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The challenges for 5 year plans
Thu, 12 Jan Pre-Open

Is it possible to predict external eventualities such as a market meltdown or a rising dollar? Well with these black swan events happening a little too often, India's Planning Commission is actually going to try analyzing them. India was happily chugging along with close to 9% GDP growth for three years before the global financial crisis struck in 2008. Since then GDP growth in India has decelerated. This leads us to believe that India is not completely decoupled from the rest of the world. External happenings do have an impact. Globally, the euro zone is still in turmoil. And even though the S&P 500 saw a good performance in 2011, the American recovery is not on concrete foundation. Oil prices are still high and commodities expensive.

In such an environment, planning large scale investments five years in advance is not just difficult, it may be impossible. Still the Planning Commission has gone ahead with the brave task. It recently released an approach paper highlighting two growth scenarios for India over the next five years. One has a target GDP growth of 9%. The other has a GDP growth target of 9.5%, during the twelfth plan period ending 2017. The Planning Commission revised its growth target downwards to 8.1% for the 11th five year plan from 9% earlier. Achieving an ambitious target of 9% in the next five years may not be an easy task. Wholesale price index (WPI) would need to be at a benign rate of 4.5-5%. The industry growth rate (IIP) would have to be around 9.6% every year during the 12th plan period compared to 7.4% during the 11th plan.

Agriculture needs to grow at a rate of 4% every year and services at close to 10%. Well, achieving these goals will definitely be a challenge. The external environment is deteriorating, and according to the Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia, achieving this target is a bigger challenge now than it was six months ago.

Source: Business Standard
*11th five-year plan numbers are estimates as the plan period gets over in 2011-2012
Well, we believe predicting fluctuation in forex rates and global economic uncertainties is a long shot even for them members of Planning Commission. However, factoring in such risks in long term plans is certainly a balanced approach. This may even ensure better execution rate for the 12th 5-year plan.

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