Macroeconomics

India's five-year plan-what's the big deal?

  • Blog Post Date17 December, 2012
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Varad Pande

Dalberg Global Development Advisors

varad.pande@dalberg.com

'Faster, inclusive, and more sustainable growth’ is the defining motto of India's latest economic plan. But how will it work? This column outlines the five big ideas in India's Five-Year Plan.

The draft of the Twelfth Five Year Plan – India’s defining economic strategy document for the years 2012-2017 – has been unveiled by the Prime Minister and approved by Cabinet. It now awaits a final discussion in the National Development Council (NDC) which will meet in the last week of December.

So what is new and different about this plan? In this column, I highlight some of its key innovative features.

This plan is much more than a routine document that the government releases every five years. It is path breaking in many ways and charts out a clear roadmap to achieve an average growth rate of 8.2% per year over the next five years. But the plan is more than just about growth – it is about inclusiveness, that is, ensuring that the benefits of growth reach the poor and the marginalised sections of society, especially women and traditionally outcast sections of society, including certain castes and tribes; and about sustainability, that is, ensuring that we ensure that we protect our environment as we accelerate development. ‘Faster, inclusive, and more sustainable growth’ is the defining motto the plan sets for the country.

Why planning?

The Twelfth Five Year Plan continues in a fine tradition of Indian planning initiated by India’s first Prime Minister Pandit Jawaharlal Nehru, who unveiled the First Five Year Plan in December 1951. That was a different and difficult era, when a fledgling nation was trying to discover its own development model. The early plans under Panditji’s leadership were critical in setting the stage for critical investments such as in irrigation, heavy industry, education, science and technology, atomic energy, etc. that became the foundational pillars of India’s development.

Many people have called into question the relevance of a ‘plan’ for today’s economy. It is true that India today is not a planned economy in the sense that it was in the 1950s and 1960s. But planning remains a relevant construct even today because we still have much to achieve – left to ‘laissez faire’ and without strategic planning, it is far from clear that India’s development path will achieve its growth goal, let alone the goals of inclusiveness and sustainability that we value as a nation. Today’s planning is not about micro-managing spending decisions on each sub-sector of the economy. Instead, it is about setting the broad strategic direction of the country’s development, and ensuring that we put in place the right governance structures, innovative policies and investment frameworks to achieve those goals.

Five big ideas in the Twelfth Plan

So what is new and innovative in the Twelfth Plan? Five ‘big ideas’ are worth noting.

First, to demonstrate the UPA government’s commitment to cooperative federalism and giving more resources to the states, the Plan calls for the setting up of a Rural Development Flexi-fund (RDF). This Fund, with an initial allocation of Rs. 40,000 crores, will devolve a significant share of central governments funds directly to the states to spend on their state-specific needs and priorities, instead of straitjacket ‘one-size-fits-all’ central schemes. For example, Bihar may wish to spend more on rural roads, while Orissa may wish to spend more on rural water supply – this Fund will allow Bihar and Orissa to prioritise for themselves.

Second, the Plan has a major thrust towards the inter-related nexus of health, nutrition, water and sanitation. The Prime Minister has called malnutrition ‘a national shame’, and in the Twelfth Plan the government is putting money where its mouth is. The Plan not only proposes to greatly increase government spending on these priorities, it also calls for major paradigm shifts. In healthcare, it proposes to move towards a National Health Mission, providing universal healthcare, with a special focus on preventive and primary care, which is often ignored. It proposes reducing child malnutrition by half. It proposes a new strategy on managing India’s water commons. It also proposes, through a new Nirmal Bharat Abhiyan, to bring about a sustainable sanitation revolution by making it a people-driven issue, making at least half of India’s villages open-defecation free in five years.

Third, the Plan makes a firm commitment to fighting corruption and crony capitalism, and ensuring full transparency in resource allocation. It lays down a clear roadmap, for example competitive bidding for natural resources, legislation for transparent public procurement, citizens grievance redress mechanisms (many of which have already been initiated) to ensure full transparency in governance.

Fourth, the plan for the first time makes a robust commitment to strengthening and empowering the Panchayati Raj Institutions (PRIs) through the Rajiv Gandhi Panchayat Sashaktikaran Abhiyan, with a major new thrust on building human resource capabilities of Panchayats. The budget for Panchayats in this Plan has been increased by over ten times. This is an unprecedented increase – it will strengthen our Gram Panchayats and Gram Sabhas, and build their capacity to ensure that India’s flagship schemes are better implemented through direct people’s participation. The Abhiyan will also provide additional funds to States that do a better job in strengthening their PRIs.

Fifth, for the first time the Plan makes environmental sustainability a central pillar of India’s development strategy – it enunciates clear targets to track progress on the environment front, so that we don’t do just lip service to this goal. For example, the Plan sets a target of reducing the emissions intensity of India GDP by 20-25% by 2020 on a 2005 base year, a clear and credible commitment to combating climate change. Similarly, a target is set for protecting India’s forest cover.

Conclusion

The UPA government has over the last eight years delivered on many key commitments it has made to the common man. Take for example two simple statistics. Between 1993-1994 and 2004-2005, the poverty rate in India declined by 0.7% per year, and this rate of decline more than doubled to 1.5% per year between 2004-2005 (when the UPA formed the government) and 2009-2010. Similarly, economic growth between 1993-94 and 2004-2005 was an average of 6.2% per year, which rose to 8.4% per year under the UPA between 2004-05 and 2009-10.

While this is commendable, much remains to be done. To quote Panditji from his speech on the eve of India’s independence: "The ambition of the greatest man of our generation has been to wipe every tear from every eye. That may be beyond us, but as long as there are tears and suffering, so long our work will not be over." It is this inspiration that finds an articulation in the Twelfth Plan, with a set of innovative approaches to show the way.

Varad Pande is the Officer on Special Duty (OSD) to India’s Minister for Rural Development The views expressed in this column are personal.

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