A flameout!

As we saw in the article on the eighth plan, it covered the period immediately following the 1991 economic reforms and liberalisation. During the plan, the Indian economy took a decisive shift away from dominant state control in industry and trade to a market-based functioning. As a result, there was widespread delicensing of industry, dismantling of controls and steep lowering of tariffs. We also saw that the eighth plan achieved a GDP growth rate of 6.8 per cent per annum, which was far higher than the target of 5.6 per cent.

On the political front, it was a time of instability, reminiscent of the late 1980s. In 1996, Atal Bihari Vajpayee formed the government for 13 days after the Bharatiya Janata Party (BJP) had emerged as the single-largest party. However, Vajpayee stepped down in 13 days, even before a trust vote could be conducted. What followed was political instability, with the formation of the United Front by parties such as Janata Dal, the Left parties, Telugu Desam Party, Samajwadi Party, DMK, AGP and Tamil Manila Congress. HD Deve Gowda of the Janata Dal became the Prime Minister, with the outside support of the Congress Party. Deve Gowda barely lasted for a year because of political differences with the Congress and IK Gujral became the compromise candidate for the Prime Minister in April 1997. However, Congress pulled out their support and the Gujral government also fell in march 1998, which led to elections again. In the 1998 elections, the BJP again emerged as the single-largest party and Vajpayee became the Prime Minister, heading a coalition of the National Democratic Alliance (NDA). But this government also fell after one of the members of the NDA — AIADMK party — withdrew support. Around this time, India also fought the Kargil war with Pakistan. India won the war after three months of fighting and there was a loss of lives on both sides. The 1999 elections were held in the aftermath of the Kargil war, and the NDA got a clear majority. Vajpayee became the Prime Minister for the third time.

Key features

It was in this backdrop that the ninth plan was launched in 1997. The Approach Paper to the Ninth Five-Year Plan laid out the key objectives of the ninth plan as follows:

* Prioritising agriculture and rural development, with a view to generate productive employment and eradicate poverty;

* Accelerating growth with stable prices;

* Ensuring food and nutritional security for all, with a focus on the most vulnerable sections of society;

* Providing basic minimum services such as safe drinking water, primary healthcare facilities, universal primary education, shelter, and connectivity in a time-bound manner;

* Containing population growth;

* Ensuring environmental sustainability of the development process through participation of people at all levels;

* Empowerment of women and socially disadvantaged groups such as SCs, STs, minorities, OBCs;

* Promoting and developing participatory bodies such as the Panchayati Raj institutions, cooperatives and self-help groups;

* Strengthening efforts to build self-reliance.

The development strategy adopted in the ninth plan was geared towards enabling the private sector to reach its full potential in increased investments, job creation and value addition. At the same time, the state would continue to have an important role in creating public infrastructure (power, roads, ports, railways, telecom etc.) and social infrastructure (healthcare; primary, secondary and higher education; and safe drinking water etc.). Furthermore, liberalisation in the external sector would continue in the form of incentives to promote exports and reduced tariffs, with the ultimate objective to have a stability in balance of payments.

The ninth plan first set a growth rate of 7 per cent per annum, but this was revised to 6.5 per cent because of a low growth rate of 4.8 per cent in the first year of the plan. This growth was to be achieved with a rise in the investment rate from 25 per cent (of the GDP) in the eighth plan to 28.3 per cent in the ninth plan, and in the savings rate from 24.1 per cent in the eighth plan to 26.2 per cent in the ninth plan. The ICOR was to rise marginally from 3.9 in the eighth plan to 4 in the ninth plan. The total public sector outlay was Rs 8,59,200 crore, which was a 34 per cent jump from the approved outlay of the eighth plan. Of this, Rs 4,92,221 crore was to be for the Centre and Rs 3,66,979 crore for the States and UTs. In terms of sectoral allocations, energy (25.1 per cent), social services (21.2 per cent), agriculture and irrigation (19.8 per cent), and transport and communication (19.6 per cent) took the bulk of the allocations.

Special Action Plans were drawn up for some areas which were selected for a focused intervention, namely: agriculture, social and physical infrastructure, information technology and water policy.

An analysis

As it turned out, the growth rate in the ninth plan was only 5.35 per cent, which fell short of the target of 6.5 per cent. It was also way below the eighth plan’s achievement of 6.7 per cent. While the impressive growth in the eighth plan was on account of growth rates of more than 7.5 per cent in manufacturing and services and close to 5 per cent in agriculture, the ninth plan faltered in manufacturing (4.5 per cent) and agriculture (2.06 per cent), while doing well in services (7.8 per cent). The fact that manufacturing and agriculture accounted for about 60 per cent of the GDP, pulled the overall growth rate down in the ninth plan.

Another reason for the sub-par performance of the economy in the ninth plan was the spillover effects of the Asian financial crisis of 1997, and the fall in growth in other parts of the world.

Also, the savings and public investment numbers fell short. The actual savings rate turned out to be 23 per cent against the target of 26.2 per cent and the investment rate achieved was 24 per cent against the target of 28 per cent. The savings shortfall was mainly on account of the excess government expenditure over its revenues, or a rising fiscal deficit.

These three reasons — fall in agricultural growth, the Asian financial crisis and the lower-than-expected public investment — led to a reduced demand for industrial goods and, therefore, a fall in growth of the industrial sector. In addition, the Kargil war, the cyclone in Orissa and the earthquake in Gujarat diverted a lot of resources away from public investment, leading to the overall shortfall in growth rate.

The other shortcomings of the ninth plan were failure to generate tax revenues as planned, export growth at a level of 5.6 per cent as against the target of 11.8 per cent, and failure to keep ICOR at 4 (it turned out to be 4.53). The higher ICOR was also because the ninth plan had a higher investment rate of 24 per cent as compared to the 22 per cent of the eighth plan, but a lower growth of 5.35 per cent as compared to 6.7 per cent of the eighth plan. The ninth plan also could not address the problem of unemployment. In fact, the rate of unemployment rose from 7.32 per cent in 1999-2000 to 9.21 per cent in 2001-02, as described in an analysis in the tenth plan documents: in other words, the ninth plan failed to create 50 million jobs that were necessary to reduce unemployment.

While the shortfall in tax revenues and the high fiscal deficit ensured that the plan size had to be curtailed, the shortfall in growth of exports ensured that they wouldn’t provide support to the GDP growth, and the higher ICOR level reflected poor use of capital resources in agriculture and industry.

Conclusion

The ninth plan not only failed to achieve the growth targets, but also failed to raise savings and investment, control fiscal deficit and raise capital efficiency (because of the higher ICOR). The rate of unemployment also grew during the plan. The tenth plan would need to speed up the growth process and address the unemployment and poverty issues.

The writer is Addl Chief Secretary, Dept of Mass Extension Education and Library Services, Govt of West Bengal.