Tenth Five Year Plan 2002-07

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1.1 The Tenth Five Year Plan, covering theperiod 2002-03 to 2006-07, represents but anotherstep in the evolution of development planning inIndia. In the 55 years that have passed since ourIndependence, the challenges, the imperatives andthe capabilities of the nation have undergoneprofound changes. The planning methodologieshave attempted to keep pace with the emergingrequirements and to guide the economy throughthe vicissitudes of national and global events, withgreater or lesser success. The Tenth Plan carrieson this tradition in the context of the objectiverealities of Indian economic life as they aremanifested today.

1.2 The single-most important feature of ourpost-colonial experience is that the people of Indiahave conclusively demonstrated their ability to forgea nation united despite its diversity, and to pursuedevelopment within the framework of a functioning,vibrant and pluralistic democracy. In this process,democratic institutions have put down firm roots,which continue to gain strength and spread. Thedegree of democratisation that has been achievedin the political sphere is, however, not matched byits progress on the economic front. There are stilltoo many controls and restrictions on individualinitiatives, and many of our developmental institu-tions continue to exhibit paternalistic behaviour,which today has become anachronistic. For thecountry to attain its full economic potential, and forthe poorest and weakest to shape their destinyaccording to their own desires, it requires a compre-hensive reappraisal not only of our developmentstrategy, but also of the institutional structures thatguide the development process. This is the taskthat the Tenth Plan has set for itself.

THE PERSPECTIVE

1.3 The last decade of the 20th century hasseen a visible shift in the focus of development

planning from the mere expansion of production ofgoods and services, and the consequent growth ofper capita income, to planning for enhancement ofhuman well being. The notion of human well beingitself is more broadly conceived to include not onlyconsumption of goods and services in general butmore specifically to ensure that the basic materialrequirements of all sections of the population,especially those below the poverty line, are met andthat they have access to basic social services suchas health and education. Specific focus on thesedimensions of social development is necessarybecause experience shows that economic pros-perity, measured in terms of per capita income,alone does not always ensure enrichment in qualityof life, as reflected, for instance, in the social indica-tors on health, longevity, literacy and environmentalsustainability. The latter must be valued asoutcomes that are socially desirable in themselves,and hence made direct objectives of any develop-ment process. They are also valuable inputs insustaining the development process in the longerrun. In addition to social development measures,in terms of access to social services, an equitabledevelopment process must provide expandingopportunities for advancement to all sections of thepopulation. Equality of outcomes may not be afeasible goal of social justice but equality ofopportunity is a goal for which we must all strive.

1.4 The development process must thereforebe viewed in terms of the efficiency with which ituses an economy’s productive capacities, involvingboth physical and human resources, to attain thedesired economic and social ends (and not justmaterial attainment). To this end, it is absolutelyessential to build up the economy’s productivepotential through high rates of growth, without whichwe cannot hope to provide expanding levels ofconsumption for the population. However, while thisis a necessary condition, it is not sufficient in itself.It becomes imperative, therefore, to pursue a

CHAPTER 1

PERSPECTIVE, OBJECTIVES AND STRATEGY

TENTH FIVE YEAR PLAN 2002-07

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development strategy that builds on a policy focusfor exploiting synergies between economic growth,desirable social attainments and growing opportu-nities for all. Such a strategy must have at its hearta commitment to widen and deepen the participationof people in all decisions governing economic andsocial development.

1.5 The Tenth Five Year Plan (2002-07) hasbeen prepared against a backdrop of highexpectations arising from some aspects of therecent performance. GDP growth in the post-reforms period has improved from an average ofabout 5.7 per cent in the 1980s to an average ofabout 6.1 per cent in the Eighth and Ninth Planperiods, making India one of the ten fastest growingcountries in the world. Encouraging progress hasalso been made in other dimensions. The percent-age of the population in poverty has continued todecline, even if not as much as was targeted.Population growth has decelerated below 2 per centfor the first time in four decades. Literacy hasincreased from 52 per cent in 1991 to 65 per centin 2001 and the improvement is evident in all States.Sectors such as software services and IT enabledservices have emerged as new sources of strength,creating confidence about India’s potential to becompetitive in the world economy.

1.6 These positive developments are, how-ever, clouded by other features which give causefor concern. The economy is currently in a decele-rating phase and urgent steps are needed to arrestthe deceleration and restore momentum. Thisreversal is all the more difficult because it has totake place in an environment where the worldeconomy is slowing down. There are severalaspects of development where progress has beenclearly disappointing. Growth in the 1990s hasgenerated less employment than was expected.The infant mortality rate has stagnated at around70 per 1000 for the last several years. As many as60 per cent of rural households and about 20 percent of urban households do not have a powerconnection. Only 60 per cent of urban householdshave access to drinking water in their homes, andfar fewer have latrines inside the house. Thesituation in this regard is much worse in the rural

areas. Land and forest degradation and over-exploitation of groundwater is seriously threateningsustainability of rural livelihoods and foodproduction. Pollution in the cities is on the increase.

1.7 All of these issues, among many others,will have to be tackled during the coming years,and the strategies and programmes for doing soare discussed at the appropriate places in this Plandocument. However, there are a few which are ofcritical concern, and which need to be highlightedright at the outset.

1.8 First and foremost, it needs to be empha-sised that the Tenth Plan straddles a cusp in theevolution of our demographic structure. Althoughthe growth rate of population in the country hasdeclined to below 2 per cent during the decade ofthe Nineties, and is expected to decline even furtherduring the next decade, the growth rate of thepopulation in the working age group of 15 to 60years will continue to accelerate before it turns downtowards the end of this decade. This pattern of thegrowth rate of the working age population,exceeding the overall population growth rate, wasin evidence during the 1990s as well, and it isfortunate that the country has not faced a seriousunemployment problem as yet. The significantreduction in the labour force participation ratesbetween 1993-94 and 1999-2000 has ensured thatthe pace of creation of work opportunities has nearlyabsorbed the accretions to the labour force, at leastin the aggregate. It would not, however, be prudentto assume that participation rates will continue todecline in the future, since there are at least twopossibly contradictory forces in operation. On theone hand, the increasing trend in the average yearsof education will reduce the rate of addition to thelabour force; while, on the other, greater workforceparticipation by women will tend to increase it.Although the recent data seems to suggest thatwomen are withdrawing from the workforce,particularly in rural areas, it is not obvious that thisis entirely a voluntary phenomenon. It may simplyreflect the non-availability of appropriate workopportunities. With economic growth, improvedconnectivity and higher female literacy, the situationcan, and indeed should, change dramatically.


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1.9 There is, therefore, every likelihood thatthe labour force will increase faster than theeconomy’s current ability to provide gainful anddecent work opportunities. During the 1980s andthe early part of the 1990s, the average growth rateof employment has been above 2 per cent perannum, which has dropped to only 1.1 per cent inthe latter part of the 1990s. Therefore, if these pasttrends in work creation continue into the future, thecountry faces the possibility of adding at least halfa percentage point of the labour force – that is nearly2 million young people – to the ranks of theunemployed each year. By the end of the TenthPlan, open unemployment, measured on the usualprincipal and subsidiary status (UPSS) basis, couldthen be as high as 5 per cent, or even higher, ascompared to around 2.8 per cent at present. Sucha situation is clearly insupportable. Unemploymentnot only entails high human costs, but also imposessignificant costs on society in terms of social unrestand deterioration of law and order.

1.10 The effects of underemployment anddisguised unemployment are at least as perniciousas those of open unemployment. The compositeincidence of unemployment and underemployment,as captured by the current daily status (CDS) basis,presently stands at nearly 9 per cent of the labourforce and at almost 13 per cent for the youth.Recent evidence suggests that the incidence ofunderemployment among rural males has actuallyrisen during the mid- to late-1990s, which is a matterof grave concern indeed. On the basis of pasttrends, the composite measure of unemploymentis likely to rise to an average of 11 per cent by theend of the Tenth Plan, and 15 to 16 per cent for theyouth. The principal cause of this problem is thesteadily worsening land-man ratio and the continueddependence of a high proportion of the populationon agriculture. Indeed, in absolute terms, thenumber of people dependant on agriculture hasactually increased. But this is not the only reason.The failure to significantly improve the intensity ofland use in large tracts of the country is alsoresponsible for a high degree of seasonality both inagriculture and in all other activities that are linkedto it. Over the perspective period, it is expectedthat the land available for agriculture will actually

reduce, partly due to the need for increasing forestcover in the country for environmental reasons, andpartly to the expanding need of land for non-agricultural purposes. Under such circumstances,the extent of underemployment can rise alarminglyunless measures are taken to either increase theintensity of land use through increased irrigationand watershed development or to shift a significantproportion of the labour force out of agriculture tonon-agricultural activities, or both.

1.11 The trends noticeable in the availability ofagricultural land lead naturally to the issue of foodsecurity in the country. This has been a centraltheme of Indian planning right since its inception,and particularly after the experience of the faminesof 1965-66. In recent years, however, it appearsthat food security in the traditional sense of the term– i.e. calorific requirement – may no longer be sucha pressing problem. Although per capita availabilityof food grains has not risen very sharply, thereappears to have been a distinct shift in consumptionpatterns away from food grains towards other formsof food. This change partly reflects the changes thathave taken place in the age structure and occupa-tional patterns of the population, and partly the effectof higher incomes leading to consumption of a morediversified basket of food products. The evidencethat exists of pervasive under-nutrition in our popu-lation, particularly among children and women,suggests that this shift in consumption patterns isdesirable and needs to be encouraged. Never-theless, care must be taken to ensure that theavailability of staples is not allowed to drop beyonda point. Moreover, the relatively short shelf life ofmost non-cereal food products requires that thestorage structures in the country are reoriented tokeep pace with the desired change in the productcomposition.

1.12 A related issue is the environmentaldegradation that has taken place in the country andwhich threatens both our nutritional security andhealth. Urban pollution is already having seriouseffects on the health status of the people, and it isfeared that unless measures are taken immediately,pollution related disease burden could go upalarmingly. In the rural areas, land and water


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degradation have reached alarming proportions,and at current trends, will lead to unsustainability inagricultural production and forest cover. It isestimated that more than 45 per cent of India’sgeographical area is already affected by serioussoil erosion and this proportion is increasing yearby year. An even more pressing problem is that ofwater availability. Already, substantial parts of thecountry are experiencing water stress, both in termsof quantity and quality. It is felt that unless urgentmeasures are taken, water, for both drinking andirrigation purposes, may become the single mostimportant problem by the end of the decade. Aparticularly disturbing aspect of our present watermanagement policies is the almost complete neglectof the origins and catchment areas of our rivers,both major and minor. Unless considerably greaterattention is paid to this issue, it is feared that manyof our rivers may cease to exist, with disastrousconsequences for the economy and ecology.

1.13 Ecological issues, unfortunately, have notbeen adequately incorporated into our developmentstrategy, despite the fact that there has long beenrecognition of the importance of environmental andecological factors in Indian planning and policy. Thebiological wealth of the nation has not been nurturedand utilised for the welfare of both our people andhumanity at large to the extent it should have. Altho-ugh India has been a signatory to all internationaltreaties and conventions on ecology and bio-diversity, and has enacted several laws on theseissues, there is evidence that bio-diversity loss iscontinuing apace. Much of the problems are nodoubt attributable to lack of resources, but possiblymore is due to an inadequacy of emphasis and poorgovernance.

1.14 The limitations that are placed by land andwater availability on agricultural output andemployment necessitate careful consideration of thealternatives. It is becoming increasingly clear thatthe solutions would have to be found by increasingproductivity in agriculture, including agro-forestry,horticulture, animal husbandry and fisheries, andby creating employment opportunities in otheractivities. In both cases, it has now become neces-sary to significantly enhance the education and skill

levels of our workforce. An important step in thisdirection has been taken by recognising thatelementary education should be treated as the rightof every citizen. It is now necessary to ensure thatthis recognition is translated to appropriate action.This step alone will no doubt contribute to a largeextent in increasing the opportunities that can beaccessed by the poor. But it is not enough. Theskill requirements of modern agriculture and of mostalternative occupations demand more specialisedtraining than is usually imparted in the standardschool curriculum, including the vocational streamat the secondary level. Unless such skills areimparted, the possibility exists that the growthprocess may be constrained not so much by theavailability of capital but by the availability ofappropriate skills. Since much of the new workopportunities will continue to involve physical labour,it is important to emphasise the dignity of labourwithin the educational system itself.

1.15 Recent evidence suggests that the genderbias that exists in the Indian social system is morepersistent than was earlier believed. The unexpec-ted decline in the sex ratio of those below the ageof six years, that has emerged from the 2001census, is a particularly disturbing manifestation ofthis. It is also conceivable that the decline inwomen’s labour force participation rates is a reflec-tion of this bias. Unless such trends are reverseddecisively within the next decade, the efforts towardssocial and demographic transition and improvingthe quality of life of people are likely to prove lessthan effective. It is, therefore, imperative that thedevelopment process must include gender equityas an integral component of the broader strategy.

1.16 Economic and social development of thecountry must also take full cognisance of thegrowing regional imbalances in practically allindicators. Not only have the per capita incomes inthe various States of the Union started divergingrapidly during the past decade, the disparities insocial attainments also appear to be persistent, asbrought out by the National Human DevelopmentReport 2001. These trends indicate a growingpolarisation of the country, which can have anextremely damaging effect on national unity and


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harmony. There is also evidence that protectionistand ‘beggar-my-neighbour’ behaviour is becomingincreasingly more prevalent among the States. Ina context where the country as a whole is in theprocess of fostering greater integration with the restof the world, such behaviour is fraught with seriousdangers.

1.17 There are two additional issues whichhave traditionally not been a part of Indian planning,but which today demand integration into the broaderplanning framework. First, notions of nationalsecurity today are broader than merely that ofdefence or military preparedness. The two mostcritical aspects of this wider view are energy andfood security. Although the performance of theagricultural sector has obviated the urgency of thelatter quite considerably, it cannot be totally takenfor granted. Energy security is another matteraltogether. India’s high level of dependency onexternal energy sources, and the vulnerability of itssupply routes will have to be factored into anyplanning for the energy sector. Similar consi-derations, albeit to a lesser extent, apply to thetransport and communication sectors, which arecritical for modern-day military operations. Thesecond issue relates to disaster management. Untilnow, disasters have been treated as being inheren-tly episodic in nature, and therefore to be addressedonly as and when they occur. This is clearly nolonger adequate. The consequences of globalclimate change on the frequency of cyclones,droughts and floods are more in evidence todaythan before. Disaster management, if not disasterrelief, must therefore form an integral element ofnational planning. Even for disaster relief, themacro-economic stance that should be taken hasto be informed by the needs of growth anddevelopment.

1.18 Finally, our democratic traditions demandthat the people do not merely remain as beneficia-ries of our growth and development plans, but seethemselves as active participants and arbiters oftheir own destiny. The conditions are alreadypropitious in that the unorganised sector in Indiahas been performing strongly in recent years anddisplaying entrepreneurial dynamism of a signifi-

cantly higher order than the organised. In particular,the success of micro-credit programmes throughself-help groups has been most encouraging. Thepotential that can be unleashed by the removal ofthe various barriers to individual initiatives that havebeen erected over the years, is considerable.

1.19 The Prime Minister has set the stage forformulation of the Tenth Five Year Plan by articu-lating a vision in which the per capita income is tobe doubled within the next ten years. A target ofcreating 100 million employment opportunities overthe next ten years has also been announced by thePrime Minister. The purpose of the Tenth Plan is togive shape to this vision keeping in mind theconstraints and potentialities that have beendiscussed earlier. Since the Tenth Plan is only thefirst phase of the ten-year road map, it is felt thatthe Prime Minister’s vision can be realised throughtargeting a growth rate of 8 per cent during the TenthPlan period and 9.3 per cent during the EleventhPlan, and by focusing attention on the growth ofemployment intensive sectors. Since there aresignificant lags in the process of creation of capa-cities and their being brought into production, theTenth Plan will have to consciously take into accountthe pipeline investments that would be necessaryto accelerate the growth during the Eleventh Planperiod. This fact increases the investmentrequirements and also lends a degree of urgencyin taking the appropriate policy steps.

OBJECTIVES OF THE TENTH PLAN

1.20 Traditionally, the level of per capita incomehas been regarded as a summary indicator of theeconomic well being of the country, and growthtargets have therefore focused on growth in percapita income or per capita GDP. The PrimeMinister’s vision has been the basis for setting thetarget in this regard, not only for the Tenth Planperiod, but for all of the next ten years.

1.21 The Approach Paper had proposed thatthe Tenth Plan should aim at an indicative target of8 per cent average GDP growth for the period 2002-07. It is certainly an ambitious target, especially inview of the fact that GDP growth has decelerated


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to below 6 per cent at present. Even if thedeceleration is viewed as a short-term phenomenon,the medium-term performance of the economy overthe past several years suggests that thedemonstrated growth potential is only about 6.5 percent. The proposed 8 per cent growth targettherefore involves an increase of at least 1.5percentage points over the recent medium term per-formance, which is substantial. Nevertheless, theNational Development Council (NDC) affirmed itsfaith in the latent potentialities of the Indian economyby approving the 8 per cent growth target for theTenth Plan period.

1.22 The Approach Paper also recognised thateconomic growth cannot be the only objective ofnational planning and indeed, over the years,development objectives are being defined not justin terms of increases in GDP or per capita incomebut more broadly in terms of enhancement of humanwell being. To reflect the importance of thesedimensions in development planning, the Tenth Planidentifies specific and monitorable targets for a fewkey indicators of human development. The NDChas approved that, in addition to the 8 per centgrowth target, other targets as given in Box 1.1should also be considered as being central to theattainment of the objectives of the Plan:

1.23 These targets reflect the concern thateconomic growth alone may not lead to the attain-

ment of long-run sustainability and of adequateimprovement in social justice. Earlier Plans have hadmany of these issues as objectives, but in no casewere specific targets set. As a result, these wereviewed in terms of being desirable but not essential.Thus a ‘best endeavour’ approach was usuallyadopted in this regard. In the Tenth Plan, however,these targets are considered to be as central to theplanning framework as the growth objective.

1.24 The targets mandated by the NDC at thetime of approval of the Approach Paper to the TenthFive Year Plan are, by and large, consistent withthe 8 percent growth target either through directlinkages that exist or through the resources thatare generated by the growth process for moreintensive public interventions. At the time offormulation of the Approach Paper, these linkageshad been assessed on the basis of economy-wideaggregative trends observed in the past, and it wasfelt that achievement of even these targets wouldrequire concerted efforts. Subsequently, moredetailed study and analysis by the PlanningCommission have revealed that it may be possibleto record even better achievement as far asemployment generation and poverty reduction areconcerned. The Report of the Special Group onTargeting 10 Million Employment Opportunities PerYear, which was constituted to deliberate upon thePrime Minister’s vision, indicated that withappropriate sectoral focus and directed

BOX 1.1

MONITORABLE TARGETS FOR THE TENTH PLAN AND BEYOND

• Reduction of poverty ratio by 5 percentage points by 2007 and by 15 percentage points by 2012;

• Providing gainful and high-quality employment at least to addition to the labour force over theTenth Plan period;

• All children in school by 2003; all children to complete 5 years of schooling by 2007;

• Reduction in gender gaps in literacy and wage rates by at least 50 per cent by 2007;

• Reduction in the decadal rate of population growth between 2001 and 2011 to 16.2 per cent;

• Increase in Literacy rates to 75 per cent within the Plan period;

• Reduction of Infant mortality rate (IMR) to 45 per 1000 live births by 2007 and to 28 by 2012;

• Reduction of Maternal mortality ratio (MMR) to 2 per 1000 live births by 2007 and to 1 by 2012;

• Increase in forest and tree cover to 25 per cent by 2007 and 33 per cent by 2012;

• All villages to have sustained access to potable drinking water within the Plan period;

• Cleaning of all major polluted rivers by 2007 and other notified stretches by 2012.


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interventions, it would be possible to generatesubstantially more employment opportunities thanarising merely out of the growth process, not onlyto take care of the additions to the labour force, butalso to reduce the backlog of unemployment.Similarly, internal exercises carried out in thePlanning Commission revealed that the state-wisebreak down of the aggregate growth target, whichseeks to redress regional imbalances, could leadto even faster reduction in the poverty rate than theassessment made on the basis of the aggregativetrends. The Tenth Plan, therefore, seeks to achievetargets in these two areas which go beyond thoseset by the NDC in the Approach Paper. (Box 1.2).

THE DEVELOPMENT STRATEGY

1.25 The Tenth Plan provides an opportunity,at the start of the new millennium, to build upon thegains of the past and also to address the weak-nesses that have emerged. There is growingimpatience in the country at the fact that a largenumber of our people continue to live in abjectpoverty and there are alarming gaps in socialattainments even after five decades of planning.To meet this challenge squarely, the Tenth Plan mustlearn from past experience. It must strengthen whathas worked well, and at the same time also avoidrepeating past mistakes. There must be willingnessto modify policies and institutions based on pastexperience, keeping in mind the changes that havetaken place in the Indian economy and in the restof the world.

1.26 An important aspect of the redefinition ofstrategy that is needed relates to the role ofgovernment. This redefinition is necessary both atthe Central Government level and also at StateGovernment level. It is now generally recognisedthat government in the past tended to take on toomany responsibilities, imposing severe strains onits limited financial and administrative capabilitiesand also stifling individual initiative. An all-pervasiveGovernment role may have been necessary at astage where private sector capabilities wereundeveloped, but the situation has changeddramatically in this respect. India now has a strongand vibrant private sector. The public sector is muchless dominant than it used to be in many criticalsectors and its relative position is likely to declinefurther as Government ownership in many existingpublic sector organisations is expected to declinesubstantially. It is clear that industrial growth infuture will depend largely upon the performance ofthe private sector and our policies must thereforeprovide an environment which is conducive to suchgrowth.

1.27 This is not to say that government has norole to play, or only a minimalist role, in promotingdevelopment. On the contrary, Government has avery important role indeed, but a different one fromthat envisaged in the past. There are many areas,e.g. the social sectors, where its role will clearlyhave to expand. There are other areas, e.g. infra-structure development, where gaps are large and

BOX 1.2EMPLOYMENT GENERATION AND POVERTY

REDUCTION : CAN WE DO BETTER?

The current back-log of unemployment at around9 per cent, equivalent to 35 million persons, istoo high, and every effort needs to be made tonot only arrest the rising trend, but to actuallyreduce it during the Tenth Plan period itself. ThePrime Minister’s vision of creating 100 millionemployment opportunities over the next ten yearsis taken as the basis for targeting the creation of50 million employment opportunities during thenext five years, which is about 14 million higherthan the target mandated in the Approach Paperon the basis of additions to labour force duringthe Plan period. If this target is achieved, theunemployment rate is likely to decline significantlyto 5 per cent by the end of the Tenth Plan.

Similarly, the mandated reductions in the povertyrate of 5 percentage points during the Tenth Planand another 10 percentage points during theEleventh Plan, as stipulated in the ApproachPaper, will still leave more than 11 per cent of thepopulation, or about 130 million people, belowthe poverty line in 2012. Every effort, therefore,needs to be made to reduce the poverty rate evenfaster. It is estimated that with a proper sectoraland regional focus, it may be possible to reducethe poverty rate by nearly 7 percentage pointsover the Tenth Plan period if the growth target of8 per cent is achieved through the state-wisebreak down that has been drawn up inconsultation with the States.


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the private sector cannot be expected to step insignificantly. In these areas, the role of Governmentmay have to be expanded and restructured. It willhave to expand in some areas of infrastructuredevelopment which are unlikely to attract privateinvestment, e.g. rural infrastructure and roaddevelopment. In others, e.g. telecommunications,power, ports, etc., the private sector can play a muchgreater role, provided an appropriate policy frame-work is in place. Here, the role of the governmentneeds to change to facilitate such investment asmuch as possible while still remaining a public sectorservice provider for quite some time. In all theseareas, the role of the government as a regulatorensuring a fair deal for consumers, transparencyand accountability, and a level playing field is alsoextremely important.

1.28 With the growing importance of the privatesector in economic matters, and the consequentincrease in the sensitivity of the economy to businesscycle fluctuations, both the role and the manner ofmacro-economic management demand a reappraisal.Greater flexibility in fiscal and monetary policies hasnow become necessary to ensure that the economyis consistently maintained on the feasible growth path.While there has certainly been considerableimprovement in the flexibility and sophistication ofmonetary and exchange rate management in thecountry, the same cannot be said about the conductof fiscal policies, which remain rooted in outmodedbudgetary procedures. In recent years it has becomeevident that there are circumstances in whichmonetary policy alone is ineffective to addressmacroeconomic developments, and a more sensitivefiscal policy is essential. It is, therefore, imperativethat a reformulation of the fiscal management systembe undertaken expeditiously to make it moreappropriate for the changed context.

1.29 The Indian Central Plans have traditionallyfocused on setting only national targets. However,recent experiences suggest that the performanceof different States varies considerably, and cogni-sance has to be taken of this issue. For example,although the economy as a whole has accelerated,the growth rates of different States have divergedand some of the poorest States have actually seena deceleration in growth. It is important to recognisethat the sharp increase in the growth rate andsignificant improvement in the social indicators that

are being contemplated for the Tenth Plan will bepossible only if there is a corresponding improve-ment in the performance of the relatively laggardStates. Indeed, if the higher targets are sought tobe achieved simultaneously with the slow progress,as observed in the past, in some of the mostpopulous States, it would necessarily imply a verylarge increase in inter-State inequality, with seriousconsequences for regional balance and nationalharmony.

1.30 In order to emphasise the importance ofensuring a balanced development for all States, theTenth Plan includes a State-wise break-up of thebroad developmental targets, including targets forgrowth rates and social development, which areconsistent with the national targets. These State-specific targets take into account the needs,potentialities and constraints present in each Stateand the scope for improvement in their performance,given these constraints. It needs to be emphasisedthat these State-wise targets are not meant to be asubstitute for or to over-ride the process of StatePlan formulation. They are more in the nature ofindicative guidelines for facilitating planning in theStates. It is an unfortunate fact that many States ofthe Union have de-emphasised the planningprocess and have allowed their planning systemsto degenerate. As a result, many State Plans arenot based on any rigorous and analytically meaning-ful appraisal of resources and capabilities or of thestrategies that can be used to accelerate thedevelopment process. National targets are oftenuncritically adopted as State targets, thereby leadingto a dysjunction between the planned and thepossible.

1.31 It is hoped that the presentation of State-wise targets in the national Plan will serve as acatalyst to reinvigorate planning at the State level.There are two dimensions to this. First, the veryrecognition of the diversities that exist in the countryshould lead to a similar recognition at the sub-Statelevel. Different districts within a State are at differentlevels of development and have different capabili-ties. A State Plan will, therefore, have to recognisethese differences, and ensure that the State-wisetargets set in the State Plan are consistent with whatis planned at the district level. This will requirecareful consideration of the sectoral pattern ofgrowth and its regional dispersion within the State.


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It will also focus attention on the nature of reformsthat will have to be implemented at the State levelto achieve the growth targets set for the States.Secondly, a statement of the comparative positionof the various States in different dimensions ofdevelopment is in itself an important method forencouraging introspection, leading hopefully toeffective benchmarking for future progress. Muchhas been said about the value of experience-sharingand best practice adoption, but these are contingentupon recognition of the possibilities that exist.

1.32 The objective of creating a commoneconomic space within the country, which is anessential element of nationhood, depends criticallyupon the recognition of commonality of interests bythe States. This need has gained urgency asexternal barriers to trade and commerce are in theprocess of being brought down. Unfortunately, therehas been an increasing tendency on the part of anumber of States to increase the barriers to internaltrade. Such measures are specifically barred bythe Constitution, and it is the responsibility of theCentral Government to ensure that no policy, whichhas the effect of abridgement of inter-State tradeand commerce, is permitted by the exercise ofArticle 307 of the Constitution.

1.33 It is important to re-emphasise that theequity related objectives of the Plan, which areextremely important, are intimately linked to thegrowth objective, and attainment of one may notbe possible without the attainment of the other. Forexample, high rates of growth are essential if wewant to ensure sufficient expansion of sustainablegainful employment opportunities for our expandinglabour force, and a sufficient increase in the incomesof the poor and the disadvantaged. However, thisis not just a one-way relationship. It is also true thathigh growth rates may not be sustainable if theyare not accompanied by a dispersion of purchasingpower which can provide the demand needed tosupport the increase in output without having to relyexcessively on external markets. The inherent risksand possible consequences of such excessivedependence have become evident from the expe-riences of the East Asian and Latin American crises.External markets are certainly an extremely impor-tant source of demand, and we would emphasisethat they need to be tapped much more aggressivelyfor many sectors. However, given the size of the

BOX 1.3STRATEGY FOR EQUITY AND SOCIAL

JUSTICE

• Agricultural development must be viewed asa core element of the Plan, since growth inthis sector is likely to lead to the widest spreadof benefits especially to the rural poor. Thefirst generation of reforms concentrated on theindustrial economy and reforms in theagricultural sector were neglected. This mustchange in the Tenth Plan.

• The growth strategy of the Tenth Plan mustensure rapid growth of those sectors which aremost likely to create gainful employmentopportunities and deal with the policyconstraints which discourage growth of emp-loyment. Particular attention must be paid tothe policy environment influencing a widerange of sectors which have a large employ-ment potential. These include sectors suchas agriculture in its extended sense, cons-truction, tourism, transport, SSI, retailing, IT-and communication-enabled services, and arange of other new services which also needto be promoted through supportive policies.

• There will be a continuing need to supplementthe impact of growth with special programmesaimed at special target groups which may notbenefit sufficiently from the normal growthprocess. Such programmes have long beenpart of our development strategy and they willhave to continue in the Tenth Plan as well.However, it is important to ensure that theyare effective in achieving their objectives.

economy and the present relative size of exports,much of the demand needed to support highgrowth will have to come from the domesticeconomy itself.

1.34 Although growth has strong direct poverty-reducing effects, the frictions and rigidities in theIndian economy can make these processes lesseffective, and the Tenth Plan must therefore beformulated in a manner, which explicitly addressesthe need to ensure equity and social justice. A three-pronged strategy for attaining equity and socialjustice along with high rates of growth is proposedfor the Tenth Plan period (see Box 1.3)


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Feasibility of 8 per cent Growth

1.35 At an aggregate level, any acceleration ingrowth requires some combination of an increasein gross domestic fixed capital formation and anincrease in efficiency of resource use. The latterrequires policies, which will increase the productivityof existing resources as well as the efficiency ofnew investment. There can be little doubt that Indiacannot hope to achieve an 8 per cent growth, relyingentirely, or even largely, on increased investment.With the average incremental capital output ratio(ICOR) in the Eighth and Ninth Plan periodamounting to around 4.0, the investment increaseneeded to achieve a 1.5 percentage point increasein growth is 6 percentage points. While some partof this could come from an increase in foreign directinvestments, it is unrealistic to expect this sourceto contribute more than 1 to 1.5 percentage points.This means that if the entire acceleration in growthhas to come from additional investment with anICOR of 4.0, it would be necessary to increase theinvestment ratio by 4.5 and 5 percentage points ofGDP, which would have to be mobilised throughadditional domestic savings. An increase of thisorder in the average rate of domestic savings overthe next five years may not be feasible. A substantialpart of the additional growth must, therefore, comefrom increased efficiency and tapping hiddenpotentialities in the economy.

1.36 The principal reason why 8 per centgrowth may be feasible in the Tenth Plan is that thescope for realising improvements in efficiency is verylarge, both in the public sector and in the privatesector. However, this improvement in efficiency canonly be realised if policies are adopted which ensuresuch improvement. The Tenth Plan must thereforegive high priority to identifying efficiency enhancingpolicies both at the macro level and also at thesectoral level. These policies will often involve aradical break from past practices and eveninstitutional arrangements. In many cases they willinvolve policy decisions, which can easily becomecontroversial given the compulsions of competitivepolitics. The Tenth Plan can only succeed in achie-ving the targeted 8 per cent growth if sufficientpolitical will is mobilised and a minimum consensus

achieved which will enable significant progress tobe made in critical areas. If this is not possible thengrowth will be correspondingly lower.

1.37 There is sufficient evidence to suggestthat there may be a considerable stock of existingcapital assets, which are either lying idle or havenever been used to their full potential. Bringingsuch assets into full productive use can certainlyreduce the resource requirements quitedramatically. The first major area of idle capacityis in public infrastructural investment, which hasbeen caused by the tendency to launch too manyprojects without the requisite financial provision ormanagement capability, leading to a tardy pace ofcompletion and sometimes even abandonment.Such problems are endemic in sectors such aspower, roads, railways and irrigation, but areprobably present in other sectors as well. It ispresent as much in central investments as in theState sector. Since completion of such projectsand upgradation of existing capital assets willalmost invariably be more cost-efficient than startingnew projects, it will require a moratorium onlaunching new projects until at least a minimumnumber of partially completed projects are broughtto completion. There is, however, no reason tobelieve that the existing set of projects necessarilyrepresent the most desirable or optimum choice ofoptions; therefore, some reprioritisation on soundeconomic principles becomes necessary.

1.38 The second area of idle capacity stock is inthe public sector enterprises where financial andmanagerial problems have prevented adequateinvestment in balancing and/or upgradation, leadingto inadequate utilisation of the capital assets or to thelack of market competitiveness. Prolonged periodsof insufficient maintenance expenditures also havesimilar effects. Mere infusion of fresh funds is unlikelyto solve this problem since the roots of the malaisego deeper, and usually lie in the domain of policiesand excessive interference in the management ofthese enterprises. Measures to unlock such potentialcapacities through institutional change can yield richdividends to the economy. Operational autonomy ofpublic enterprises has been discussed, and evenattempted in some cases, for many years now; butusually to no avail. Privatisation of non-strategic public


11

enterprises thus appears to hold the best alternativepromise in this regard.

1.39 The third area is in the private sector itself,which accounts for the bulk of the economy andwhere efficiency is vital. Much depends here onthe policy framework. A comprehensive review isneeded of policies in different areas to identifyconstraints to efficiency and optimal utilisation ofresources. The Tenth Plan will have to addressthese issues in a comprehensive manner. However,an over-arching problem is the legal and proceduralhurdles, which prevent the transfer of capital assetsfrom non-performing companies to those that wouldutilise them better. Even if such transfers areeffected, the time-lag is usually so substantial thatmuch of the effective value of the capital stock iseroded. This problem also has implications for thewillingness of lenders to advance funds tocompanies. Solution to such problems will requirelegal and procedural changes for facilitating quicktransfer of productive assets so that their idle timeis minimised. In particular, bankruptcy andforeclosure laws need to be instituted and mademore effective.

1.40 Therefore, in order to take advantage ofwhatever idle capital stock that exists in theeconomy today for accelerating the growth rate inthe Tenth Plan, there are at least three categoriesof measures as indicated in Box 1.4, that wouldneed to be taken immediately.

Detailing such measures forms a core element ofthe Tenth Plan, and these would need to beaccepted at all concerned levels of the Government,both at the centre and in the States.

1.41 Most infrastructure and industrial invest-ments in India take an unconscionable time to comeon stream. Much of this arises from the investor-unfriendly laws and non-transparent procedures andclearances that have to be gone through prior toeven launching the project, but hurdles can alsocome up in the course of execution. As a conse-quence, the gestation lags get lengthened andleaves investible resources locked up for extendedperiods. One of the reasons why the servicessectors have performed much better than theindustrial sector in India is that such impedimentsare less in their case, though not entirely absent.The solution to this problem would have to be soughtin identifying and removing unnecessary hurdles tothe investment activity.

1.42 Reduction in gestation lags of industrialand infrastructural investments, and indeed in alleconomic activities, through removal of policy andprocedural barriers is of the highest importance,since it is central not only to reducing ICORs, butalso to unshackling entrepreneurial energies.Although various Governments from time to timehave announced ‘single window clearance’procedures and ‘investor assistance cells’, theyhave rarely been effective. The primary reason forthis is that the problem lies not in inadequatecoordination, but in fragmented and often arbitraryexercise of the various powers of Government,vested in a number of functionaries at different levelsthrough a complex system of delegation of powers.It is compounded by the fact that neither are therules and regulations governing entry and operationtransparent, nor are they justiciable. Rationalisationof these various rules, notifying them in a comp-rehensive and transparent manner, assigningaccountability of each functionary, and providingadministrative and legal recourse in case of malafidedilatoriness will be necessary to address thisproblem. These are issues in governance, and areaddressed in some detail in the Tenth Plan.

Box 1.4

Measures to Reduce Idle Capital Stock

• Full emphasis to be placed on completion ofpartially completed or on-going projects andupgradation of existing capital assets beforestarting new projects.

• Rapid privatisation of Public SectorEnterprises (PSEs), particularly those, whichare working well below capacity.

• Legal and procedural changes for facilitatingquick transfer of assets, including suchmeasures as repeal of Sick IndustrialCompanies (Special Provision) Act (SICA),introduction of a bankruptcy law, facilitatingforeclosure, accelerating judicial processes,etc:


12

1.43 The efficiency and productivity of variouseconomic activities in India are well below theinternational standards. Although this is partly onaccount of the technological gaps that exist, it isalso because of the structural infirmities of theeconomy. As for example, the average level ofinventory holdings in India (which is estimated tobe around four months of output) is orders ofmagnitude higher than in other countries of the world(around one month), which results in a large amountof investible resources being kept in reserve forcontingencies rather than being put to productiveuse. The causes of this problem are many, and liein poor transport infrastructure which complicateslogistics management, an inadequate insurancesystem, and of course in outmoded methods ofmanagement, just to name a few. Although theadvent of Information Technology has helped tosome extent, there is a considerable way to gobefore international standards are attained.

1.44 Finally, the existence of unjustifiably highcapital intensity in many sectors is also a cause ofgrave concern since these resources could havebeen applied to creating additional capacity. Thereis no doubt that this is often caused by the exces-sively rigid labour laws applied to the organisedsector, which make it more difficult for the corporateentrepreneur to rationalise labour than to dispose-off capital assets when the need arises. It also hasa deleterious effect on work ethics and discipline.As a result, the effective cost of labour to theentrepreneur can be many times the nominal wagebill. Therefore, rationalisation of labour laws andregulations, which reduce the implicit cost of labourwithout affecting the explicit, can releaseconsiderable investible resources.

1.45 However, it should not be thought thatexcessive capital intensity is caused solely by theimpact of labour laws. Overstatement of capitalcosts by promoters, with the intention of passingoff a higher proportion of the real investment costto the lenders, i.e. having a higher debt/equity ratiothan would be otherwise acceptable, is also fairlyendemic in India. This arises primarily due to theinadequate capacity of the financial sector toevaluate investment proposals, and to a lack of

information sharing between different financialinstitutions due to out-dated confidentiality rules.These issues will need to be addressed expe-ditiously.

1.46 Overstatement of capital costs is notconfined to the private sector alone. It is equallyprevalent in public investments. There are numer-ous instances where the capital cost of a publicproject is significantly higher than equivalent privateprojects and even by international comparisons.The reasons, however, are different. Poor projectmanagement, leading to time and cost over-runs,and corruption are two principal causes. Excessiveacquisition of land, over-investment in amenities foremployees and at times undue mechanisation areothers. These are again issues of institutionaldesign and governance, and solutions to these willhave to be found in that context.

The External Sector

1.47 The proposed acceleration in the growthrate cannot take place without tapping on theopportunities offered by the international economyin terms of markets, investment and technologies.But in doing so, vulnerabilities have to be identifiedand addressed. This is particularly important in viewof the emerging trends in the international economywhich suggest a period of slow-down. The UnitedStates economy, in particular will have to bemonitored carefully, since the back-wash effects ofa United States slow-down can be substantial onIndia, not only since it is our largest trading partner,but also as countries which are heavily dependenton the United States market would search foralternative export avenues.

1.48 A high rate of GDP growth will necessarilybe associated with a high rate of growth of imports.This is particularly true given the extent ofdependence on imports of energy and the limitedlikelihood of expanding domestic energy sourcesrapidly enough. Liberalisation of imports as requiredby the World Trade Organisation (WTO) will alsohave a role to play. In such a situation, sustainedhigh rates of growth of exports will be essential forkeeping the current account deficit within manage-


13

able limits. Rapid export growth of exports will alsobe necessary for aggregate demand reasons, sincea steady increase in the rate of domestic savingsimplies that the rate of domestic consumptiongrowth will be less than the rate of growth of output.Therefore, external markets will have to be soughtfor sustaining high levels of capacity utilisation.

1.49 At present, the Indian economy suffersfrom two principal infirmities in expanding its exportsrapidly – the share of tradeables in GDP has beenfalling steadily; and the tradeables sectors continueto be dominantly inward-looking. Measures forreversing these attributes are essential forsustainable growth. Unless capacities are createdin India specifically for the export market, it is unlikelythat the export growth-targets can be met. Thereare of course exceptions, but excessive relianceon a limited number of goods and services, ingeneral, exposes the economy to vulnerability.

1.50 The most effective means of encouragingoutward orientation is to lower tariffs on imports sothat the anti-export bias both in policies and mind-sets get corrected. Protection, if at all necessary,should be provided mainly through the exchangerate mechanism. In recent years there have beenperiods when the real exchange rate appreciated,but these reflect the inability of the Indian economyto absorb all available investible resources morethan any other factor. With investment demandgrowing strongly, this should not be a source ofconcern. Rationalisation of the domestic taxstructure, and the consequent simplification of theexport promotion regime, will also be necessary.

1.51 Most importantly, it is necessary to recog-nise that rapid growth and development will not bepossible without greater integration with theinternational economy. In order to make most ofthe opportunities available, it is essential that Indiaevolve a positive agenda for its future negotiationsat the WTO. Until recently, the strategy has beenlargely defensive. While this was perfectly appro-priate for an inward-looking development strategy,it is not so now. The Indian interventions at theDoha Ministerial demonstrate the much more activeand aggressive position that is being taken by India.

This approach will have to be strengthened as theprocess of globalisation gathers momentum in theIndian economy.

The Financial Sector

1.52 With the steady reduction in the share androle of the public sector in the economy, the impor-tance of activities related to financial intermediationhas increased, and will continue to do so. It isbecoming evident, however, that the organisedfinancial sector in India is either unable or unwillingto finance a range of activities that are of crucialimportance both for growth and development.Agriculture, unorganised manufacturing andservices, and various types of infrastructure areinstances of such sectors. The recent financialsector reforms have naturally focused primarily onimproving the viability and stability of financialinstitutions, without adequately addressing thisissue. It is, therefore, necessary to considermethods of encouraging the financial sector tofinance such activities without impinging on itsviability or compromising on prudential concerns.

1.53 The most important issue in this contextis the utility and effectiveness of subsidised interestrates for various purposes and segments of people.The evidence suggests that, on one hand, financialinstitutions are reluctant to give such loans andadvances since these are not in their interest; and,on the other, the benefits are systematically misusedby the powerful and the influential. Often, the actualbeneficiary ends up bearing a higher effectiveinterest rate than would be available in the normalcourse. It thus appears to be more important toensure a smooth flow of resources than providinglimited amounts with subsidy.

1.54 Finally, there is a problem of seriousshortage of long-term risk capital in India, whichwill need to be rectified if rapid growth is to beachieved. In addition, excessive reliance on debtinstruments by savers for meeting their long-termincome flow requirements places pressure on thelevel and structure of interest rates. A judicious mixbetween interest and capital gains incomes isnecessary to balance the needs of both savers and


14

investors. Therefore, a widening and deepening ofthe capital market, including equity and long-termdebt, with adequate regulatory over-sight is centralto the process of a sustained growth in savings andinvestment in the country over the longer run.

Agriculture and Rural Development

1.55 The policy approach to agriculture,particularly in the 1990s, has been to secureincreased production through subsidies in inputssuch as power, water and fertiliser, rather thanthrough building new capital assets in irrigation,power and rural infrastructure. This strategy hasrun into serious difficulties. Deteriorating Statefinances have meant that subsidies have crowded-out public agricultural investment in roads andirrigation and expenditure on technologicalupgrading. Apart from the inability to create newassets, the lack of resources has eroded expen-diture on maintenance of canals and roads. Thefinancial unviability of the State Electricity Boardshas made it difficult to expand power supply inuncovered rural areas and contributed to the lowquality of rural power supply. These problems areparticularly severe in the poorer States.

1.56 The equity, efficiency, and sustainabilityof this approach are however questionable. Thesubsidies have grown in size and are now financiallyunsustainable. Some of these, as for example thefertiliser subsidy, are really subsidies to cover thehigh cost of the fertiliser industry, and need to bere-examined in the context of liberalisation. Othersubsidies, e.g. under-pricing of power and irrigation,do not improve income distribution in rural areasand may also be environmentally harmful. Excessuse of subsidised fertiliser has created an imbalancebetween N, P and K, whereas excess use of waterhas produced water logging in many areas.

1.57 It is necessary to evolve a new approachto agricultural policy, based on a careful assessmentof current constraints and possibilities. A sober andcareful assessment of resources indicates that bothland and water will be crucial constraints on theefforts to expand production in agriculture. India isalready in a situation where the extent of forest coverhas declined alarmingly. Although in recent yearsthere has been some improvement, it is a long way

from our eventual target. In such a situation thereis little possibility of increase in the cultivated areaof the country other than through reclamation ofwasteland for agriculture and forestry. Indeed,perhaps there would be an eventual decline, asurban demand and environmental imperatives leadto conversion of some agricultural land. There is,therefore, no alternative but to focus on raising theproductivity of our land and water resources in amanner, which is sustainable over the longer term.

1.58 The first, and possibly the most important,area of focus must be to raise the cropping intensityof our existing agricultural land. Climatically Indiais fortunate in that it is possible to have multiplecrops practically all over the country. The criticalproblem though is water, as water resources arealso under severe strain. Despite large investmentsin irrigation in the past, only about 40 per cent ofthe agricultural area are irrigated. The progress onthis front has slowed down considerably in recentyears, particularly in terms of major and mediumirrigation projects. Moreover, capacities of existingprojects are also getting eroded due to insufficientexpenditure on maintenance and upgradation.

1.59 Public investment in irrigation has fallensignificantly over successive Plan periods. This islargely due to resource constraints faced byGovernments both at the Centre and the States.However, resources are not the only problem.Potential irrigation projects are located in areaswhich are either very difficult or environmentallysensitive, which makes it difficult to implement them.The Tenth Plan must aim at a major revival of publicinvestment in irrigation capacity and watermanagement. Greater attention will also have tobe paid to rain water harvesting and increasing theirrigation potential through scientific watersheddevelopment and minor irrigation. There is alsoconsiderable scope to improve the efficiency of theexisting irrigation infrastructure through better andmore participative management practices.

1.60 The second priority must be the deve-lopment of other rural infrastructure that supportsnot only agriculture but all rural economic activities.A number of recent studies have indicated that therate of growth of rural incomes and reduction in ruralpoverty are strongly influenced by the provision of


15

rural road connectivity. Other forms of rural infra-structure are also important, but the impact of ruralroads has a dominant bearing on widening theopportunities and alternatives available to ourpeople. Although this is an area that is in the domainof the State Governments, the Centre has takeninitiative to provide earmarked funding for asignificantly accelerated rural roads programme. Itis also necessary to reorient the poverty alleviationprogrammes in a manner that they contribute moreefficiently to the creation of rural assets, both privateand community.

1.61 The third area that needs attention is thedevelopment and dissemination of agriculturaltechnologies. Over the years India has developedan extensive system of agricultural research centresand extension services. There is reason to believe,however, that the quality of the agricultural researchefforts has weakened while the extension systemhas virtually collapsed. Strengthening of the agricul-tural research and development system, with specialemphasis on bio-technology, and a significantimprovement in the degree of sophistication in thetechnology dissemination methods are essential toachieving rapid and sustained growth in agriculturalproductivity. A radical overhaul of the extensionservices is also needed.

1.62 Finally, the true potential of Indian agricul-ture can be realised only when there is diversificationof agricultural products, both geographically andover time. The food and nutritional requirementsof the people for leading healthy lives demand awider range of food products than are presentlyconsumed on the average. For such diversificationto gain momentum, the requisite science andtechnology inputs will have to be provided alongwith appropriate supportive price policies. Most ofthe non-grain food products are, however, perish-able in nature. In order to encourage the diversi-fication through minimum wastage, considerableattention will be required to focus on post-harvesttechnologies and marketing infrastructure. It wouldalso require a reconsideration of the various rulesand regulations that govern agricultural trade, whichfrequently act against the interests of the farmersand distort their incentive structure.

1.63 Forests are natural assets and provide avariety of benefits to the economy. The recorded

forest area in the country is about 23 per cent ofthe total geographical area, but 41 per cent of thisis degraded, and hence unable to play an importantrole in environmental sustainability and in meetingthe forest produce needs of the people, industryand other sectors.

1.64 The problems and constraints in forestrydevelopment include lack of awareness aboutmultiple roles and benefits of forests; lack of linkagebetween management and livelihood security of thepeople; application of low level of technology;inadequate research and extension, weak planningcapability, wastage in harvesting and processing,market imperfections, over-emphasis on Govern-ment involvement and control, low level of people’sparticipation and NGOs involvement, lack of privatesector participation, unwanted restrictions on felling,transport and marketing of forest products grownby the people, lack of inter-sectoral coordination andweakness and conflicting roles of public forestadministration.

Industrial Policy Issues

1.65 The industrial sector will have to growaround 10 per cent to achieve the Tenth Plan targetof 8 per cent growth for GDP. This represents amajor acceleration from its past performance; thesector grew at only about 7 per cent in the Eighthand Ninth Plan periods taken together. Besides, thisacceleration has to take place in an environment,which will be significantly different from the past. Twodifferences are particularly important. First, industrywill have to face much stronger internationalcompetition, as our domestic market is now moreopen with quantitative restrictions (QRs) on importshaving been removed with effect from April 1, 2001.Second, the relative role of the public sector as adistinct entity will decline in the course of the TenthPlan as the process of disinvestment converts manyof the existing public sector enterprises fromGovernment controlled enterprises to non-Government enterprises in which Government mayhave a minority stake but the units will either becomeboard managed or managed by a strategic investor.In either case, they will not be part of the public sector.

1.66 The Tenth Plan must therefore focus oncreating an industrial policy environment in which


16

private sector companies, including erstwhile publicsector companies, can become efficient and compe-titive. Some of the sources of efficiency that canbe tapped in the Tenth Plan period have beendiscussed earlier. The specific policy issues thatdeserve special attention in the context of industrialdevelopment are discussed in the followingparagraphs.

1.67 The removal of quantitative restrictionson imports is an important step in opening theeconomy to foreign competition. However, whileQRs have been removed, import protection is stillhigh. It is estimated that India’s import weightedtariffs have declined from around 90 per cent atthe start of the reforms to around 34 per cent in2001-02 but this reduced level is three timeshigher than the level prevailing in East Asia. It isnow well recognised that while industrialprotection may sometimes be needed to help aparticular sector, it tends to raise domestic costsand makes downstream industrial activityuncompetitive. The net effect is to make industryas a whole uncompetitive in world markets.Recognising this, developing countries the worldover have steadily reduced the level of protectionover the past ten years. The Government of Indiatoo has announced that India’s tariff levels willbe brought to the East Asian levels within a three-year period. This is in our view the right approachand will give Indian industry a clear indication ofthe pace at which the transition will be made.Care, however, will have to be taken to ensurethat adequate safeguards are provided to preventdumping and other forms of misuse.

1.68 A second important policy issue relates tothe need to extend industrial liberalisation, whichhas been implemented extensively at the Centrallevel, to the State level also. Industry circles frequ-ently complain that the administration of regulationsat the State level is extremely cumbersome andsubjects entrepreneurs to frequent harassment.The transactions cost imposed by this system,including costs on account of corruption spawnedby excessive regulation, are very large. What ismore, they are especially burdensome for small-scale units. Radical changes are thus needed inthese areas.

1.69 The small scale industry (SSI) has a vitalrole to play in the process of industrialisation pro-viding a vehicle for entrepreneurship to flourish anda valuable entry point for new entrepreneurs whocan start as small enterprises and then grow big.Small scale industries are also vehicles for achievinga broader regional spread of industry. Since SSIsare generally more employment intensive per unitof capital than large scale industry they are also asource of the much needed employment avenues.Khadi and village industries also have an importantrole to play, especially in promoting non-farm emp-loyment in rural areas. The Tenth Plan must ensurethat policies are supportive of the small scale sector.Liberalisation of controls and doing away withunnecessary procedures at the State level can helpin this process. Equally important is the need toensure that adequate credit is made available tothe SSI units. A proactive policy, encouraging thebanks to meet the needs of the SSI whilemaintaining all necessary banking diligence in creditappraisal, is very necessary. Procedures for creditapproval and disbursement in the public sectorbanks need to be modernized to ensure quickresponse.

1.70 The policy of reservation of certain pro-ducts for SSI also needs to be reconsidered. Whilethere is an overwhelming case for providing supportto SSIs through specialised credit access schemesand fiscal incentives, a similar case cannot be madefor reservation on economic grounds. Severalexpert committees have examined this issue andcome to the conclusion that the policy of reservationhas impeded healthy growth and export capabilityin many areas. It is often regarded as irrationalonce competition from imports is freely allowed. Forthese reasons, the expert view is that the policy ofreservation needs to be phased out in due course.While doing so, however, the effect on employmentshould be carefully considered, since the presentemployment situation is rather grim. There is alsoa need for preferential opportunity to extendinvestment limits for SSI units with immediate effect,while restricting entry of new large units until later.There must also be recognition of the fact that therelationship between the large and the small unitsis not always adverse, and that quite often there isa strong complementarity between the two. Thereare, however, a number of policy distortions, which


17

obscures or even prevents the operation of suchcomplementarities. The extent of ancillarisation inIndia, although increasing in recent years, is wellbelow the potential. Policies that impede thisrelationship must be identified and removed.

1.71 Finally, it needs to be mentioned that theprincipal responsibility for achieving competitiveefficiency rests with the private enterprises them-selves. The policy environment cannot always beused as an alibi for non-performance. Recentresearch suggests that in India the main barriers toachieving international levels of efficiency areinternal to the firms, and only to a minor extent inthe policy environment. Private enterprises needto take these results to heart and engage in theintrospection that is necessary for them to overcomeand remove these internal limitations.

Social Infrastructure

1.72 Performance in the field of education isone of the most disappointing aspects of India’sdevelopmental strategy. Out of approximately 200million children in the age group 6-14 years, only120 million are in schools and net attendance inthe primary level is only 66 per cent of enrolment.This is completely unacceptable and the Tenth Planshould aim at a radical transformation in thissituation. Education for all must be one of theprimary objectives of the Tenth Plan. Assertion ofthe dignity of labour and vocationalisation ofcurricula are essential to ensure that a dysjunctiondoes not take place between the educational systemand the work place.

1.73 Mere establishment of schools and hiringof teachers will not lead to an improvement ineducation if teachers remain absent as happens inmany parts of the country, especially in rural areas.It is therefore essential that control over schoolsand teachers be transferred to local bodies whichhave a direct interest in teacher performance.States should be encouraged to implement the 73rd

and 74th Amendments of the Constitution, whichfacilitate the transfer of management of primary andupper primary schools to panchayats/local bodies.Planning, supervision and management of educa-tion would have to be through local bodies at district,block and village levels. Efforts should also be made

for social mobilisation of local communities for adultliteracy campaigns and for promotion of primaryeducation.

1.74 The University and Higher Education Sectoralso needs attention. Although the number ofuniversities has increased, and many universitiescontinue to maintain high standards of education, itis a matter of serious concern that on the whole,the expansion in quantity has been accompaniedby a fall in quality. Modernisation of syllabi, exami-nation reforms and greater attention to issues ofgovernance of universities and colleges, all requireurgent attention. Part of the problem facing univer-sities is the inadequate provision of budgetaryresources from the Government. Since budgetresources are limited, and such resources as areavailable, need to be allocated to expanding primaryeducation, it is important to recognise that theuniversities must make greater efforts tosupplement resources from the Government.

1.75 Improvement in the health status of thepopulation has been one of the major thrust areasin social development programmes of the country.This was to be achieved through improving theaccess to and utilisation of health, family welfareand nutrition services with special focus on under-served and under-privileged segments of popu-lation. Technological improvements and increasedaccess to health care have resulted in a steep fallin mortality, but the disease burden due to communi-cable diseases, non-communicable diseases,environmental pollution and nutritional problemscontinue to be high. In spite of the fact that normsfor creation of infrastructure and manpower aresimilar throughout the country, there remainsubstantial variations between States and districtswithin a State in availability and utilisation of healthcare services and health indices of the population.

1.76 There will have to be a continued commit-ment to provide essential primary health care,emergency life saving services, services under theNational disease control programmes and theNational Family Welfare programme free of cost toindividuals based on their needs and not on theirability to pay. At the same time, suitable strategieswill have to be evolved, tested and implementedfor levying and collecting charges and utilising the


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funds obtained for health care services from peopleabove poverty line.

1.77 One of the major factors responsible forpoor performance in hospitals is the absence ofpersonnel of all categories who are posted there.It is essential to ensure that that there is appropriatedelegation of powers to panchayati raj institutions(PRIs) so that there is local accountability of thepublic health care providers, and problems relatingto poor performance can be sorted out locally.

Shelter for All

1.78 The objective of the National Housing andHabitat Policy 1998 was to provide shelter to all,especially to the poor and the deprived. The policyenvisaged construction of 2 million additionalhouses annually. Of these, 1.3 million units wereto be in rural areas and 0.7 million units in urbanareas. The time has come to ensure that the goalof shelter to all is achieved by the end of theEleventh Plan. The issues and problems relatingto provision of rural and urban housing are verydifferent and hence require specific interventions.

1.79 As per the 1991 Census, the total ruralhousing shortage was 13.72 million, which includedhouseholds without shelter and those living in kutchaunserviceable houses. In addition, it was estimatedthat 10.75 million households would require housingduring the period 1991 to 2002, on account ofpopulation growth. By the end of the Eighth Plan,around 6 million units had been created. Duringthe Ninth Plan it is estimated that 4.5 million houseshave been constructed under IAY and relatedprogrammes. In addition, HUDCO has sanctionedschemes for construction of close to 6 milliondwelling units in the rural areas. Thus, the backlogleft at the end of the Ninth Plan is estimated to bearound 8 million dwelling units.

1.80 Urban housing shortage at the beginningof Tenth Plan has been assessed to be 8.89 millionunits. As much as 90 per cent of the shortfallpertains to the urban poor, and is attributable to the‘congestion’ needs of joint families, obsolescenceand replacement of old houses, upgrading of kutchahouses, and provision of housing to slum-dwellers.In urban areas, the problem becomes complex due

to two factors: the high cost of land, and the lack ofaccess to institutional credit for workers in theinformal sector, including the self-employed.Provision of affordable land requires allocation ofGovernment-owned lands, and cross-subsidizationfrom commercial properties and colonies developedfor the affluent, to those for the urban poor.

1.81 During the Tenth and Eleventh Planhousing shortage would go up further due topopulation growth, in addition to the backlog ofhousing shortage in the Ninth Plan. It would bepossible to make a more precise assessment ofthe housing shortage and requirement once detailsfor 2001 are available from the Census. However,in view of the housing shortage even on the basisof 1991 Census, a major thrust to the housingprogramme would have to be accorded in the Tenthand Eleventh Plan to meet the goal of ‘Shelter forAll’ by year 2012. For this a detailed action planwould have to be drawn up incorporating housingprogrammes of public, private and householdsectors. Nevertheless, it would be necessary toprovide free houses under IAY to the shelterlessrural poor, with some subsidy for upgradation ofkutcha houses. There is also a need to promotecredit linked housing in the rural areas for easingthe housing shortage for non-BPL families. Asregards credit for the urban poor, which is requiredeven in the programmes of slum-rehousing (ValmikiAmbedkar Awas Yojana), there is need formeasures to create institutional arrangements. Thesteps to ensure availability of credit will includestrengthening of State Housing Boards, arrangingtie-ups between self-help / thrift-and-credit groupsof urban poor and Housing Finance Institutions, andpromotion of co-operative housing schemes for thebenefit of urban poor.

Economic Infrastructure

1.82 The energy-transport infrastructure will bea major constraint on any effort to achieve asignificant acceleration in the growth of GDP duringthe Tenth Plan period. A GDP growth of around 8per cent or so will require an industrial sector growtharound 10 per cent. This will place heavy demandson the generation and distribution of electric powerand also transport sectors. Since these are non-tradable services, the necessary expansion in


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supply must come from increased domestic pro-duction. Furthermore, in a globally competitiveenvironment, the quality of these services in termsof both price and reliability are as important asavailability, and it is well known that we face seriousproblems on both counts. Unless these problemsare speedily resolved, India will neither be able toaccelerate its growth nor compete effectively in theincreasingly integrated international economy.

1.83 The power sector has been suffering fromserious problems which were identified as early asten years ago. However, no corrective action wastaken and the result is that the power sector facesan imminent crisis in almost all States. No StateElectricity Board (SEB) is recovering the full cost ofpower supplied, with the result that they makecontinuous losses on their total operations. Theselosses cannot be made good from State budgets,which are themselves under severe financial strain,and the result is that the SEBs are starved ofresources to fund expansion and typically end upeven neglecting essential maintenance. The annuallosses of SEBs at the end of the Ninth Plan areestimated at Rs. 24,000 crore, and this has led tolarge outstanding dues to Central Public SectorUndertakings (PSUs) amounting to Rs. 35,000crore.

1.84 The reasons for the huge losses of theSEBs are well known. Power tariffs do not covercosts because some segments, especially agri-culture, but also household consumers, are chargedvery low tariffs, while industry and commercial usersare overcharged. However, the overchargedsegments do not always pay the high chargesbecause theft of electricity, typically with theconnivance of the staff in the distribution segment,is very high. Only 80 per cent of the electricitycharges billed are actually collected. These seriousissues were hidden by claiming a large absorptionof electricity in agriculture which, being unmetered,enabled SEBs to claim transmission and distribution(T&D) losses of around 24 per cent. However, whenactual losses were calculated more precisely, inStates power sector reforms were being undertaken,it was found that the actual T&D loss is as high as45-50 per cent.

1.85 Operational efficiencies in generation arealso very low in some States. Overstaffing is ram-

pant. Political interference on the management ofSEBs has become the norm in most States, makingit difficult to ensure high levels of managementefficiency.

1.86 These problems were known at the startof the economic reforms and it was recognised atthe time that the public sector may not be able toinvest in the power sector to expand capacity to therequired extent. The Government therefore invitedprivate investors in power generation in the hopethat private investment would fill the gap. However,it soon became evident that significant volumes ofprivate investment cannot be attracted in anenvironment where the independent powerproducer is expected to sell power to a public sectordistributor who may not be in a position to pay forthe power purchased. The result has been that theinflow of private investment has been much belowthe targeted level. Since the financial problems ofthe SEBs have worsened over the Ninth Plan period,even this volume cannot be expected to continueunless State Governments undertake seriousreforms in the power sector, including especiallydistribution, to make the sector financially viable.

1.87 Fortunately, a consensus is beginning toemerge on what needs to be done in this area anda handful of States have started the process ofreform. However, it is important to note that theprocess will necessarily be long drawn out. Systemsthat are operating at a T&D loss of 45 per centcannot suddenly go to a 15 per cent level, which isotherwise technically feasible. And yet, unless theymake this transition, we cannot expect to provideadequate power of assured quality at a reasonableprice. The Centre will have to assist this processthrough legislative changes and finan-cial supportto the investment requirements. As States embarkon power sector reforms, it will also be necessaryto deal with the problems of the very largeoutstanding dues of SEBs and also the mediumterm restructuring of the SEBs to bring about viabilityin operations over a three to four year period.Substantial financial resources will be needed tohelp States make the transition.

1.88 The optimum mix of power generation interms of primary energy sources is an importantissue for long-term planning of the power sector.


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Over the years, the balance between thermal andhydro-electricity has shifted steadily against hydro-electricity, which now accounts for only 24 per centof total power generation whereas an ideal levelwould be much higher. Special efforts need to bemade to restore the balance. Hydro-electricity notonly avoids carbon emissions, it is also particularlywell suited to dealing with situations where thereare large peaking deficits. India has large untappedhydro resources and although there are environ-mental constraints in tapping these resources, aconcerted effort at exploiting this potential, while atthe same time protecting against environmentaldamage and ensuring fair resettlement compen-sation is definitely needed.

1.89 Atomic energy is another important sourceof electric power, which has environmental advanta-ges and is also likely to be economical in the longerrun. At present, nuclear energy accounts for only2.4 per cent of total electricity generated. This isfar too low. The Nuclear Power Corporation hasdemonstrated the capability of setting up andoperating nuclear energy power plants with highlevels of technical efficiency and safety. It isdesirable to plan for a significant expansion in thenuclear power generation capacity. An expandedprogramme would also make it possible to reducecosts of construction. This would necessarilyrequire much larger allocation of budgetary supportto this sector.

1.90 Considering India’s continental size,geography and resource endowment, it is naturalthat the Indian Railways should have a lead role inthe transport sector, not to mention other consi-derations such as greater energy efficiency, eco-friendliness and relative safety. However, IndianRailways has experienced a continuous decline inits position relative to the road transport system.Some reduction in its share in favour of roadtransport was to be expected and is in line withtrends elsewhere, but there is reason to believe thatin India this has been excessive. This has happenedprimarily because of policy distortions, which needto be corrected urgently.

1.91 The most important policy distortion is theskewed tariff policy which overcharges freightmovement in order to subsidise ordinary passenger

traffic. This is accompanied by an investmentstrategy, which has placed excessive emphasis onopening new lines for passenger traffic and notenough emphasis on expanding capacity in areaswhere there is potential commercial traffic. The netresult has been an alarming deterioration in thefinancial condition of the Railways and an inabilityto undertake the investment needed to improveRailway transport services.

1.92 The heavy cross-subsidisation of passen-ger fares cannot fully be justified on either economicor social grounds since the beneficiaries of thesubsidy are not necessarily the poor. This systemmust be phased out gradually over the Tenth Planperiod. Due consideration should be given toestablishing an independent Rail Tariff RegulatoryAuthority for tariff fixation on technical andcommercial considerations.

1.93 Greater emphasis has to be laid on comp-letion of existing projects, and a proper prioritisationof all ongoing projects has to be made to ensurethat resources are not spread too thinly acrossprojects. Capacity on the saturated high densitycorridors needs to be augmented, particularly onthe Golden Quadrilateral by undertaking doubling,opening up of alternative routes through new lines,gauge conversion etc. The programme of contain-erisation needs to be accelerated, not only topromote inter-modal transport but also as a strategyfor increasing its own market share and catering tohigh value traffic.

1.94 The Indian road network is not up to therequirement of rapid growth in an internationallycompetitive environment, in which the Indian indus-try must compete actively with other developingcountries. Improvement in the national highwaynetwork should have high priority in the Tenth Plan.Competition of the ongoing work on the GoldenQuadrilateral and the related North-South and East-West corridor projects must have top priority. Moregenerally, the existing deficiencies in the roadnetwork should receive higher priority than theextension of the network itself. In the longer run, itis necessary to plan and take preliminary action forexpressways to be built in future on those sectionswhere they can be commercially justified.


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1.95 There are a number of areas of concern,which affect the efficiency of road transport opera-tions. These include the need for reform of Stateroad transport corporations to make them moreefficient, rationalisation of road transport taxationstructure, which will support cost-effective roadtransport systems, restraining of overloading oftrucks, control of encroachments and unplannedribbon development, and promoting road safety.Particular emphasis needs, however, to be givento removing all unnecessary policy and proceduralhindrances to greater private participation in roadtransport operations, especially in rural areas, with-out compromising on road safety considerations.

1.96 Rural road connectivity is an extremelyimportant aspect of rural development. Substan-tially enhanced rural road accessibility should beachieved in the Tenth Plan by linking up villageswith all-weather roads. However, while constructingrural roads, connectivity of public health centers,schools, market centers, backward areas, tribalareas and areas of economic importance shouldbe given priority.

1.97 The civil aviation sector also needs to begiven careful consideration. As the economy movestowards higher value-added products, particularlyin agriculture, an increasing proportion of theproduce will have to move by air, both within thecountry and abroad. In addition, the more remoteand inaccessible regions of the country, such asthe North-east, can realise their true potential whensuch a transition becomes possible. The aviationpolicy and planning must, therefore, be reassessedin order to make it consistent with the emergingneeds of the economy.

1.98 Telecommunications is a crucial compo-nent of infrastructure and one that is becomingincreasingly important, given the trend ofglobalisation and the shift to a knowledge-basedeconomy. Until 1994, telecommunication serviceswere a Government monopoly. Although telecom-munications expanded fairly rapidly under thisarrangement, it was recognised that capacities mustexpand much more rapidly and competition beintroduced to improve the quality of service andencourage induction of new technology. Telecom-munications has become especially important in

recent years because of the enormous growth ofinformation technology (IT) and its potential impacton rest of the economy. India is perceived to havea special comparative advantage in informationtechnology or in IT-enabled services, both of whichdepend critically on high quality telecommunicationsinfrastructure.

1.99 The Telecommunications policy in theTenth Plan must, therefore, provide the IT andrelated sectors with world class telecommunicationsat reasonable rates. Formulating a policy for thesector faces an additional challenge because tech-nological change in telecommunication has beenespecially fast and is constantly leading to majorchanges in the structure of the telecommunicationindustry worldwide. The goal should now be toprovide a telephone on demand, anywhere in thecountry. With its technological and cost advantages,Internet telephony should be opened up. Tariffrebalancing with the objective of cost based pricing,transparency and better targeting of subsidiesshould be the guiding principles for tariffs. Conver-gence of data, voice and image transmission anduse of wide bandwidth and high speed Internetconnectivity have added new dimensions whichneed to be taken into account in the policy regime.Such convergence of services and single licenceregime is needed to optimise the utilisation ofresources with least cost of provision and encouragecompetition across the country in services andamong the service providers.

Governance Reforms

1.100 Successful implementation of develop-ment programmes requires adequate funds, appro-priate policy framework, formulation of suitable planschemes, and effective delivery machinery.However, past experiences suggest that availabilityof funds is no panacea for tackling the problems ofpoverty, backwardness and low human develop-ment in India. Funds may be necessary, but theyare not a sufficient condition; the determining factorseems to be the capability of the funding Ministries/State Governments to formulate viable schemesand of the delivery system to implement theseschemes on the ground. There are serious deficien-cies in both respects and they can be regardedbroadly as due to poor governance. These weak-


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nesses can no longer be side-stepped as merelymacro-level field problems. They need to be facedsquarely and redressed at the planning stage itself.Reform of governance therefore has to be the oneof cornerstones of the Tenth Plan.

1.101 While the functions of the State in Indiahave steadily widened, capacity to deliver hasdeclined over the years due to administrativecynicism, rising indiscipline, and a growing percep-tion that the political and bureaucratic elite viewsthe State as an arena where public office is to beused for private ends. In almost all States, peopleperceive bureaucracy as wooden, disinterested inpublic welfare, and corrupt. The issue of reform ingovernance has acquired critical dimensions, moreso in poorer States, in the light of low economicgrowth and fiscal crisis. Weak governance,manifesting itself in poor service delivery, excessiveregulation, and uncoordinated and wasteful publicexpenditure, is seen as one of the key factorsimpinging on growth and development.

1.102 There has also been less than adequatedecentralisation of the functions of Government, tothe detriment of the delivery of a number of keyservices. The spirit of the 73rd and 74th ConstitutionalAmendments has not been observed in many ofthe States. It is believed that little improvement willbe possible until such decentralisation becomeseffective, both in terms of functions and resources.But decentralisation cannot stop at the level of PRIsand urban local bodies (ULBs). The potential of civilsociety organisations, such as water users’associations or health and education committeesto name only a few, to improve delivery of servicesis vast, and advantage must be taken of thesepossibilities through appropriate devolution offunctions and authority.

1.103 In the area of civil services reform, theGovernment faces three critical challenges. It mustenhance the productivity of the civil service andmake certain that each employee is performingsocially relevant tasks. It must ensure the long-term affordability of the civil service, and it mustenforce procedures for rewarding and promoting

merit, disciplining malfunction and misconduct, tostrengthen accountability and performance quality.It has become necessary to reshape the bureau-cracy so that it perform its core public functions anddevelop new ways of ensuring that critical economicand social services are provided directly or indirectly.A new work culture will have to be evolved at alllevels of the staff. Innovation and performanceshould be encouraged and rewarded and stepsshould be taken to ensure effective devolution andcontrol of the elected bodies over the functionaries.

1.104 The issue of institutional design is notrestricted to the Government or the bureaucracyalone. Practically all mechanisms by which com-merce and intercourse take place or by whichservices are delivered to the people need to be re-examined in the light of increasing efficiency andaccountability. Corporate governance, therefore,is just as important an issue as civil service reforms,and this applies just as much to the small-scale asto the large. Consumer protection too requires theestablishment and strengthening of appropriateinstitutions, which can effectively articulate theneeds of the average consumer. Such bodies mustbe encouraged, and not seen in an adversarial roleby the Government and the private enterprise. Inaddition, reform of the cooperative system hasbecome essential to ensure that this sector playsthe role that it is capable of doing. This requires acomplete unshackling of this sector from theneedless political and bureaucratic control that itsuffers from today.

1.105 Finally, nowhere is the issue ofinstitutional reform as important as in the deliveryof law and justice. All efforts at development canflounder in the absence of peace and of law andorder. Increasing insecurity can not only retardnew investment, but actually lead to closure ofexisting activities. Similarly, it must be recognisedthat the success of a market-based economyrests critically on the sanctity of contracts andthe speed with which they can be enforced. Thisrequires both expeditious delivery of justice bythe legal system and of its enforcement by theconcerned arms of the State.

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Tenth Five Year Plan 2002-07

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