|9th Five Year Plan (Vol-1)||<< Back to Index|
Strategy and Perspective of Development
Objectives of the Ninth Plan
1.5 The Ninth Plan recognises the integral link between rapid economic growth and the quality of life of the mass of the people. It also recognises the need to combine high growth policies with the pursuit of our ultimate objective of improving policies which are pro-poor and are aimed at the correction of historical inequalities. Thus the focus of the Ninth Plan can be described as : "Growth with Social Justice and Equity".
1.6 The specific objectives of the Ninth Plan as approved by the National Development Council are as follows :
The development strategy of the Ninth Plan has been tailored to the requirements of these objectives.
The Development Strategy
1.7 Indias development strategy, like that of most other developing countries, has evolved over successive Plan periods, reflecting the growing strength of our economy, structural transformations taking place in the domestic economy and also developments in the world economy. In the early stages of development planning, government was viewed as the principal actor in development exercising strict control over private investment, ensuring a dominant role for the public sector in all important industries. Trade policy tended to be inward oriented focusing on industrial development through import substitution which was encouraged through a tight control over imports and maintenance of high tariffs. The limitations of this strategy became evident by the end of the 1970s and early 1980s when it became clear that these policies reduced efficiency and competitiveness and growth was much lower than targeted. While government was over-active in industry, it was under-active in many areas, especially relating to social development and this was reflected in a very slow pace of improvement in critical social indicators.
1.8 Some efforts were made to reform the system in the second half of the 1980s to address the shortcomings in our development strategy. However it was not until 1991 that a wide ranging programme of economic reforms aimed at decontrolling and debureaucratising the economy was initiated. These reforms have been pursued by successive governments since 1991 and enjoy a broad base of support. They have also yielded good results thus far. There is no doubt that the Indian economy has responded well to the change in policy direction and the growth rate increased from 5.8% in the Seventh Plan (1985 to 1990) to 6.8% in the Eighth Plan. And yet there are many dimensions in which performance has lagged behind expectations. Faster growth has not reduced poverty as much as it should have, nor has it created the number of high quality jobs we need to satisfy the aspirations of our increasingly educated youths. Growth has not been as regionally balanced as it should have been. The deficiencies in social development indicators have also continued and our low level of social development is today a major constraint on reaching a growth rate of 8 per cent, which should be our medium term target. The Ninth Plan is being implemented at a time when we are about to enter the new millennium. The international environment is also full of uncertainties in the aftermath of the East Asian crisis. It is appropriate at this critical period to articulate a development strategy which reaffirms and builds upon what has worked well, initiates corrective steps where needed, and takes new initiatives to meet the new challenges which face the economy in the years ahead.
1.9 There should be no doubt that the process of reforms which has been underway for some years, and which has yielded many good results, must continue and be strengthened. The reforms involve a major re-orientation of the role of the State. Instead of being a pervasive controller of private sector activity, and also a direct producer in many areas through majority owned public sector enterprises, the State must play a different role in future. One of the strengths of our economy is that we have a strong and vibrant private sector, including large, middle sized and small enterprises. Our agriculture has always been based on individual farmers with a predominance of small and marginal farmers. Our development strategy must be oriented to enabling our broad based and varied private sector to reach its full potential for raising production, creating jobs and raising income levels in society. A vigorous private sector, operating under the discipline of competition and free markets, will encourage efficient use of scarce resources and ensure rapid growth at least cost. Our policies must therefore create an environment which encourages this outcome.
1.10 Encouragement of the private sector and reliance upon competition and market forces does not mean that the State has no role to play or even that its role in development may be reduced. What is involved is not so much a reduction in the role of the State as a re-orientation. The State must withdraw from the role of being a controller and licensor of private enterprise in areas where market competition and an efficient financial sector will ensure appropriate decisions on investment and technology. However, there are many areas where the State must actually increase its involvement. The most important of these is in the area of social development especially in rural areas. Despite progress in the other areas over the past decades, we are woefully lacking in providing basic services such as health care, education, safe drinking water etc. to the majority of our population especially in rural areas. Extension of these services to the mass of our population is an urgent priority, not only because it is a desirable social end in itself, but also because it is a precondition for achieving rates of growth of 7-8% per annum. Provision of these services to the mass of our people can only be achieved through a much larger role to be played by the State. The provision of economic infrastructure such as power, roads, ports, railways, telecommunications, municipal services etc. is another area where the State will need to play a continuing role. Some of these services can be provided by the private sector and it is essential to tap this potential as much as possible so that the deficiencies in these areas can be met as quickly as possible. However, even with the best possible effort to attract private investment in infrastructure the State will continue to have to provide a large part of the investment needed for economic infrastructure. Public investment in infrastructure must continue to have high priority especially in those areas of infrastructure where the private sector's continuation is likely to be limited. There are other areas where the State must continue to play a major role and these are examined in detail in the next section.
1.11 Agriculture provides the livelihood of the largest number of our people and robust growth in this sector is the best guarantee of achieving a broad based growth of income levels and employment especially in rural areas. Our development strategy must focus special attention on this sector which requires a unique combination of private effort and public support. Agriculture has not benefited as much as it should have from policies of economic liberalisation because agriculture continues to suffer from too many restrictions and impediments which prevent farmers from marketing their produce at attractive prices. The phased reduction in the high levels of protection given to industry, and the opening up of export market for agricultural products, will help to shift the terms of trade in favour of agriculture and this should help to raise rural incomes. But broad based agricultural development also requires substantial investments in economic infrastructure especially irrigation, rural roads and creation of organised markets. These are all areas where the State must play a lead role. Agricultural research is another area where the role of the State will continue to be important.
1.12 The process of liberalising Central government control over the industrial sector has advanced considerably. Industrial licensing has been eliminated for all but a handful of industries and the list of industries reserved for the public sector has also been sharply reduced. The remaining controls at the Central Government level need to be reviewed for further liberalisation. Indian industry must be unshackled from unnecessary bureaucratic and governmental interference. However the major effort in future has to be to extend liberalisation to the level of State Governments. Indian industry still suffers from a plethora of controls and regulations relating to matters in the purview of State Government which cumulatively impose a heavy burden of delay and even harassment of our entrepreneurs. A thorough revamp of these controls and the procedures involved at the State Government level would help to create a climate in which Indian industry can flourish.
1.13 The role of the public sector as a direct producer of goods and services needs to be reviewed in the context of experience gained and emerging realities. The Eighth Plan saw the start of a process of disinvestment of government equity from public sector enterprises and the resources so generated were used to supplement available budgetary resources to finance development expenditure. Initially, disinvestment was undertaken subject to government equity remaining at 51%. There is no particular reason why government should retain a majority equity stake in public sector enterprises except for those that are in the strategic areas where national security is involved. For all other enterprises the government has announced that as a general rule it will dilute its holdings to 26 per cent as early as possible. The manner in which this is to be done will be determined on the basis of recommendations of the Disinvestment Commission. The Commission has made recommendations regarding several public sector enterprises including recommendations to induct a strategic partner who would exercise full or joint management control, in some cases. These recommendations need to be implemented expeditiously. The resources realised through sale of government equity in PSUs could be used to finance much needed investments in the social sectors especially health and education. At a time when resources are scarce, there is merit in unlocking resources embedded in public sector assets created through earlier investments in these enterprises and using these resources to invest in the social sectors, where we are seriously deficient. Reduction in the governments holding in public sector equity will not have an adverse effect on the health of the public sector units. On the contrary, the removal of government interference should give these units the corporate freedom they need to function efficiently in a competitive market.
1.14 Foreign trade policies in the Ninth Plan must be tailored to the objective of accelerating growth in an environment in which the world is becoming increasingly integrated and globalised. The process of globalisation is a reality which cannot be denied and also should not be avoided. However, it needs to be managed so that we can derive the maximum advantage from world markets. To do this, it is necessary to continue the process of opening up of the economy to international competition, which was initiated in the Eighth Plan period, while making parallel efforts to strengthen the potential of Indian industry to compete effectively in world markets. Quantitative Restrictions(QR) on imports have already been dismantled for all except consumer goods, and these remaining restrictions will be removed in a phased manner by the year 2003. As a special measure, QRs have been abolished in advance for SAARC countries, in order to given an impetus to regional trade. Import tariffs have also been reduced significantly over time, but our import tariff rates continue to be much higher than in other developing countries. Continuing with high levels of protection is not desirable if we want our industry to be competitive in world markets and it is therefore necessary to continue the process of phased reduction in import tariffs to bring our tariff levels in line with levels prevailing in other developing countries. Indian industry has adjusted well to the gradual reduction in protection levels over the past several years and the associated shift to a more realistic market determined exchange rate. The process has certainly helped to modernise industry and reduce costs and should be continued. Priority in tariff structure reform should be given to reducing tariffs where they cause tariff anomalies i.e. where duties on inputs are higher than on finished goods. Steps should also be taken to strengthen the anti-dumping machinery to ensure that the domestic industry is not subjected to unfair competition.
1.15. Export performance will be critical in determining our ability to achieve high growth rates while also achieving the objective of self-reliance. Rapid economic growth requires larger volumes of investment and extensive industrial modernisation, both of which imply rapidly growing import needs. Maintenance of balance of payments stability in this situation depends upon our ability to achieve high rates of export growth. Without a strong export performance there is a danger of being pushed into unsustainable balance of payments deficits, which could lead to increased external indebtedness. Export growth was relatively strong through most of the Eighth Plan period but has slowed down in the early years of the Ninth Plan. This is a disturbing development which needs urgent attention. It is essential to examine the constraining factors which limit our export performance and take urgent steps to remove these constraints. Exchange rate policy is one important determinant of export performance and it is essential to ensure that the exchange rate remains supportive of the export effort. Equally important in the present situation are infrastructure constraints including transport, customs procedures, and banking facilities. Our facilities and procedures in these areas are inadequate and often lead to delays and harassment. They need to be thoroughly revamped to provide greater support to exporters.
1.16 Foreign investment provides external resources which help to finance the balance of payments deficit without adding to the countrys external debt. In this respect, the ability to attract foreign investment promote the objective of self reliance by helping to avoid a build up of external debt which adds to our vulnerability. Apart from providing support for the Balance of Payments, foreign investment also provides critical access to technology and other types of know how, and also provides potential linkages to world markets. In a world where trade is increasingly dominated by transnational corporations, it is important to encourage foreign investment as part of the process of modernising our industry and developing linkages with the rest of the world. Many Indian companies are eagerly seeking foreign investment in joint ventures as part of their plan for technological upgradation and modernisation and these efforts should be encouraged. As the second largest developing economy in Asia, India can be a major destination for foreign investment and policies in the Ninth Plan should be designed to take advantage of this possibility. Foreign investment policy was re-oriented in the Eighth Plan period to encourage a larger flow of foreign investment into the economy, especially into the infrastructure sectors where a rapid expansion in capacity is urgently needed. Foreign direct investment increased from $ 0.1 billion in 1990-91 to $ 3.2 billion in 1997-98. This level can be raised threefold by the end of the Ninth Plan period.
1.17 An aspect of external economic policy which needs careful consideration is the pace of liberalisation of the capital account. Globalisation has meant an explosion of financial integration in world markets, with large volumes of capital moving freely across national boundaries. Free access to capital from world market has its advantages, but it also poses dangers to developing countries because of the potential volatility of these flows. This is amply demonstrated by the experience of East Asian countries, which suffered a massive outflow of capital based on a sudden change in international perception about underlying fundamentals in these countries. The outflow precipitated a currency crisis with a severely disruptive effect on these economies. It is important to recognise that East Asias problems arose not because of open trade policies or openness to foreign direct investment, but because an open capital account allowed banks and corporations to borrow freely in world markets leading to a large accumulation of short term debt. Weaknesses in the banking sector led to poor inter-mediation of these flows to support unproductive investments, including investment in real estate. When these weaknesses became apparent, the short-term nature of the liabilities led to a reversal of capital flow which was not easily arrested. A lesson commonly drawn from the experience is that developing countries with weak banking system may be well advised to maintain restriction on short term capital flows to limit the potential danger of sudden and large outflows. The approach to capital account liberalisation followed in India has been cautious, and government policy has been particularly concerned to avoid a build up of short term external liabilities. This caution is vindicated by the East Asian experiences. External policies should continue the process of cautious liberalisation in the financial sector with particular caution on the build up of short- term debt.
1.18 Infrastructure especially electric power, telecommunications, railways, roads and ports has become a major constraint on growth partly because there was inadequate investment in this area in the Eighth Plan. Rapid growth in the Ninth Plan will generate a heavy demand for these services, and being non-tradable the additional demand has to be met by expanding domestic supply. This in turn requires a large increase in investment. Traditionally, infrastructure has been provided largely by the public sector but the investment needs of infrastructure development greatly exceed the resources likely to be available with the public sector. Mobilisation of private investment to supplement the public sector effort is therefore essential. However, it must not be assumed that private investment in infrastructure provides an easy solution to all problems justifying neglect of public investment in this area. Even with the maximum feasible success in attracting private investments, it will be necessary for the public sector to bear the brunt of the burden of expanding capacity in the Ninth Plan period. This is especially so in areas such as roads, railways and rural electrification, where the scope for private investment is limited, but it is also true for infrastructure in general that the public sector will remain the dominant source of expansion. It is therefore critical to ensure that the resources available with the public sector are adequate to the task. This calls for far reaching reform of the infrastructure sector. Reforms of the power sector in the States, including reform of power tariffs, is especially important to make the State Electricity Boards financially viable. This is necessary to expand public investment and also to create credibility among private investors selling power to State Electricity Boards (SEB). The financial position of the Railways also needs to be strengthened. In both cases, apart from achieving higher operational efficiencies, a large part of the answer lies in introducing higher user charges. In other areas such as roads it is more difficult to rely on user charges though a start can be made by introducing tolls on public highways being expanded or improved. Additional financing can however be provided by an earmarked cess on diesel.
1.19 Public investment in infrastructure will have to be supplemented by efforts to attract private investment in these areas wherever possible. All major infrastructure sectors have already been opened to private investment and a number of private sector projects are being implemented in power generation, telecommunication services, ports and even roads and airports. However, these efforts have been less successful than was initially expected. Several projects have run into unanticipated difficulties which have delayed financial closure or slowed down implementation. In retrospect, it can be said that the difficulties and complexities of inducting private investment into regulated infrastructure sectors were underestimated. In the case of the power sector, the financial weakness of the SEBs has made it difficult for the independent power producers to obtain financing as long as they are subject to the risk of non-payment for electricity sold to the SEBs. The difficulty in negotiating fuel supply contracts with suitable penalties for non-delivery is also a problem. In the case of telecommunications the problems that have arisen are very different. Private investors bid high licence fees but subsequently claimed that the projects had become unviable with such high fees. Questions have also arisen about whether the policy framework provides a level playing field between new entrants and the existing public sector supplies. There can be no general solutions to these problems. However it is clear that if we want private investment in infrastructure we must ensure that the policy framework in each sector makes it possible for private investors to invest in these sectors with reasonable expectation of an attractive return. The deficiencies in the existing policies in each sector, as revealed by the experience of the past few years, need to be reviewed and urgently corrected. It should be the objective to put in place a policy framework which draws from best practice internationally and is tailored to the specific requirements of our situation.
1.20 Reforms in the real economy need to be supported by an efficient financial sector capable of moblilising the savings of the community and allocating them to the most productive users. In this context it is important to emphasise the role of financial sector reforms in the years ahead. The Eighth Plan period saw the start of reforms in the banking sector consisting of financial liberalisation in the form of reduced direct Government control over interest rates and credit allocation mechanisms combined with efforts to strengthen the regulatory framework by improving prudential norms, capital adequacy standards and external supervision. While substantial progress has been made, the process of banking sector reforms needs to be accelerated, especially in the context of the recent experience of many East Asian countries where fragility in the banking sector was an important cause of the crises in the region. Efforts must be made to ensure that the Indian banking sector comes up to internationally acceptable standards of capital adequacy, prudential norms and risk management. A process of reform has also been underway in the capital markets, and considerable progress has been made in establishing a modern regulatory framework covering the major participants in the capital market. The technology of trading and settlements in the stock exchanges has been modernised. This process also needs to be continued in the Ninth Plan. A strong well functioning capital market is an important part of the financial system and is a noteworthy important source of funds for both the private and public sectors in the future.
1.21 Another major area of financial sector reform relates to insurance and pension funds. These institutions for contractual long term savings can play a major role in increasing aggregate savings of the economy. Insurance and pensions institutions are also natural sources for long term capital since they have long term liabilities which they need to match with long term assets. The insurance and pension sector is therefore particularly important for the financing of infrastructure, which needs long term funds. Proposals for the reform of insurance sector by ending the public sector monopoly in this area, and opening it up to private sector participants, need to be implemented urgently in order to create a financial sector which provides good quality service to the consumer and also meets the financing needs of industry.
1.22 The success of any development strategy depends critically upon the ability of the Government to maintain a stable macro-economic environment in which the fiscal deficit is kept at a reasonable level. Unfortunately, this is an area where the experience of the Eighth Plan has been disappointing. The combined fiscal deficit of the Central and State Governments has remained between 6 and 7 per cent over the past several years, which is very high by international standards. Continued deficits at these levels will either mean continued high rate of interest, or a constant threat of over monetisation and consequent inflation. Steps must be taken to restore the fiscal health of the government at all levels. The Government borrowing programme must be contained at a moderate level if we want to move to a regime of low real interest rates with an adequate availability of resources to finance private investments at reasonable interest rates.
1.23 It is necessary to define a long term fiscal policy, with a clear time path for reducing the fiscal deficit to a sustainable level. Within framework, particular emphasis must be placed on reducing the revenue deficit so that containment of the fiscal deficit is not at the expense of public investment. Control over the revenue deficit can only be achieved if there is a willingness to face difficult decisions. Efforts must be made to improve tax collections especially in the area of excise duties where the tax ratio has been declining steadily. It is also necessary to take steps to control non-Plan expenditure. This in turn requires a systematic review of subsidies. Over the years, a number of subsidies, both direct and hidden, have come into existence. Fixation of administered prices on extra-economic considerations is an important element of non-transparent subsidies. Such subsidies are open-ended and in some cases have accrued to those who are not envisaged to be the real beneficiaries. There is a need to move to a system of transparent subsidies directed towards specific target groups in a selective manner.
1.24 The Eighth Plan has witnessed significant improvement in technology levels in the country, particularly in the industrial sector. Much of this development has been based on import of technology which is certainly important and needs to be continued. However, it is also necessary to emphasise development of technological capabilities within the country. Steps need to be taken to enhance the technological capabilities of the nation and to this end, it is necessary to evolve a technology policy which gives adequate incentive to the development of domestic R and D. A substantial domestic R and D capacity must be an essential component of our long run development strategy. This aspect of development strategy is further emphasised by the emerging global regimes restricting the flow of a wide range of technologies on the ground of "dual use." This situation has to be met through a combination of international initiatives and renewed domestic effort. Government must evolve strategies which will help domestic R and D activities through an appropriate combination of tax and other incentives. It is also necessary to strengthen the legal framework protecting intellectual property to give appropriate incentives for research and development.
1.25 The evolution in information technology taking place around the world holds for the prospect of considerable economic gains for India both in domestic application of IT and in our economic interaction with the rest of the world. The spread of information technology in India is as yet inadequate, and urgent steps are needed to create a national network for information dissemination. This would not only help our industrial sectors, and especially the software industry but would also enhance the effectiveness of dissemination of technologies for strengthening rural economic activities, including agriculture, and social infrastructure and would also enable greater transparency in the operation of Government schemes and programmes. India has the potential to become a software super power in the next ten years and it must be the objective of policy to realise this ambition. The government has already taken a number of steps in this area and it must be ready to do more.
1.26 The Ninth Plan is based on the concept of cooperative federalism whereby much greater freedom would be given to states to determine not only their own priorities but also the modalities of public intervention and provision of goods and services. This concept also embodies a higher degree of dialogue and coordination between the states. The central governments principal role in this regard would be to raise the issues which appear to be of national interest and to provide a forum for arriving at a consensus. These issues are dealt with in greater depth in Chapter6.
1.27 A disturbing development in recent years is the inability of the States to mobilise resources as targeted leading to a shortfall in the share of States in total Plan outlay. The share of the States in the Eighth Plan was only 36.4 per cent as compared to the projected share of 41.5 per cent. When the states share declines, the sectors which suffer more severely are agriculture, basic minimum services, health, education, women and child development, welfare and also economic infrastructure such as electricity. In view of the emphasis that is being placed on the importance of these sectors, this trend needs to be halted and reversed. This is a relevant consideration in determining the support from the Central Government for State plans. However, the major correction has to come by reversing the deteriorating trend in States' resources for the Plan. This in turn focus attention on the growth of non-plan expenditure in the States and the very large increase in losses in sectors such as electricity, irrigation and road transport which seriously erodes States' resources.
1.28 The role and function of the Panchayati Raj Institutions (PRIs) has important implications for development strategy. Past experience has shown that functions and services which are localised in nature are most efficiently implemented by local political entities and other local bodies. It is therefore necessary to devolve not only greater resources and responsibilities to the PRIs, but also to grant greater powers to them for raising their own resources. In this context, programmes in the social sector which are of national importance, and therefore have a high level of central government involvement, but which are essentially localised in their delivery, would need to be operated through a more direct relationship between the central government and the PRIs in order to increase their effectiveness. This mechanism is already operational in certain centrally sponsored schemes (CSS), and needs to be extended to others as well. The transfer of some CSS along with the funds, as already initiated, is a step in this direction.
1.29 The Eighth Plan had identified peoples initiative and participation as a key element in the process of development, particularly in improving the effectiveness of development outlays which has been declining over the years. It had also recognised that the role of the Government should be to facilitate the process of peoples involvement by creating right types of institutional infrastructure, particularly in rural areas. The progress on this front has not been entirely satisfactory principally due to the fact that the other tiers of the Government were not fully integrated into the development strategy. The process of social mobilisation and development of peoples initiatives cannot be achieved without the active support and involvement of the political system at all levels. The Panchayati Raj bodies in rural areas and Nagar Palikas in urban areas will have to be directly involved in the development process. Peoples involvement via their elected representatives will be realised through genuine democratic decentralisation.
1.30 Other forms of peoples participation also need to be strengthened. From the early days of planning, cooperatives have been perceived as the most important form of peoples institution for promotion of equity, social justice and economic development. Every effort will be made to make the cooperatives work. They need to be liberated from tight bureaucratic control. Self-help Groups, Associations of Workers or Small Producers, etc. are other forms of institutions which will be encouraged. Government will seek active partnership with the voluntary sector in organising and promoting these institutions.
1.31 The Indian planning process has always laid emphasis on measures to ensure sustainability of the development process not only in economic terms, but also in terms of social and environmental factors. Much of the measures adopted in the Agenda 21 of the United Nations Conference on Environment and Development already find reflection in the Indian plans. The Ninth Plan will need to carry this tradition further and consolidate on the creation of conditions for sustainable development. Rapidly growing population, urbanisation, changing agricultural, industrial and water resource management, increasing use of pesticides and fossil fuels have all resulted in perceptible deterioration in the quality and sustainability of the environment. It is recognised that environment protection does not only involve a prevention of pollution and of natural resource degradation, but has to be integrated with the over-all development process and the well-being of people.
Areas of Special Importance for State Intervention
1.32 The Ninth Plan views the role of the state and private sector as complementary and both are essential. Private sector activity needs well functioning markets and hence the emphasis on economic liberalisation and decontrol. However, while market forces are extremely important, there are many circumstances in which markets may not exist or, even if they do, may not work efficiently and effectively. There are also conditions under which unbridled operation of market forces may give rise to outcomes which may be deleterious when seen in a broader national and social perspective. Government regulation and intervention in markets becomes justifiable in such situations though this should not become an open-ended rationale for excessive intervention. Government interventions have to be strategic and must emanate from a vision of the role and responsibility of state policy and public action where markets are likely to be imperfect. Three broad areas are especially relevant in this context. These are: (a) quality of life of the citizens; (b) generation of productive employment; and (c) regional balance.
(a) Quality of Life
1.33 Eradication of poverty and provision of basic minimum services are integral elements of any strategy to improve the quality of life. No developmental process can be sustainable unless it leads to visible and widespread improvement in these areas. There is by now enough evidence to show that rapid growth has strong poverty reducing effects and, given a public policy stance which is sensitive to the needs of the poor, a focus on accelerated growth will also help in realising the objective of alleviating poverty. The shift in emphasis towards private initiative and reliance on the entrepreneurial spirit of the people essentially seeks to create the conditions for rapid and sustained growth. Nevertheless there are aspects of growth which can be labour-displacing and impoverishing. These arise essentially out of unequal initial endowments of physical resources, human capital and information, which prevent segments of the society, particularly women and other socially and economically disadvantaged groups like the Scheduled Castes, Scheduled Tribes, Minorities, Other Backward Classes, disabled etc. from taking advantage of the opportunities that become available or from protecting their interests in an adequate manner. Much of these disadvantages have their roots in historical circumstances and are perpetuated through social and political factors. Market forces left to themselves may not correct these disparities, and indeed may accentuate them since there would very likely be a tendency to exploit the weak and the disadvantaged by economic alignments of the socially and politically advantaged. Public action will be necessary to reduce and eventually eliminate these schisms through a focus on removal of the initial handicaps and stringent protection of the rights of the disadvantaged.
1.34 It is important to emphasise that the process of elimination of historical disadvantages such as gender, caste and other types of social and economic inequalities should not be based on increasing dependency of these segments of the people on the government. Sustainability of the growth process demands that they should be viewed as active participants, and indeed as partners, in the process of development and not as passive beneficiaries of public largesse. The need therefore is to create the conditions by which the disadvantaged are not only empowered to take advantage of the opportunities created by the growth process but also to contribute actively in the process of creation of wealth and well-being. For this purpose, the individual capabilities of the people have to enhanced through education, information and access to appropriate technology. Amelioration of the immediate deprivation through anti-poverty programmes should be viewed only as a transitional arrangement, and every effort directed towards ensuring that these can be phased out at the earliest.
1.35 Empowerment of the historically disadvantaged will require more than provision of the basic capabilities for integrating them into the growth process. Appropriate institutional structures will need to be created and encouraged in order to allow full play to their productive and entrepreneurial energies. The objective conditions of the Indian economy are such that the vast majority of the populace will continue to have to be engaged in self-employment or casual employment in the foreseeable future. Thus any effort at raising the growth rate of the economy through increases in productivity and entrepreneurial dynamism would need to look beyond the usual forms of production organisation. In order for such activities to be viable and remunerative in a market framework, alternative forms of organisation will have to be recognised and nurtured. Revitalisation of the cooperative sector and other forms of economic association of people is of great significance in this context. Cooperatives have played an important role in development and promotion of equity and social justice. Some have grown into substantial size, but there continue to be policy and procedural limits on their growth and diversification. There is a need to de-bureaucratise and de-politicise the operation of this sector and to enable it to access resources from other sources on its own strength.
1.36 In the past, food and nutritional security has been largely interpreted to mean adequate availability of basic food products in the country as a whole. The concept of food security now needs to be broadened to include peoples access to basic nutritional requirements, both physically and economically. This problem is particularly acute in the vulnerable sections of society and in the deficit and inaccessible regions of the country. It is necessary to develop strategies by which such inadequacies can be overcome by integrating the food production and distribution systems with the employment and poverty alleviation programmes. In particular, the Public Distribution System (PDS) will need to be restructured in order to provide foodgrains at substantially lower prices to the poor in a focused manner and to ensure availability of such commodities in the remote and deficit areas of the country. A wide-spread, well-established PDS is essential for ensuring food security.
1.37 Economic growth and employment opportunities in themselves may not be sufficient to improve the living conditions of the poor. They need to be accompanied by measures which enhance the social and physical conditions of existence. Despite considerable efforts, provision of social infrastructure and services remain inadequate. These are areas which are in the nature of quasi-public goods and in which private initiatives and the market are unlikely to play a significant role. Primary education, primary health care, including the preventive and promotive, safe drinking water, nutrition and sanitation require heavy investment which has to be provided out of public funds. However, since the requirements of social infrastructure vary significantly across regions, greater decentralisation of decision-making than exists at present is desirable. Furthermore, recognising the localised nature of these essential services, it is desirable that the control over the operation and maintenance of the facilities should be in the hands of peoples institutions and local associations, with adequate resources being made available either from the exchequer or through devolution of powers to raise such resources.
1.38 In recent years the problems of rapid urbanisation has become acute. There has been a progressive decline in the availability of essential services as well as in the quality of life in urban areas. The urban poor have been the worst affected segment in this process of decline. The health and environmental consequences of increasing population density, lack of safe drinking water and inadequate urban sanitation are likely to become further aggravated unless steps are initiated during the Ninth Plan to improve the situation through a well considered and articulated urbanisation policy with identified programme components including those for disease surveillance, epidemic control and urban solid and liquid waste management.
1.39 Social and demographic indicators cannot improve merely through increased investment, but in addition require a significant change in social attitudes and behavioural responses of the people. In order to achieve these objectives, there is no alternative to social mobilisation and community participation. In this process the role of women is critical. The process of empowerment of women at the political level has already begun, but it needs to be carried forward into the social and economic spheres as well. Special emphasis would have to be placed on ensuring that control of social infrastructure, particularly in health and education, in the public domain is vested in women and womens organisations.
1.40 A synergy between environment, health and development needs to be explicitly recognised. No development process which leads to an adequate quality of life can be sustained in a situation of deteriorating environmental and ecological conditions. Environmental degradation is usually the outcome of individual actions which do not take into account the externalities imposed on others both in space and time. The market mechanism left to itself does not provide any method of forcing the internalisation of these costs. Indeed, it may actually reinforce such behaviour. As a consequence, it is the responsibility of the government to ensure that the interests of both the current victims of environmental degradation and future generations are adequately protected, without disrupting the process of growth and development. Eventually, the responsibility for preservation of the environment rests on the people themselves. In order for these responsibilities to be properly discharged, however, the rights to a healthy environment have to be unambiguously assigned through legislative action; and peoples participation in preservation of the environment fostered through social mobilisation and appropriate organisational structures.
1.41 Finally, all efforts to improve the quality of life can flounder under the pressure of population growth. This is another area where immediate individual interest may be in conflict with both the national interest and the longer-term interests of individuals. While there is evidence that rapid growth and development does generate positive effects towards population containment, the pace of such reduction may not be sufficient in view of the pressures that are being experienced on the nations limited natural resource base. Concerted public action, both direct and towards awareness-building, is essential for creating the conditions by which the country can stabilise its population at a level that can be sustained in the long-term.
1.42 Productive work is not merely a means to the ultimate end of economic well-being. It should be seen as an end in itself. It is a basic source of human dignity and self-respect. It is also an integral element in nurturing national identity and social cohesion. Although rapid economic growth is the surest and most sustainable source of increasing work opportunities, market forces alone cannot be relied upon to provide gainful work for all. This is particularly true in a labour-surplus economy like India. The congruence between the skill and spatial distribution of the labour force and the corresponding requirements of the economy may not be achieved through market-based mechanisms due to numerous distortions in the labour markets, information systems and infrastructural endowments that continue to persist in the country.
1.43 A primary objective of state policy should be to generate greater productive work opportunities in the growth process itself by concentrating on sectors, sub-sectors and technologies which are more labour intensive, in regions characterised by higher rates of unemployment and underemployment. The experience of the last decade has been that relatively rapid growth does generate adequate employment opportunities. However, there is no cause for complacency. The magnitude of labour force growth in the coming decade is the highest that it has ever been or is ever likely to be. The skill and geographical distribution of the emerging labour force reflect past trends in population growth and skill development, and cannot be changed significantly at this stage. Public intervention will be necessary to ensure not only that adequate work opportunities are created, but also that the labour force is able to access these opportunities.
1.44 The agricultural sector has historically played an extremely important role in providing employment in India, and is likely to continue to do so at least for the next decade or more. The skill profile of the emerging work-force is such that a large majority will have to continue to seek work opportunities in this sector. In order to create such opportunities, land and tenancy reforms are essential. The evidence strongly suggests that small farmer agriculture, based on secure rights on the land, is not only more productive per unit of land than either large farms or where the rights of the actual tiller are not well defined, but is also more labour absorbing. Active government intervention, both in implementation of existing laws and formulating new legislation for ensuring the tillers rights, in these areas will have to be taken up in earnest in order to create conditions of high labour absorption with adequate productivity growth.
1.45 In a dynamic economic environment, restructuring or failure of firms and even demise of certain economic activities is natural and to be expected. Efforts at preventing such adjustments and failures in the interest of protecting employment has proven to be both inefficient and ineffective. The welfare effects of such measures in terms of the trade-off between the interests of the currently employed and those of either the unemployed or the new entrants to the labour force are also not unambiguous. While providing avenues for retraining, skill upgradation and reemployment, the focus of public policy needs to be shifted from protecting specific jobs to protecting the interests of the work-force. This has two dimensions. First, provision has to be made for the payment of the legitimate dues of and for mitigating the hardships faced by the displaced work-force. Such systems by and large exist for the organised sector, but the labour force in the unorganised sectors and the self-employed are presently uncovered. Providing such support is not easy to do without the creation of appropriate peoples organisations with active government support. Second, all efforts have to be made to find alternative occupation for the unemployed. Although the minimum necessary condition for ensuring such reemployment is that the growth rate of creation of work opportunities must exceed the growth rate of the labour force, it is not sufficient. Existing workers embody a certain structure of skills which may not be appropriate for the new work opportunities that may be created. The market by itself may not be prepared to impart these skills to the displaced workers, since the preference will generally be for training the younger, new entrants in the labour force, whose potential life-time returns to the investment in human capital is likely to be significantly higher. It is necessary, therefore, to establish systems in the public domain for retraining or reskilling the displaced labour force in line with the requirements of the economy.
1.46 Even if the generation of work opportunities is adequate, the quality of employment in terms of the incomes received and the work environment may leave much to be desired, and may be likely to remain so without directed public action. It is therefore necessary to shift the focus of employment strategies towards creating conditions whereby employment opportunities lead to significantly better living and working conditions of the people and to uphold the dignity of labour. In particular, the incidence of scavenging and child labour which arise out of acute poverty and prevailing social disabilities need to be eradicated keeping in mind the requirement of maintaining family incomes. Public investment in modern sanitation systems, on one hand, and focused provision of appropriate education and skill, on the other, are necessary to tackle the first social evil. In so far as the second is concerned, precipitate action may not always achieve the objectives. A family-centric strategy and sensitivity to the needs of the orphan or run-away, coupled with rigorous implementation of the existing laws, will need to be evolved to effectively tackle this problem.
1.47 It is not enough to merely create the right kinds of employment opportunities, but also to provide the people with the human capital by which they can take advantage of these opportunities. Education and skill development are the essential features of such empowerment. Free and compulsory education for children, especially for the girl-child and other educationally backward groups, supported by an adequate mid-day meal programme in schools is the first step towards this end. Vocationalisation of the education system is essential, particularly since there is evidence that there are a number of skills which are in acute short supply and for which there is a serious shortage of training facilities. In addition, special programmes will have to be implemented to develop skills, enhance technological levels and provide marketing channels for people engaged in traditional occupations. The education and training systems in the country if not reformed will begin to display a certain degree of rigidity and get increasingly divorced from the needs of the economy and the social infrastructure. This trend needs to be reversed, and efforts will have to be made to introduce a system by which the emerging skill requirements of the economy are anticipated and the education and training systems reoriented accordingly. Although the private sector, which will be the main source of work opportunities in the future, will have an important role to play in this regard, the initiative will have to be taken by the government since the bulk of the educational system in India is in the public domain.
1.48 Recognising the high incidence of underemployment and increasing casualisation of labour, there is need to enhance employment opportunities for the poor, particularly for those who are in seasonal occupations. The recent trend in lower labour force participation rates among women is partly a reflection of the inadequacy of appropriate work opportunities. In view of the observed relationship between womens participation in the labour force and fertility, this trend has disquieting portents regarding the pace of reduction in the growth rate of population. There is need therefore for public intervention in creating work opportunities which are sensitive to the seasonal and locational needs of the underemployed, particularly women. Such opportunities should be demand-driven to the extent possible. In this context, the effort to implement a national Employment Assurance Scheme is of considerable significance.
(c) Regional Balance
1.49 Balanced regional development has always been an essential component of the Indian development strategy in order to ensure the unity and integrity of the nation. Since not all parts of the country are equally well endowed to take advantage of growth opportunities, and since historical inequalities have not been eliminated, planned intervention is required to ensure that large regional imbalances do not occur. With greater freedom and choice of location that is now available to industry, it is more than likely that some states would be able to attract more private investment than others. In such a situation it will be necessary to deliberately bias public investment in infrastructure in favour of the less well-off states. It will also have to be ensured that the states which benefit from this reorientation do not dilute their own efforts at generating investible resources or divert their resources to other uses.
1.50 Efforts at attracting private investments by state governments has already led to a certain degree of competition in granting of fiscal and other concessions. This tendency is likely to be accentuated in the future as private investment becomes increasingly more important. While a certain degree of competition in this regard may be desirable, in the long-run it would adversely affect the fiscal viability of some of the states and thereby jeopardise the ability of these states to provide the basic social and economic infrastructure. This would have serious implications regarding the future progress on regional balance and would tend to accentuate regional disparities in quality of life. It is necessary therefore for states to operate in a spirit of cooperative federalism and to arrive at a set of public policy and action in which state-level initiatives at attracting private investment in a competitive manner will be acceptable, and those in which a common position would be taken by all states in their collective interest.
1.51 There are also regions or pockets of poverty which are unable to benefit adequately from the over-all growth process. For the most part such pockets of poverty reflect the inadequate integration of the local economies in the wider growth process due to historical reasons. There is a strong probability that even in the future, market-based growth may elude these regions unless active intervention is made by the government. Sustainable anti-poverty programmes in such regions would need to involve not only direct employment and income enhancing policies to tide over the immediate deprivation, but also measures by which the asset endowment of the poor can increase and such areas can become better integrated with the rest of the economy for sustainable growth.
1.52 The focus regarding the issue of backwardness and regional balance has traditionally been on industrialisation. The evidence, however, suggests that reduction in regional disparities, particularly in average standards of living, may be better achieved through greater focus on agriculture and other rural activities. For this it is necessary to not only increase the productivity of agriculture in backward areas, but also to increase the degree of integration between the rural areas and the rest of the country through improved connectivity in terms of transport and communications, and provision of marketing support. In the absence of adequate public investment in such infrastructure, the prospects of a disparity-reducing agricultural growth will recede.
1.53 In some regions of the country, relatively high levels of income continue to be associated with low human development indicators and poor provision of social infrastructure, such as safe drinking water, primary health and primary education facilities. These are areas in which private initiatives are unlikely to play any major role, and it would be the primary responsibility of the government to ensure that appropriate interventions are made. There is therefore a need to identify the minimum norms of availability of such infrastructure and to accelerate public investment for achieving these norms in a balanced and timebound manner. The problem of shelter for the poor, both in urban and rural areas, is particularly acute and a programme of providing assistance for construction of houses will need to be implemented.
1.54 The issue of regional balance operates at both the inter-State and the intra-State level and there is therefore the need to address it in a framework that is more flexible than the political and administrative boundaries of each individual state. Growth and development are intimately related to the level of economic integration of the various parts of the country and the linkages that are formed between the backward and the more developed regions. In view of this, it is necessary to move away from the concept of competitive policy formulation to a framework of cooperative federalism, wherein neighbouring states adopt a common set of strategies for development of their backward areas in a coordinated manner and remove or reduce the barriers to inter-state commerce that have been built up over the years. Cooperative action can not only prevent loss of revenues to state and local governments that may arise from the reduction of existing fiscal barriers, but actually augment the flow of resources.
1.55 In view of the resource constraints being faced by the Government at all levels, the prioritisation of the various facets of quality of life would have to be carried out on a region-specific basis. In particular, it will be necessary to identify those areas of the country where the growth process will more or less take care of the problem of acute deprivation. The focus of anti-poverty programmes would have to be shifted to those other areas which are as yet inadequately benefited by the growth process. In such areas the pre-conditions for a market-based development strategy will have to be created expeditiously, even if it means a certain degree of positive bias.
The Role and Methodology of Planning
1.56 The Planning Commission believes that the principal task of planning in a federal system is to evolve a shared vision of and a shared commitment to the national objectives and the development strategy not only in the Government at all levels but also among all other economic agents. No development strategy can be successful unless each component of the economy works towards a common purpose with the full realisation of the role that has to be played within an overall structure of responsibilities. The principal function of the approach to the Ninth Plan is not only to articulate such a shared vision, but also to ensure shared commitments.
1.57 Based on such a shared vision, the principal task during the Ninth Plan is to build on the successes of the Eight Plans, while tackling the problems that have emerged, particularly in areas such as capital formation in agriculture, living standards of the poor, infrastructure, social sector, regional disparity and fiscal deficits. Despite the considerable progress that has been made by the Indian economy in both economic and social spheres, the development task is far from complete and resources continue to be limited. Moreover, as has been indicated, the Indian economy is still vulnerable and the operation of a more open economic system has to be tempered by judicious public interventions to ensure that these vulnerabilities are gradually overcome.
1.58 Recognising the federal nature of the Indian system, the planning process has to develop a common policy stance which would be adopted both by the Centre and the States. The role of planning would therefore involve considerable degree of policy coordination between the Centre and the States, between the States, and between the States and the sub-State level tiers of Government.
1.59 With the progressive deregulation of the economy, and the larger role of the private sector and market based decision making, planning methods based on input output balances for each industrial sector have become less relevant . However, sector level planning for the infrastructure sectors and broad planning for critical sectors such as agriculture remain highly relevant both to identify inter-sectoral constraints and as a guide to government policy action. The planning process also needs to take stock of the resources for development to the internal and external, and to indicate methods by which these resources can be augmented in a sustained manner. Since planning is done for the entire nation, the strategies for resource augmentation need to cover not only the government at all levels but also those which would be available to other sections of people.
1.60 The other principal task of planning, particularly in a market oriented economy, is to identify the areas of emerging vulnerabilities and to suggest measures to address them. Although the specific policies would need to be worked out by the concerned ministries or the States, the broad directions would have to be provided by the planning system. Unless such problem areas are placed within the wider macro-economic context, short-run fire-fighting measures can lead the economy in undesirable directions.
1.61 With the reduction in the instruments available to Government in controlling economic matters and the greater degree of uncertainities that are present in any market based system, the methodology of planning will have to change if it is to retain its relevance. The Eighth Five Year Plan had explicitly indicated a shift from directive to largely indicative plan. There is considerable variance in the interpretation of this term. The Ninth Plan is based on a more specific modality of planning which involves working out of a consistent and desirable development path, the identification of emerging trends and deriving policy measures to bring about a confluence between the two. The planning process today, therefore, focuses on planning for policy so that the signals that are sent to the economic system induce the various economic agents to behave in a manner which is consistent with the national objectives.
1.62 The most important characteristic of the methodology adopted in the formulation of the Ninth Plan is that it is not based on a deterministic relationship between the Plan and economic performance. It is explicitly recognised that there are uncertainities in the system and limitations in the ability of the planning system to accurately predict future trends. Furthermore, it is also recognised that the effects of Government policies and interventions are not entirely predictable. This is certainly true of economic variables, although it may not be so for the performance in social sectors such as health and education. The planning approach adopted for the Ninth Plan therefore concentrates on pointing out the likely outcomes and suggests the major directions for policy intervention. The details of the actual policies and the manner of implementation will need to be worked out from time to time between the concerned Ministries, States and the Planning Commission.
Development Perspective and Sustainability of Growth
1.63 Development and growth are long term processes, and a five year plan represents only the characterisation of the economy and social processes over a period in which a fair degree of reliance can be placed on estimates and projections. The viability and sustainability of the development strategy embodied in a five year plan needs to be seen in the longer perspective in order to ensure that continuity of directions and the balance between interests of the present and the future generations is maintained. The Indian Five Year Plans have traditionally been embedded in a 15 year perspective period. The Ninth Plan continues this tradition.
1.64 Since the principal objective of economic planning is to fulfill the social and human aspirations of the people, the basis for all planning efforts rests upon the projections of future demographic trends, the requirement for work opportunities and the need to erradicate poverty. The factors which determine the long term conditions of growth, along with the size and skill profile of the work force, are the availability of investible resources through domestic savings and prudent access to international investment funds, the basic resource endowment of the country, the available and latent entrepreneurial abilities of the people and the pace of technological development.
|[ Vol1-Index ] - [ Vol2-Index ]||
|<< Back to Index|