 crore which is more than double the amount of outlay finalised for the Eleventh Plan, i.e., Rs 36,44,718 crore. Table 11.14 reveals the total provisional outlay of the Twelfth Plan and its sector-wise allocations for the entire plan. The sectoral allocation of the outlay reflects priorities of the plan.

Total provisional public sector outlay of the plan is Rs 76,69,807 crore. It is observed that among all the heads, the Twelfth Plan has allocated the maximum outlay on social services, i.e., Rs 26,64,843 crore, which is around 34.7 per cent of the total outlay, followed by energy to the extent of Rs 14,38,466 crore which is around 18.8 per cent of the total outlay.

Twelfth Plan has allocated 15.7 per cent of the total outlay on transport, 6.0 per on rural development, 5.5. per cent on irrigation and flood control, 4.7 per cent on agricultural and allied activities, 4.9 per cent on industry and minerals 2.2. per cent on science, technology and environment, 4.0 per cent on general services, 1.4 per cent on general services, 1.1 per cent on communications and 1.1 per cent special area programmes. It is also evident from the table that about 35.6 per cent of the total outlay is earmarked on energy, transport and communications considering the huge shortage of infrastructure facilities.

Moreover, the total annual plan outlay for the year 2012-13 is fixed at Rs 12,51,715 crore and its allocation under different heads follows the same pattern as done in case of total plan outlay.

Approval of Twelfth Five Year Plan by National Development Council (NDC):

On 27th December, 2012, the full-fledged meeting of the National Development Council (NDC), under the chairmanship of Prime Minister Manmohan Singh, was held to give official clearance of the Twelfth Five Year Plan (2012-17) document which was earlier approved by the Union Cabinet in its meeting held on 4th October, 2012.

Country’s apex policy making body NDC approved the strategy to achieve the growth rate of 8 per cent during the 12th Five Year Plan. The document also envisaged to generate 50 million new jobs and increase investment in infrastructure sector.

Moving away from previous practices of presenting single growth projection, the Planning Commission has come out with three different economic scenarios for Twelfth Five Year Plan. Deputy Chairman of the Planning Commission, M.S. Ahluwalia said that “Growth outcomes will depend upon you on the extent to which we are needed to intervene at key leverage points to generate inclusive growth.”

As per “aspirational” scenario one, the growth rate was earlier expected to be 8.2 per cent annually till 2016-17. It has been argued that there is a need to modify the first scenario in the light of Finance Ministry’s projection on 2012-13 economic growth (5.7 to 5.9 per cent) and assessment of United Nations that global economy would be significantly weaker in 2012 and 2013.

In view of these developments growth rate associated with scenario one could be scaled down to 8.0 per cent.

In case of the second scenario—policies move in the right direction but are not fully implemented which in turn would limit the growth in the range of 6 to 6.5 per cent with correspondingly lower progress on inclusiveness.

In case of the third scenario of “policy logjam”, there is very little progress on the different decisions identified. In this case, growth could be struck between 5 and 5.5 per cent.

Thus both the Centre and the States need to focus on policies that would promote different components of investment and also increase their efficiency.

Mr. Ahluwalia observed, “We expect with the growth rate of 5.8 per cent this fiscal and little over 7 per cent next fiscal, and with extra effort in the remaining three more years. We can reach 8.0 per cent growth (from 8.2 per cent).

At the end of the NDC Meeting, the then Prime Minister Dr. Manmohan Singh observed that- “It is a broad ‘directional’ and ‘aspirational’ document which must allow for modification on the basis of experience…………………………. We must now devote all our energies to implementing the plan.”

Conclusion:

Thus the presentation made by the Planning Commission in its NDC meeting on “Issues for Approach to the Twelfth Five Year Plan” will simply encourage agriculture, education, health and social welfare through plan expenditure on the respective areas by the government.

In order to achieve greater inclusion growth, the Commission has given stress on better farm sector performance with a growth of at least 4 per cent faster creation of jobs, consolidated and stronger efforts health, education and skill development and also on attaining greater effectiveness of the programmes designed for poor.

In earlier plans, targets and objectives of the plan were finalized jointly by the centre and states. But for the Twelfth Plan the Commission has sought to develop an inclusive and participative approach to the entire planning process.

Thus with the idea to make it much more inclusive, the commission has evolved a web based consultative process in which all interested citizens and stakeholders can participate and share their views and suggestions on a multi-dimensional strategy matrix that has been created indicating some key areas which need to be developed.

Thus the planning process followed by the commission for finalising Twelfth Plan has some new directions in certain respects.