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The 12th Five year Plan - Volume 1
The 12th Five year Plan - Volume 1
The 12th Five year Plan - Volume 1
The 12th Five year Plan - Volume 1
The 12th Five year Plan - Volume 1
The 12th Five year Plan - Volume 1
The 12th Five year Plan - Volume 1
The 12th Five year Plan - Volume 1
The 12th Five year Plan - Volume 1
The 12th Five year Plan - Volume 1
The 12th Five year Plan - Volume 1
The 12th Five year Plan - Volume 1
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The 12th Five year Plan - Volume 1

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Volume 1 of Draft 12th Plan approved by the National Development Council on 27th December, 2012

Volume 1 of Draft 12th Plan approved by the National Development Council on 27th December, 2012

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  • 1. Twelfth Five Year Plan (2012–2017)Faster, More Inclusive and Sustainable Growth Volume I
  • 2. Twelfth Five Year Plan (2012–2017)Faster, More Inclusive and Sustainable Growth Volume I Planning Commission Government of India
  • 3. copyright
  • 4. Contents 1. Twelfth Plan: An Overview 1 2. Macroeconomic Framework 37 3. Financing the Plan 70 4. Sustainable Development 112 5. Water 144 6. Land Issues 191 7. Environment, Forestry and Wildlife 202 8. Science and Technology 235 9. Innovation 278 10. Governance 286 11. Regional Equality 302
  • 5. 1Twelfth Plan: An OverviewINTRODUCTION 1.3. These developments have produced a reduction1.1. India’s 1.25 billion citizens have higher expecta- in the rate of investment, and a slowing down of eco-tions about their future today, than they have ever nomic growth to 6.5 per cent in 2011–12, which washad before. They have seen the economy grow much the last year of the Eleventh Plan. The growth rate infaster in the past 10 years than it did earlier, and the first half of 2012–13, which is the first year of thedeliver visible benefits to a large number of people. Twelfth Plan, is even lower. The downturn clearlyThis has understandably raised the expectations of requires urgent corrective action but it should notall sections, especially those who have benefited less. lead to unwarranted pessimism about the mediumOur people are now much more aware of what is term. India’s economic fundamentals have beenpossible, and they will settle for no less. The Twelfth improving in many dimensions, and this is reflectedFive Year Plan must rise to the challenge of meeting in the fact that despite the slowdown in 2011–12, thethese high expectations. growth rate of the economy averaged 7.9 per cent in the Eleventh Plan period. This was lower thanThe Initial Conditions the Plan target of 9 per cent, but it was marginally1.2. Though expectations have mounted, the cir- higher than the achievement of 7.6 per cent in thecumstances in which the Twelfth Plan has com- Tenth Plan. The fact that this growth occurred in amenced are less favourable than at the start of the period which saw two global crises, one in 2008 andEleventh Plan in 2007–08. At that time, the economy another in 2011, is indicative of the resilience whichwas growing robustly, the macroeconomic balance the economy has developed.was improving and global economic developmentswere supportive. The situation today is much more The Policy Challengedifficult. The global economy is going through 1.4. The policy challenge in the Twelfth Plan is,what looks like a prolonged slowdown. The domes- therefore, two-fold. The immediate challenge is totic economy has also run up against several inter- reverse the observed deceleration in growth by reviv-nal constraints. Macro-economic imbalances have ing investment as quickly as possible. This calls forsurfaced following the fiscal expansion undertaken urgent action to tackle implementation constraintsafter 2008 to give a fiscal stimulus to the economy. in infrastructure which are holding up large proj-Inflationary pressures have built up. Major invest- ects, combined with action to deal with tax relatedment projects in energy and transport have slowed issues which have created uncertainty in the invest-down because of a variety of implementation prob- ment climate. From a longer term perspective, thelems. Some changes in tax treatment in the 2012–13 Plan must put in place policies that can leverage thehave caused uncertainty among investors. many strengths of the economy to bring it back to its
  • 6. 2 Twelfth Five Year Planreal growth potential. This will take time but the aim making specific allocations to improve the abilityshould be to get back to 9 per cent growth by the end of government to work better.of the Twelfth Plan period. • Finally, the planning process must serve as a way of getting different stakeholders to work together1.5. The preparation of a Five Year Plan for the to achieve broad consensus on key issues. Thesecountry is an opportunity to step back, take stock stakeholders include (i) different levels of the gov-of the ‘big picture’, identify the strengths that can ernment sector: Centre, States and Panchayati Rajbe leveraged to enable the country to move forward, Institutions (PRIs)/Urban Local Bodies (ULBs);and the constraints that could hold it back, and on (ii) the private sector, both big companies andthis basis develop a strategic agenda. In developing small businesses, whose investments will drive oursuch an agenda, the Planning Commission has relied growth and (iii) citizens’ groups and the voluntaryon four key elements. sector, who bring the key element of people’s par- ticipation and can greatly help improve the qual-• First, the strategy must be firmly grounded in an ity of government action. understanding of the complexities of the develop- ment challenges that India faces, recognising the 1.6. The Planning Commission has consulted widely transformation that is taking place in the econ- over the past two years with other Ministries, with omy and in the world. This understanding of the State Governments, with experts and also with ground reality must be used to identify the critical Civil Society Organisations (CSOs). As many as leverage points where government action could 900 CSOs have been consulted through workshops have the maximum impact. The focus must be on and other fora. Several expert groups were set up to identifying the strategic leverage points where suc- advice on various aspects of the economy and their cessful action could trigger many supportive reac- reports are important inputs. These include the High tions rather than fixing everything everywhere. Level Expert Group (HLEG) on Health, the HLEG• Second, progress will be achieved through a com- on Transport, the Expert Group on Infrastructure bination of government action in both policies Financing, the Expert Group on the Low Carbon and public programmes, and the efforts of many Economy, the Expert Group on Venture Capital private actors that are important in the economy. and Angel Investors, and the Expert Group on Much of the inclusive growth we hope to achieve Management of Public Enterprises. depends on investment in the private sector which accounts for over 70 per cent of total invest- 1.7. This Chapter is not an executive summary. ment. This includes not only the organised cor- Rather it provides an overview of the basic rationale porate sector, but also Micro, Small and Medium of the Plan and the key areas of intervention. The Enterprises (MSMEs), individual farmers and Chapter is organised as follows: myriads of small businessmen who add to Gross Domestic Product (GDP) and create jobs. The • Section 1.2 presents the basic vision and aspira- dynamism of this segment, and its ability to seize economic opportunities, is critical for inclusive tions which drive the Plan and which are cap- growth and the Plan must address the constraints tured in the sub-title ‘Faster, sustainable and More faced by all these private actors in achieving better Inclusive Growth’. results. • Section 1.3 focuses on the development of capabil-• Third, the outlay on government programmes ities—both human and institutional—to achieve has to increase in many areas but this must be the vision. accompanied by improved implementation. For • Section 1.4 focuses on the challenge of managing this, it is necessary to focus on capacity building our national resources rationally; a critical area and governance reforms, including system change for planning if we want growth to be sustainable. that will increase accountability in the public sec- • Section 1.5 deals with India’s engagement with the tor. The Twelfth Plan must back this focus by world in the Twelfth Plan and beyond.
  • 7. Twelfth Plan: An Overview 3• Section 1.6 presents a summary of some of the of inclusiveness. There are many such programmes major policy initiatives that taken together would which either deliver benefits directly to the poor contribute a strategy for achieving faster, more and the excluded groups, or increase their ability to inclusive and sustainable growth. access employment and income opportunities gener- ated by the growth process. Examples of such pro-VISION AND ASPIRATIONS grammes are the Mahatma Gandhi National Rural1.8. The broad vision and aspirations which the Employment Guarantee Act (MGNREGA), SarvaTwelfth Plan seeks to fulfil are reflected in the subti- Siksha Abhiyan (SSA), Mid Day Meals (MDMs),tle: ‘Faster, Sustainable, and More Inclusive Growth’. Pradhan Mantri Gram Sadak Yojana (PMGSY),The simultaneous achievement of each of these ele- Integrated Child Development Services (ICDS),ments is critical for the success of the Plan. National Rural Health Mission (NRHM), and so on. This is also relevant for the sustainability objectiveThe Need for Faster Growth since programmes aimed at making development1.9. Planners are sometimes criticised for focusing more sustainable also involve additional costs.too much on GDP growth, when the real objectiveshould be to achieve an improved quality of life of Growth Prospectsthe people across both economic and non-economic 1.12. The Approach Paper to the Twelfth Plan,dimensions. The Twelfth Plan fully recognises approved by the National Development Councilthat the objective of development is broad-based (NDC) in 2011, had set a target of 9 per cent aver-improvement in the economic and social conditions age growth of GDP over the Plan period. That wasof our people. However, rapid growth of GDP is an before the Eurozone crisis in that year triggered aessential requirement for achieving this objective. sharp downturn in global economic prospects, and also before the extent of the slowdown in the domes-1.10. There are two reasons why GDP growth is tic economy was known. A realistic assessment ofimportant for the inclusiveness objective. First, rapid the growth prospects of the economy in the Twelfthgrowth of GDP produces a larger expansion in total Plan period is given in Chapter 2. It concludesincome and production which, if the growth process that the current slowdown in GDP growth can beis sufficiently inclusive, will directly raise living stan- reversed through strong corrective action, includ-dards of a large section of our people by providing ing especially an expansion in investment with athem with employment and other income enhanc- corresponding increase in savings to keep inflation-ing activities. Our focus should not be just on GDP ary pressures under control. However, while our fullgrowth itself, but on achieving a growth process growth potential remains around 9 per cent, accel-that is as inclusive as possible. For example, rapid eration to this level can only occur in a phased man-growth which involves faster growth in agriculture, ner, especially since the global economy is expectedand especially in rain-fed areas where most of the to remain weak for the first half of the Plan period.poor live, will be much more inclusive than a GDP Taking account of all these factors, the Twelfth Plangrowth that is driven entirely by mining or extrac- should work towards bringing GDP growth back totion of minerals for exports. Similarly, rapid growth an inclusive 9 per cent in the last two years of thewhich is based on faster growth for the manufactur- Plan, which will yield an average growth rate ofing sector as a whole, including MSME, will generate about 8.2 per cent in the Plan period. The outcomea much broader spread of employment and income is conditional on many policy actions as is describedearning opportunities and is therefore more inclu- in scenario one.sive than a growth which is largely driven by extrac-tive industries. 1.13. Within the aggregate GDP growth target, two sub-targets are especially important for inclusive-1.11. The second reason why rapid growth is impor- ness. These are a growth rate of 4 per cent for thetant for inclusiveness is that it generates higher rev- agricultural sector over the Twelfth Plan period andenues, which help to finance critical programmes around 10 per cent in the last two years of the Plan
  • 8. 4 Twelfth Five Year Planfor the manufacturing sector. The policies needed well-designed strategy is implemented, intervening atto achieve these sectoral targets are summarised in the key leverage points in the system. This in effect is theSection 1.6. scenario underpinning the Twelfth Plan growth pro- jections of 8.2 per cent, starting from 6.7 per cent1.14. The Twelfth Plan’s strategy for growth depends in the first year to reach 9 per cent in the last year andcrucially on productivity gains as one of the key the second scenario ‘Insufficient Action’ describesdrivers of growth. Productivity is the additional the consequences of half hearted action in which thecontribution to growth after taking account of the direction of policy is endorsed, but sufficient actioneffect of capital accumulation and growth in labour. is not taken. The growth in this scenario declines toThese traditional sources of growth are not likely around 6 per cent to 6.5 per cent. The third scenarioto be enough for India in the coming years and we ‘Policy Logjam’, projects the consequences of Policymust therefore focus much more on productiv- Inaction persisting too long. The growth rate in thisity improvements among all constituents: big busi- scenario can drift down to 5 per cent to 5.5 per cent.nesses, MSMEs, farmers and even government. Thiscan be done by improving the business regulatory 1.18. The scenarios are discussed in greater detailenvironment, strengthening the governance capac- in Chapter 2 and presented in another documentity of States, investing more in infrastructure rather complementing the Plan. Public discussion of thesethan subsidies, and by using Science and Technology scenarios could help to generate a discourse going(S&T) to drive innovation. beyond the parameters of the Twelfth Five Year Plan and assist in building a national consensus aboutAlternative Scenarios the policies that are necessary if India’s future is to1.15. The projection of 8.2 per cent growth in the unfold as we want. It is important to emphasise that the scenarios are not presented an alternative optionTwelfth Plan period should not be viewed as a ‘busi- form which we can choose. In fact, the only scenarioness as usual’ outcome that can be realised with rela- that will meet the aspiration of the people is scenariotively little effort. It is in fact a projection of what is one. The other scenarios are only presented to illus-possible if we take early steps to reverse the current trate the consequences of inaction.slowdown and also take other policy actions neededto address other key constraints that will otherwise 1.19. Ours is a diverse society and also an argumen-prevent the economy from returning to a higher tative one. We are suspicious when decisions thatgrowth path. Failure to act firmly on these policies affect us are not taken transparently and we resentwill lead to lower growth and also poorer outcomes too much centralisation of decision-making. But weon inclusiveness. all believe in democracy, we respect the views of oth- ers and, although we may disagree, we admire and1.16. To illustrate the consequences of inaction learn from those who work together to offer anyon key growth promoting policies, the Planning vision of a better India. We need to do more to buildCommission has undertaken a systematic process a greater consensus around a common national goal.of ‘scenario planning’ based on diverse views anddisciplines to understand the interplay of the prin- 1.20. The Twelfth Plan should aim at a growth pro-cipal forces, internal and external, shaping India’s cess that preserves emphasis on inclusion and sus-progress. This analysis suggests three alternative sce- tainability while minimising downside effects onnarios of how India’s economy might develop titled, growth. Plans are traditionally viewed as being about‘Strong Inclusive Growth’, ‘Insufficient Action’ and what governments should do, but that is a narrow‘Policy Logjam’. view since most investment today is private, and much of that is corporate. The Twelfth Plan must1.17. The first scenario ‘Strong Inclusive Growth’, provide a competitive environment in which the pri-describes the conditions that will emerge if a vate sector, including the corporate sector but also
  • 9. Twelfth Plan: An Overview 5all Indians, both as individuals and in the collective, worth noting that the record in this dimension ofare enable to reach their full potential. The objective inclusiveness is encouraging. The percentage of themust be to stimulate new entrepreneurship while population below the official poverty line has beenenabling existing MSMEs, including in agriculture, falling but even as that happens, the numbers belowto invest more and grow faster. For this, we need to the poverty line remain large. According to the latestmeet their needs for infrastructure and for easier, official estimates of poverty based on the Tendulkarcheaper and faster access to capital. Committee poverty line, as many as 29.8 per cent of the population, that is, 350 million people were below1.21. India is fortunate that it is richly endowed in the poverty line in 2009–10. Questions have beenentrepreneurial talent. At a rough estimate, the num- raised about the appropriateness of the Tendulkarber of non-agricultural establishments in the country poverty line which corresponds to a family con-increases by about 8 million every 10 years. While sumption level of `3900 per month in rural areas andmany of these enterprises are very small, and reflect `4800 per month in urban areas (in both cases for abasic survival strategies, many are not. The past family of five). There is no doubt that the Tendulkardecade has shown the dynamism that is possible in Committee poverty line represents a very low levelthis sector under the right circumstances. Many of of consumption and the scale of poverty even onthe leading corporates today belonged to the MSME this basis is substantial. An Expert committee undercategory at the turn of the century. In this context, Dr. C. Rangarajan has been set up to review all issuesthe Twelfth Plan’s overarching priority on develop- related to the poverty line keeping in view interna-ing human capital can, with the proper prioritisation tional practices.of infrastructure and with innovative use of technol-ogy and finance, unleash a truly inclusive growth 1.25. Chapter 2 reports on the progress made instory. reducing poverty over time. It is well established that the percentage of the population in poverty has1.22. This inclusive strategy involves a much greater been falling consistently but the rate of decline wasrole of the States, and closer coordination between too slow. The rate of decline in poverty in the periodthe Centre and the States, than would be needed for a 2004–05 to 2009–10 was 1.5 percentage points perpurely corporate-led growth strategy. This is because year, which is twice the rate of decline of 0.74 per-most of the policy measures and institutional sup- centage points per year observed between 1993–94port required for small and medium entrepreneur- and 2004–05. Normally, large sample surveys usedled growth lie in the domain of State Governments for official estimates of poverty are conducted everyand local bodies. The Centre’s contributions would five years, but because 2009–10 was a drought year,lie mainly in creating the appropriate macroeco- the National Sample Survey Office (NSSO) felt thatnomic framework, financial sector policies and it would tend to overstate poverty and it was there-national level infrastructure. fore decided to advance the next large sample survey to 2011–12. The results of this survey will yield anThe Meaning of Inclusiveness official estimate of the extent of poverty in 2011–12,1.23. Inclusiveness means many different things and that is, the position at the end of the Eleventh Planeach aspect of inclusiveness poses its own challenges period, but this will be available only in mid-2013.for policy. However, preliminary results from the survey have been published and they suggest that the percentageInclusiveness as Poverty Reduction of the population in poverty will decline significantly1.24. Distributional concerns have traditionally been compared to 2009–10. According to some non-offi-viewed as ensuring an adequate flow of benefits to the cial estimates, the rate of decline in poverty betweenpoor and the most marginalised. This must remain 2004–05 and 2011–12 will be close to 2 per cent peran important policy focus in the Twelfth Plan. It is year, which was the Eleventh Plan target. If this turns
  • 10. 6 Twelfth Five Year Planout to be the case, it can be claimed that the Eleventh has narrowed. However, both the better performingPlan has indeed delivered on inclusiveness. and other States are increasingly concerned about their backward regions, or districts, which may notInclusiveness as Group Equality share the general improvement in living standards1.26. Inclusiveness is not just about bringing those experienced elsewhere. Many of these districts havebelow an official fixed poverty line to a level above unique characteristics including high concentrationit. It is also about a growth process which is seen of tribal population in forested areas, or Minoritiesto be ‘fair’ by different socio-economic groups that in urban areas. Some districts are also affected by leftconstitute our society. The poor are certainly one wing extremism, making the task of developmenttarget group, but inclusiveness must also embrace much more difficult.the concern of other groups such as the ScheduledCastes (SCs), Scheduled Tribes (STs), Other Back- 1.29. In the Twelfth Plan, we must pay special atten-ward Classes (OBCs), Minorities, the differently tion to the scope for accelerating growth in the Statesabled and other marginalised groups. Women can that are lagging behind. This will require strengthen-also be viewed as a disadvantaged group for this pur- ing of States’ own capacities to plan, to implementpose. These distinct ‘identity groups’ are sometimes and to bring greater synergies within their owncorrelated with income slabs—the SCs and STs, for administration and with the Central Government.example, are in the lower income category—and As a first step, the Planning Commission is workingall poverty alleviation strategies help them directly. with it’s counterpart Planning Boards and PlanningWomen on the other hand span the entire income Departments in all State Governments to improvespectrum, but there are gender-based issues of inclu- their capabilities. An important constraint on the growth of backward regions in the country is thesiveness that are relevant all along the spectrum. poor state of infrastructure, especially road connec- tivity, schools and health facilities and the availabil-1.27. Inclusiveness from a group perspective obvi- ity of electricity, all of which combine to hold backously goes beyond a poverty reduction perspective development. Improvement in infrastructure mustand includes consideration of the status of the group therefore be an important component of any region-as a whole relative to the general population. For ally inclusive development strategy.example, narrowing the gap between the SCs or STsand the general population must be part of any rea- Inclusiveness and Inequalitysonable definition of inclusiveness, and this is quite 1.30. Inclusiveness also means greater attention todistinct from the concern with poverty, or inequality. income inequality. The extent of inequality is mea-For example, it is perfectly possible for anti-poverty sured by indices such as the Gini coefficient, whichstrategies to be reducing income poverty among SCs provide a measure of the inequality in the distribu-and STs without reducing the income gap between tion on a whole, or by measures that focus on par-these groups and the general population. ticular segments such as the ratio of consumption of the top 10 per cent or 20 per cent of the populationInclusiveness as Regional Balance to that of the bottom 10 per cent or 20 per cent of1.28. Another aspect of inclusiveness relates to the population, or in terms of rural–urban, such aswhether all States, and indeed all regions, are seen the ratio of mean consumption in urban versus ruralto benefit from the growth process. The regional areas. An aspect of inequality that has come sharplydimension has grown in importance in recent years. into focus in industrialised countries, in the wake ofOn the positive side, as documented in Chapter 11, the financial crisis, is the problem of extreme con-many of the erstwhile backward States have begun centration of income at the very top, that is, the topto show significant improvement in growth perfor- 1 per cent and this concern is also reflected in themance and the variation in growth rates across States public debate in India.
  • 11. Twelfth Plan: An Overview 71.31. Perfect equality is not found anywhere and Inclusiveness through Employment Programmesthere are many reasons why it may not even be a fea- 1.33. One of the most important interventions forsible objective. However, there can be no two opin- fostering inclusion during Eleventh Plan was theions on the fact that inequality must be kept within MGNREGA. While its achievements in amelioratingtolerable limits. Some increase in inequality in a poverty and preventing acute distress during timesdeveloping country during a period of rapid growth of drought have been recorded and appreciated,and transformation may be unavoidable and it may there are also some complaints against MGNREGA,even be tolerated if it is accompanied by sufficiently primarily on the grounds that it is a dole, involvingrapid improvement in the living standards of the huge expenditures that could have been spent morepoor. However, an increase in inequality with little productively. There are also complaints that it isor no improvement in the living standards of the leading to increase in wages of agricultural labourpoor is a recipe for social tensions. Static measures of and construction workers.inequality do not capture the phenomenon of equal-ity of opportunity which needs special attention. 1.34. The view that rising wages by themselves rep-Any given level of inequality of outcomes is much resent a problem is not credible since this is the onlymore socially acceptable if it results from a system mechanism through which landless agriculturalwhich provides greater equality of opportunity. As labour can benefit from economic growth. If risinga society, we therefore need to move as rapidly as wages squeeze farm profitability, the solution lies inpossible to the ideal of giving every child in India a raising farm productivity to accommodate higherfair opportunity in life, which means assuring every wages. Several initiatives in this regard are discussed in Chapter 8. In any case, rural labour relations inchild access to good health and quality education. large parts of the country continue to be feudal,While this may not be possible to achieve in one Plan and use of migrant labour for both agriculture andperiod, the Twelfth Plan should aim at making sub- construction continues to be exploitative. Thesestantial progress in this dimension. inequities would not get corrected by themselves. We should not be looking to perpetuate a situationInclusiveness as Empowerment where low-cost labour provides the necessary profit1.32. Finally, inclusiveness is not just about ensuring margins for farmers, removing incentives to invest ina broad-based flow of benefits or economic opportu- efficiency improvement.nities, it is also about empowerment and participa-tion. It is a measure of the success we have achieved 1.35. The main point to note is that employmentin building a participatory democracy that people are schemes are not new in India, and they have a well-no longer prepared to be passive recipients of ben- established poverty reducing impact. With Nationalefits doled out by the Government. They are slowly Sample Survey showing an eightfold increase inbeginning to demand these benefits and opportuni- employment in public works after MGNREGA, thereties as rights and they also want a say in how they is no doubt that its impact on rural wage earningsare administered. This brings to the fore issues of and poverty has been much larger than all previousgovernance, accountability and peoples participation rural employment schemes. What is less appreciatedto much greater extent than before. This also covers is that this has been achieved with a rather modestareas like access to information about government increase in the share spent on rural employmentschemes, knowledge of the relevant laws and how to schemes out of total Central Plan expenditures. It hasaccess justice. The growing concern with governance increased from an average of 11.8 per cent in the threehas also focused attention on corruption. How to years before MGNREGA (2002–03 to 2004–05) totackle corruption is now at the centre stage of policy 13.3 per cent in the last three (2009–10 to 2011–12).debates. This means that although MGNREGA is not free of
  • 12. 8 Twelfth Five Year Planleakages, these have declined considerably. Thus, far 1.37. Each of the dimensions of inclusiveness dis-from opening a bottomless pit as some critics still cussed above is relevant, and public attention oftenclaim, the provision of employment as a legal right, focuses on one or the other at different times. Wehas greatly improved the share of intended beneficia- should aim at achieving steady progress in each ofries in what government spends for development of these dimensions. Accelerated growth in recent yearsrural areas. has yielded distinct benefits to many and the pros- perity which this has generated is visible to all, rais-1.36. There is also evidence that wherever land ing the expectations of all sections of the population,productivity has improved and greater water secu- and creating a demand for a fair share of the benefitsrity been delivered, small and marginal farmers of growth. Policymaking has to be watchful of devel-working in MGNREGA sites have reverted back opments in each dimension of fairness and be quickto farming and allied livelihoods. There is also evi- to take corrective steps as soon as the need arises.dence that MGNREGA is enabling crop diversifica- Box 1.1 provides an assessment of trends in some keytion, particularly into horticulture, wherever it has variables which point to the greater inclusiveness ofadequately converged with schemes of Agricultural growth in recent years.Departments. An important lesson from this experi-ence is that it is the quality of assets created, which Environmental Sustainabilitywill determine whether MGNREGA can go beyond 1.38. While striving for faster and more inclusivethe safety net to become a springboard for entrepre- growth, the Twelfth Plan must also pay attentionneurship, even at the lowest income levels. to the problem of sustainability. No development process can afford to neglect the environmental Box 1.1 Eleventh Plan Achievements on Inclusive Growth The following are some important indicators showing the extent to which the Eleventh Plan succeeded in fulfilling the objective of inclusive growth. (In some cases, where the data relate to the NSSO surveys, the time period for comparison is before and after 2004–05.) • GDP growth in the Eleventh Plan 2007–08 to 2011–12 was 7.9 per cent compared with 7.6 per cent in the Tenth Plan (2002–03 to 2006–07) and only 5.7 per cent in the Ninth Plan (1997–98 to 2001–02). The growth rate of 7.9 per cent in the Eleventh Plan period is one of the highest of any country in that period which saw two global crises. • Agricultural GDP growth accelerated in the Eleventh Plan, to an average rate of 3.3 per cent, compared with 2.4 per cent in the Tenth Plan, and 2.5 per cent in the Ninth Plan. • The percentage of the population below the poverty line declined at the rate of 1.5 percentage points (ppt) per year in the period 2004–05 to 2009–10, twice the rate at which it declined in the previous period 1993–94 to 2004–05. (When the data for the latest NSSO survey for 2011–12 become available, it is likely that the rate of decline may be close to 2 ppt per year.) • The rate of growth of real consumption per capita in rural areas in the period 2004–05 to 2011–12 was 3.4 per cent per year which was four times the rate in the previous period 1993–94 to 2004–05. • The rate of unemployment declined from 8.2 per cent in 2004–05 to 6.6 per cent in 2009–10 reversing the trend observed in the earlier period when it had actually increased from 6.1 per cent in 1993–94 to 8.2 per cent in 2004–05. • Rural real wages increased 6.8 per cent per year in the Eleventh Plan (2007–08 to 2011–12) compared to an average 1.1 per cent per year in the previous decade, led largely by the government’s rural policies and initiatives. • Complete immunization rate increased by 2.1 ppt per year between 2002–04 and 2007–08, compared to a 1.7 ppt fall per year between 1998–99 and 2002–04. Similarly, institutional deliveries increased by 1.6 ppt per year between 2002–04 and 2007–08 higher than the 1.3 ppt increase per year between 1998–99 and 2002–04. • Net enrolment rate at the primary level rose to a near universal 98.3 per cent in 2009–10. Dropout rate (classes I–VIII) also showed improvements, falling 1.7 ppt per year between 2003–04 and 2009–10, which was twice the 0.8 ppt fall between 1998–99 and 2003–04.
  • 13. Twelfth Plan: An Overview 9consequences of economic activity, or allow unsus- 1.41. The issue of sustainability also has a globaltainable depletion and deterioration of natural dimension because of the threat of climate changeresources. Unfortunately, the experience of develop- caused by the accumulation of carbon dioxide andment in many countries, and our own past experi- other Greenhouse Gases (GHG) in the atmosphereence in some respects, suggests that this can easily due to human activity. Since GHG emission in anyhappen unless appropriate corrective steps are taken country accelerates the process of global warming,at early stages. The Twelfth Plan must devise a strat- this is obviously an area where a global cooperativeegy of development which effectively reconciles the solution is needed. No country will have sufficientobjective of development with the objective of pro- incentive to contain its own emissions unless it istecting the environment. part of a global compact. Such a compact in turn is possible only if there is a fair distribution of the bur-1.39. Development cannot take place without addi- den. Developing countries have consistently arguedtional energy and the energy requirement of devel- that since it is the industrialised countries that haveopment will have to be reconciled with the objective historically contributed the bulk of the accumulatedof protection of environment. The economy depends stock of GHG, and are also the most able to pay, theyheavily on coal and hydro power to meet its energy must bear burden of global mitigation and adjust-needs and the development of each of these energy ment. India is participating in the ongoing inter-sources involves potential trade-offs with conserva- national negotiations under the UN Frameworktion of forests and the objective of avoiding displace- Convention on Climate Change, but progress thusment of people. We need to manage these conflicting far has been minimal.objectives more efficiently, with adequate compensa-tion for those dispossessed and appropriate remedial 1.42. We cannot, however, abstain from takingsteps to correct for loss of forest cover where this is action to deal with climate change until an interna-unavoidable. Nuclear energy is another important tional solution is found. It is known that India will beenergy source for the country, and has the greatest one of the countries most severely affected if globalpotential over the next 20 years, of providing a sub- warming proceeds unchecked and as such appropri-stitute for coal-based electricity. However, here too ate domestic action is necessary. A National Actionenvironmental and safety issues have arisen, espe- Plan for climate change has been evolved with eightcially after the Fukushima accident. These concerns component Missions. Implementation of these mis-are being addressed. sions must be an integral part of the Twelfth Plan. Policies should be closely monitored to ensure that1.40. The achievement of environmental sustain- we achieve the stated objective of reducing the emis-ability will impact the life of communities in several sions intensity of our GDP by 20 per cent to 25 perdimensions. It will require the need development of cent between 2005 and 2020.new energy efficient practices in urban housing andtransport to contain the growth in the demand for 1.43. Resolving the conflict between energy and theenergy. It would mean use of far more energy effi- environment is not without cost. It involves addi-cient technologies in coal-based electricity genera- tional upfront costs both of mitigating the adversetion such as the introduction of super critical and impact on the environment and of switching toultra super critical boilers. It would require active more expensive renewable energy sources. Thesepromotion of energy efficiency in industries, farms costs must be built into the cost and the pricing ofand offices, and the promotion of more energy effi- the energy produced. The reluctance to bear thesecient appliances through policies of branding and costs arises largely because the cost of environmen-mandatory standards. Transport policies and related tal damage is not properly measured. It is only whentechnologies for more energy efficient vehicles will this is done that the cost of avoiding such damageneed to be developed and adopted. can be compared with the environmental benefits
  • 14. 10 Twelfth Five Year Planto reach a rational decision on whether the costs are satisfy the material needs of our population. Third,worth it. Part of the problem is that the conventional proper development of human capabilities will alsoways of measuring GDP in terms of production do ensure that our growth is more inclusive in the sensenot take account of environmental damage caused that the marginalised and disadvantaged sections ofby production of certain goods which should prop- our society will be more able to access the opportuni-erly be reflected as a subtraction from GDP. Only if ties thrown up by the growth process.GDP is adjusted in this way for environmental coststhat growth of adjusted GDP can be called a measure Life and Longevityof the increase in total production in the economy. 1.47. The most fundamental of all human capabili-Recognising this problem, the Planning Commission ties is life itself and the steady rise in life expectationhas commissioned an Expert Group under Professor in the country suggests that significant progress hasPartha Dasgupta to prepare a template for estimat- been made in this dimension. Life expectancy whiching green national accounts which would measure was only 32 years at the time of Independence is nownational production while allowing for negative 67 years. In other words, every Indian can expect toeffects on national resources. live twice as long as was the case at Independence! Nevertheless, the level of life expectancy in India1.44. To summarise, the Twelfth Plan must be remains lower than in many emerging market econ-guided by a vision of India moving forward in a way omies and it is appropriate to plan for significantthat would ensure a broad-based improvement in further improvements in this important dimension.living standards of all sections of the people througha growth process which is faster than in the past, 1.48. The infant mortality rate (IMR) is anothermore inclusive and also more environmentally sus- dimension of human capability where we are mak-tainable. What is needed to achieve this objective is ing progress. IMR fell from 80 in 1991 to 66 in 2001outlined in subsequent sections of this chapter. and at a faster rate thereafter to 47 in 2010. The rate of decline was 14 in the first period and 19 in the sec-DEVELOPING CAPABILITIES ond period. Nevertheless, the level of IMR remains1.45. In this section, we focus on the capabilities we high and we need to do much better for our chil-need to develop to achieve the objective of faster, dren. We must strive to bring the IMR down to 28more inclusive and sustainable growth. We first con- by the end of the Twelfth Plan. Maternal mortalitysider the development of human capabilities, which rates (MMRs) are another indication of weakness inare in many ways the most important. Then we our performance. MMR has been falling over time,focus on institutional capabilities and the develop- thanks to the initiatives for promoting institutionalment of infrastructure which is a general capability deliveries under the NRHM. The percentage ofenhancer for all agents. Both the Central and State women giving birth in institutions with the benefitGovernments have a large role to play in developing of skilled birth attendants has increased from 53 perthese capabilities and the Twelfth Plan at the Central cent in 2005 to 73 per cent in 2009. We need to doand State level should accord high importance to this even better, and the Twelfth Plan must bring MMReffort. down to 1 per 1000 by the end of the Plan period.Development of Human Capabilities 1.49. While there has been progress in the dimen-1.46. The development of human capabilities must sions discussed above, the decline in the child sexbe the first priority, for three reasons. First, these ratio rings an urgent alarm. This is an area of gravecapabilities are actually ends in themselves. Second, concern since it implies that society is denying lifethey are also important instrumentalities which to female children, and increasingly resorting tointeract positively with others to raise the productive female foeticide. The spread of diagnostic and medi-capacity of our economy and therefore its ability to cal facilities has paradoxically actually worsened the
  • 15. Twelfth Plan: An Overview 11situation, as the falling child sex rate is being seen in schools continue to be high, and between the second-the more developed areas and cities. ary and post-secondary stage they are even higher. This is a particularly serious problem for girls, whoEducation have to travel longer distances to attend second-1.50. India has a young population, and conse- ary schools. Curricular and examination reforms inquently, the labour force, which is expected to secondary schooling would receive special attentiondecline in most developed countries and even in aimed at fostering critical thinking and analyticalChina, is expected to increase over the next 20 years. skills, and preparing students for further education.This ‘demographic dividend’ can add to our growth All this requires innovative approaches, some ofpotential through its impact on the supply of labour which are already in evidence in certain States.and also, via the falling dependency ratio, on therate of domestic savings. Besides, a young popula- 1.52. The last decade has also seen a huge increase intion brings with it the aspirations and the impatience the demand for higher education and this is expectedof youth, which in turn can become strong drivers to increase further as more children complete schoolfor bringing about change and innovation. To reap and more and more jobs are seen to require higher-this demographic dividend we must ensure that our level qualifications. However, our higher educationyounger citizens come into the labour force with institutions also suffer from problems of quality.higher levels of education and the skills needed to Too many of our universities are producing gradu-support rapid growth. The SSA has brought us close ates in subjects that are not required by the chang-to the target of universalisation of primary educa- ing job market, and the quality is also not what ittion and the Right to Education Act (RTE) 2009 should be. Higher education policy has to be drivenmakes eight years of elementary education a funda- by three ‘E’s: expansion, equity and excellence.mental right for all the children. The MDM Scheme Of these, the third E, ‘excellence’, is the most difficulthas ensured that retention in schools has improved to achieve. India cannot hope to be competitive in angreatly. However, the learning outcomes for a increasingly knowledge driven world if our highermajority of children continue to be disappointing. education institutions do not come up to the highAddressing the quality issue in our schools is critical standards of excellence needed to be able to be glob-for the effective development of human capabilities ally competitive. Not even one Indian university fig-and for achieving the objective of equality of oppor- ures in the latest list of the top 200 universities in thetunities. The quality of teachers and, even more world. We should work towards ensuring that thereimportant, their motivation and accountability will are at least five by the end of the Twelfth Plan. Forneed to be improved. Many of the children who are this, universities at the top of the quality hierarchypresently in school are first-generation learners, and should be identified and generously supported sothese children need supplementary instruction. This that they can reach the top league. Centres of excel-is not easy due to shortage of qualified teachers in lence within existing universities should be created.many schools across the country. New and innova- A special initiative should be launched to attract hightive approaches such as multigrade learning, which calibre faculty from around the world on non-per-has been successfully tried in Tamil Nadu, could be manent teaching assignments. All these initiativesadopted in such cases. should be pooled into an India Excellence Initiative in the Twelfth Plan.1.51. The success of the SSA has put pressure onexpanding the capacity of secondary schools and Skill Developmentthe Rashtriya Madhyamik Shiksha Abhiyan (RMSA) 1.53. The Skill Development Mission has beenaddresses this issue. Although there is considerable launched to skill at least 50 million individuals byfocus on providing secondary school access, the the end of the Twelfth Plan. Skill development pro-dropout rates between elementary and secondary grammes in the past have been run mainly by the
  • 16. 12 Twelfth Five Year Plangovernment, with insufficient connection with mar- body mass among women is very high in the coun-ket demand. To ensure that skills match demand, try. The causes of this persistent malnutrition are notspecial efforts are needed to ensure that employers well understood. The availability of food, especiallyand enterprises play an integral role in the concep- better quality food products such as fruits, vegetablestion and implementation of vocational training pro- and dairy products, is significantly better today thangrammes, including managing Industrial Training it was in the past. Nevertheless, the incidence of mal-Institutes (ITIs) and in the development of faculty. nutrition remains high. There is a need to bring thisAn enabling framework is needed that would attract dimension of human capability to the fore front ofprivate investment in Vocational Training through policy attention. The Food Security Bill under con-Public–Private Partnership (PPP). We should try to sideration will address some of these issues, but theoptimise on the respective strengths of the public and problem of nutrition is actually much more complexprivate sector entities engaged in skill development. and a multidimensional approach is necessary.Mobilising the required investments, setting upfirst rate ITIs, ensuring efficiency in operations and Healthmanagement and enabling post-training employ- 1.56. Health is another critical dimension of humanment will be the primary responsibilities of private capability, which needs much greater attentionsector entities while the government will provide the in the Twelfth Plan. At present, less than 30 perenabling framework and the requisite financial sup- cent of outpatient and less than half of inpatientport especially in respect of SC, ST, Minorities and health care capacity of the country is in the publicdifferently abled persons and other deprived sections sector, and the majority of the population relies onof society. private health care provision which often imposes a heavy financial burden. It is, therefore, essen-Nutrition tial to expand public sector capacity in health care1.54. Poor learning outcomes in our schools are especially in the rural areas. The NRHM, launchedpartly because of poor quality of teaching but they during the Tenth Plan, made an important start inare also partly due to high incidence of child malnu- expanding health care facilities in rural areas. Whiletrition, which reduces learning ability. India has had additional infrastructure has been created, there arethe largest and the longest running child develop- large shortages of personnel, especially specialists inment programme in the world in the form of ICDS, rural health facilities, reflecting the fact that trainedbut the problem of malnutrition remains large. human resources in health are in short supply andUnfortunately, the latest data on child malnutrition it takes many years to set up new medical colleges toare from the National Family Health Survey (NFHS- train the required number of doctors.3) conducted in the period 2005–07 which pre-datesthe Eleventh Plan. The full impact of the Eleventh 1.57. Ideally, the public health care system must bePlan programmes on this aspect of human capabil- expanded to address the health needs of the vastity is therefore not yet known. Surveys undertaken majority of citizens, recognising that upper-incomeby the State Governments seem to suggest that mal- groups may opt for private health care. The Twelfthnutrition has fallen in many States. The next Annual Plan will therefore see the transformation of theHealth Survey for 2012–13 will include data on mal- NRHM into a National Health Mission, coveringnutrition and these data will provide a reliable basis both rural and urban areas. Unlike rural residents,for assessing what has happened since NFHS-3. those in urban areas have access to private healthMeanwhile, the ICDS programme will be expanded care providers, but private health care is costly andand comprehensively restructured in the Twelfth large numbers of urban residents especially slumPlan to make it more effective. dwellers cannot afford it. An important component of the National Health Mission will be the Urban1.55. Malnutrition is also a problem among adults, Health Initiative for the Poor, providing public sec-especially women. The incidence of anaemia and low tor primary care facilities in selected low-income
  • 17. Twelfth Plan: An Overview 13urban areas. This will require additional resources in rural drinking water problem has to be found as partthe public sector from the budgets of both the Centre of a holistic approach for aquifer management.and the States, and cities. 1.62. Sanitation and clean drinking water are criti-1.58. There is a massive shortage of healthcare pro- cal determinants of health and are complementary tofessionals in the country and their supply must each other. Without proper sanitation, the incidencetherefore be expanded rapidly if we want to fulfil of diarrhoeal diseases due to contaminated drink-our commitments in this sector. We must therefore ing water will not come down, and without adequateplan for an expansion of teaching and training pro- water supply, improved sanitation is generally notgrammes for healthcare professionals, particularly in possible. It is, therefore, necessary to adopt a habi-the public sector institutions. tation approach to sanitation and to institutionalise the integration of water supply with sanitation in1.59. Finally, attainment of good health outcomes is each habitation. The problem of sanitation in urbannot just a matter of providing curative care. We need areas is also very serious since almost all our cities,to give much greater attention to public health which including even the State capitals and major metros,has traditionally suffered from neglect. We also need have a large percentage of the population (45 perto focus much more on a provision of clean drinking cent in Delhi) not connected to the sewer system.water and sanitation, which can make a major con- Urban development must give top priority to plan-tribution to improved health. This was the experi- ning for water, toilets and sewerage as an integratedence in industrialised countries over a hundred years whole taking into account the likely expansion of theago, and this is also true for us today. urban population.1.60. The longer-term objective of Health Policy Enhancing Human Capabilities through Informationmust be the provision of Universal Health Care Technology(UHC), whereby any one who wants it is assured 1.63. The ability to access information is an impor-of access to a well defined set of health care entitle- tant institutional capability we need to develop. Lackments. Putting a UHC system in place will take of ready access information is often a major impedi-time, but we need to start building an appropriate ment in efforts to improve the well-being of the peo-architecture. ple. With improvement in literacy and education, and developments in information technology, weDrinking Water and Sanitation are in a position to provide our people with access to1.61. The problem of providing safe drinking water information, including obtaining birth records, landis particularly acute in the rural areas. Successive records, payment records for utilities and so on.plans have emphasised programmes for expandingthe coverage of rural drinking water but they have 1.64. The rapid spread of mobile telephony, includ-not had as much success, as desired. The incidence of ing in rural areas has facilitated innumerable inno-‘slipped back’ habitations appears to be accelerating vations which directly benefit the ordinary citizen.and serious problems of water quality have emerged Farmers in some parts of the country are able toin many areas. Part of the problem is that rural subscribe to commercial services which deliver rel-drinking water schemes are not fully integrated with evant information for a particular crop to the farmernational system of aquifer management. Excessive through Short Message Service (SMS). The parentsdrawal of groundwater for irrigation is leading to of babies born in municipal hospitals in Bengalurulowering of water tables causing drinking water hand get an SMS alert, when the next vaccination ispumps to run dry and lowering of the water table is due. Such innovations need to be encouraged. Yetalso causing salinity and chemical pollution, making another human capability that is important is thethe water non-potable. A sustainable solution to the ease and effectiveness of establishing identity. The
  • 18. 14 Twelfth Five Year PlanAadhar project, which provides a unique identifica- Twelfth Plan have revealed a near universal per-tion (UID) number, backed by biometric data cap- ception that the capacity to implement is low at allture, to establish identity unambiguously, is a major levels of government. The government simply doesstep forward. Identity can be difficult to establish, not function with the efficiency that is required inespecially for the poor, when they move from their the twenty-first century. This is partly because of theplace of origin, whether by choice or by compulsion. lack of motivation at various levels, but it is primar-The UID project has already enrolled 200 million ily because governmental systems and procedurespersons. Experiments with using Aadhar to make are largely process-driven. They are not outcome-payments under MGNREGS electronically into no oriented. Accountability is often viewed as adher-frill bank accounts which can be accessed through ing to procedures with no incentive to depart frommobile phones have begun in 51 districts. It will soon procedures to secure better results. Unless this weak-be possible for large-scale use of the Aadhar platform ness is overcome, mere provision of more funds forto make various types of government payments due programmes implemented in the same old way willto individuals in a seamless manner electronically, not help.avoiding problems of misuse and leakage. 1.68. Where implementation rests within one1.65. The Aadhar platform will also facilitate a shift Ministry, there are problems of (i) insufficient atten-from the physical delivery of subsidised commodi- tion to evidence-based analysis in the design of poli-ties through the Public Distribution System (PDS) cies and programmes, (ii) insufficient concurrentto a system of cash payment, if desired. Some States evaluation that would give feedback on outcomeshave indicated that they would be interested in such achieved and (iii) lack of willingness or ability toa shift. Adoption of a target to move the major subsi- bring about systemic changes needed to improvedies and beneficiary payments to a cash basis linked outcomes. Even when it is known that a change into Aadhar by the end of the Twelfth Plan period procedures will help, it takes very long to bring aboutwould be a major step towards improving efficiency. that change. The problem is greatly multiplied when the effectiveness of a programme depends, as it oftenDevelopment of Institutional Capabilities does, on actions that have to be taken by several dif-1.66. The Twelfth Plan also needs to focus on ferent Ministries. Inter-ministerial consultationsdeveloping the capabilities of our institutions to take far too long, and more importantly, are typicallyperform the increasingly complex and demand- not oriented to resolving problems. This is becauseing tasks expected of them. We have three pillars of each Ministry works in a silo, applying its own rulesgovernance (Legislature, Executive and Judiciary) and procedures. The effort is to seek a consensusand three tiers of government (Centre, State and if possible, with little ability to over rule positionsPanchayats/ULBs). The capabilities of these institu- taken by individual Ministries in the interest of ations to deliver on their mandate need to be greatly holistic problem solving approach. Resolving con-improved. The gaps are most evident at the lowest flicting stands by consensus is of course desirable iflevel of PRIs and ULBs, where trained personnel are possible, but beyond a point, it may not be possible,lacking and the training systems are also inadequate. and some systems for conflict resolution are needed.It is also true at higher levels, where trained person-nel may be available, but the capability of the systems 1.69. To deal effectively with these problems it mayis poor because they are not performance oriented be necessary to redesign governmental decision-and motivation is low. making systems. There has been a great deal of sys- tem redesign in the private sector in response to theImplementation Capability new environment created by economic reforms.1.67. The consultations undertaken by the Plan- A similar redesign of government is needed. Forning Commission in the course of preparing the example, one way of accelerating the processing of
  • 19. Twelfth Plan: An Overview 15large infrastructure projects is to set up a National consultation operating through Resident WelfareInvestment Approval Board chaired by the Prime Associations.Minister and including all key Ministers and toamend the Transaction of Business Rules so that Regulatory Institutionsstatutory clearances under various Acts for all infra- 1.73. An area where the lack of institutional capabil-structure projects above a given size are given by the ity is beginning to manifest itself is in our expand-Board, taking into account the views of all Ministries. ing system of regulatory bodies. As areas that wereThe allocation of business rules could provide that earlier dominated by the public sector have beensuch clearances would be issued by the Cabinet opened up for private operators, often competingSecretariat based on the decision of the Board. This among themselves or with existing public sectorwould be a systemic change which would ensure a operators, independent regulatory institutions haveholistic consideration of complex issues and greatly been established to oversee the functioning of theaccelerate decision-making. Several other changes players in the system. The effectiveness of regula-are discussed in Chapter 6 including in particular the tory organisations depends critically upon the qual-need for greater reliance on industry specialists with ity of the personnel running the institutions and thedomain knowledge. degree of independence established. Too many of the regulatory agencies are staffed by former bureaucratsDelivery of Public Services and there is not enough induction of specialists with1.70. Delivery of public services in many States is domain knowledge. A thorough review of the regula-hampered by weak institutional capacity. Thus, tory system established in different sectors is neededalthough public hospitals may have trained doctors to determine the weaknesses of the system currentlyand nurses, and public schools may have trained in place and recommend ways of correcting them.teachers, neither of these institutions will have This is especially true as the next two five year Plansadministrators who are trained in the operation of are likely to see faster change in the global economyhealth care or educational institutions. Too much and in the structure of the Indian economy too.of the knowledge needed to manage public servicedelivery is learnt on the job, which detracts from the Development of Infrastructureinstitution’s effective functioning. 1.74. Infrastructure provides the basic support sys- tem for other sectors of the economy expanding1.71. The first step in reforming public service capabilities everywhere. A distinguishing charac-delivery is to devise mechanisms for measuring the teristic of infrastructure is that where imports canextent of public satisfaction with public services and meet the gap between demand and supply, deficien-publicising the results. The Public Affairs Centre at cies in infrastructure cannot be made good throughBengaluru has done excellent work in conducting imports. Infrastructure requirements can only besystematic surveys of public perception or satisfac- met through development of the relevant infrastruc-tion with various types of public services ranging ture capacity in the domestic economy. Furthermore,from water and sanitation, health and education, Good quality infrastructure is important not only forpublic transport, police and so on. Such surveys peri- faster growth but also to ensure that growth is inclu-odically conducted produce valuable information for sive. Small businesses spread throughout the countrythe political leadership on where performance is felt need access to good quality and reliable infrastruc-to be poor and where it is improving. ture services to compete effectively. Large enter- prises can often develop their own infrastructure as1.72. Greater involvement of citizens’ organisations they often do with captive power, and being largecan help focus government attention on these prob- can even locate themselves ab initio where otherlem areas. The Delhi Government’s experiment with infrastructure is better, that is, nearer ports and nearBhagidhari is example of citizen involvement and transport hubs. Small enterprises on the other hand
  • 20. 16 Twelfth Five Year Planare dispersed across the country, and have to rely on to do so. Some of the critical policy correctives tothe general infrastructure available. Their ability to deal with these problems are outlined in Section 1.6.compete successfully, which is critical for growth tobe employment generating and inclusive, depends 1.77. Renewable energy, especially wind energy andupon the quality of this infrastructure. solar energy are potentially promising alternatives to conventional fossil fuel-based electric power.Power They are more expensive at present, but given likely1.75. Electric power is a critical input into all eco- trends in fossil fuel prices globally, and technologi-nomic activity and rapid and inclusive growth is cal developments in these sectors there is a needonly possible if reliable electricity is made available to expand the contribution from these sectors.everywhere. It is essential not only for agriculture, The scope for doing so is discussed in detail inindustry and commercial business but also for basic Chapter 10.household lighting. The percentage of householdswith electricity has increased from 56 in 2001 to 67 in Telecommunications2011, but even so almost 45 per cent of rural house- 1.78. Telecommunications has seen impressiveholds have no electricity connection. Furthermore, expansion and large investments in the past severalthose that do typically do not have assured power, years with a tele-density increasing from 26.2 pereven in urban areas. cent in 2008 to 78.7 per cent in 2012. The expan- sion has been led by private sector service provid-1.76. The Eleventh Plan added 55000 MW of gen- ers whose market share (in terms of number oferation capacity which, though short of the target, connections) increased in this period from 73.5 perwas more than twice the capacity added in the Tenth cent to 86.3 per cent. Unfortunately, issues relatedPlan. The Twelfth Plan aims to add another 88000 to alleged improprieties in the allocation of spec-MW. This level of additional capacity is not infea- trum in 2008 have dominated public discussions.sible but delivery of power depends critically on solv- Several 2G licenses and associated spectrum allot-ing serious fuel availability problems that have arisen ted in 2008 were cancelled by the Supreme Court inrelating to coal and natural gas. Uncertainties about 2011 and the court ordered the government to auc-fuel availability would seriously dampen investment tion the spectrum. This process of auctioning is cur-activity, especially since about half the generation rently underway and is expected to be completed bycapacity is expected to come from the private sector, January 2013.and they will not be able to achieve financing if fuelsupply issues are not resolved. The problem is not 1.79. There is tremendous scope for further expan-that fuel cannot be made available since domestic sion in telecommunications, especially with the intro-shortfalls can be met by imports but since imports are duction of 3G services. Telecommunications, and theat much higher prices, power producers are reluctant associated increase in Internet connectivity is clearlyto accept. The problem can be resolved by resorting a productivity enhancing development, and India isto price pooling and thus must be explored. Equally well placed to benefit from this. Already, a large num-important is the need to address the financial weak- ber of services benefiting ordinary people have comeness of the distribution segment of the power sector. into being. For a small fee, farmers can sign up for aAlmost all the distribution companies (discoms) are service which provides customer specific informationrunning large financial losses, reflecting high trans- through SMS on market prices in nearby markets,mission and distribution losses and also an unwill- conditions and possible disease outbreaks in specificingness to raise tariffs in line with rising cost. Some crops in which the farmer is currently interested.discoms have recently raised tariffs after many years, Mobile banking, through business correspondentswhich is a welcome development but most have yet acting as agents, is giving ordinary people in villages,
  • 21. Twelfth Plan: An Overview 17far from a brick and mortar bank branch, virtually Corridor, the Mumbai Elevated Rail Corridor anddirect access to simple banking service. the High Speed Corridor. Given the scarcity of resources, there is need and also considerable scope,1.80. There is scope for using the Universal Ser- for pursing PPP initiatives in this sector along thevices Obligation Fund (USOF) creatively to enhance lines outlined in Chapter 9.access to mobile telephone including especially asa platform for delivery of a range of services to the Airportsunderserved in rural areas. 1.84. Airport development is a basic infrastructure requirement for connectivity, especially since theRoad Transport demand for air travel is projected to grow rapidly.1.81. In the area of transport, there has been some This area has seen a sea change in the Eleventh Planprogress in the roads sector, both in the develop- with the development of four new airports throughment of national highways and in rural roads, but private participation in the PPP mode (Bengaluru,much more needs to be done. The National Highway Hyderabad, Delhi and Mumbai), the upgradationDevelopment Programme needs to be stepped up of two metro airports by Airport Authority of Indiawith an aggressive pursuit of PPP to construct toll (AAI) (Chennai and Kolkata) and the developmentroads on a Build-Operate-Transfer (BOT) basis. The of 35 non-metro airports by AAI. There is need forStates too need to expand their road programmes to further expansion in the Twelfth Plan with the cre-provide good quality connectivity in all areas. Many ative use of PPP wherever possible. Several projectsStates have resorted successfully to PPP as a mode of are likely to be taken up in the Twelfth Plan. Theseroad development. include the Navi Mumbai Airport, the Goa Airport and the Kannur Airport. A policy to make some of1.82. A special effort is needed to speed up road con- our airports into international hubs is also beingnectivity in Jammu & Kashmir, the North East and considered.other Special Category States. A good start has beenmade in the SARDP-NE in the Eleventh Plan and Portsthis needs to be pursued with greater vigour in the 1.85. Ports are another critical capability for inter-Twelfth Plan. Enhanced connectivity of the North national trade connectivity. Progress in this areaEast should be a high priority. This is also true for in the Eleventh Plan was disappointing as for asdistricts affected by Left-Wing Extremism. major ports were concerned because several insti- tutional issues had to be resolved for the proposedRailways PPP expansion plans to materialise. These have now1.83. Development of capability in the Railways been resolved and it is expected that the Twelfth Planis another urgent priority for the Twelfth Plan. will see a much greater expansion. In contrast minorCapacity in the Railways has lagged far behind what ports (which come under State Governments) haveis needed and feasible, especially given the need to done very well in the Eleventh Plan. An aggressiveshift from road transport to rail in the interest of expansion of port capacity in the major ports basedimproving energy efficiency, and reducing the car- on PPP is essential in the Twelfth Plan. In addition,bon footprint of our development. Expansion of two entirely new PPP ports are proposed by thethe system must be accompanied by technological Central Government; one in West Bengal and themodernisation, greater attention to safety and steps other in Andhra Pradesh.to ensure financial viability. Several important newinitiatives are underway which will materialise in the Financing Infrastructurecourse of the Twelfth Plan. These include flagship 1.86. Traditionally, infrastructure developmentprojects such as the Western and Eastern Freight used to occur through the public sector. However,
  • 22. 18 Twelfth Five Year Plangiven the scarcity of public resources, and the need 1.89. Resort to PPPs in the social sector often raisesto shift scarce public resources into health and edu- concerns about the commercialisation of servicescation, efforts have been made to induct private that are normally expected to be provided free orparticipation in the development of infrastructure. highly subsidised. These are important concerns butThese efforts have met with a fair degree of success. they can be addressed by well-drafted concessionAs of 31 March 2012, 390 PPP projects have been agreements and strict monitoring to ensure that PPPapproved involving an investment of `305010 crore. concessionaires abide by their commitments. ThisAccording to a report published by the World Bank, must be reinforced with penalties for non compli-India has been the top recipient of PPP investment ance. While extending the concept of PPP to socialsince 2006 and has accounted for almost half of the and urban sector projects, the need for ‘people’s’investment in new PPP projects implemented in the participation in the design and monitoring of PPPfirst half of 2011 in developing countries. An Asian schemes becomes crucial. Local citizens are directDevelopment Bank report states that India stands in stakeholders in such projects and therefore theirthe same league as developed economies like South support becomes crucial. Therefore, some cities andKorea and Japan on implementation of PPP projects States have begun to shape PPPs in the social andand the Model Concession Agreements prepared in urban sectors as People–Public–Private PartnershipsIndia and used in our PPP projects have also been (PPPPs). This is a valuable innovation which shouldcommended. be applauded.1.87. The total investment in infrastructure sectors The Reach of Banking and Insurancein the Twelfth Plan is estimated to be `56.3 lakh 1.90. Like infrastructure, development of an efficientcrore, which is roughly one trillion dollars at pre- financial services system is a key enabler of capa-vailing exchange rates. The share of private invest- bilities which affects how well individuals can man-ment in the total investment in infrastructure rose age life cycle needs and also affect the functioningfrom 22 per cent in the Tenth Plan to 38 per cent in of enterprises and their prospects of growth. Morethe Eleventh Plan. It will have to increase to about broadly, it affects the extent of entrepreneurship and48 per cent during the Twelfth Plan if the infrastruc- of competition. India is underserved by financialture investment target is to be met. These projections services on every parameter. More than 40 per centhave also been validated by the high level commit- of households avail no banking service at all. Thetee on infrastructure set up under the chairmanship ratio of total bank credit outstanding to GDP is onlyof Shri Deepak Parekh. The committee has however about 57 per cent as against over 140 per cent in Eastqualified its projections as dependent on several Asia and Pacific. Insurance premia account for lesspolicy initiatives that the government would need to than 1 per cent of GDP, which is only about a thirdtake for ensuring this level of investment. of the international average. The organised financial sector does not reach out to large segments of the1.88. The Twelfth Plan lays special emphasis on population which are serviced if at all by all mannerthe development of social sectors in view of their of informal financial entities at terms and costs thatimpact on human development and quality of life. retard their growth prospects.Unlike the case with other infrastructure, experi-ments with PPP in the social sector have been more 1.91. Lack of insurance products is an example oflimited. Many States have experimented with PPPs under-supply of financial services. It can be nobody’sin health and education. The Central Government case that the Indian economy has lower inherenthas approved setting up of 2500 Model Schools in risks than others, or that life cover is any less impor-PPP mode and a proposal for setting up 3000 ITIs tant. It is rather that costs of providing cover andthrough PPP is under consideration. These initia- assessing claims are currently so high relative totives will be strengthened during the Twelfth Plan. the cover itself that either premium-to-cover ratios
  • 23. Twelfth Plan: An Overview 19become exorbitant or appropriate insurance prod- operate in an environment in which they can gradu-ucts are simply not created. High transactions costs ate to the middle category. One of the constraintsrelative to size of accounts are also the main reason is finance. Banks and other financial institutionsfor low banking coverage and this is compounded by have to be more creative to respond to the needs ofhigh risk perception of banks, in part because of lack potentially dynamic entrepreneurs capable of rapidof insurance. Agriculture and other forms of MSMEs growth. Indian banks typically do not exercise judge-are particularly ill-served and the situation has in fact ment in expanding credit limits in a manner whichdeteriorated in some ways over the last two decades favours companies that are more likely to grow.because of problems afflicting the cooperative bank-ing sector. 1.94. The capital market has been an important source of funding for larger companies and the1.92. In recent years, financial inclusion has come opening of the economy to portfolio flows fromback into focus, partly because technology (such Foreign Institutional Investors (FIIs) in recent yearsas the IT-infrastructure, set-up of a core bank- has produced a buoyant capital market where com-ing network, mobile phones, satellite imagery and panies have raised significant funds through newautomatic weather stations) now permits solutions issues. However, this mechanism has been usedsuch as banking correspondents and weather insur- mainly by the larger companies to raise funds. Weance which cut down on overhead costs; and partly do not have effective institutions that can channelbecause the power of cooperation, whether through equity funding to smaller companies and start-ups.SHG–bank linkage, Joint Liability Groups or simply In a knowledge economy, we need to do much morethe old fashioned Primary Agricultural Co-operative to encourage the growth of venture capital fundsSociety is again being revitalised. Cooperatives still and angel investors. The Planning Commission hadhave the widest credit reach and their local knowl- appointed a Committee on Angel Investment andedge and risk sharing potential is an asset for the Early Stage Venture Capital which has since submit-financial sector as a whole which has not been fully ted its report. The Committee has made a numberexploited. They should be given increased promi- of recommendations which are discussed in Chapternence during Twelfth Plan because potential benefits 2 and which need to be given serious consideration.and cost of inaction are both very high. An area thatgovernment should take a lead is in creation of suit- Science and Technologyable databases of registry information both for easier 1.95. S&T is a vital aspect of national capability.collateral and finer actuarial calculations. The UID Science Departments/Agencies have played a signifi-project can help with this, but there are also more cant role in solving the socio-economic issues. Thebasic requirements such as proper land records and Department of Space through satellite-based systemproperty titling which should not meet the same has provided nationwide land use/land cover map-fate as the so far disappointing record on registering ping for natural resources management, thematicbirths and deaths. mapping for national urban information system, the process of measuring forest and wasteland, locating1.93. In the industrial sector smaller firms are credit potential drinking water zones and potential fishingconstrained. The size distribution of firms in India zone and crop production forecasting. The Twelfthshows that there are a number of large firms, as in Five Year Plan must build on the scientific base cre-other countries, but there are not enough firms in ated by earlier Plans and give a renewed thrust tothe middle range with employees ranging from 100 emphasise creative and relevant research and inno-to 500. Instead an overwhelming number of firms vation. The central focus must be to ensure that S&Tare concentrated at the small end with less than 50 becomes a major driver in the process of the nationalemployees. This suggests that our small firms do not development.
  • 24. 20 Twelfth Five Year Plan1.96. The Twelfth Plan programmes of the Indian 1.98. S&T endeavours over the last decade haveScience should aim at three outcomes: placed increasing emphasis on contributing to the societal development and improving the quality1. Realisation of the Indian vision to emerge as of life of citizens. Such new initiatives in turn have global leader in advanced science; also created in some cases societal reactions stem-2. Encourage and facilitate Indian Science to ming from issues like health and environmental address the major developmental needs of the safety. In the recent past, introduction of genetically country like food security, energy and environ- modified (GM) foods and Nuclear Energy are two mental needs, addressing the water challenges such examples. The Twelfth Plan envisages a more and providing technological solutions to afford- effective institutional framework in linking S&T able health care requirements and with society through a variety of outreach strategies.3. Gain global competitiveness through a well- This is proposed to be carried out both through the designed innovation ecosystem, encouraging scientific establishments as well as through educa- global research centres of multinational corpora- tional programmes including initiatives from non- tions (MNCs) to be set up in India. governmental organisations (NGOs).1.97. To realise these objectives, it will be necessary MANAGING NATURAL RESOURCES AND THEto build technology partnerships with States and ENVIRONMENTsocio-economic ministries through new models of 1.99. Achievement of rapid and sustainable growthtechnological solutions, design, development and is critically dependent on our ability to managedelivery. India’s aspiration to emerge as a stronger our natural resources effectively. India is not liber-scientific power at the end of the Twelfth Plan period ally endowed with natural resources. In fact, we arewill require additional funding and also an effort to among the lowest in the world on almost all mea-interconnect available resources and competitiveness. sures of resource availability on a per capita basis.Indian researchers must also be able to gain access to In recent years, the deficiencies in the way in whichthe large global Research and Development (R&D) we manage natural resources have come underinfrastructure and work in collaboration with others increasingly critical scrutiny. Agitations around landto develop necessary indigenous capabilities. There acquisition, deforestation, water use, air and wateris need for much greater flexibility in the way scien- pollution, and also our response to natural disas-tific establishments work. We need to encourage col- ters, have become more common. These are no lon-laboration with universities, with private and public ger peripheral issues: They are issues which demandsector corporations and also with global researchcentres. The Twelfth Plan must also experiment with mainstream attention and pose challenges which thisnew models of funding scientific research. Instead Plan must address squarely.of all government research funds being allocated tothe budget of different scientific departments, there Soil Health and Productivityis a case for creating a new National Research Fund 1.100. Soil is one of the basic natural resources thatwhich can receive competing research proposals from support life on earth and this resource is underdifferent research institutions, or combinations of threat in India from soil erosion due to natural fac-institutions, and select from these proposals to fund tors compounded by deforestation which increasesthe most promising on a project basis. Research fund- run off and also from excessive use of chemical fer-ing for particular projects should be continued only tilisers. The soil ecosystem is a living self-balancingon the basis of periodic peer reviews which indicate system and excessive use of synthetic chemical fer-whether progress is satisfactory and also point to cor- tilisers disturbs this balance often causing long-termrective steps which might help. damage to the soil.
  • 25. Twelfth Plan: An Overview 211.101. Chemical fertilisers, especially urea, are highly 1.104. There are three main areas of conflict thatsubsidised and the fertiliser subsidy has grown expo- need to be addressed. The first relates to the alloca-nentially during the last three decades. These heavy tion of available land between agriculture, industrysubsidies on some fertilisers prompt overuse of the and urban use. The second potential conflict arisessubsidised chemical fertilisers which has resulted from the fact that allocation across different usesin severe depletion of micronutrients and degrada- cannot occur simply through market processes andtion of soil in many parts of the country. Chemical some land acquisition is therefore necessary, but thefertilisers should be used with great care and in con- terms on which this had been done in the past are nojunction with other means of using organic sources longer acceptable. The third potential conflict arisesto replenish the soil. The way forward is to rejuve- because most of our mineral resources are in areas,nate the soil and restore soil health through addition which are forested and the effective exploitation ofof organic matter in large quantities. Use of organic these resources calls for acquisition, which may dis-manures will gradually bring down the dependence rupt some tribal communities.on chemical fertilisers. However, the use of organicmanures is discouraged because they receive no sub- 1.105. As far as the allocation to alternative sectors issidy while urea is heavily subsidised. This price dis- concerned, it is important to recognise that diversiontortion is an important factor discouraging the shift. of land from agricultural to non-agricultural uses is inevitable in any development process since indus-1.102. More generally, support for ecological/organic try must expand and cities must also expand and infertilisation is scattered under various schemes and both cases land needed for this expansion can onlyhence it is not getting its due. The best practices of come from agriculture. Concern is often raised insoil fertility management need to be adopted, which this context about the impact on food security. Thisinclude generation of biomass for bulk addition of problem is greatly exaggerated because the produc-organic matter in the soil to maintain proper soil tivity of land in agriculture at present is very lowhealth, in situ degeneration of biomass through sole and the shift of some land from agriculture to non-cropping/inter-cropping/bund cropping of green agricultural use can easily be offset by productivitymanure crops, recycling of farm and household increases, which are feasible and have been seen inwaste through use of intensive nutrient recycling many other developing countries. We need a clearermethods such as composting, production of bio- articulation of a strategy for dealing with such shiftsfertilisers at regional and local levels, adoption of while ensuring the continuing increase in the sup-bio-dynamic farming methods and crop rotations to ply of agricultural products of the appropriate mixenrich the soil. of grains, horticulture products and cash crops. The scope for achieving productivity increases in agricul-Rational Use of Land ture is discussed in detail in Chapter 8.1.103. Land is a fixed resource and its availability inIndia on a per capita basis is relatively low compared 1.106. If the shift of land from agriculture to non-with most countries. Furthermore, the country’s agricultural use could take place without any com-population is likely to continue to grow till at least pulsory acquisition it would not pose a major2040 whereas the land mass may actually shrink with problem since all such shifts would be voluntary.increased coastal erosion and flooding due to climate Unfortunately, this is not always possible. Landchange. In these circumstances, the rational and required for constructing a road or a railway line orplanned use of land must be an issue that needs the even a dam has to be location specific and this effec-highest priority, and should be made a central focus tively gives the landowner a veto right over the proj-of our resource planning. Land is a state subject, but ect. Given the large number of landowners involved,the issues are so critical that there is need for better problems can arise even if the vast majority of thecoordination at the national level. landowners are adequately compensated which is
  • 26. 22 Twelfth Five Year Planwhy compulsory acquisition provisions are unavoid- The alternative is to either accept a much lower rateable and exist in every country. Compulsory acquisi- of growth, or rely even more than we already do ontion is unavoidable where there is a genuine public imported energy, which has implications for bothpurpose such as acquiring land for infrastructure the balance of payments and energy security.development. There may be a case for using acqui-sition for certain lands of privately owned facilities 1.109. Alternative energy sources, including a vari-which serve a public purpose but this needs to be ety of renewable energy sources, provide anothercarefully defined. To remedy the deficiencies in the route for energy security especially in the longer run.existing legislation for land acquisition which dates However, its quantitative potential over the nextback to colonial times, the government has intro- 10 years is small at present though it is expected toduced the Land Acquisition Relief and Rehabilitation expand to 50000 MW by the end of the Twelfth Plan.Bill in Parliament which is expected to create a much The costs of these sources are also are much highermore balanced framework protecting the rights of though they are falling. This is a potentially profit-those whose land is being acquired, as well as those able area for further research, which is of specialwhose livelihood will be disrupted. interest for us.1.107. The third potential conflict between access- 1.110. Expansion of nuclear energy as an importanting our mineral resources and minimising distur- potential alternative to coal-based electricity poses abance to forests also poses difficult problems. The new set of concerns following the Fukushima accidentservices that are rendered by forests are unique and in Japan which has heightened fears of possible acci-cannot be easily replaced. They include sustaining dents with leakages in radiation. This has promotedthe life styles of the adivasis, but go well beyond that agitations against nuclear power in some parts of theto include critical ecological services such as acting country but it is an option that cannot be closed if weas a carbon sink and as a natural harvester of water are to meet the essential energy needs of the country.through enhanced groundwater recharging. Mining However, much greater attention will have to be paidencroaches on forest land and involves displacement towards improving the confidence of the people andof tribals, but the conflict can be reconciled if mining especially in providing world-class systems to coun-is combined with scientific replanting or regenera- ter the risks associated with this form of energy.tion, plus compensatory forestation on a larger scale,which may enable effective exploitation of our min- Water as a Scarce Natural Resourceeral resources with an actual increase in total forest 1.111. Water is another key natural resource in fixedcover. There may be some areas of forests that we supply and its availability is now at a level which isview as sacrosanct, such as special reserves and bio- just about equal to demand on average. Availabilitydiversity hotspots, where no intrusion is allowed, but in some areas is greater than demand but there areother than these it should be possible to reconcile the other areas which are seriously water-stressed. Whiletwo conflicting objectives, extracting valuable min- intensive use of groundwater made a great contribu-erals and protecting the forests, through scientific tion to the Green Revolution, today in large parts ofmethods of exploitation combined with steps which west, central and south India there is a man-madecan protect and even enhance forest cover. crisis of falling water tables. Economic growth at between 8 per cent and 9 per cent a year will only be1.108. Resolution of this conflict is particularly nec- possible if the water requirements of the expandingessary in view of the energy challenge facing the population, with a growing degree of urbanisationcountry. Most of our coal resources and hydro poten- and the water requirement of expanding GDP cantial are in ecologically sensitive areas and a success- be met. Detailed studies suggest that on a businessful resolution of these problems is critical if we are as usual basis, the total demand for water by 2031 isto be able to exploit our potential energy resources. likely to be 50 per cent higher than today. This gap
  • 27. Twelfth Plan: An Overview 23has to be bridged if the projected GDP growth is not Centre, the States and the local governance institu-to be choked. It is estimated that about 20 per cent tions needs to be developed. Such a framework lawof the gap at most can be bridged by taking steps to is not intended to either centralise water manage-augment available supply through additional storage ment or change Centre–State relations or alter theand groundwater retention. The rest of the deficit has Constitutional position on water in any way. It isto be bridged through greater water use efficiency. intended to be justiciable, in the sense that the laws are passed, and the executive actions are taken by the1.112. Fortunately, there is large scope for improv- Central and State Governments, and the devolveding water use efficiency in our economy. Agriculture functions exercised by PRIs conform to the generalconsumes around 80 per cent of our available water principles and priorities laid down in the frameworkresources at present and its water use efficiency is law, and that deviations can be challenged in a courtamong the lowest in the world. Absence of rational of law. These are, indeed, sensitive issues, and actionpricing for canal water, combined with free or very on them must be receded by the largest possible con-cheap power for agriculture, has encouraged agricul- sensus across States. However, the urgency of mov-tural practices which are extremely wasteful. Cheap ing forward on these critical matters can no longerpower has encouraged excess drawal of groundwa- be disputed.ter leading to falling water tables in large parts of thecountry. However, the man-made crisis of falling 1.115. New model legislation is needed for protec-water tables is forcing some change as farmers are tion, conservation, management and regulation ofbeginning to recognise the need to adopt technolo- groundwater. The present model bill amounts togies that economise on water. little more than grandfathering existing uses. What is remarkable is that some of the most important1.113. The Twelfth Plan must break new ground in legal principles governing groundwater even todaybringing sustainable management of our aquifers to were laid down in British common law as early as thethe forefront of policymaking. Although efforts are middle of the nineteenth century and have not beenbeing made for recharging of groundwater sources, updated since then. The new model bill would needthese are yet to show sustained results across most to recognise that over the last two decades, not onlyparts of the country. An aquifer mapping pro- has the groundwater situation in India acquired cri-gramme that would enable more informed participa- sis proportions, new developments in jurisprudencetory management and better alignment of cropping have created the basis as well as the necessity to rede-patterns to water availability across the country will fine the legal framework for use of groundwater.need to be the starting point of our efforts. This must These include the Public Trust Doctrine enunciatedbe combined with a massive groundwater recharge by the Supreme Court, principles of environmen-programme based on integrating a reformulated tal law and the 73rd and 74th amendments to theMGNREGS with programmes on watershed devel- Constitution. These issues are discussed in detail inopment and restoration of water bodies. Chapter 4.1.114. It is also necessary to consider whether a new 1.116. Parallel efforts are needed to contain pollutionlegislative framework is necessary to help manage of surface water and contamination of groundwater,our water resources better. Water, except for inter- which is reaching serious proportions. Industry muststate rivers, is a state subject and as such, it is largely be pushed to adopt the best international practicesup to the States to consider what initiatives are fea- to improve water use efficiency. Consumption ofsible to avoid a steady intensification of the problem. fresh water can be substantively reduced through useA framework law, that is, an umbrella statement of of water-efficient technologies or changed processesgeneral principles governing the exercise of legisla- in various manufacturing activities and also by reus-tive and/or executive (or devolved) powers by the ing and recycling the waste water from water using
  • 28. 24 Twelfth Five Year Planindustrial processes and making the reclaimed water For all these reasons, India’s growth prospects in theavailable for use in the secondary activities within years ahead cannot be viewed in isolation from whator outside the industry. Enforcing pollution control is happening in the world economy.measures in a context where the vast majority of pro-ducers are small and widely dispersed is not easy. Global Economic ProspectsHowever, this is a challenge in policy design, which 1.119. The global economy is currently goingcannot be ignored. States have to ensure that it is through a very difficult phase. The financial cri-fully integrated into local planning. sis of 2008–09 interrupted what had been a long period of global growth. Initially, the global econ-1.117. Increased urbanisation will also pose addi- omy appeared to respond well to the stimulus poli-tional problems for water management since urban cies introduced by many countries in 2009, but thepopulations need to be serviced with piped water horizon was again clouded by the Eurozone crisissystems available on a 24 × 7 basis and these systems which is currently seen as a major fault line in theshould be accompanied by sewerage systems, which world economy. Many European countries are fac-ensure that only cleaned water is returned to rivers ing severe social and economic pain in their effort toor other disposal sites. At present, no Indian city is introduce fiscal discipline aimed at regaining mar-in a position to boast of a complete sewerage system. ket confidence. The International Monetary FundWe have installed capacity to treat only about 30 per (IMF) projects zero growth in the Eurozone in 2012cent of the human waste we generate. Just two cit- with only a gradual improvement thereafter, on theies, Delhi and Mumbai, which generate around 17 assumption that a disruptive outcome is avoided.per cent of the country’s urban sewage, have nearly40 per cent of the country’s installed capacity. The 1.120. The major industrialised and developingTwelfth Plan must ensure that no water scheme in countries, meeting at Summit level in the G20, haveurban India will be sanctioned without an integrated repeatedly emphasised the importance of avoidingsewage treatment component, which ensures that disruptive outcomes and the need for all countriescity waste does not pollute our fresh water sources. to act in concert and cooperation to bring the global economy back on a path of sustainable growth. It is toENGAGEMENT WITH THE WORLD be hoped that global economic cooperation will prove1.118. Economic reforms over the past two decades strong enough to avoid a hard landing. Althoughhave made India a much more open economy. The uncertainty remains high, and downside risks are sig-share of exports of goods and services in total GDP nificant, the most reasonable assumption on which tohas increased from 6.9 per cent in 1991 to 24.6 per plan is that the global economy will recover gradu-cent in 2012. Imports of goods and services as a per- ally. However, the structural change that has beencentage of GDP have also increased from 8.3 per cent underway for some time, with industrialised coun-to 29.8 per cent in the same period. These changes tries growing more slowly while the emerging marketare the result of conscious efforts to open up the countries, especially in Asia, grow more rapidly, willeconomy. Import duties have been reduced over time continue in the foreseeable future. We must, there-and a number of preferential trading arrangements fore, plan for a world in which the share of globalhave been introduced as part of Comprehensive GDP will therefore shift steadily away from the cur-Economic Partnership Arrangements with indi- rent industrialised countries and towards the fastervidual countries and groups of countries, especially growing emerging economies, especially in Asia.Association of Southeast Asian Nations (ASEAN),Japan, Korea, Singapore and Sri Lanka. More such Implications for the Balance on Currentagreements are being negotiated with the European AccountUnion and with Australia. Investment into India, 1.121. Slower growth in industrialised countriesand also from India to other countries has increased. will mean that our exports to these countries will
  • 29. Twelfth Plan: An Overview 25be adversely affected. Fortunately, India’s export high in the years ahead. Fortunately, our domesticbasket is relatively diversified and since emerging food grain production has been expanding but foodmarket countries are expected to grow more rapidly security considerations may require import in cer-in the years ahead, we may be able to benefit from tain conditions. Domestic import and export policiesthis. There is also scope for increasing our share in and our buffer stock policy have to be calibrated toindustrialised country markets by competing more meet domestic demand while responding to devel-aggressively with countries like China, which will opments in global markets.experience loss of competitiveness because of risinglabour costs at home. This is especially true of ser- 1.124. India’s current account deficit was a surplusvices, where India’s increasing sophistication will 2.3 per cent of GDP in 2003–04. Since then it hasallow it to win more business from cost-conscious gone into deficit, reaching 2.7 per cent of GDP indeveloped countries However, there is no room for 2010–11 and 4.2 per cent in 2011–12. As pointed outcomplacency, because other developing countries, in Chapter 2, a large part of the increase in 2011–12such as the Philippines, are improving their capabili- was due to imports of gold, which are not expectedties and there are moves within developed countries to be repeated. Even so, the current account deficitto ‘on shore’ services hitherto outsourced. It is dif- in the first year of the Twelfth Plan will be aroundficult to quantify the net effect of all these factors, 3.6 per cent, which exceeds what has traditionallybut it is reasonable to plan for merchandise exports been regarded as a sustainable level. The macroeco-growing at an average annual rate of 17 per cent in nomic analysis in Chapter 2 prescribes that policiesthe Twelfth Plan than compared with 20.7 per cent must be calibrated to ensure that the current accountin the Eleventh Plan. Growth of earnings from tour- deficit in the Twelfth Plan period averages aroundism and also remittances are likely to be subdued. 2.9 per cent. On current prospects, it is likely to be somewhat higher. The ability to finance this deficit1.122. On the import side, a target growth of GDP through stable capital flows is therefore critical.over 8 per cent per annum will require a rapid growthof imports, especially since most of our incremental Capital Flowsenergy needs will have to be imported. The impact 1.125. India has followed a calibrated policy of open-on the balance of payments will of course depend ing up the capital account, differentiating accord-on what happens to oil and gas prices, but these are ing to the nature of capital flows. Foreign Directnot expected to moderate significantly in the short Investment (FDI) is regarded as the most stable capi-to medium term, and indeed may even go up as the tal flow which also provides technology and market-world economy recovers gradually from the global ing links, and has therefore been most freely allowed.crisis, or due to any sudden shocks in the Middle Portfolio flows are not as stable as FDI, but they areEast. High import payments combined with modest also not as volatile as short-term debt and have beenexport growth means that the current account deficit allowed freely from qualified FIIs. Short-term debtwill be an important source of stress in the coming from abroad is the least stable form of capital flowyears. and is, therefore, highly controlled except for trade credit. Longer-term external borrowing is allowed1.123. Another contingency that we have to keep in more liberally, but subject to caps. This policy pro-mind is the likely trend in global food prices. For a duced good results in the Eleventh Plan, yielding anvariety of reasons, most notably rising demand from annual average net capital inflow of 4.1 per cent ofemerging markets as their incomes expand, com- GDP during the Eleventh Plan. Since the averagebined with lagging agricultural productivity in many current account deficit was 2.7 per cent of GDP, theemerging market countries and possible diversion net capital inflows exceeded what was required toof land to production of renewable energy in indus- finance the current account deficit and contributedtrialised countries, global food prices are likely to be to a build up of forex reserves.
  • 30. 26 Twelfth Five Year Plan1.126. Looking ahead, if we assume that worst case 1.128. Second, non-financial aspects of India’soutcomes will be avoided, then even though Europe engagement with the world need to be strength-may grow very slowly in the coming years, world ened. S&T is an important area to project India’sfinancial markets can be expected to stabilise. On engagement with the world. India has the potentialthis assumption, it is reasonable to assume that India to emerge as a major scientific power, provided thecan finance a current account deficit of around 2.5 right policies and frameworks are implemented.per cent of GDP relying mainly on FDI and FII The need for more global collaboration and part-flows, with some recourse to long-term borrowing. nerships in research on the part of our universities,Since the projected current account deficit for 8.2 per research institutes and the corporate sector has beencent growth is somewhat higher, financing the deficit mentioned earlier. Such activity needs to be stronglywill be a stress point in the years ahead. Capital flows encouraged.from Europe may well be subdued, but there is scopefor diversifying to tap other markets, notably Japan 1.129. Finally, India needs to engage more pro-and also the sovereign wealth funds in the Middle actively with the global community at bilateral,East. The key element that will make this possible is regional and multilateral levels. In the last 10 yearsthat India must be seen to be set on a high growth India has worked on several bilateral agreements—path, with macroeconomic balances coming under these take time to show impact, and positive effectscontrol over the medium term, and policies towards of these will start showing up soon. Special attentionforeign investment being viewed as supportive. The needs to be paid to our immediate neighbours. Thespecific policy requirements for achieving this out- South Asian Association for Regional Cooperationcome are discussed in Section 1.6. (SAARC) mechanism is yet to achieve the necessary degree of salience. The bilateral efforts have certainlyOther Aspects of External Engagement been more fruitful but much greater emphasis needs1.127. There are several other aspects of engagement to be placed on the regional cooperation agendawith the world economy, which are relevant for as the benefits can go well beyond what is possibleachieving our overall growth objectives. First and the through the bilateral route. While this is largely amost important relates to energy supply and energy political issue, it may be desirable to begin the pro-security. India’s dependence on imported energy cess of instituting dialogue between the apex plan-is high and is generally expected to increase. Apart ning agencies of neighbouring countries.from our traditional dependence upon oil imports,the import of natural gas and coal will also need toincrease significantly. The price of imported energy 1.130. Looking beyond our immediate neighbour-will obviously have an impact on our growth capac- hood, India needs to be proactive in traditional mul-ity in the sense that high energy prices impose a cost tilateral forums such as the United Nations (UN),on the economy and make it more difficult to gener- and also participate proactively in new emergingate domestic surpluses for investment. Dependence forums of importance such as the G20, IBSA, BASICon energy imports also raises concern about energy and so on. This will sometimes require us to gosecurity. We need to have sufficient flexibility to beyond our comfort zone and be prepared for out-be able to alter our fuel composition to respond of-the-box modes of engagement. India will alsoto movements in energy prices. We also need to need to play an active role in breaking deadlocks anddevelop stable long-term steady sources of supply ensuring progress on two economically importantfor different fuels relying on long-term supply agree- multilateral forums, the World Trade Organizationments with countries in different geographies, and (WTO) and United Nations Framework Conventionthrough asset acquisition abroad. on Climate Change (UNFCCC).
  • 31. Twelfth Plan: An Overview 27KEY POLICY INITIATIVES NEEDED as much as possible, including by exploring pos-1.131. In this section, we discuss some of the major sible PPP arrangements with mine developmentpolicy initiatives needed to achieve rapid, more operators working on a contract basis. In the shortinclusive and sustainable growth. Policies and pro- run, however, the shortage can only be made up bygrammes to improve human capabilities, institu- imports. Additional imports are possible but the facttional capabilities and to develop infrastructure, have that imported coal is available only at much higherbeen discussed in Section 1.3. They are all necessary prices discourages potential consumers. One way offor achieving the Twelfth Plan objectives and should resolving this problem is through a system of pric-have high priority. ing pooling. This should be explored and it should be implemented urgently.Immediate Priorities: Reviving InvestorSentiments Financial Problems of Discoms1.132. An immediate policy objective in the very 1.135. Many discoms have accumulated high vol-first year of the Plan must be to revive animal spirits, umes of debt to finance their large current losses.which have suffered for a variety of reasons. Some Commercial banks are increasingly unwilling toof the reasons for a downturn in investor sentiment finance the losses any further. This in turn has cre-can be easily corrected. For example, the percep- ated unwillingness on the part of banks to financetion among investors, that some of the tax changes power generation projects that are being set upintroduced in the Budget are anti-investor need to be because of doubts that they will be paid by the dis-allayed as quickly as possible. The Finance Ministry coms. A debt restructuring plan, in which Statehas appointed two expert committees to look into Governments take over a large part of the burdenthese issues and it is hoped that the recommenda- of paying back the debt has been approved by thetions of these committees will provide a reasonable Cabinet and must be implemented by all the affectedbasis for reviving investor confidence on these issues. Sates. The commercial banks will have to bear partA firm decision on the recommendations of the of the burden by restructuring the loans, and theCommittee should be announced as early as possible. Reserve Bank of India (RBI) may have to allow some regulatory forbearance relieving the banks of treat-1.133. The next important short-term action must ing the restructured loans as non-performing assetsbe to remove the impediments to implementation (NPA) and making suitable provisions for them. Asof projects in infrastructure, especially in the area of envisaged in the package, these steps must be com-energy. The following steps are especially urgent. bined with credible steps on the part of the State Governments and the discoms to ensure restorationFuel Supply to Power Stations of the operational viability of the discoms in future.1.134. The fuel supply problem affecting electric An early implementation of open access would helppower generation stations that have been commis- create an environment that would promote effi-sioned but do not have adequate assurance of sup- ciency and competitiveness.ply of coal or gas, and the problems of power stationscurrently under implementation which have yet to Clarity in Terms of NELP Contractstie up fuel supply agreements, need to be addressed 1.136. Several problems have arisen in interpretingurgently. Coal India is the dominant domestic pro- existing New Exploration Licensing Policy (NELP)ducer of coal because of nationalisation. It must contracts especially related to the process for approv-take on the responsibility of making coal available ing expenditure on the development plan and theto all power plants which are governed by regulated approval for gas prices. This uncertainty is not con-tariffs or have entered into PPAs based on com- ducive to attracting private investment in this verypetitive bidding for tariffs. Coal India must take important part of the energy sector. A committeesteps to enhance its domestic production capability under Dr. C. Rangarajan has been set up to make
  • 32. 28 Twelfth Five Year Planrecommendations on future NELP contracts, which much more flexible. The recommendations havewould avoid uncertainty and establish clear rules been discussed with the Ministries and the Statesregarding the pricing of oil and gas from future and have generally been welcomed. It is proposed toNELP fields. An early decision on this issue should implement these recommendations with effect frombe taken within calendar year 2012. 2013–14.The Size of the Public Sector Plan Longer-Term Increase in Investment and1.137. Although planning should cover both the Saving Ratesactivities of the government and those of the private 1.140. Bringing the economy back to 9 per centsector, a great deal of the public debate on planning growth by the end of the Twelfth Plan requires fixedin India takes place around the size of the public investment rate to rise to 35 per cent of GDP by thesector plan. The Twelfth Plan lays out an ambitious end of the Plan period. This will require action toset of government programmes, which will help to revive private investment, including private corpo-achieve the objective of rapid and inclusive growth. rate investment, and also action to stimulate publicThese programmes add up to a total plan size for investment, especially in key areas of infrastructurethe Centre of `4769841 crores including both bud- especially, energy, transport, water supply and waterget resources and the resources of the public sec- resource management.tor enterprises which comes to about 6.98 per centof GDP. This compares with `2025130 crores in the 1.141. The strategy of expanding investment willEleventh Plan which was 5.96 per cent of GDP. The help to counter the weakening of external demandtotal plan size of the States is `3716385 crore or 5.44 on account of the global downturn. It is importantper cent of GDP compared with `1725848 crore in that the expansion in domestic demand should notthe Eleventh Plan, which was 5 per cent of GDP. be in the form of consumption, but in the form of higher levels of investment. This not only provides1.138. Although the proposed Plan size is large, demand in the short run to support higher levelsthe demand from various sectors is also very high. production but also strengthens the longer-termHowever, resource constraints are a reality and even growth potential of the economy. We should alsothe plan size projected is conditional on high growth ensure that a large part of the increase in investmentrate of revenue and a significant degree of control goes into infrastructure as this would have a positiveover subsidies. If for any reason these assumptions effect on reviving private investment in other sec-prove too optimistic, the size of the Plan may have to tors and would ease supply constraints, which limitbe trimmed at the time of the Mid Term Review. future growth. The Eleventh Plan succeeded in rais- ing investment in infrastructure from 6.2 per cent in1.139. In view of the scarcity of resources, it is essen- 2007–08 to about 7 per cent in 2011–12. The Twelfthtial to take bold steps to improve the efficiency of Plan should aim to raise it further to 9 per cent bypublic expenditure through plan programmes. To 2016–17.this end the Planning Commission had establisheda Committee under Member, B. K. Chaturvedi to 1.142. Higher levels of investment have to be sup-make recommendations for rationalisation and to ported by a sufficient expansion in domestic savingsincrease efficiency of Centrally Sponsored Schemes to keep the investment savings gap, which is also(CSSs) and for improving their efficiency. There has the current account deficit, at a level which can bebeen a proliferation of CSS over the years, many of financed through external capital. India’s domesticwhich are quite small. The Chaturvedi Committee savings capacity has been an important strength ofhad recommended that the number of CSSs should the economy, although recent years saw a distinctbe drastically reduced and the guidelines under weakening in this area because of deterioration inwhich the schemes are implemented should be made both government and corporate savings. Household
  • 33. Twelfth Plan: An Overview 29savings, however, have remained strong and are role for targeted subsidies that advance the causelikely to increase in the future, both because of our of inclusiveness, but such subsidies can be con-age composition and as result of increased financial tained within a predetermined level of afford-inclusion. Nonetheless, reversal of the combined ability. It should be possible to do this withoutdeterioration in government and corporate savings hurting the poor. Some subsidies such as underhas to be a key element in our strategy. the proposed Food Security Act will be prede- termined. Others such as on fertiliser can beThe Need for Fiscal Correction redesigned to serve their purpose at less cost.1.143. The decline in public savings in the past few Subsidies, on petroleum products are untargetedyears is largely a reflection of the stimulus policies and do not benefit the poor and the most needy.that were followed, which are reflected in the expan- They will have to be reduced.sion in the fiscal deficit. The Central Governmentfiscal deficit was 5.9 per cent of GDP in 2011–12. 1.144. The State Governments also need to take stepsAllowing for a fiscal deficit of just under 3 per cent to reduce the growing burden of subsidies, mostfor the States, the combined deficit of the Centre especially the large and growing losses in the powerand the State Governments, which had fallen to 4.7 sector.per cent in 2007–08, expanded to just under 9 percent in 2011–12. This has to be reversed through Managing the Current Account Deficita credible correction over the medium term. The 1.145. The initiatives described above to increaseFinance Ministry has set up an Independent Expert government savings and corporate savings will cre-Committee to advise on a credible medium-term ate conditions conducive to keeping the currentroad map for fiscal correction. The Committee has account deficit at 2.5 per cent of GDP. This level ofrecommended a new road map for fiscal deficit deficit can be financed through long-term capitalreduction to bring the Central government deficit flows as long as India’s macroeconomic parametersdown to 3 per cent by the end of the Twelfth Plan. It are seen to be improving and GDP growth recoverswill be necessary to take action on two fronts: above 7 per cent. India is still under weight in most global portfolios given its economic size and growth1. The Centre must persevere with reforms of the potential and positive signals about the revival of tax structure, notably the introduction of Good growth, combined with a credible commitment to and Services Tax (GST), which will represent improve macroeconomic balances and a welcoming a major modernisation of the indirect tax sys- stance towards foreign investment will ensure the tem. GST will greatly simplify the system and financing needed to maintain a current account defi- improve revenue mobilisation, primarily by cit of 2.5 per cent. plugging loopholes. Since introduction of GST requires a Constitutional amendment, it needs 1.146. The steps taken to liberalise FDI, especially in a broad political support which has taken time areas where there is evident investor interest such as to build. However, if it can be introduced soon, for example, FDI in retail, would help by sending the it will give a boost to efficiency and to revenue right signals. We must build on the success of pre- mobilisation without raising rates. vious liberalisation in FDI in other sectors, such as2. It will require a reversal of the trend witnessed insurance, and before that telecom. in recent years for Central Government subsi- dies to grow as a percentage of GDP. It must be Economic Reforms and Efficiency of emphasised that the objective is not to eliminate Resource Use subsidies. Subsidies can even increase in abso- 1.147. While higher investment is necessary for lute terms as the GDP grows, but they must be faster growth, it is equally important to ensure effi- reduced as a percentage of the GDP. There is a ciency in resource use, both in the public and private
  • 34. 30 Twelfth Five Year Plansectors. The implementation of the reform relating 1.150. The principal lesson we should learn is thatto CSSs mentioned above will help achieve greater we should continue with our strategy of gradualefficiency to implement in the public sector. liberalisation in the financial sector. There is no case for reversing this process of gradual liberalisa-1.148. In the private sector—which accounts for over tion, or even stopping it. Countries that had gone70 per cent of total investment—the main instrument too far towards adopting ‘light touch regulation’ areavailable for improved efficiency of resource use is quite correctly tightening their regulatory standardsto continue economic reforms, which increase com- though it should be noted that concern is beginningpetitive pressure in the system and give producers the to be expressed in these countries that this processflexibility and freedom they need to upgrade technol- may be going too far. India was never at that end ofogy and expand capacity. In this context, it is worth the spectrum. In fact, we were if anything at the othernoting that the global experience with the financial end where control over banks and financial institu-crisis, and the policy rethinking it has triggered, a tions is much stronger than in most other jurisdic-backlash against market based reform in the financial tions and is sometimes excessive.sector. We need to consider what implications thishas for our own policies of economic reforms. 1.151. However, there is one aspect that does require attention. The global financial crisis highlights the1.149. There is no doubt that the financial excesses in moral hazard problems of following universal bank-the United States, the United Kingdom and Europe ing principles and has brought back into promi-have revealed deep institutional weaknesses in the nence the issue of segregating the commercial andfinancial system in these countries and this has pro- investment banking functions. Our efforts to lib-duced a backlash against ‘Wall Street’, ‘greedy capi- eralise the financial sector in the past have meanttalism’ and also against ‘markets’ generally. What this that Indian banks are today required to undertakeimplies for the pursuit of efficiency promoting eco- investments lending less by design than by default.nomic reforms in emerging market countries needs With the demise of development finance institutionscareful consideration. The principal lesson from the (DFIs), the function of term lending has devolvedglobal financial crisis is that financial systems are on the commercial banking sector, which may notprone to vulnerability if internal controls are weak; be entirely prepared to carry out this function. First,the structure of incentives does not incentivise risk- it is not clear whether the Indian banking sectoraverse behaviour and if the structure of regulation has acquired the requisite risk assessment and proj-and the quality of supervision is poor. Since finan- ect appraisal skills for term loans, without whichcial integration has made financial systems highly financing long-duration projects can be hazardous.interconnected, vulnerability in one part of the sys- Second, the entire sector is now more vulnerable totem can extend rapidly to others. These weaknesses asset–liability imbalance, requiring more frequentexplain the severity of the crisis in the industrialised recapitalisation particularly as global regulatorycountries. However, our financial system was not norms tighten following the crisis. Third, since thereexposed to these problems, partly because the degree has been no change in the sources from which banksof integration with global financial markets was low can raise their resources, all increases in term lend-(that is, capital controls were in place which lim- ing are at the cost of funds available for workingited cross border banking activity) and partly also capital purposes. This leads to smaller and weakerbecause the banking system was much more tightly clients being crowded out from the credit spaceregulated. On both issues, the cautious approach of whenever norms stiffen or investment increases.the Government of India (GOI) and the RBI towards This makes our banking system less inclusive than itcapital account liberalisation and the maintenance would otherwise have been. It is an opportune time,of fairly tight regulatory control on the banks stand therefore, to blend further gradual liberalisation withvindicated. a broader consideration of the design of our banking
  • 35. Twelfth Plan: An Overview 31sector and ensure that the laws are consistent with 1.155. Action is needed on several fronts includingthe intentions. provision of basic support services such as technol- ogy and irrigation infrastructure, access to credit,1.152. Looking beyond the financial sector, to the good and reliable seeds and improved post-harvestreal sector, there is no reason to backtrack on the use technology. The latter is particularly importantof market mechanisms to achieve efficiency or from since the bulk of the acceleration in growth willan open economy, including a freer flow of foreign come from diversification towards horticulture, ani-direct investment. No such reversal is taking place mal husbandry and fisheries. The greatest potentialanywhere in the world and we should act no differ- for improving productivity is in the rain-fed areas,ently. Protectionist noises have certainly increased which account for 58 per cent of net sown area andin industrialised countries, which is disturbing, but where most of the poor live. Land productivity is lowactions have been relatively contained thus far. The in these areas, but a combination of effective waterG20, of which India is a part, have regularly called management combined with better seeds, promotionin their summits for an avoidance of new protec- of soil health and critical on farm investments com-tionist measures. It is to be hoped that this high bined with public sector efforts to improve infra-level consensus will be translated into action. None structure can make a big difference. Rain-fed farmingof this justifies a retreat from international open- requires a natural resource management perspectiveness on our part. Those arguing for protectionism in with a farming systems approach focusing on pro-industrialised countries are fighting to protect their ducing diverse products that mutually reinforce eacheconomies from the loss of competitiveness vis-à- other and stabilise the system. These areas are eco-vis emerging markets. It is not in India’s interest to logically fragile and highly vulnerable to the vagariessupport such voices by willingly redirecting our own of climate, so the resilience of the system has to bepolicies in that direction. On the contrary, it is in our increased. They require knowledge and institutionalinterest, as we gain in competitiveness, to ensure that investments to improve soil moisture management,global markets remain open. enhance soil productivity, revitalise common pool resources, provide appropriate seed and low exter- nal input systems as also farm mechanisation, alongTransparency in Allocating Scarce Natural with diverse livelihood options such as livestock andResources fisheries. Some of the government’s key inclusive-1.153. The economic reforms successfully elimi- ness promoting programmes, such as MGNREGA,nated discretionary decision-making in areas such as can make a major contribution to improving landindustrial licenses and import licenses. The process productivity, if the projects under it are structuredof extending transparent policies and mechanisms to to increase on farm productivity. Properly designedallocation of scarce natural resoruces to private com- and converged, MGNREGA can contribute to creat-panies for commercial purposes has also been initi- ing positive synergy with agricultural growth.ated. This is an extremely important gain. It will befurther carried forward during the Twelfth Plan. 1.156. In addition, the Twelfth Plan must address some basic imbalances. First, to increase rice pro-Agricultural Growth ductivity in Eastern India and at same time relieve1.154. It is well recognised that faster growth of North-West India from the stress on groundwateragriculture makes the overall growth process more caused by this water-intensive crop. Second, to focusinclusive. A positive feature of the experience is that on growing imbalances in nutrient use that can affectagricultural growth increased from 2.4 per cent in productivity seriously. Third, to ensure that therethe Tenth Plan to 3.3 per cent in the Eleventh Plan. is enough parity between procurement operationsFurther acceleration to 4 per cent is essential to for crops such as oilseeds and pulses as for rice andensure inclusiveness. wheat, so that we can avoid situations like at present
  • 36. 32 Twelfth Five Year Planwhen huge stocks of the latter coexist with huge • Fourth is a rethinking of the role of humanimports of the former. Fourth, to put at the centre of resources in manufacturing. Successful manu-our agricultural policies. These matters are discussed facturing requires learning and absorption ofin Chapter 8. technologies and the ability to improve them and this takes place principally through the humanManufacturing side of the enterprise. Sustainable competitive-1.157. The manufacturing sector provides the best ness will also require a new way of dealing withopportunity for creating quality jobs, which require labour Refurbishing of India’s outdated labourskills which are relatively easily imparted to someone laws is necessary, but improvement of industrialwho has finished secondary school. However, this is relations and the collaboration that is necessaryalso an area where business as usual will not produce between employees and management will notrapid growth and a paradigm shift is needed. The be obtained merely by changing the laws. It willreasons why manufacturing in India has not grown require a new social contract founded on a devel-sufficiently rapidly and also not created as much opmental orientation and on partnerships inemployment in the formal sector as might have been India’s Manufacturing and Industrial sectors andexpected, have been analysed in Chapter 9. The fol- in the enterprises within them.lowing are some of the initiatives needed to correct • Fifth, the growth of the MSME sector must be athis performance: central focus of India’s manufacturing strategy. This sector is the foundation for a strong manu- facturing sector providing more employment with• First, India ranks towards the bottom of interna- less capital. It has a complementary relationship tional comparisons of ease of doing business. The with large industries because it supplies compo- business regulatory environment in the country is nents and inputs to them. It is the entry point for intimidating for manufacturers, especially small- workers and entrepreneurs who move through it scale enterprises. It saps their productivity and to larger-scale enterprises. Whereas much gov- deters further investments. The Plan proposes ernment attention is given to consult with and some initiatives to tune up India’s business regu- address the issues of larger enterprises, the devel- latory environment. Much of the action needed opment of the MSME sector must become more lies with State Governments. central to the deliberations about the challenges of• Second is the state of the physical infrastructure— Indian industry and the Indian economy. The sec- power and transport, in particular—on which tor must be viewed not as a static and weak sector, manufacturing enterprises depend much more requiring constant support and protection, but than IT-based service enterprises, strategies for as an integral part of the industrial system with improving infrastructure are a core of the Plan upward mobility for individual units within it. and they will make a difference to performance of • Lastly, many of the changes in policy and imple- manufacturing as a whole. mentation that are required to improve the envi-• Third, India needs to increase the technological ronment for manufacturing—in the business depth of its manufacturing sector to improve its regulatory environment, in implementing infra- competitiveness and also the country’s trade bal- structure projects, in industrial relations, and the ance. India is increasingly importing high-tech requirements of SMEs—are within the domains and capital goods and exporting raw materials of the States. This includes the quality of power in return. Strategies are required to induce more supply, much of road connectivity, implementa- depth and value-addition in India’s manufactur- tion of sales tax administration, implementation ing sector that are not ‘protectionist’ and that of laws relating to safety, pollution control and leverage FDI and are compatible with an open labour, industrial parks and so on. The Centre global trade regime. also has a critical role to play in areas such as rail
  • 37. Twelfth Plan: An Overview 33 transportation, income tax, Cenvat, export regula- these projects in a time bound manner. Unless this tion and the functioning of the financial system. is done, India’s energy needs will be in jeopardy and investor sentiment will weaken irreversibly, at least1.158. These issues are also relevant for India’s entire for the duration of the Twelfth Plan. Taking a longer-business sector, which apart from manufacturing, term view, the policy of nationalisation of coalcovers services and off-farm rural enterprises. All of itself needs to be reviewed as was pointed out in thethem will benefit from better business regulation and Eleventh Plan. If private sector producers are allowedbetter infrastructure. in petroleum, which is a more valuable resource, there is no reason why they should not be allowed inEnergy Policies for Long-Term Growth coal. They are allowed to a small extent in the State1.159. A rate of growth of about 8.2 per cent in of Meghalaya, which has private ownership of coal,GDP requires a growth rate of about 6 per cent in because the tribal land there is not government land.total energy use from all sources. Unfortunately,our capacity to expand domestic energy supplies to Petroleum Price Distortionsmeet this demand is severely limited. We are not 1.161. The petroleum sector suffers from a seri-well-endowed with energy resources except for coal ous distortion in product prices which lead to hugeand the existence of policy distortions make manage- under-recoveries and discourage private investment.ment of demand and supply more difficult. Some of Domestic prices for diesel charged by Oil Marketingthese problems have already been discussed earlier Companies (OMCs) was 35.3 per cent lower thanin this Chapter in connection with the immediate trade parity prices before the recent price adjust-need to revive investor sentiment. There are also ment. Prices for kerosene and LPG are 72.6 per centlonger-term constraints that need to be addressed. and 53.6 per cent lower than they should be.Coal Production 1.162. Continuation of these systems indefinitely,1.160. Coal is the most abundant primary energy without provision of a budgetary subsidy, wouldsource available in the country, but most of the coun- seriously damage the petroleum industry, limitingtry’s coal resources are in forest areas, traditionally its ability to invest in the discovery and developmentinhabited by our tribal population. Coal production of new oil sources and discouraging all new privatefor supply to third parties is nationalised but proj- investment. If on the other hand, the gap is coveredects in some sectors are allowed to have captive coal by a budgetary subsidy, it will impose an impossiblemines. Coal India was not able to meet its coal pro- burden on the budget, necessitating either a sharpduction targets in the Eleventh Plan and, as pointed cut in other government expenditures or a highlyout earlier, domestic coal supplies are not assured destabilising increase in the fiscal deficit. It is infor coal-based power projects coming on stream in this context that the diesel prices had to be raised tothe Twelfth Plan. It is absolutely essential to ensure reduce the gap or a cap was placed on the number ofthat domestic production of coal increases from 540 subsidised cylinders. The Twelfth Plan must ensure amillion tonnes in 2011–12 to the target of 795 mil- move to more rational petroleum product pricing, Itlion tonnes at the end of the Plan. This increase of may not be possible to remove all distortions imme-255 million tonnes assumes an increase of 64 mil- diately, but a phased price adjustment is neededlion tonnes of captive capacity with the rest being that would reduce subsidy to manageable levels. Asmet by Coal India Limited. However, even with this a general rule small increases in prices effected overincrease, we will need to import 185 million tonnes time can help reduce the gap by manageable levels.of coal in 2016–17. Environmental and forest clear-ances of coal projects have presented problems. A Natural Gas Pricingspecial mechanism for inter-Ministerial coordina- 1.163. Natural gas also faces problems of pricetion needs to be set up to accelerate processing of misalignment. At present, the price of gas paid to
  • 38. 34 Twelfth Five Year Plandomestic producers is $4.25 per MMBtu, whereas the capabilities of cities, States and even the Centrethe spot imported liquefied natural gas (LNG) price to manage the process of urbanisation. Urban gover-is around $11–14 per MMBtu. Producers argue that nance is very weak, with poor coordination amongstunless they are assured of prices linked to world the many agencies that must work together to createprices, no investment will take place in this sector. and maintain good functioning habitats. PersonnelThe government has appointed an expert commit- and institutional capabilities for urban managementtee under Dr. C. Rangarajan to advise on the form have to be developed on a massive scale across theof NELP contracts. The Committee is expected to country. Capabilities for planning locally are woe-submit its report very shortly and it is hoped that it fully inadequate, which is leading to projects notwill recommend steps to introduce clarity about the aligned with local priorities and poor coordinationpolicy regarding pricing of gas without which new amongst separate initiatives.investment may be inhibited. 1.166. Since overall government resources are lim-Urbanisation ited and must be applied to other priority sectors1.164. More effective management of the process of such as health and education, it is necessary that cit-urbanisation in the country will be critical for more ies, especially the larger ones, and progressively eveninclusive, more sustainable and faster economic the smaller ones, are encouraged and enabled to drawgrowth. Urbanisation is a natural part of the devel- resources from the market and the private sector.opment process because cities provide substantial For this, they must improve their governance andeconomics of scale and of agglomeration. In India ability to implement projects. They will also have tothe cities are also effective drivers of inclusiveness manage their land resources more strategically, bothbecause barriers of caste, creed, and language are to ensure better land use and to secure what will bebridged in interconnected efforts by residents to a principal resource for their future financial needs.earn better livelihoods. At present, about 31 per cent They must become able to recover adequate serviceof the population, that is, about 380 million, live in charges, and equitably, from their inhabitants, whichurban areas and this will increase to about 600 mil- will require them to demonstrate an ability to deliverlion by 2030. Providing reasonable quality services better and more reliable services. The concept ofto the growing urban population presents a major PPPPs, which systematically put local citizens intochallenge. Urban services are very poor, particularly the partnership framework must be applied.sanitation, solid waste removal, water, roads andpublic transportation. Affordable, decent housing is 1.167. The strategies for improving the manage-woefully inadequate in all Indian cities, leading to ment of urbanisation are explained in Chapter 14.the formation of slums, health and living conditions A new JNNURM-II incorporating the learning fromin which are aggravated by poor water and sanitation JNNURM-I will be a major feature of the Twelfthservices. Plan. It must give priority to the strengthening of human and institutional capabilities, local plan-1.165. The Jawaharlal Nehru National Urban ning and improvements in governance, which areRenewal Mission-II (JNNURM-II) was a landmark the foundations for a more financially and environ-initiative because it put India’s urban agenda centre mentally sustainable and a more inclusive process ofstage. It set about providing resources to the States governance.linked to incentives for reforms which would trig-ger to focus on improvements to cities and towns. MONITORABLE TARGETS FOR THE PLANThe seven years’ experience with JNNURM has been 1.168. The aspirations and challenges that guide thea substantial learning experience which has also Twelfth Plan have been discussed in the body of thisrevealed weaknesses in the governance systems and chapter and strategies for meeting these aspirations
  • 39. Twelfth Plan: An Overview 35are spelt out in detail in the individual Chapters of SCs, STs, Muslims and the rest of the population)the Plan. To focus the energies of the government by the end of Twelfth Five Year Plan.and other stakeholders in development, it is desir-able to identify monitorable indicators, which can Healthbe used to track the progress of our efforts. Given 10. Reduce IMR to 25 and MMR to 1 per 1000 livethe complexity of the country and the development births, and improve Child Sex Ratio (0–6 years)process, there are a very large number of targets to 950 by the end of the Twelfth Five Year Plan.that can and should be used. Most of these are dis- 11. Reduce Total Fertility Rate to 2.1 by the end ofcussed in the sectoral chapters. However, there is a Twelfth Five Year Plan.core set of indicators which could form the objec- 12. Reduce under-nutrition among children agedtives towards which all development partners can 0–3 years to half of the NFHS-3 levels by the endwork, which includes not only the Central and State of Twelfth Five Year Plan.Governments, but also local governments, CSOs andinternational agencies. Infrastructure, Including Rural Infrastructure 13. Increase investment in infrastructure as a per-1.169. Twenty-five core indicators that are listed centage of GDP to 9 per cent by the end ofbelow reflect the vision of rapid, sustainable and Twelfth Five Year Plan.more inclusive growth: 14. Increase the Gross Irrigated Area from 90 mil- lion hectare to 103 million hectare by the end ofEconomic Growth Twelfth Five Year Plan. 1. Real GDP Growth Rate of 8.2 per cent. 15. Provide electricity to all villages and reduce 2. Agriculture Growth Rate of 4.0 per cent. AT&C losses to 20 per cent by the end of Twelfth 3. Manufacturing Growth Rate of 10.0 per cent. Five Year Plan. 4. Every State must have a higher average growth 16. Connect all villages with all-weather roads by the rate in the Twelfth Plan than that achieved in the end of Twelfth Five Year Plan. Eleventh Plan. 17. Upgrade national and state highways to the min- imum two-lane standard by the end of TwelfthPoverty and Employment Five Year Plan. 5. Head-count ratio of consumption poverty to be 18. Complete Eastern and Western Dedicated reduced by 10 percentage points over the pre- Freight Corridors by the end of Twelfth Five ceding estimates by the end of Twelfth Five Year Year Plan. Plan. 19. Increase rural tele-density to 70 per cent by the 6. Generate 50 million new work opportunities in end of Twelfth Five Year Plan. the non-farm sector and provide skill certifica- 20. Ensure 50 per cent of rural population has access tion to equivalent numbers during the Twelfth to 55 LPCD piped drinking water supply and 50 Five Year Plan. per cent of gram panchayats achieve the Nirmal Gram Status by the end of Twelfth Five YearEducation Plan. 7. Mean Years of Schooling to increase to seven years by the end of Twelfth Five Year Plan. Environment and Sustainability 8. Enhance access to higher education by creating 21. Increase green cover (as measured by satellite two million additional seats for each age cohort imagery) by 1 million hectare every year during aligned to the skill needs of the economy. the Twelfth Five Year Plan. 9. Eliminate gender and social gap in school enrol- 22. Add 30000 MW of renewable energy capacity in ment (that is, between girls and boys, and between the Twelfth Plan.
  • 40. 36 Twelfth Five Year Plan23. Reduce emission intensity of GDP in line with by the end of the Twelfth Plan, using the Aadhar the target of 20 per cent to 25 per cent reduction platform with linked bank accounts. by 2020 over 2005 levels. 1.170. States are encouraged to set state-specific tar-Service Delivery gets corresponding to the above, taking account of24. Provide access to banking services to 90 per cent what is the reasonable degree of progress given the Indian households by the end of Twelfth Five initial position. Sector-wise growth targets for each Year Plan. State are given in Chapter 11.25. Major subsidies and welfare related beneficiary payments to be shifted to a direct cash transfer
  • 41. 2Macroeconomic FrameworkINTRODUCTION strong, and the economy can return to 8–9 per cent2.1. The Eleventh Plan (2007–12) had targeted an growth depending on the state of the global econ-average annual growth of 9 per cent, significantly omy and the domestic policy response to overcomehigher than the realised rate of 7.6 per cent in the growth constraints.Tenth Plan (2002–07), but broadly in line with theacceleration of economic activity and growth expe- THE DETERMINANTS OF GROWTHrienced after 2004–05. The Plan began well, with 2.3. The growth potential of the economy over a five9.3 per cent growth in 2007–08, but the global finan- year period depends upon a number of factors. Thesecial crisis of 2008 reduced growth to 6.7 per cent in include the capacity of the economy to maintain high2008–09. The economy rebounded well initially, to rates of investment, while also ensuring productiverecord 8.4 per cent growth in 2009–10, and again use of capital. This in turn depends upon investorin 2010–11. However, the downturn in the global expectations and the ability to mobilise financing foreconomy in 2011 due to the sovereign debt crisis in investment. The existence of a dynamic entrepre-Europe combined with the emergence of domestic neurial and managerial class capable of taking risksconstraints on investment in infrastructure reduced and dealing with competitive pressure is an impor-gross domestic product (GDP) growth to 6.5 per cent tant positive feature of our economy. It also dependsin 2011–12. As a result, the average growth over the upon the quality of public sector managers respon-five years of the Eleventh Plan was only 7.9 per cent. sible for investment and productivity in the public sector, which remains important in many areas of2.2. Achieving 7.9 per cent growth in a period which the economy. We have good reason to be optimisticsaw two global crises, one in 2008 and another in on all these counts as evidenced by the fact that we2011 is commendable. However, the deceleration is grew rapidly between 2003–04 and 2008–09, and thealso a matter of concern, especially since growth in Indian enterprise has also begun to expand its global2011–12 showed a continuous deceleration quarter presence.by quarter during the year, with the last quarter of2011–12 registering a year on year growth rate of 2.4. Growth also depends on the availability ofonly 5.3 per cent. The preliminary estimates for the labour in adequate quantities, and with the rightfirst quarter of 2012–13 show a growth of 5.5 per kind of skills to support rapid growth. We have thecent, which is only marginally higher, suggesting that benefit of a demographic dividend because the agethe first year of the Twelfth Plan will see relatively structure of the population ensures that the labourlow growth momentum. However, weak short-term force will be growing in India even as it is falling inperformance should not lead to pessimism about the most industrialised countries, and even in China.medium term. There is good reason to believe that However, the level of skills of the labour force needsthe fundamentals of the Indian economy remain to be enhanced. Skill shortages did emerge during
  • 42. 38 Twelfth Five Year Planour period of high growth and this is an area to Growth Prospects in the Twelfth Planwhich the government is according high priority. 2.8. Ideally, we should be able to explore the interac- tion of different determinants of growth through the2.5. The external environment also affects the use of quantitative economic models, which couldgrowth potential since it determines the scope for illustrate the effect of different policy alternatives.exports to grow and thus contribute to the expansion However, it is well recognised that no single modelof domestic economic activity. It also determines the will capture all possible interactions. The Planningextent to which the economy can finance a current Commission, therefore, relies upon a number ofaccount deficit through non-debt flows, especially different models constructed by different researchForeign Direct Investment (FDI), which often serves institutions which emphasise different aspects of theas an instrument for technological up-gradation and interaction between growth variables. The synthe-modernisation. sis view that emerges from this exercise, and, from internal discussions within the Commission, is that2.6. The acceleration of economic growth has been it is possible for the economy to work its way outexamined in detail in many studies. The accumu- of the current slowdown and restore high growth,lation of capital and labour stocks, as well as the but this will take time and a number of hard policymanner in which these stocks are used, that is pro- decisions. The macroeconomic conclusions whichductivity, has been the subject of intensive study. emerge from this exercise are summarised in thisGlobal experience suggests that different countries Chapter.have drawn their growth acceleration in somewhatdifferent proportions from factor accumulation and 2.9. Since the growth in the first year of the Plan isfrom Total Factor Productivity (TFP). The latter likely to range around 6.5 per cent, and the inter-is the residual that is not explained by factor accu- national economy is also expected to remain weakmulation and represents an array of elements from for the next two years, we need to plan for a grad-technology (both that embodied in capital and that ual build up to high growth in the succeeding twowhich is disembodied), to education and skills, to years, accelerating thereafter to take the economyinstitutions and public policy. back 9 per cent growth in the last year of the Plan. This backloaded trajectory of acceleration implies2.7. It is well known that emerging market countries that growth in the Twelfth Plan period as a wholehave the potential to accelerate growth substantially will at best average around 8.2 per cent. Any tar-by accelerating growth in TFP because they are gen- get that may be set now is bound to be subject toerally not at the productivity frontier, though their some uncertainty and downside risks, but it can beability to do so is not independent of the rate of said that given the past record of growth, a target ofinvestment. The higher the TFP, the better is the use 8.2 per cent is certainly feasible provided the worseof labour and capital stock. Economic reforms have case assumptions about the global economy do notalso increased efficiency of resource use in many sec- materialise, and positive assumptions about our owntors and studies show that there has been an increase ability to take hard decisions necessary to achieve ain TFP in the Indian economy over time, and that rapid and inclusive growth does.this improvement was greater in the past twodecades, especially in the past decade as compared 2.10. The need to take hard decisions to return toto the previous periods. There is also considerable high growth follows from the fact that we cannotscope for further efficiency gains especially from use assume the earlier rapid growth will re-emerge inof IT-based technology, such as geographic infor- the future. This is because several critical constraints,mation system (GIS) based systems, to increase the which emerged as the economy accelerated, andefficiency with which we create and operating public which visibly constrain our growth potential, haveinvestments. These are important reasons for being to be effectively tackled. Among these constraintsoptimistic about future growth in India. are macroeconomic constraints that limit our ability
  • 43. Macroeconomic Framework 39to increase investment and savings, and to finance in institutions can cause increasing impatience inthe current account deficit, which is the difference the country, especially amongst younger people,between the two. These are discussed in greater detail and leads to protests, sometimes turning violent.in this Chapter. There are also sectoral constraints (The increasing impatience and protest is fuelled byrelating to the availability of energy, transport, water, the ubiquity of media and the explosion of infor-land and employable skills, and constraints relating mation.) The lack of trust can create a political log-to the business environment. These are discussed in jam, which makes reforms that the system needsother chapters of the Plan document. that much more difficult. This reduces performance which in turn increases impatience and further2.11. Before discussing the macroeconomic con- reduces the credibility of the country’s institutions,straints or achieving 8.2 per cent growth, it is useful and trust in them.to point out that growth is also affected by social andpolitical forces, which are not easy to quantify. These 2.14. This type of systems’ analysis helps locate theforces determine the acceptability of economic poli- ‘leverage points’ at which decision-makers can actcies and consequently the pace at which they can be to break the system out of its negatively reinforc-implemented, all of which affect the determinants of ing loops. For example, merely asking citizens to begrowth such as investment rates and the pace of pro- more patient and trust their leaders will not increaseductivity improvement. Indeed, the decline in invest- trust and patience. However, credible improvementment and growth in recent years is attributed to the in the conduct of government (and business) insti-country’s internal social and political environment, tutions can increase citizens’ trust, dampen protest,which is preventing India from realising what pure ease the political logjam and enable policy reformseconomics would suggest is its full growth potential. that are required to improve the condition of gov-These influences are not easy to build into quanti- ernment’s finances and induce economic growth.tative models. However, the Planning Commission Thus, analysis locates the leverage points as also thehas attempted, for the first time, to reflect the impact forces on which action can be taken to influence theof these forces by using the technique of ‘scenario condition of others. These are seen in the middle ofplanning’. Figure 2.1.Defining Alternative Scenarios 2.15. Figure 2.1 shows that in the present situation2.12. Scenario planning is designed to make a quali- one of the key leverage points lie in the design andtative assessment of the forces that affect the econ- conduct of institutions of governance and business,omy, but cannot be easily quantified, such as social including the policy framework with which businessand political forces and conditions of institutions. works and the signals to which it responds. ChangeScenario planning cannot predict exact numerical at these leverage points can affect other conditionsoutcomes of different scenarios, but it can project of the system positively, generating positive feedbackthe trends of the economy, depending on how the loops. Economists, such as Nobel Laureates Douglassprincipal sociopolitical forces take shape. North and Elinor Ostrom have explained that ‘insti- tutions’ are both the guiding ideas and norms of soci-2.13. Figure 2.1 is a graphic presentation of some of eties as also the ‘organisations’ with significant rolesthe interconnections that were analysed to explain in governance. In our analysis, we have describedthe principal forces shaping India’s economy in dif- these combinations as ‘Governance Models’ andferent scenarios. The arrows indicate the primary ‘Business Models’. The analysis of scenarios for Indiadirection of influence, though in many cases, the has revealed three critical features of governanceinfluence is circular over time generating ‘feedback and business models that are impacting the pace ofloops’ within a system. Consider the interactions inclusion, equitable use of our natural resources,between ‘Lack of Trust in Institutions’, ‘Impatience environmental sustainability and economic growth.and Protest’ and ‘Political LogJam’. Lack of trust These are:
  • 44. 40 Twelfth Five Year Plan Impatience & Governance Availability of Protest Models Earth’s Resources Lack of Trust in Institutions Science and Political Logjam Business Models Innovation Outcome: Pace and Outcome: State of Pattern of Inclusion Nation’s Finances Outcome: GDP External Forces Growth FIGURE 2.1: Systems Analysis for Twelfth Plan Scenarios1. The approach we take to ‘Inclusion’: More subsi- strategy addressing the key constraints holding back dies or more widespread generation of opportu- the economy. With appropriate steps taken to deal nities for better livelihoods? with implementation and governance problems, the2. The approach we take to ‘Governance’: Will we wheels of government at all levels begin to move strengthen local, community-based and collab- more smoothly. Local governance institutions and orative governance rapidly? small enterprises are nurtured and have an opportu-3. The strategies we adopt towards energy and nity to grow effectively, along with larger enterprises. environment (as well as structure of programmes Livelihood opportunities, along with community- and enterprises): Big projects and centralised based solutions and enterprises for addressing envi- programmes, or more community-based solu- ronmental issues, are seen to be sprouting. Many tions and enterprises? virtuous circles begin to operate in this scenario, raising confidence and trust. In this scenario, growth2.16. Scenarios are not predictions. They are projec- could average 8.2 per cent and inclusiveness wouldtions of plausible outcomes of alternative courses of be assured.action. They point to strategies that have more like-lihood of producing the desired results. Therefore, Scenario 2depending on the strategies we choose and imple- 2.18. Insufficient Action: This scenario reflects thement, we can envisage different outcomes for the outcome of insufficient policy action. While broadcountry’s progress. Three alternative scenarios are direction of policy may be endorsed at differentdescribed in the following paragraphs. levels, action is incomplete or implementation is poor, with the result that outcomes are weaker thanScenario 1 anticipated. Centralised government systems do not2.17. Strong Inclusive Growth: This is the future provide sufficient flexibility to cope with demandsof India if we can implement a well-designed for decentralisation. Small enterprises and new
  • 45. Macroeconomic Framework 41entrepreneurs need to be encouraged, but unless the and 2009–10 was twice as fast as that between 1993–business environment necessary for them to flourish 94 and 2004–05. For details see the analytic noteis effectively transformed, the outcome will fall short on ‘Poverty—Measures and Changes Therein’ inof expectations. The policy conflict between subsi- Annexure 2.1.dies and financial stability of the economy remainsunresolved. In this scenario, growth of 8.2 per cent is Sectoral Pattern of Growthnot feasible. Growth could decline to between 6 per 2.22. The sectoral pattern of growth associated withcent and 6.5 per cent, and inclusiveness would suffer. the 8.2 per cent growth scenario is summarised in Table 2.1. The Agriculture Forestry and FishingScenario 3 Sector is projected to grow at 4 per cent, an improve-2.19. Policy Logjam: This scenario reflects a situation ment over the 3.3 per cent rate achieved in thewhere very little can be done for whatever reason on Eleventh Plan. A detailed analysis of the constraintsmany of the policy fronts identified in the Twelfth on growth and policy imperatives in the sector isPlan. It will be difficult to build growth momentum given in Chapter 12 which concludes that 4 per centif critical supply constraints relating to energy and growth is feasible.transport are not overcome. Investor confidence islikely to be severely eroded, and the lack of inclu- 2.23. The Mining and Quarrying Sector grew bysiveness that results will lead to increased impa- only 3.2 per cent in the Eleventh Plan, the growthtience and political logjam, putting the economy rate being pushed down by negative growth ofunder severe stress. Vicious cycles begin to operate 0.9 per cent in 2011–12 reflecting problems in theand the growth rate can drift down to 5–5.5 per cent iron ore sector, gas production and also coal. Thewith serious loss on the inclusiveness front. In some Twelfth Plan assumes a substantial improvementways, there is a danger of insufficient action scenario with the growth rate averaging 7.2 per cent. This willdegenerating into a policy logjam scenario, if it per- require serious attention to the many constraintssists too long. that have bedevilled growth in this sector.2.20. Clearly, Scenario 1: Strong inclusive growth 2.24. The manufacturing sector decelerated in theis the only way for the country to go and the policy course of the Eleventh Plan with a growth rate ofagenda laid out in the Plan is designed to achieve only 2.5 per cent in 2011–12. A robust reversal ofthis objective. The outcomes of the three scenarios, this trend is essential for a return to rapid growthin terms of the pace of inclusion, the confidence of and especially the growth with inclusiveness sincepeople in country’s institutions, as also the govern- the growth of manufacturing opportunities dependsment’s finances and the GDP, are not easily quan- critically on this revival. The Plan projects a steadytified, but their broad direction can be clearly seen. acceleration with the growth rate reaching 10 perMore information is available in the document, cent in the last two years. The average growth rate‘Scenarios: Shaping India’s Future’, that accompanies in the Twelfth Plan period is projected at 8 per centthis Plan document, and is posted on the Planning which is a significant improvement over the achieve-Commission’s website. ment of 6.9 per cent in the Eleventh Plan. An average growth rate of 8 per cent in manufacturing is rela-2.21. It is difficult to predict what the precise impact tively low, but it reflects the fact that the Twelfth Planof different scenarios on poverty will be. However, begins with a base year growth of only 2.5 per cent inpast trends indicate what ‘strong inclusive growth’ 2011–12. Over the longer run, the aim should be tocan achieve on this front. Consumption Poverty achieve a sustained double digit growth in manufac-in India is measured on the basis of Household turing sector.Consumption Survey, conducted quinquennially(after a gap of every five years). Evidence suggests 2.25. Electricity, gas and water supply are projecteddecline in poverty headcount ratio between 2004–05 to grow at 7.8 per cent on an average compared
  • 46. TABLE 2.1 Annual Growth Rate of GDP by Industry of Origin at Constant (2004–05) Prices (Unit: Per Cent) Eleventh Plan period Twelfth Plan period 2007–08 2008–09 2009–10 2010–11 2011–12 Average 2012–13 2013–14 2014–15 2015–16 2016–17 Average 1 Agriculture, forestry 5.8 0.1 1.0 7.0 2.8 3.3 0.5 6.0 4.5 4.5 4.5 4.0 and fishing 2 Mining and quarrying 3.7 2.1 6.3 5.0 –0.9 3.2 4.4 7.5 7.5 8.0 8.5 7.2 3 Manufacturing 10.3 4.3 9.7 7.6 2.5 6.9 4.5 7.5 8.0 10.0 10.0 8.0 4 electricity, gas and 8.3 4.6 6.3 3.0 7.9 6.0 8.0 7.0 8.0 8.0 8.0 7.8 water supply 5 Construction 10.8 5.3 7.0 8.0 5.3 7.3 6.5 7.5 8.0 10.0 11.0 8.6 6 Trade, hotels and 10.1 5.7 7.8 9.0 9.0a 8.3 8.0 8.2 8.5 8.7 8.7 8.4 restaurant 7 Transport, storage and 11.9 10.8 14.8 14.7 11.5a 12.7 11.3 11.9 12.2 11.8 11.8 11.8 communication 6+7 8 Financing, insurance, 11.9 12.0 9.4 10.4 9.6 10.7 9.5 9.5 9.5 9.7 10.0 9.6 real estate and business services 9 Community, social 6.9 12.5 12.0 4.5 5.8 8.4 7.0 6.0 6.5 7.0 7.0 6.7 and personal services Total GDP 9.3 6.7 8.4 8.4 6.5 7.9 6.7 8.1 8.2 8.8 9.0 8.2 Industry (2–5) 9.7 4.4 8.4 7.2 3.4 6.6 5.3 7.5 8.0 9.7 10.0 8.1 Services (6–9) 10.2 10.0 10.2 9.3 8.9 9.8 8.9 8.8 9.1 9.3 9.4 9.1Note: aEstimated.
  • 47. Macroeconomic Framework 43with 6 per cent achieved in the Eleventh Plan. 2.27. The fixed investment rate fell after 2007–08,Construction, which grew at 9 per cent in the initially on account of global factors, and later alsoEleventh Plan, is projected to grow at an average owing to difficulties in the domestic arena whichrate of 8.4 per cent, again presumably because of affected the pace of implementation of projects. Thethe depressed level at the start of the Plan period. initial estimate for the GFCF rate in 2011–12 at con-The other service sectors are projected to grow stant prices is 32 per cent. The rate of gross domes-fairly robustly with Trade Hotels and Restaurants at tic capital formation (GDCF), which includes stocks8.4 per cent; Transport, Storage and Communication and valuables, but not other errors and omissions,at 11.8 per cent; Insurance and Business Service at is 37.9 per cent, of which valuables is 2.8 per cent9.6 per cent, and, finally, Community and Personal of GDP.Services at 6.7 per cent. 2.28. For annual output growth to average 8.2 perINVESTMENT cent in the Twelfth Plan period, and to approach2.26. The ability to raise the rate of investment (ratio 9 per cent in the terminal year, it is estimated thatof gross fixed capital formation [GFCF)] to GDP) the fixed investment rate will have to increase byis widely regarded as critical for the achievement about 3.0 percentage points of GDP over the levelof high growth. As shown in Figure 2.2, the period in 2011–12. The resulting trajectory of fixed invest-when the economy grew rapidly after 2003–04 and ment over the Plan period is shown in Table 2.2. Theup to 2007–08 was a period when the investment rate fixed investment rate should increase to 35 per centincreased. The fixed investment rate rose steadily of GDP (at constant prices) by the end of the Twelfthafter 2003–04 and peaked at close to 35 per cent in Plan, yielding an average fixed investment rate of2007–08. Total capital formation—which includes 34 per cent of GDP for the Twelfth Plan period asinventories and investment in valuables—was higher a whole. These levels are marginally higher thanat 39 per cent in that year, but for growth what mat- what was achieved in the Eleventh Plan but they areters is the fixed investment. broadly consistent with achieving an average real 35% 30% 25% 20% 15% 10% 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 FIGURE 2.2: Fixed Investment Rate—Ratio to GDP—Over the Years
  • 48. TABLE 2.2 Investment and Consumption Expenditure as Proportion of GDP at Constant 2004–05 Prices Eleventh Plan period Twelfth Plan period 2007–08 2008–09 2009–10 2010–11 2011–12 Average 2012–13 2013–14 2014–15 2015–16 2016–17 Average Ratio to GDP in Per Cent Fixed investment rate 33.7 33.5 33.1 32.5 32.0 32.9 32.4 33.6 34.4 34.6 35.0 34.0 a Public 8.2 8.8 8.6 8.3 8.2 8.4 8.4 8.5 8.4 8.4 8.4 8.4 a Private corporate 15.0 11.3 12.0 11.5 11.1 12.2 11.5 12.6 14.0 14.4 14.8 13.5 Household 10.5 13.5 12.5 12.7 12.6a 12.4 12.5 12.5 12.0 11.8 11.8 12.1 Stocks 4.1 1.9 2.9 3.7 3.5 3.2 3.5 3.5 3.5 3.5 3.5 3.5 Valuables 1.1 1.4 2.0 2.4 2.5 1.9 2.1 1.9 1.7 1.6 1.5 1.8 GDCF 38.9 36.8 38.0 38.5 37.9 38.0 38.0 37.0 39.6 39.7 40.0 39.3 Errors and omissions 0.1 –1.3 0.5 –0.8 –0.7a –0.4 Investment rate 39.0 35.5 38.5 37.7 37.9a 37.6 38.0 39.0 39.6 39.7 40.0 39.3 Annual Real Growth Rate Per Cent Private consumption exp. 9.2 7.1 7.0 8.1 5.5 7.4 6.5 7.0 7.5 8.0 8.0 7.4 Govt consumption exp. 9.6 10.4 14.3 7.8 5.1 9.4 5.1 5.5 6.0 6.6 6.6 6.0 Total consumption exp. 9.3 7.6 8.1 8.1 5.4 7.7 6.3 6.8 7.3 7.8 7.8 7.2 Ratio to GDP in Per Cent Private consumption exp. 58.3 60.2 59.4 58.7 57.9 58.9 57.8 57.2 56.8 56.4 55.9 56.8 Govt consumption exp. 10.3 11.0 11.6 11.4 11.2 11.1 11.0 10.8 10.6 10.3 10.1 10.6 Total consumption exp. 68.7 71.1 71.0 70.1 69.1 70.0 68.8 68.0 67.4 66.8 66.0 67.4Note: aEstimated.
  • 49. Macroeconomic Framework 45growth rate of above 8 per cent, allowing for accel- fixed investment rate has to pick up in the Twelftheration in growth in the course of the Plan period, Plan, there has to be a recovery in private corporateand implying a significant relaxation in the physical fixed investment. Table 2.2 shows a gradual build-upconstraints that limit the economy in infrastructure in private corporate investment to 11.5 per cent inand other key sectors. 2012–13 and then rising steadily to touch 14.8 per cent—a little below the peak value achieved in2.29. Over the past decade and a half, price inflation 2007–08—in the last year of the Twelfth Plan. Thisin capital goods has lagged that in the overall econ- would produce an average of 13.5 per cent for theomy. As a consequence, the rates of capital forma- Twelfth Plan as a whole; higher than the average oftion at constant prices have tended to exceed that 12.2 per cent in the Eleventh Plan.when measured at current prices. In the base yearof the Twelfth Plan, the investment rate at constant 2.32. It must be noted that a large part of private cor-prices is about 2 percentage points lower than in cur- porate investment is now in the field of infrastruc-rent prices. The savings investment balancing must ture—power generation, roads, ports, airports andof course be achieved at current prices. telecommunications—and a lot of it is in the Public– Private Partnership (PPP) mode. The robust growthComposition of Investment in private corporate investment is in part a reflection2.30. The composition of fixed investment by source of the strategy of increasing the share of investmentis also shown in Table 2.2. The public fixed invest- devoted to infrastructure and the recognition thatment rate (mostly investment by public enterprises) private investment has to play a large part in this.averaged 8.4 per cent in the Eleventh Plan, with a Higher investment in infrastructure is critical for therange of 8.2–8.8 per cent. It is projected to remain revival of the investment climate as it would lead toroughly in this range in the Twelfth Plan period enhanced investment in manufacturing.averaging 8.4 per cent. Household fixed investment(which includes unincorporated business) averaged Gross Capital Formation12.4 per cent in the Eleventh Plan, with a range of 2.33. To move from GFCF to gross capital forma-10.5–13.5 per cent. For the Twelfth Plan, household tion we need to add increase in inventory and invest-fixed investment is projected to average 12.1 per cent ment in valuables. Increase in inventory averagedfor the Plan period as a whole, it begins higher at 3.2 per cent of GDP in the Eleventh Plan, at con-12.5 per cent in the first two years, slowly reducing stant (2004–05) prices. However, if the crisis year ofto 11.8 per cent in the final year of the Plan as the 2008–09 is excluded (there is very large drawingcorporate sector expands its share. down of inventories in crisis periods, as indeed had occurred in 2008–09), the average for the Eleventh2.31. Private corporate investment has been the Plan period is 3.5 per cent of GDP. For the Twelfthmajor driver of investment in recent years. In 2003–04 Plan period the increase in inventories is projected toprivate corporate fixed investment (at constant account for 3.5 per cent.1999–2000 prices) was only 6.2 per cent of GDP,while the overall fixed investment rate was 27.1 per 2.34. Investment by households in valuables referscent. It rose to 9.1 per cent (at constant 2004–05 mainly to gold and silver. Import of gold and silverprices) in 2004–05 and 11.9 per cent in 2005–06. aggregated nearly $62 billion in 2011–12, most ofThe overall fixed investment rate increased to which was ‘investment’ made by households. Until28.7 per cent in 2004–05 and to 30.5 per cent in 2007–08, this represented around 1.0–1.3 per cent2005–06. Private corporate investment averaged of GDP and even in the crisis year of 2008–09 the12.2 per cent in the Eleventh Plan but it was at a peak ratio was 1.4 per cent. Thereafter, it has increasedof 15.0 per cent in 2007–08, that is, the first year of very sharply perhaps reflecting the assessment thatthe Eleventh Plan and declined in subsequent years inflation had increased and the rupee was likely toto an estimated 11 per cent in 2011–12. If the overall come under pressure, combined with a fall in the
  • 50. 46 Twelfth Five Year Planpenetration of other financial savings products, satisfactorily. Almost half the capacity in the Twelfththereby making gold an attractive asset. It is esti- Plan is projected to come from the private sector andmated at constant prices to be 2.4 per cent of GDP the position is likely to be the same in the Thirteenthin 2011–12. With the exchange rate depreciation that Plan. Private sector investors in power generationhas occurred, and the initiatives to improve the avail- have faced many problems in recent times. Theyability of financial savings products and expected include (i) inadequate supply of domestic coal andmoderation in inflation, the proportion of invest- unanticipated increase in prices of imported coal;ments in valuables is expected to steadily decline to (ii) difficulties with clearances for captive mines, as1.5 per cent of GDP in 2016–17. The average for the well as for generating stations; (iii) land availability;Twelfth Plan period is projected to be around 1.8 per (iv) poor financial health of some state electricity dis-cent, slightly lower than the 1.9 per cent of GDP reg- tribution companies which are the main customers,istered over the Eleventh Plan period. and which suffer from insufficient tariff adjustment plus inefficiencies in collection; (v) inadequate avail-2.35. As shown in Table 2.2, the aggregate GDCF ability of domestic natural gas; (vi) inadequate fuelin the Eleventh Plan at constant 2004–05 prices supply agreements for coal and (vii) more recently,amounted to 37.6 per cent of GDP (including errors difficulties in obtaining finance from both externaland omissions item of (–)0.4 per cent). The projec- and domestic sources. Several steps have been takentions as outlined above for the Twelfth Plan would to resolve the problems that are negatively impactingresult in a higher average of 39.3 per cent of GDP. fresh private investment in the power sector. A strictHowever, in the first year of the Plan, the ratio is timeline needs to be maintained to achieve all oflikely to be lower than the Eleventh Plan average, but these measures. These issues are discussed in detailit is then expected to move up to touch 40 per cent in Chapter 14.by the end of the Twelfth Plan. At current prices, theincrease in GDCF would be somewhat less, moving 2.38. Investment in road development has seen suc-up from 36.2 per cent of GDP in the Eleventh Plan to cesses in both the Central and State Sectors. Therearound 37.0 per cent in the Twelfth Plan period. It is was a return to buoyancy in 2011–12, with contractsthis ratio that is relevant for financing. awarded for nearly 8000 km as against the target of 7300 km. We need to be able to accelerate the paceThe Role of Infrastructure Investment in of progress in the coming years. The Railways alsoAccelerating Growth require considerable investment to achieve the2.36. A key component of the overall strategy for expansion in capacity needed and also to moder-raising the rate of fixed investment is an increase in nise and improve safety. The Delhi Mumbai Freightpublic and private investment in infrastructure. This Corridor has external funding, but other investmentsis because enhanced investment in infrastructure are constrained by inadequacies of internal resourceswill ease some of key supply constraints on growth of the Railways, largely the consequence of frozenand it is also the area where progress is most likely to and uneconomic tariffs on passenger routes. On theincrease investor confidence. Several things need to freight side, Railways make a surplus, but transportbe accomplished in order to facilitate this. services need to adapt more to customer require- ments. There is a lot of potential and need for con-2.37. The most important sector in infrastructure is structive change.the power sector. There is about 90 GW of capacityunder various stages of construction and attending 2.39. Many ocean port projects are pending due toto the outstanding issues facing these projects must clearances and other decisions that are in the domainbe given a high priority. However, given the time lag of government. It is vital that we smoothen out theinvolved in implementing power projects, it is time path ahead for the port sector. The New Mumbaito ensure that projects which will be commissioned International Airport is yet to be bid out. There areonly in the Thirteenth Plan can also move ahead several problems involved, but we need to get the
  • 51. Macroeconomic Framework 47process off the ground. There are many other air- additional cost of compliance is perhaps a necessaryports, small and big, that need to be developed in the cost that will have to be borne and can be partly off-Twelfth Plan. The Airport Authority has completed set by greater efficiency elsewhere.several terminal buildings and modernised these air-ports. The rest need to be taken up, if possible with SAVINGSprivate partners. In addition, there are many small 2.43. The high levels of investment projected for theairports and landing strips which hold potential for Twelfth Plan have to be financed through a combi-the purpose of extending connectivity and spreading nation of domestic savings and net foreign inflow.of business opportunities. However, we have to work The prospects of each of these components playingout a framework for executing of these projects and their expected role in the Twelfth Plan period andalso develop a sub-model for air transport linkages facilitating the level of investment projected are dis-to these dispersed and smaller airports. cussed in the following sections.2.40. Inland water transport has been neglected Trends in Domestic Savingsand needs to be accelerated. There are large gains to 2.44. A strong domestic savings performance hasbe had in terms of efficiency, if we can get some of been one of the strengths of the Indian economy forthe river-ways to become meaningfully functional. several years. As evident from Figure 2.2, the sav-Coastal shipping also has considerable potential. ings rate has undergone deep transformation rising from less than 20 per cent of GDP in 1980 to around2.41. Connectivity is especially crucial to our north- 25 per cent in the 1990s and to over 30 per cent in theeastern region, both between themselves and to second half of the last decade. It reached a peak valueMyanmar and Bangladesh. We are working on of 36.8 per cent in 2007–08, after which it droppeda multi-modal connection through Ashuganj in to 33.8 per cent in 2009–10 and 32.7 per cent inBangladesh to Tripura and the Sithwe–Kaladan 2010–11. It is expected to have come down furtherRiver Project to Lunglei in Mizoram. We need to to about 30.5 per cent in 2011–12. Thus the aggre-energise the reconditioning and reconnections of gate savings rate declined by 6.3 percentage pointsthe other road networks through Moreh (Manipur) between 2007–08 and 2011–12.and Ledo (Assam) to Myanmar. This can then linkup further to Thailand and to the road network sys- 2.45. Two factors were principally responsible fortem in South East Asia. Our development partners raising the domestic savings rate in the period up toincluding Association of Southeast Asian Nations 2007–08. One was the big improvement in govern-(ASEAN) and Asian Development Bank (ADB) are ment finances and the other was the improvementlikely to be supportive of this. in the level of retained earnings of the private cor- porate sector. Between 2001–02 and 2007–08, the2.42. Infrastructure capacity creation has suffered savings of government administration improvedfrom implementation problems. It is vitally impor- from minus 6.0 per cent of GDP to plus 0.5 per centtant that government makes strenuous efforts to of GDP—an improvement of 6.5 percentage points.ensure that buoyancy of private investment in This was equal to almost half of the 13.4 percent-infrastructure is returned. If that is achieved, it will age point improvement in the overall savings rate.catalyse balancing investments in a host of manu- The retained earnings of the private corporate sec-facturing activities and enable the economy’s fixed tor improved from 3.4–9.4 per cent of GDP—aninvestment rate to slowly return to its pre-2008 tra- increase of about 6.0 percentage points. There werejectory (as also the overall growth rate of the Indian also small increases in the savings by householdseconomy). Investment in infrastructure is some- and that by public sector enterprises. Householdtimes seen as running into environmental problems. savings comprise financial savings as well as physi-The reconciliation of these objectives may require cal savings that are directly made by households andhigher levels of investment than otherwise but this unincorporated enterprises such as house building,
  • 52. 48 Twelfth Five Year Plan 40% 35% 30% 25% 20% 15% 10% 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 FIGURE 2.3.: Domestic Savings Rate—Ratio to GDP—Over the Yearsfarm improvement and asset creation by unincorpo- by 1.5 percentage points while households savingsrated businesses. Gross financial savings by house- declined by 0.5 percentage points.holds improved by 2.3 percentage points, but thenso did the sector’s liabilities (mortgage, automobile A Savings Strategy for the Twelfth Planand other kinds of borrowing), so that net financial 2.47. The savings strategy in the Twelfth Plan mustsavings of the household sector increased by just be to reverse the decline in savings that occurred0.7 percentage points. However, the savings made after 2007–08 in order to finance the increase in theby the household sector directly in physical assets rate of investment projected for the Twelfth Plandeclined by about 0.5 percentage points. The total period. The Working Group on Savings for thesavings of this sector therefore, remained more or Twelfth Plan had made several projections based onless unchanged during this period as a percentage alternative values for economic growth and infla-of GDP. tion. It had projected the gross domestic savings rate to range between 36–37 per cent of GDP for the2.46. The decline in domestic savings rates after the Twelfth Plan period, depending on whether GDPcrisis of 2008 reflects deterioration in precisely the growth is 8 per cent or 9 per cent. On reviewingtwo elements, which had accounted for the increase these estimates, it was felt that it would suffice if theearlier. Between 2007–08 and 2011–12 the deterio- savings rate reaches 36.3 per cent in the last year ofration in the savings of government—flowing from the Plan as shown in Table 2.3. The projected aver-the fiscal stimulus given in the wake of the crisis— age level of the domestic savings rate for the Twelfthamounted to about 3 percentage points. Combined Plan is 34.2 per cent, slightly higher than the 33.1 perwith lower retained earnings by departmental and cent recorded in the Eleventh Plan.non-departmental enterprises, this reduced the sav-ings of the public sector by as much as 4.3 percent- 2.48. Factoring in capital inflows from abroadage points of GDP accounting for nearly two-thirds to cover the projected current account deficit ofof the fall of 6.5 percentage points in the domestic 2.9 per cent of GDP, the average investment rate forsavings rate. Savings by the private sector declined the Twelfth Plan period that can be sustained comes
  • 53. TABLE 2.3 Domestic Savings and Components Thereof in Per Cent of GDP at Current Prices Eleventh Plan period Twelfth Plan period 2007–08 2008–09 2009–10 2010–11 2011–12 Average 2012–13 2013–14 2014–15 2015–16 2016–17 Average Gross Savings in Financial 15.4 13.0 16.1 13.6 12.4a 14.1 13.5 14.6 15.5 15.8 16.0 15.1 Assets Increase in Financial 3.8 2.9 3.2 3.6 3.1a 3.3 3.4 4.0 4.3 4.4 4.5 4.1 Liabilities Net Household Financial 11.6 10.1 12.9 10.0 9.3a 10.8 10.1 10.6 11.2 11.4 11.5 11.0 Savings Household saving in 10.8 13.5 12.4 12.8 12.6a 12.4 12.7 12.7 12.2 12.0 12.0 12.3 physical assets Household savings total 22.4 23.6 25.4 22.8 21.9a 23.2 22.8 23.3 23.4 23.4 23.5 23.3 a Savings by the private 9.4 7.4 8.2 7.9 7.9 8.2 7.8 8.1 8.3 8.5 8.5 8.2 corporate sector Savings by the public 5.0 1.0 0.2 1.7 0.7a 1.7 1.1 1.9 2.7 3.6 4.3 2.7 sector Savings of government 0.5 –2.8 –3.2 –1.6 –2.6a –1.9 –2.2 –1.8 –1.2 –0.7 0.0 –1.2 administration Savings of departmental 0.6 0.4 0.3 0.3 0.3a 0.4 0.3 0.4 0.4 0.5 0.5 0.4 enterprises Savings of non- 3.9 3.3 2.9 3.0 3.0a 3.2 3.0 3.3 3.5 3.8 3.8 3.5 departmental enterprises Gross Domestic Savings 36.8 32.0 33.8 32.7 30.5a 33.1 31.7 33.3 34.4 35.5 36.3 34.2 Net Savings from Abroad 1.3 2.3 2.8 2.7 4.2 2.7 3.6 3.2 2.9 2.6 2.2 2.9 Finance for Investment 38.1 34.3 36.6 35.1 34.7 35.8 35.3 36.5 37.3 38.1 38.5 37.1Note: aEstimated.
  • 54. 50 Twelfth Five Year Planto about 37.1 per cent of GDP. This is roughly equal line with rising costs. More specifically, this has beento the rate of GDCF in current prices, as indicated the case with government-owned petroleum compa-above. nies and state owned electricity distribution compa- nies. The Working Group on Savings had projectedHousehold Savings that savings of the public sector would be around2.49. The gross financial savings of the household 2 per cent in 2012–13, and would average 3.5 persector is expected to average 15.1 per cent in the cent over the Twelfth Plan period. However, it nowTwelfth Plan going up from 13.6 per cent in 2010–11 appears that savings in the public sector would be(and an estimated 12.4 per cent in 2011–12), to 16.0 significantly lower at about 1.1 per cent in 2012–13,per cent at the end of the Twelfth Plan (2016–17). which would improve gradually to over 4 per cent inThe borrowings of the household sector from the 2016–17, yielding a Plan average of 2.7 per cent. Afinancial system are expected to increase from 3.6 per better performance would yield large positive poten-cent in 2010–11, and estimated 3.1 per cent in 2011– tial results since the government borrowing needs12 to 4.5 per cent in 2016–17. Thus, the net finan- could be curtailed freeing resources for productivecial savings of the household sector is expected to go uses in the economy. This is only possible if we canup from 10.0 per cent in 2010–11, and an estimated curb the subsidy bill particularly that associated with9.3 per cent in 2011–12 to 11.5 per cent in 2016–17, refined petroleum products, which has become sowhile the average for the Plan period is likely to be large that it is undermining the financial capacity of11 per cent. Investment by households in physical the government to spend on more socially worth-assets is expected to average 12.3 per cent of GDP while activities.in the Twelfth Plan. Thus, the total household sav-ings including both net financial and physical assets 2.52. The overall domestic savings rate is projectedare projected to average 23.3 per cent for the Twelfth to increase from an estimated 30.5 per cent in 2011–Plan period, nearly the same as in the Eleventh Plan 12 to 36.3 per cent in 2016–17, and average 34.2period. per cent for the Twelfth Plan period. This would be slightly higher than the 33.1 per cent recorded inPrivate Corporate Savings the Eleventh Plan period. Since the projected aver-2.50. Savings of the private corporate sector reached age investment rate (GDCF, including errors anda peak of 9.4 per cent of GDP in 2007–08, from omissions) in the Twelfth Plan (at current prices) iswhich it came down as profits came under pressure 37.0 per cent and the projected gross domestic sav-from the crisis, growth slowed down and input costs ings is 34.1 per cent, the net external financingrose. The average for the Eleventh Plan period was needed for macroeconomic balance should average8.2 per cent. It is expected that a gradual recovery in 2.9 per cent. This would be a significant reductionthe savings of the private corporate sector from 7.9 over the course of the Plan period from the high ofper cent in 2010–11 to 8.3–8.5 per cent in the final 4.2 per cent reported in 2011–12, the last year of thethree years of the Plan would give an average of 8.2 Eleventh Plan.per cent for the full Plan period. This is the same asthat in the Eleventh Plan. Projected Current Account Deficit 2.53. In this section, we review trends in the exter-Public Sector Savings nal sector to see whether the financing gap viewed2.51. The savings of the public sector comprise of from the balance of payments side is broadly con-the savings of government administration, surpluses sistent with the investment savings gap describedof departmental undertakings and retained earnings above. The opening up of the Indian economyof public sector enterprises. The first two are a func- has greatly increased the role of trade in the econ-tion of the extent of operating deficit in government omy. The ratio of merchandise exports to GDP infinance, and the third has been adversely impacted 1999–2000 was 8.3 per cent and that of importby losses arising from selling prices not increasing in was 12.3 per cent, while the net service export was
  • 55. Macroeconomic Framework 510.9 per cent. The sum of these three items in that in 2007–08, before going to over 2.5 per cent in eachyear (which has sometimes been used as a measure of the years after 2008–09. In 2011–12 the currentof openness) was 21.5 per cent. The extent of trade account deficit was at a record high of 4.2 per centintegration with the rest of the world has expanded of GDP though this reflects abnormally high goldvery significantly since 1999–2000. For the Tenth imports. For the Eleventh Plan as a whole the averagePlan (2002–07) period as a whole, merchandise current account deficit was 2.7 per cent of GDP.exports and imports rose to 11.7 and 15.7 per cent ofGDP respectively, and net service exports to 2.1 per 2.56. Projections of trade and other balances forcent, taking the aggregate of external trade activi- the Twelfth Plan period are presented in Table 2.4.ties to 29.5 per cent of GDP. In the Eleventh Plan the Merchandise exports as a proportion of GDP areshare of merchandise exports and imports rose fur- expected to increase further during the course of thether to 14.7 and 23.5 per cent respectively. Adding in Twelfth Plan to exceed 18.5 per cent in 2016–17—net service export, the proportion of external trade to which would be over $600 billion. The average ofGDP rose to 41.4 per cent of GDP for the Eleventh the Twelfth Plan would be 18 per cent. MerchandisePlan period as a whole. In the final year of the imports are also expected to increase as a proportionEleventh Plan, that is 2011–12, this figure touched of GDP to average about 27 per cent of GDP dur-47 per cent of GDP. ing the Plan period. The merchandise trade deficit would therefore average 9 per cent of GDP.2.54. As trade integration has increased, the mer-chandise trade deficit has widened from 4.7 per cent 2.57. The net positive balance on trade in services isof GDP in 2004–05 to 6.5 per cent in 2006–07, and expected to increase only slightly to 3.4 per cent offurther to 7.4 per cent and 9.7 per cent in the two suc- GDP from 3.2 per cent in the Eleventh Plan. Privateceeding years. It declined a little in subsequent years, remittances averaged 3.1 per cent of GDP in thebut hit 10.2 per cent in 2011–12. This high trade Tenth Plan, which increased to 3.5 per cent in thedeficit was offset by a growing net balance on service Eleventh Plan. Net investment income was (–)0.4trade, and a high level of remittances. In the Eleventh per cent in the Tenth Plan and (–)0.7 per cent inPlan period, the average merchandise trade defi- the Eleventh Plan, but as pointed out previously,cit was 8.7 per cent of GDP, the net services export has gone up to nearly (–)1.0 per cent in 2010–11was 3.2 per cent, and private remittances 3.4 per and 2011–12. In the Twelfth Plan, private remit-cent of GDP. The sum of the net services export and tances are expected to average an unchanged level ofprivate remittances thus averaged 6.6 per cent ofGDP, which funded 76 per cent of the merchandise 3.5 per cent of GDP, while net investment income istrade deficit. However, it must be kept in mind that expected to grow to a slightly larger negative numberas the stock of foreign investment builds up in India, of (–)1.1 per cent.the net investment income is increasingly becominga larger negative number, going from (–)0.6 per cent 2.58. The resultant current account deficit emergingof GDP in 2004–05 to (–)0.9 per cent in 2011–12. from these projections average 2.9 per cent of GDPIt should, however, be noted that this negative item for the Twelfth Plan period as a whole. It is projecteddoes not necessarily result in an actual outflow. to be higher in the first two years and moderateIn Balance of Payments accounting, if the income slightly thereafter towards the end of the period. Theaccrues but is not remitted abroad and is retained in projected current account deficit is higher than thethe enterprise, it will show up as positive FDI inflow. normal comfort level according to which it should be restricted to less than 2.5 per cent of GDP. This2.55. The net effect of all these developments has would reduce the risk of non-availability of externalbeen an expansion of the current account deficit financing conditions for both domestic and overseasfrom 1.2 per cent of GDP in 2005–06 and 1.3 per cent investors.
  • 56. TABLE 2.4 External Payments—Current and Capital Account (All Figures as Per Cent of GDP at Current Prices) Eleventh Plan period Twelfth Plan period 2007–08 2008–09 2009–10 2010–11 2011–12 Average 2012–13 2013–14 2014–15 2015–16 2016–17 AverageMerchandise Exports 13.4 15.3 13.4 14.8 16.7 14.7 17.8 17.3 17.8 18.3 18.8 18.0Merchandise Imports 20.8 25.0 22.0 22.6 27.0 23.5 27.5 26.4 26.6 26.8 27.1 26.9Merchandise Trade Deficit –7.4 –9.7 –8.7 –7.7 –10.2 –8.7 –9.7 –9.0 –8.8 –8.6 –8.3 –8.9Net Service export 3.0 3.8 3.0 2.9 3.2 3.2 3.4 3.3 3.4 3.4 3.5 3.4Merchandise. Exports (X) 34.2 40.3 35.4 37.4 43.7 38.2 45.2 43.7 44.4 45.1 45.8 44.8+ Imports (M)Total of X, M and Net 37.2 44.1 38.4 40.3 46.9 41.4 48.7 47.0 47.8 48.5 49.3 48.3Services ExportPrivate remittances 3.4 3.6 3.9 3.1 3.4 3.5 3.5 3.4 3.5 3.6 3.6 3.5Net Investment Income –0.4 –0.5 –0.4 –1.0 –0.9 –0.6 –1.1 –1.0 –1.0 –1.0 –1.1 –1.1Current Account Balance –1.3 –2.3 –2.8 –2.7 –4.2 –2.7 –3.6 –3.2 –2.9 –2.6 –2.2 –2.9FDI Net 1.2 1.4 1.4 0.5 1.2 1.1 1.3 1.1 1.0 0.9 0.8 1.0FDI Inward 2.8 2.8 2.4 1.4 1.8 2.2 2.0 1.8 1.8 1.7 1.6 1.8FDI Outward 1.5 1.4 1.0 1.0 0.6 1.1 0.7 0.7 0.7 0.8 0.8 0.7Portfolio equity 2.4 –1.1 2.3 1.8 0.9 1.3 0.8 0.5 0.5 0.4 0.4 0.5Loans 3.4 0.3 1.0 1.7 1.0 1.5 1.1 1.3 1.4 1.3 1.4 1.3Banking 0.9 –0.3 0.1 0.3 0.9 0.4 1.1 0.4 0.3 0.2 0.2 0.4Other 0.7 0.4 –0.9 –0.6 –0.4 –0.2 –0.3 0.0 0.0 0.0 0.0 –0.1Capital Account Balance 8.7 0.7 3.9 3.6 3.7 4.1 3.9 3.3 3.2 2.8 2.8 3.2
  • 57. Macroeconomic Framework 53Prospects for Mobilising External Finance the banking channels was just 0.4 per cent of GDP2.59. The capital inflow required to finance a pro- during the course of the Eleventh Plan.jected average current account deficit of 2.9 percent of GDP can take several forms including FDI, 2.63. Total capital inflows from all sources thusForeign Institutional Investor (FII) flows, and vari- averaged 4.1 per cent of GDP in the Eleventh Planous types of debt including short-term trade credit period. This volume of capital inflows was signifi-and official external assistance. Our objective should cantly higher than the financing required for thebe to finance the deficit as much as possible through 2.7 per cent current account deficit, and the excessstable foreign inflows. This means emphasising FDI was accumulated in the foreign currency assetsand minimising short-term debt in particular. The (including special drawing rights [SDRs] and gold)pattern of capital flows in the Eleventh Plan period of the Reserve Bank of India (RBI).and projection for the Twelfth Plan are summarisedin Table 2.3. 2.64. The baseline projections made for the Twelfth Plan, as presented in Table 2.4, are based on con-2.60. In the Eleventh Plan, inflows by way of FDI servative assumptions, keeping in mind the cur-ranged between 1.4 and 2.8 per cent of GDP, averag- rent uncertain conditions in the global economicing 2.2 per cent of GDP. In the same period, there environment. This uncertainty is bound to lead to risk aversion, and also conservative assessment ofwere also outflows as Indian companies acquired the relative attractiveness of India as a destinationoverseas assets and this ranged between 1.0 and for global capital in present circumstances. On this1.5 per cent in various years, being much higher in basis, the inbound FDI flows are projected to be2007–08 and 2008–09, averaging 1.1 per cent for the slightly less than that in the Eleventh Plan, to averageEleventh Plan period as a whole. In 2011–12, out- 1.8 per cent of GDP. It is likely that outbound FDIbound FDI flows were much lower at 0.6 per cent will also be lower than in the Eleventh Plan level, andof GDP. The net FDI inflow was thus 1.1 per cent of is projected to be 0.7 per cent of GDP, and as a resultGDP for the Eleventh Plan as a whole. the net inflow of FDI will remain almost unchanged at 1.0 per cent of GDP.2.61. Portfolio equity inflows fluctuated to a greaterextent, from 1.1–2.4 per cent of GDP in the Eleventh 2.65. Portfolio equity inflows are volatile and givenPlan period, and averaged 1.3 per cent of GDP for the global conditions that have been prevalent forthe Plan period as a whole. It is worth noting that some time, our projections assume that the total ofthey were highest at 1.1 per cent in 2008–09, the year such inflows would be only around 0.5 per cent ofimmediately after the financial crisis but otherwise GDP, much lower than the 1.3 per cent recorded inthey were positive in every year. This suggests that the Eleventh Plan. This assumption is almost cer-while FII flows are more volatile, than FDI, they are tainly unduly cautious. Early resolution of somenot the same as ‘hot money’. of the uncertainties that have arisen in the mind of foreign investors in India, combined with a visible2.62. Loan capital inflows occur mostly through resumption of growth momentum in 2013–14, couldexternal commercial borrowings (ECBs) of Indian easily lead to stronger inflows in the remaining years.private and public sector companies and non- An average of 1 per cent of GDP over the Plan periodresident bank deposits. Short-term trade loans as is not at all infeasible.well as FII investment in Indian government andcorporate debt securities are also significant. Net 2.66. Loan and banking capital inflows, net of repay-inbound official assistance now forms a relatively ments, taken together are expected to be 1.7 per centsmall component of capital inflows. These sources of GDP, lower than that the 1.9 per cent recorded intaken together accounted for 1.5 per cent of GDP in the Eleventh Plan. Taking all the flows together, thethe course of the Eleventh Plan. Net inflow through total of capital inflows in the Twelfth Plan is expected
  • 58. 54 Twelfth Five Year Planto be 3.2 per cent of GDP, significantly lower than the presents the fiscal position of both the Centre and4.1 per cent experienced in the Eleventh Plan, but just the States.about adequate to finance the current account deficitof 2.9 per cent. This only reinforces the lack of slack 2.69. The deficit of the Centre has risen from 2.5 peron the external payments side. cent of GDP in the first year of the Eleventh Plan to 5.9 per cent in the last year, with the Plan average at2.67. To summarise, the capital inflow, projection on 5.2 per cent. Taking the fiscal deficit of the Centrewhich the Twelfth Plan is based is deliberately con- and the States together, it has increased from justservative. It is not at all unreasonable to conclude under 4 per cent of GDP in 2007–08 to a little overthat if growth proceeds as planned in Scenario 1, and 8 per cent, a deterioration of 4 percentage points.policies towards foreign investment are seen to bepositive, is encouraged, we could expect additional 2.70. The initial increase in the fiscal deficit in 2007–flows of at least 0.5 per cent of GDP. This would 08 seemed justified on the grounds that all countriesallow us some build up foreign exchange reserves in were embarking on a fiscal expansion as a countercy-line with rising levels of trade and external liabilities. clical move. However, India’s fiscal deficit expansionHowever, to achieve this outcome, it is imperative continued even after the crisis, and although a rever-to improve investment conditions at home and to sal was attempted in 2011–12, the projected fiscalencourage more capital inflows, while at the same deficit target of 5.1 per cent of GDP in 2011–12 wastime work on ways to contain the current account considerably overshot. The increase in the Centre’sdeficit. fiscal deficit after 2008–09 has been shaped by a com- bination of two factors. The first is the slowing downThe Importance of Fiscal Consolidation of growth that has adversely impacted tax collections2.68. Since the Twelfth Plan strategy involves mobil- along with fiscal concessions in the form of lowerising external finance to meet a current account defi- excise duty and service tax rates given by the govern-cit, which is likely to exceed the comfort level of 2.5 per ment at the time of the global crisis. The second fac-cent of GDP, it is important to emphasise that inter- tor has been the build-up in subsidies. The subsidynational analysts focus on the fiscal situation as a key burden is a matter of particular concern because aindicator of macroeconomic balance. India’s domes- substantial part of the subsidy on petroleum prod-tic macroeconomic balances must be seen to inspire ucts is not reflected in the budget of the Centre asconfidence in the international market. The key indeed the real losses of the power sector are notindicator in this context is the fiscal deficit. Table 2.5 reflected in the budgets of the State Governments. 2.71. Table 2.6 presents a comparison between TABLE 2.5 India’s fiscal deficit and debt to GDP ratio with that Fiscal Position of Centre and States and Subsidy Quanta of other major industrialised and developing coun- tries. India’s fiscal deficit, though not as high as some Gross Fiscal Deficit % GDP industrialised countries, is much higher than the Centre States Total other emerging markets. India’s debt to GDP ratio is 2007–08 2.54 1.49 3.97 also lower than that of many industrialised countries 2008–09 5.99 2.26 8.17 but is higher than that of emerging market countries. 2009–10 6.48 3.02 9.46 To some extent, the extent of fiscal stress in India is less than it seems because India’s likely growth rate is 2010–11 4.87 2.15 6.99 a much higher than expected by other countries except 2011–12 (LE) 5.89 2.21 8.10 China. However, considering that the fiscal position Total Eleventh Plan 5.29 2.25 7.54 had improved in the years before 2008, and thereNote: aLE: The figures for 2011–12 are RE for Centre and BE for is need to release resources for investment in infra-States. State subsidies shown here are only on account of power. structure, there can be no doubt that the Twelfth
  • 59. Macroeconomic Framework 55 TABLE 2.6 over the Eleventh Plan period. The increase in tax General Government Balance and Government Debt revenues needed to accelerate growth, therefore, as Per Cent of GDP requires the tax revenue to GDP ratio to rise by the General Government General Government same percentage points, taking it a little above the Balance Debt level that prevailed in 2007–08. This should not be % of GDP % of GDP onerous and can be achieved primarily through 2011 2011 efforts to improve tax administration. The imple- All Advanced −7.2 110.3 mentation of Good and Services Tax (GST) is the Euro Area −4.1 88.1 most promising prospect in this regard. It will not Spain −8.5 68.5 only modernise the indirect tax system, greatly Germany −1.0 81.5 increasing efficiency and the ease of doing business, UK −8.7 82.5 but also that will increase the revenues of both the Centre and the States. France −5.3 86.3 US −9.6 102.9 2.74. As far as subsidies are concerned, it requires Ireland −9.9 105.0 a reduction in subsidies from about 2.5 per cent Portugal −4.0 106.8 of GDP in 2011–12 to around 1.2 per cent of GDP Italy −3.9 120.1 in the terminal year of the Plan. It is important to Japan −10.1 229.8 emphasise that subsidies are not being abolished, All Emerging −2.2 37.0 but only reduced as a percentage of GDP in order Brazil −2.6 66.2 to accommodate Plan expenditure which is now Russia 1.6 9.6 largely directed at inclusiveness promoting schemes, India −8.7 68.1 and can be better targeted than most of the existing subsidies. China −1.2 25.8Source: Fiscal Monitor (IMF, April 2012). 2.75. The consequences of not achieving fiscal con- solidation need to be carefully considered. It isPlan must aim at a credible fiscal consolidation path important to avoid complacency that the concernthat would bring the central government’s fiscal defi- with fiscal consolidation is a purely technical con-cit back to tolerable levels. cern, which can be ignored if the corrective steps needed are politically difficult. It needs to be kept in2.72. The compression in the deficit does not have mind that global perceptions about our macroeco-to be brought about immediately. The Finance nomic stability are critical for maintaining accessMinistry’s original fiscal consolidation path envis- to capital flows and, as pointed out above, the fiscalaged reducing the fiscal deficit from the targeted deficit is a performance parameter of critical impor-5.1 per cent of GDP in 2011–12 to 3 per cent of GDP tance. Failure to take credible action towards fiscalby 2014–15, that is, an adjustment of a little over consolidation risks an erosion of confidence leading0.6 percentage points per year. The end point envis- to lower capital inflows and greater exchange rateaged may no longer be feasible in present circum- depreciation, which will either force large adjust-stances, but it should be possible to get to 3 per cent ments in petroleum prices, or would lead to a furtherof GDP by the end of the Plan period. As pointed out worsening of the fiscal deficit.in Chapter 3, this will require a substantial increasein tax revenues, and also a reduction in subsidies as a EFFICIENT FINANCIAL INTERMEDIATIONpercentage of GDP. 2.76. While availability of savings in the aggregate is an important part of macroeconomic balance, it2.73. The ratio of Central Government revenues to is also important to have an efficient financial sys-GDP declined by over 2 percentage points of GDP tem that can channel savings to the most productive
  • 60. 56 Twelfth Five Year Planuses, and also ensure inclusiveness. The past two from the former USSR, and later on account of thedecades have seen far-reaching change in the char- Asian Currency Crisis. For the first time, startingacter and structure of the country’s banking sys- 1997 there were large-scale corporate defaults intem and the capital markets. These changes have India. This led to a round of restructuring, with assetsaddressed the management of credit risk, provision- being sold and corporate ownership changing hands.ing against delinquent loans and a greater focus on Once the process was complete, the corporate manu-fee-based income. The interest rate regime that used facturing sector came out well-equipped to deal withto be highly regulated was systematically replaced by business and financial risk, challenges to corporatea commercially determined framework that helped control, and became more competitive globally. Theprice-in credit quality, duration and diversification Information Technology Sector evolved post-liber-of risk. The kind of loan products available and the alisation and has focused on export business, withservicing of these for the commercial sector have funding secured mostly from equity. It has, there-also become more efficient. Retail banking, that is, fore, developed in an entirely different environmentpersonal loans for buying homes and other durable than did the manufacturing sector, and was thereforeassets, and payment and settlement facilities, have always globally competitive, receptive to new ideas,become an important and rapidly growing compo- with very little leverage on its balance sheet.nent of banking. Lending to small borrowers typifiedby the self-help group (SHG) and microfinance has 2.79. A large number of today’s manufacturing unitscome some distance towards making financial inclu- (and some service sector ones too) originally begansion meaningful. as small scale industries (SSI), and have grown into much larger establishments, including many in engi-2.77. These changes have also changed the behav- neering, chemicals, pharmaceuticals and textiles. Iniour of corporate borrowers. In many ways, financial many ways, the emergence of a modern corporaterisk was not meaningful in the years before 1991. It establishment in India gained from the horizon-changed subsequently, and with it the incentives tal expansion of SSI units in years past. Small andto maintain a clean credit record and a lower lever- medium scale enterprises (SMEs)—which do exceedage. Dismantling of the production licensing sys- even the current definitions of SSI by a wide mar-tem, lower import tariffs and the end of quantitative gin—will nevertheless be a continuing source ofrestrictions on imports made competition a reality in entrepreneurial talent and a source of great strengthIndia, that is, both domestic competition and com- for the Indian economy in the years to come.petition vis-à-vis the global producers. Finally, thedecline in the ownership functions of government Banking and Financeand quasi-governmental agencies, and the enhanced 2.80. Although the financial sector in India hasrole of capital markets in raising finance has given grown fairly rapidly in recent years, in terms of thenew importance to the interests of shareholders, conventional metrics of financial deepening—suchespecially minority shareholders. Associated with this as a ratio of total financial claims or bank loans tois the challenge of corporate control, which now has GDP—India appears to be considerably behind otherto face up to proactive mergers, acquisition and sale. emerging markets. It is not entirely certain whether the data can be interpreted thus, and whether we2.78. The combination of all of these developments should necessarily follow the contours of bigger thewas in full play between 1997 and 2003. The large- better. Capital, unlike labour, is perpetually recycled,scale expansion by Indian corporates in the imme- and the shorter the cycle, the more efficient is the usediate follow-up of the economic liberalisation was of such capital. The loans to GDP ratio, which is usedsubject to some weaknesses. As these assets came as a measure of the role of banking, reflects end bal-into production, commodity prices worldwide came ance sheet totals, and does not tell us anything aboutunder pressure, first on account of low-priced supply the extent of turnover during the year.
  • 61. Macroeconomic Framework 572.81. However, this is not to say that there are no infrastructure debt funds, which is now almost fullychallenges facing the development of the Indian in place.financial sector. Possibly, the most troubling inthe present context is the manner in which gold 2.84. The secondary market for corporate bonds hashas resurfaced as a vehicle of choice for house- yet to take off in a significant manner, especially inholds to invest their savings in. Gold and land were the medium to long term. This has been a matterthe only vehicles of investment in the past. Since long identified as a priority and several regulatoryIndependence, we have striven to encourage not issues have since been resolved. Possibly the non-just thrift, but the confidence of the Indian citizen in development of ancillary markets or the continuedfinancial products so that their savings become avail- excess of supply of gilts is preventing this marketable for productive use by the rest of the economy. from taking off. The market for infrastructure debtThat over six decades later, gold would resurface generically belongs to the corporate bond marketto such an important extent as a preferred mode of and without movement on the latter, movement inholding savings, speaks of the serious deficiencies the former is not likely. In the financial sector, deepin the distribution and perhaps return structure of markets reduce the market (duration, illiquidity andour financial framework that channels household so on) risk, and thus in the final analysis total risks,savings. which eventually lower the cost of capital to the bor- rower. For several independent and interrelated2.82. This is closely related to the larger issue of reasons, in the Twelfth Plan, special efforts mustinstruments of long-term savings—life insur- be made to ensure that the corporate bond marketance, pensions, provident funds and so on. As both takes off.personal disposable incomes and life expectancyincreases, the need for perceived safe instruments 2.85. There is also an issue of access. Small businessesthat offer a reasonable real return has, and will find it hard to raise finance, and poorer householdscontinue to play an increasingly important role in find it hard to access the organised savings industry.the financial life of the nation and its citizens. The These are not problems of India alone or for thatdevelopment of this industry has to be seen in an matter of developing countries only. Even in devel-appropriately longer time frame, inherent finan- oped economies these challenges are in evidence. Incial sustainability and the quality of assurance that some contrast to most of the world, Indian banksit gives investors with regard to their concerns. The actually have much greater exposure to small creditsgovernment has been considering steps to increase and experience in dealing with such exposure. Thisthe scale of FDI permitted in the insurance sector but has arisen from the mandates with regard to lendinga lack of political consensus has held back change. to the farm sector and to SSI.2.83. The need for long-term savings products is 2.86. The banking system, with its larger over-the mirror image of the other important need—that heads, is perhaps not best suited to deal with smallof long-term finance for long gestation products, credits. This is where SHGs and similar collectivenamely physical infrastructure. Without the first, the guarantee credit schemes have a big role to play.latter becomes hard. Commercial banks mostly hold Microfinance institutions are another vehicle. Thereshort-term liabilities and their assets ought to reflect have been some unfortunate developments in thethis duration too. However, in the absence of ade- case of microfinance, but we must be alive to thequate sources of long-term finance, much of infra- danger of throwing the baby out with the bathwater.structure lending has been coming from banks. A The Microfinance Regulation Act which has beensecondary market for bank loans through conversion introduced in Parliament will establish a regulatoryto securities offers an exit to banks without exces- framework which would allay suspicions and allowsively stretching their asset–liability mismatch. That the industry to develop unhindered with due regula-is an important objective of the policy to promote tory oversight. We do need other kinds of mezzanine
  • 62. 58 Twelfth Five Year Planfinancial agencies—SHG, microfinance, coopera- and National Association of Software and Servicestive—which permit the banks an easier way to fund Companies (NASSCOM). The report of the commit-the capital needs of the small creditors. tee is available at the Planning Commission website under the link ‘reports’. The committee has made2.87. The well-intentioned Know Your Customer a number of recommendations that would help to(KYC) requirements have made it even harder for create a strong ecosystem for innovation and earlythe poor to enter our banks. This is not acceptable. stage entrepreneurship to flourish. The recommen-The Aadhar number must become a passport for dations include tax-related incentives and variousordinary people to be able to use the savings and relaxations on the regulatory side that would enablepayments facilities of our banking system, or for that banks and insurance companies to be a little morematter, all other regulated savings products—mutual active in this area. It also makes recommendationsfunds, insurance and so on. for setting up, technology parks and incubators of various types through PPP.2.88. The financing of small businesses is an intrinsicchallenge because of heightened perception of credit THE EXTERNAL ENVIRONMENTrisks. The system of refinancing through government 2.91. Macroeconomic balance in an open economyagencies like SIDBI, in conjunction with the use of is powerfully affected by the external environment.credit information databases, offers some solutions. This is particularly relevant at the start of the TwelfthRaising the cost to wilful defaulters is intrinsic to Plan because the Indian economy is now much morecombat moral hazard that may creep in from well- globally integrated and the global economy is experi-intentioned official compassion. Otherwise the cost encing serious short term difficulties in the midst ofto the competent small businesspersons from the some fundamental longer term changes.indiscipline of their competitors is debilitating. 2.92. As shown in Table 2.6 the rate at which the2.89. However, a large part of the problem lies with world economy expanded did not change muchthe inadequacy of equity in the sector. To increase in the decade of the 1990s vis-à-vis the 1980s.access to equity—especially for small businesses— However, in the period after 2000 and just beforeventure capital, private equity finance and similar the global crisis broke out, the average annual rate ofagencies have been encouraged. However, notwith- increase in world output increased by 1.2 percentagestanding the sharp increase in the extent of this points: This increase in global growth, in the periodkind of activity, only the surface has been scratched. 2000–07 reflected an interesting asymmetry. TheRegulatory encouragement to the providers of equity advanced economies slowed marginally from 2.7 perto small business is therefore essential. cent in the 1990s to an average growth of 2.6 per cent per year in 2000–07. However, the developing worldVenture Capital growth accelerated sharply from 3.6 per cent in the2.90. One of the most important gaps in our existing 1990s to 6.5 per cent per year. Although the bulk offinancial structure is the lack of a sufficiently large the growth occurred in Asia alone, the rest of theventure capital and angel investor community, who developing world in Africa and Latin America alsoplay a very important role in financing start-ups, benefited. This period represents the extension ofespecially in areas where technology is the key to economic opportunity to the world as a whole, andsuccess and risk capital is needed. To explore ways almost every country raised itself up to seize theseof filling this gap, Planning Commission had consti- opportunities. This favourable period come to antuted a Committee on Angel Investment and Early end in 2008.Stage Venture Capital under the Chairmanship ofShri Sunil Mitra, former Finance Secretary. The com- 2.93. Between 2008 and 2011, the US and themittee included members from traditional financ- Eurozone economies have virtually stagnated. Whileing bodies, venture/PE capital, consulting firms the US economy is picking up, the recovery is weaker
  • 63. Macroeconomic Framework 59than what was expected, and is certainly dispropor- The manner in which matters have been handledtionate to the size of the fiscal and monetary stim- in Europe in 2012 reflects the learning from the dif-ulus that was used. The problems inherent in the ficulties of dealing in an atmosphere of excessiveEuropean Monetary Union, and fiscally overweight public scrutiny and unduly high expectations. Issuesgovernments, were prised open by the crisis. Though have crystallised to a much greater extent, and not-economic conditions seem to have stabilised for withstanding the change in political leadership inthe moment, it is clear that it will take several years France, the direction of Franco-German cooperativefor the Eurozone economy to return to health. The leadership does not appear to have shifted signifi-trends in global growth are shown in Table 2.7. cantly. The European Central Bank (ECB) has pro- vided large amount of finance to the banking system TABLE 2.7 through the Longer-Term Refinancing Operations Trends in Global GDP Growth (LTROs) and together with the IMF appears to haveGDP Growth 1980s 1990s 2000– 2008– constructed a ‘firewall’ in excess of $1 trillion. The(Constant Prices) 2007 2011 explicit determination to intervene on such a largeWorld 3.2 3.0 4.2 2.8 scale is indeed important. This offsets the potentialAdvanced economies 3.1 2.7 2.6 0.3 risks that emanate from de-leveraging of an esti- mated $2.6 trillion mostly by European banks. ManyEmerging and 3.5 3.6 6.5 5.6developing economies adaptive changes that limit the damage can reason-Developing Asia 6.7 7.2 8.4 8.1 ably be expected to transpire. The Fiscal Deficits and Public Debt, in general, remain high in the devel-India 5.4 5.6 7.1 7.7 oped countries, as would be evident from Table 2.6.Brazil 3.0 1.7 3.5 3.8China 9.8 10.0 10.5 9.6 2.96. The Eurozone member countries seem to rec-Russia – – 7.2 1.5 ognise the need for a coordinated move towards aSource: WEO. fiscal union though it is unclear whether, in the final analysis, this fiscal union will indeed materialise.2.94. A positive feature of the global scene is that However, they are most likely to tread this path formany developing economies, and a handful of strong the next few years, in which period the two otherdeveloped economies, have developed an autono- large Eurozone economies—Italy and Spain—aremous momentum of their own. However, they expected to stabilise. It is possible that Greece willare obviously not immune to what happens in the have to leave the monetary union, but it will notUnited States and Eurozone—on account of trade imperil the Eurozone as long as they can stabiliseeffects, the likely turbulence in the world’s financial Italy and Spain.markets and the effect of all this on business confi-dence. It is therefore prudent to look at the general 2.97. In the United States, the recovery has beenglobal economic outlook in terms of different time weaker than projected. However, there are clearsegments—the short term (up to two years), then the signs that the economy is on the mend, and the IMFmedium to longer term (3–15 years). has raised its growth estimate for 2012 to 2.1 per cent. Going forward, conditions are likely to furtherThe Short-Term Prospects improve in 2013. However, the United States will2.95. The IMF World Economic Outlook of April continue to have the problem of adopting an inter-2012 and the Update of July 2012, continues to nally consistent and non-disruptive path for fiscalemphasise the downside risks that can emerge, pri- consolidation, and for rolling back the enormouslymarily from the Eurozone. It is our view that while extended monetary stance.there continues to be serious problems in the devel-oped world and that these will persist, the downside 2.98. It is possible that the unprecedented looserisks have reduced significantly compared to 2011. monetary stance in the United States and in the
  • 64. 60 Twelfth Five Year PlanEuropean Union may continue for some years, and rapidly. The twenty-first Century has been referredthis, may create problems for others, as indeed has to as the ‘Asian Century’ and it could well be, butbeen the case with commodity prices. However, the it is imperative to underscore that this is not pre-main concern is shocks—not persistent weaknesses ordained. It will depend on whether the emergingin these economies. The shocks, are not likely to hap- market economies of Asia are able to make the effortpen because: (i) In the Eurozone, the direction that to overcome obstacles, to where they have got to, bymember countries, under the leadership of Germany dint of their own efforts. The opportunities exist, butand France, have taken, are expressly designed to it is always possible to fail to make the best of oppor-keep things on hold for the next few years; (ii) the tunity. It is vitally important that we show the resolvelarge amount of liquidity that has been created by the not to miss the opportunity by taking the outcomeUS Federal Reserve, and more recently by the ECB, for granted.will prevent any recurrence of the financial crisis.However, conditions in the European Union will 2.102. It is relevant in this context, to recall whatcontinue to negatively impact the European bank happened at the end of the Multifibre Agreementfinancing, which has been significant for the Indian (MFA) in 2004. Before the end of MFA there wasprivate sector infrastructure projects in the past. a belief in informed policy circles that India and China would reap the whole of the benefit and that2.99. It is difficult to assess how this environment the least developed economies may gain little. Inwill affect us. The slower growth in the United States fact, China was the principal beneficiary: Share ofand in the European Union will undoubtedly have exports of apparel was 18.3 per cent in 2000 andan adverse impact on expansion of our markets for this doubled to 36.9 per cent in 2010. The less-exports—of both goods and services—to these coun- developed economies such as Bangladesh, Vietnamtries. In the short run, therefore, we are likely to face and Cambodia gained significantly1 in line withcontinuing pressure on the balance of payments in what was desired by policy. However, India’s sharethe form of high trade deficits and higher than com- increased from 3.0 per cent in 2000 to only 3.2 perfortable current account deficit estimated at about cent in 2010. In other words, opportunities do a rise,2.9 per cent of GDP on average. but countries can fail to seize them.The Medium and Longer Term Changing Global Economic Structure2.100. The medium- and longer-term perspective 2.103. India, China and other Asian economies, areis better. It is reasonable to assume that the econo- poised to reverse the huge declines in their relativemies of the United States and Eurozone will recover share in world economic output. Between 1500 andover a period of time and disastrous outcomes, that 1700, India and China had each accounted for aboutis, shocks, are unlikely to happen, because the major one quarter each of world economic output, whileplayers have too much to lose and a lot of prepara- the share of Asia as a whole was over 60 per cent.2tion has gone into creating the ground to expressly At the end of the colonial era in 1950, the shares inavoid such an event. However, there will be periodi- world output of India, China and the rest of Asiacal upheavals in the financial markets because certain (excluding Japan) were 5.1 per cent, 4.8 per cent andthings will go wrong, and some unexpected develop- 3.6 per cent respectively.3 Between 1950 and 1980,ments will happen. While these will be managed and there was not much that changed in output shares—contained, it is reasonable to expect sporadic volatil- except of course for the post-war boom in Japan, andity continuing in financial markets and investment later rapid export led growth in Korea, Hong Kong,sentiments, on account of bad news that will come Taiwan and Singapore. In the two decades betweenout from time to time from the advanced economies. 1980 and 2000, while East and South East Asian economies expanded at a rapid pace and successfully2.101. China, India and other emerging markets improved their respective shares of world economicin Asia and also in Africa are posed to grow more activity, the developed world as a whole, also gained
  • 65. Macroeconomic Framework 61ground, with the share of world output originating potential, they will still not become rich economiesin the advanced economies increased from 73 per in the next 10 or even 20 years. China, for instance,cent to 80 per cent. This was largely at the expense of has made the greatest advance in terms of incomethe former Soviet bloc. There was, however, a sharp and output experiencing 34 years of rapid economicpick up in the rate of growth in the advanced econo- growth (average annual rate of 10 per cent) that hasmies of the West flowing for the most part from the propelled her from being the sixth-largest in 2000deep changes in economic policies adopted by these to being the second largest economy in the world.economies in the 1980s which reinvigorated them. Nevertheless, China in 2011 had a per capita incomeThere were also small declines in the relative shares of $5400, much ahead of India at $1400 but still farof Latin America, Middle East and sub-Saharan behind middle-income economies in Eastern EuropeAfrica in addition to the substantial decline in the and Latin America. Even if she is able to sustain aformer Soviet bloc. rapid pace of expansion, by 2025 China will still at best be able to secure a position in the highest 60–652.104. Post-2000, it has been an altogether differ- economies, but yet be lower in per capita incomeent story. The share of the advanced economies fell compared to many economies in East Europe, Latinfrom 80 per cent in 2000 to 64 per cent in 2011, while America and Asia. India will at best be a middle-that of the developing world increased from 20–36 income country, but with the important differenceper cent. Not only is this a development of enormous that problems of poverty as currently defined will bemoment in the economic polarity of the world, but well behind us.there is every reason to believe that it will progressfurther. Some projections envisage an equally bal- Change in the Character of Capital Flowsanced split between the advanced and developing 2.108. The structure of the international capital mar-economies around 2025–30. ket has changed considerably and this has implica- tions for India’s strategy in the years ahead. The2.105. The underlying trend of shifting economic developed world, particularly the USA, has run per-polarity will continue. As mentioned previously, sistent current account deficits, which have beenthe share of developed economies in world GDP is matched by persistent current account surpluses inlikely to fall further towards 50 per cent by 2025–30. the oil exporting nations, Japan, China and severalChina which has been the biggest gainer in terms of other East and South East Asian economies.altered share of world GDP is likely to see her shareof world output rise to about 15 per cent by 2020 andto around 18 per cent by around 2025. This would 2.109. The aggregate of current account deficitsbring her close to the projected GDP of the USA. and surpluses amounted to 2.2 per cent of world GDP in 1990, which then went on to a peak value of2.106. India’s share of world GDP was 1.5 per cent in 5.7 per cent in 2006; from where it declined to 4 per2000, which increased to 2.4 per cent in 2011. By 2017, cent in 2010. In absolute terms the sum of the globalwe may be at 3.5 per cent ($3.3 trillion), 4.2–4.5 per aggregate of current account deficits and surplusescent ($4.5–5.0 trillion) by 2020 and 5.5–6.0 per cent has increased from $1 trillion in 2000 to $3 trillion($8 trillion) by 2025. This is based on somewhat in 2006 and 2007 and now stands at $2.5 trillionmodest assumptions. It is self-evident that projec- in 2010.4 This represents the sum of the net flowstions made over this kind of time horizon are likely to between surplus and deficit national economies.come up short. However, in the absence of any cata- However, the volume of gross flows is much greaterclysmic event, the broad contour of future economic than represented by these net flows. Further, cross-geography is at most likely to approximate this. border capital flows over the years have accumulated and the stock of cross-border capital has been esti-2.107. It is important to emphasise that even if devel- mated to be as large as $100 trillion today.5oping countries are able to harvest their economic
  • 66. 62 Twelfth Five Year Plan2.110. One of the interesting developments in inter- 2.113. The shift in the polarity and geography ofnational capital markets is the emergence of a much both capital flows and of their intermediation will bewider array of instruments, both debt and non-debt. as powerful and notable as the shift in the geographyBond issuance and risk capital in the form of equity, of production and international trade. The domi-as also some kinds of hybrid instruments have come nance of conventional centres in New York, Londonto form a very significant component of capital flows. and Frankfurt will yield to a growing role for centresFurther, the nature and direction of these capital in the developing world—most particularly in Asia.flows no longer follow the traditional North–South Hong Kong and Singapore have already acquiredcontours and are also not unidirectional. Capital increasingly important roles as centres of financialflows from the advanced to the developing econo- mobilisation. Asia is simultaneously a major sourcemies and also from developing to advanced econ- of savings as also of demand for investment financ-omy and indeed amongst the developing economies ing. Skills have gradually become internalised, andthemselves. regulation and market structures seem to be sup- portive of these two island centres to expand very2.111. In 1990, as much as 95 per cent of the FDI out- much more. It is not certain to what extent mainlandflows originated in advanced economies. In 2010 centres like Shanghai, or for that matter Mumbai,this share had fallen to 71 per cent, even as the total will be able to keep pace. In any event a financial net-value of flows rose from $242 billion to $1.3 trillion. work within Asia is already there and will take on aThe volume of FDI outflows peaked at $2.2 trillion much greater role. Increasingly larger increments ofor almost 4 per cent of world GDP in 2007, the year the stock of savings of the developed economies arebefore the global crisis. On the destination side, the entering into this network, and this process too willshare of developing economies saw a rapid increase continue and deepen.from 17 per cent in 1990 to 46 per cent in 2010, ofwhich the inflow into Asia increased over the two 2.114. The changing structure of global capital mar-decades from 11–29 per cent. The large increase in kets and India’s need for financing capital flowsthe proportion of total FDI originating in the devel- raises the issue of what should be India’s policyoping world from 4.5 per cent in 1990 to 18.5 per towards capital flows. India has followed a policycent in 2010, translates in absolute terms to an of calibrated opening to capital inflows, which hasincrease from $11 billion to $245 billion.6 It must be served the country well. FDI is regarded as the mostnoted that while there was understandably a sizeable stable form of capital inflow and one that brings withdecline in the FDI flow from advanced economies, it technology, productivity enhancement and inter-after 2008 that from developing Asia continued to national market linkage. Portfolio flows are morerise without interruption. volatile than FDI but past experience shows that they are much less so than commonly feared. The real2.112. The regional difference in current account bal- area of vulnerability is debt denominated in foreignances is a manifestation of major differences in the exchange, especially short-term debt. India’s policynational savings rates in the respective countries. It has reflected this hierarchical preference with theis quite possible that there will be some mitigation greatest openness to FDI and the strongest controlin the magnitude of these differentials. However, it is over short-term debt. This basic policy of calibratedrather likely that in the foreseeable future, the mag- opening up of the capital account should continue.nitude of incremental savings arising in Asia andother developing economies will be proportionately 2.115. Looking ahead, it needs to be kept in mindlarger than that which may reasonably be expected that as Indian industry globalises, and acquires assetsto arise in the advanced economies. To a great extent abroad; Indian firms will need much more flexibil-Asia has come to be a major locus of capital flows ity in capital transactions including especially accesswith several centres acquiring considerable signifi- to risk management instruments. Unwillingness tocance as the focus of financial intermediation. allow such instruments to be developed in domestic
  • 67. Macroeconomic Framework 63market only pushes this actively abroad, and in the regional trade was located in Asia (excluding Middlelonger run this weakens India’s ability to serve as a East) amounting in value to $2.5 trillion or 62 perpotential centre for financial transaction. There is a cent of the regional trade concentration of Europe,case for comprehensively reviewing the present pol- which amounted to $4.0 trillion. Expectedly, theicy and laying out a clearer road map of calibrated proportion of Asian origin exports to other Asianliberalisation over the Twelfth Plan period and markets has increased from 47 per cent in 1999 tobeyond. 53 per cent in 2010. Not only is the developing world as a whole and Asia in particular, is becoming pro-Changes in Trade Patterns portionately more important in international trade,2.116. The large ongoing changes in the pattern of but the trade within the region, and potentially witheconomic activity described above have expectedly Africa and Latin America holds the promise of fur-been mirrored in the changes in the pattern of trade ther expansion in future.in merchandise and services, as also in the cross-border flow of capital. In the decades following the 2.119. This has implications for our longer-termend of colonial rule, the share of developing econo- trade strategy. Although our markets in the indus-mies in world merchandise exports fell from 34 per trialised world may not grow rapidly, other marketscent in 1948 to 24 per cent in 1973, as exports of will expand to a greater extent and we need to bemanufactures from the developed world increases present in these markets to take the advantage.rapidly. Thereafter, as many developing countriesturned into increasingly important exporters of 2.120. Several lessons emerge from this brief reviewmanufactured goods, their shares in aggregate mer- which are relevant for developing economies as achandise exports recovered to 33 per cent in 2003 whole:and further to 44 per cent by 2010.7 • First, a window of opportunity exists and domes-2.117. Most dramatic has been the increase in the tic conditions have supportive so far, and, there-share of global merchandise imports accounted fore, may reasonably be expected to continue tofor by Asia (excluding Japan) which has risen from support a rapid pace of expansion.17–25 per cent between 1993 and 2010. If we take • Second, the initial conditions are so disparate thatAsia (excluding Japan), Latin America, Africa and many decades of sustained high economic growththe Middle East together, we will find that their can bridge, but only a part of the gap.share of global merchandise imports increased from • Third, with almost all developing economies28–38 per cent between 1993 and 2010. The share expanding at a fast pace, even with a rapid andof the developed western economies and Japan sustained pace, an individual country may fail todropped from 71–59 per cent in the same period. do as well as many of her comparators.This process will only deepen further in the coming • Fourth, some kind of end state may emerge withindecades. The market for services—which includes a few decades and there is a strong probability thattransportation, travel, financial and telecommuni- this will in some sense become the new economiccation, besides IT-related businesses—is actually hierarchy. Thereafter, flexibility and opportunitymore evenly spread out than that for merchandise, may become diminished. We need to hasten towith developing economies accounting for almost make as much use of these opportunities, whilehalf of the import market. However, even here there they are still open.will be proportionately more rapid expansion in theIT-related business in the developing economies. Strategy for Trade and Commerce 2.121. The long-term vision of the government is to2.118. The other notable development in the interna- make India a major player in world trade by 2020,tional trade is the increasing regional concentration and assume a role of leadership in the internationalof merchandise trade. In 2010, the second-largest trade organisations commensurate with India’s
  • 68. 64 Twelfth Five Year Plangrowing economic and demographic profile. In con- long-term perspective. The products strategies aresonance with its vision of ensuring sustained accel- discussed in Chapter 9.erated growth of exports and making India a majorplayer of world trade, the government announces a Territorial Strategy for ExportsForeign Trade Policy (FTP) every five years. FTP is 2.124. Trade flows within the South has increasedannually reviewed to incorporate changes necessary substantially. However, the share of India, thoughto take care of emerging economic scenarios both increasing rapidly, is still much lower as compareddomestically and globally. to countries like China and those in South or South East Asia in particular. Thus, there is substantial2.122. The underlying philosophy of India’s FTP is potential for increasing India’s trade with the Southbased on seven broad principles: and with Latin America, Africa and CIS.1. Give a focused thrust to exports of employment- 2.125. During the Eleventh Plan, America and intensive industries. Europe continued to be important destinations2. Encourage domestic manufacturing for inputs to of Indian exports although their combined share export industry and reduce the dependence on declined from 39.82–35.38 per cent. India is nego- imports. tiating a Broad-based Trade and Investment Agree-3. Promote technological up-gradation of exports ment (BTIA) with European Union and on its to retain a competitive edge in global markets. completion it would result in increase bilateral trade4. Persist with a strong market diversification strat- and flows of investment between the two trading egy to hedge the risks against global uncertainty. partners. The share of Asia and ASEAN after show-5. Encourage exports from the North-Eastern ing steady increase have shown some decline during Region given its special place in India’s economy. the last two years of Eleventh Plan and the region6. Provide incentives for manufacturing of green still accounted for more than half of India’s exports goods recognising the imperative of building during the Plan period. Exports to Africa also regis- capacities for environmental sustainability. tered a steady increase after showing some decline in7. Endeavour to reduce transaction cost through initial years of the plan. procedural simplification and reduction of human interface. 2.126. India has been pursuing a policy of mar- ket diversification directing her export promo-2.123. To boost exports, supportive measures are tion efforts at Asia and ASEAN, Latin America andnecessary as is adequate infrastructure. Simultane-ously, concerted efforts need to be directed at creat- Africa through Focus Market initiatives and bilateraling domestic capacity in production of goods where trade agreements.India’s import dependency is high and increasing.Given this background, the objectives on exports for Commercial Relations and Trade Agreementsthe Twelfth Plan are: 2.127. While the multilateral trade negotiations progressed slowly, India pursued regional and• Substantial increase in exports to balance the bilateral trade negotiations with vigour. In pursu- Trade Deficit ance of its ‘Look East Policy’, a continuous dialogue• Enhancing the proportion of Manufacturing in is maintained with the ASEAN and the countries the export basket (61.5 per cent at present) to of South East Asia at summit-level engagements. realise higher value addition Having signed the India–ASEAN Trade in Goods Agreement, negotiations on Agreements on Trade inThese objectives entail drawing up of country and Services and Investment continued with a view to becommodity specific strategies, with a medium- and concluded by end 2012.
  • 69. Macroeconomic Framework 652.128. Some of the Major bilateral agreements which Avoidance Agreement (DTAA) with Nepal washave been concluded in the recent past include: signed, which will help exporters and investors ofComprehensive Economic Partnership Agreement both the countries in further improving mutual busi-(CEPA) with Republic of Korea, Comprehensive ness engagements.Economic Cooperation Agreement (CECA) withMalaysia, India–Thailand Free Trade Agreement, Focus Latin American Countries Programmeconclusion of CEPA with Japan, continuing rela- 2.132. An integrated programme ‘Focus: LAC’ whichtions with the United States, USA remains one of was launched in November 1997 has been extendedIndia’s major trade partner and India–EU BTIA up to March 2014 in order to consolidate the gains ofNegotiations and so on; so far as, the focus areas are the previous years and significantly enhance India’sconcerned, these are: trade with the Latin America and the Caribbean (LAC) region. Latin America has been given specialSouth Asian Association of Regional Cooperation ‘focus’ status to diversify our trade basket and offset(SAARC) the inherent disadvantages for our exporters such as2.129. In a major initiative the Government of credit risk, higher freight cost and so on. The newIndia (GOI) completely eliminated negative list for FTP (2009–2014), pays special attention to LAC andless developed countries (LDCs) in South Asia Free 16 new markets of LAC region have been incorpo-Trade Area (SAFTA) leaving only tobacco and alco- rated under Focus Market Scheme (FMS) bring-hol on the list. This is expected to give a big boost to ing the total 231. Under the Market-Linked Focusexports from SAARC LDC countries to India. India Product Scheme (MLFPS), 13 markets have beenfurther reduced 30 per cent (264 tariff lines) of the identified, includes Brazil. The Preferential TradeSAFTA Sensitive list maintained by it for non-least Agreements (PTAs) with Mercosur and Chile aredeveloped countries (NLDCs) allowing the peak tar- being expanded.iff rates to reduce to 5 per cent within three years, asper SAFTA process of tariff liberalisation. This shall ‘Focus Africa’ Programmereduce India’s Sensitive list for Pakistan from 878 2.133. The ‘Focus Africa’ Programme was initiallyto 614 tariff lines. Agreement on SAFTA, inter alia, launched with focus on seven countries of Sub-prescribes a phased Tariff Liberalization Programme Saharan African (SSA) Region, namely South Africa,(TLP) according to which peak tariff rate maintained Nigeria, Mauritius, Tanzania, Kenya, Ghana andby India for all items other than those included in the Ethiopia. With a view to further widen and deepensensitive list is 8 per cent which will reduce to 5 per India’s trade with Africa, the scope of this Programmecent with effect from 1 January 2013. was further extended to include Angola, Botswana, Ivory Coast, Madagascar, Mozambique, Senegal,2.130. India–Bangladesh Trade Relations: India– Seychelles, Uganda, Zambia, Namibia and Zimbabwe,Bangladesh relations intensified during the year. A along with the six countries of North Africa, namelyMemorandum of Understanding (MoU) on estab- Egypt, Libya, Tunisia, Sudan, Morocco and Algeria.lishment of border haats at Baliamari-Kalaichar India and Southern African Customs Union (SACU)(Pillar No. 1072) and Lauwaghar-Balat (Pillar No. are also negotiating a PTA. SACU consists of a1213) at Meghalaya, India–Bangladesh border was group of five countries, namely Botswana, Lesotho,signed on 2010. The first border haat at Kalaichar Namibia, Swaziland and South Africa.was inaugurated on 2011 and both the border haatsare now operational. 2.134. Till now, three ‘India Show’ events have been held in Africa. The first India Show was in South2.131. India–Nepal Trade Relations: India and Nepal Africa in 2010, Next one was held in Addis Ababa,have special relations and regular consultations take Ethiopia in 2011 and in the current year, ‘Indiaplace between the governments. Double Taxation Show’ was organised at Accra, Ghana.
  • 70. 66 Twelfth Five Year Plan2.135. India hosted the first ever India–Africa Forum impasse. During the Ministerial Conference of theSummit in 2008 at New Delhi. The second Africa– WTO held in December 2011, members once againIndia Forum Summit was held at Addis Ababa from reaffirmed their belief in rules based multilateral24–25 May 2011. These Summits have been built trade and their commitment to resolve the issues in aupon the foundations of the historical relationship transparent way through consensus.that exists between India and Africa, and designed anew architecture for a structured engagement, inter- 2.139. In keeping with its commitment towards theaction and co-operation between India and Africa in legitimate interests of developing economies, LDCsthe twenty-first century. and vulnerable economies, India has been working closely with various coalition groups in the WTO2.136. The first India–Africa Trade Ministers Meet towards an early development-oriented conclusionwas convened at Addis Ababa in May 2011, just ahead of the Doha Round.of the second India–Africa Forum Summit. The sec-ond meeting of the Trade Ministers from India and 2.140. However, developed countries no longerAfrica was held on March 2012 at New Delhi, which appear interested in concluding the Round as a singlewas attended by 12 ministers from African countries. undertaking. They are using the prolonged financialDuring this meeting, the Ministers launched the and economic crisis and the relatively better perfor-India–Africa Business Council (IABC). The Council mance of a few developing countries to justify theirwill suggest the way forward on enhancing economic demands for a change in mandate of the Doha talksand commercial relations between India and Africa and for new issues such as food security and climateand also identify and address issues which hinder change to be brought into the negotiations. Over thegrowth of economic partnership between India and last several months, they have been making efforts toAfrica. selectively conclude areas of the Doha negotiations in which they have a particular interest, for exampleWTO Negotiations trade facilitation and services.2.137. The Doha Round of negotiations at theWorld Trade Organization (WTO), which began 2.141. The prolonged hiatus in the Doha Roundin 2001, is still under way. The scope of the nego- talks in a matter of concern. It is not for want oftiations includes agriculture, market access for non- willingness on the part of developing countries toagricultural products, services trade, trade-related engage, but is the result of an apparent perceptionaspects of intellectual property rights (TRIPS), among some developed countries that they will notrules (covering anti-dumping and subsidies), tradefacilitation and so on. The conduct, conclusion and gain much from the Round. The neglect of the Dohaentry into force of the outcome of the negotiations Round is unfortunate and jeopardises an opportu-are parts of a single undertaking, that is, ‘nothing is nity to strengthen multilateral trade rules. Trade lib-agreed until everything is agreed’. eralisation will take place in any case driven by global market dynamics. Many countries, including India,2.138. Progress has been very slow due to wide gaps have autonomously lowered tariffs and simplifiedin the expectations of the members. There have been border procedures. However, the multilateral tradingseveral attempts to bring the talks back on track and regime treats trade as a tool of economic growth andto build on the results already achieved in the nego- development and not merely as a tool to serve com-tiations. There have been constant attempts in the mercial interests. The Doha Round offers a chance toWTO and in other forums like the G20 to resolve the strengthen this regime.
  • 71. Macroeconomic Framework 67 ANNEXURE 2.1 Poverty—Measures and Changes ThereinHousehold consumption expenditure surveys of the National Sample Survey Office (NSSO) have formed the basis of our analy-sis and conclusions about family consumption baskets and from that of consumption poverty. Till recently, the official estimatesof poverty was based on the recommendations of the expert committee chaired by the late Professor D.T. Lakdawala which hadsubmitted its recommendations in 1993. Over the years the findings on poverty made in line with the methodology of theLakdawala Committee began to be criticised as being ‘too low’ and not in line with the general advancement of the economy.In 2005, the Planning Commission appointed a new expert committee chaired by the late Professor Suresh Tendulkar whichsubmitted its recommendations in late 2009. The Tendulkar Committee made several deep-rooted changes in the methodol-ogy for adjusting poverty lines to price changes and substantially revised upward the rural poverty line vis-à-vis the LakdawalaCommittee, both for 1993–94 as well as for 2004–05, which was the latest large survey of the NSSO on household consumptionexpenditures then available.What constitutes a ‘fair’ poverty line has always been a contentious issue. This primarily flows from the fact that poverty and in abroader sense deprivation is a cultural construct specific to a point in time. It is inconceivable that the sense of what constitutespoverty would remain unchanged as society becomes wealthier, incomes rise and modern amenities become widely available.Progress by its very nature inherently does and should recalibrate the very notion of what constitutes poverty and deprivation.The recommendations of the Expert Committee chaired by the late Professor Suresh Tendulkar were adopted by the PlanningCommission. Applying this methodology to the NSSO large survey of 2009–10 showed that the poverty ratio had declined by7 percentage points for the country as a whole between 2004–05 and 2009–10. The annual rate of decline in this period wasdouble that for previous periods.This finding was criticised by some for using a poverty line that was variously described as being too ‘low’. Some points needto be made in this regard. First, what we have is the NSSO data which is collected on the basis of household surveys that seekto assess family expenditure budgets. Since households are of different sizes, the NSSO normalises the data by expressing theirfinding in per capita terms. These neither relate to single member households nor to family income.Second, the finding that poverty has declined much faster in the period 2004–05 to 2009–10 is valid irrespective of where wechoose to draw the poverty line. If we use the Tendulkar poverty line (PL), the decline in the period is found to be 7.3 percentagepoints. If we use a poverty line 30 per cent higher, the decline would be 7.8 percentage points. Likewise at 50 per cent higher thedecline is 6.5 percentage points.In fact, the decline in the poverty ratio for different levels higher and lower than the Tendulkar PL shows that the decline notonly occurs at every level higher or lower than the Tendulkar PL, but that the decline is noticeably faster at lower levels of PL,particularly in rural areas, namely within the range of ±30 per cent of the Tendulkar PL, that is amongst the lower end of theconsumption distribution (Figure 2.4).At the left hand tail of the distribution it appears that the pace of reduction is lower both for rural and urban areas. However,this is because the reduction is being measured as the annualised rate of decline in percentage points of poverty. If the initialpoverty ratio is low, then the decline in terms of percentage points cannot be other than small. To see what the pace of decline atthe lowest income groups, the rate of decline has been normalised by expressing it in terms of a ratio of the initial percentage ofpersons falling under that PL or expenditure class. This is depicted at Figure 2.5.From the charts in Figure 2.5, it is clear that the rate of decline has if anything been faster amongst the lowest income groups inrural areas and this phenomenon is even more marked in the urban areas. The positive distributive implications of the reduc-tion of poverty at the overall level, and even more so the greater impact on the relatively poor at the lower end of the incomedistribution, is a matter of satisfaction.
  • 72. 68 Twelfth Five Year Plan Per annum Rate of Decline in Poverty Ratio Rural Per annum Rate of Decline in Poverty Ratio Urban2.00 1.60 Tendulkar PL Tendulkar PL 2004–05 to 2009–10 2004–05 to 2009–101.60 1.201.20 0.800.80 0.40 1993–94 to 2004–050.40 1993–94 to 2004–050.00 0.00 –50% –20% +10% +40% +70% +100% –50% –20% +10% +40% +70% +100% FIGURE 2.4: Annualised Reduction in Poverty Ratio between 1993–94, 2004–05 and 2009–10 for Alternate Measures of PL in Percentage Points RURAL URBAN 0.08000.0700 0.07000.0600 Tendulkar PL Tendulkar PL 0.06000.0500 0.05000.0400 2004–05 to 2009–10 0.0400 2004–05 to 2009–100.0300 0.03000.0200 0.0200 1993–94 to0.0100 2004–05 0.0100 1993–94 to 2004–050.0000 0.0000 –50% –20% +10% +40% +70% +100% –50% –20% +10% +40% +70% +100% FIGURE 2.5: Annualised Rate of Decline as Proportion of the Initial Ratio in that Expenditure ClassThird, is that the difference in the NSSO consumption expenditure total and that of the private final consumption expendi-ture estimate of National Accounts Statistics (NAS) has been large and widening, from being over 90 per cent of the latter inthe 1970s to less than 50 per cent now. Some of this is explicable, some not. In any case, the data available is the NSSO data asreported has been used without making any adjustment. Finally, these are actual data and about actual families who live belowthese consumption expenditure levels.In view of the debate on the issue of measuring poverty, it has been decided to (i) de-link the benefits that are intended for thepoor from the PLs computed from the NSSO household consumption surveys using the Tendulkar methodology; and (ii) set upa fresh Committee to go into every aspect of the issue.The 68th Round of the NSSO Household Consumption Expenditure for 2011–12 has been just completed. Detailed house-hold unit wise data will only become available after some time. The NSSO has however released some preliminary summaryestimates on Uniform Recall Period (URP) both at current and at constant prices. The methodology now in use follows theTendulkar Committee which is based on Mixed Recall Period (MRP). However, the URP distribution by decile categories isavailable. From the NSSO summary data release it appears that Monthly Per Capital Consumption Expenditure (MPCE) atconstant (2004–05) prices increased in the two year period between 2009–10 and 2011–12 by 18.1 per cent and 13.3 per cent inrural and urban areas. This corresponds to an annualised rate of increase of 8.7 and 6.5 in rural and urban areas respectively,which is much higher than the 1.4 per cent and 2.7 per cent respective annual increases in rural and urban households between2004–05 and 2009–10.
  • 73. Macroeconomic Framework 69The 30th percentile (that is the third decile from the bottom of the distribution) of MPCE (URP) in the 68th Round show that atconstant prices the increase between 2009–10 and 2011–12 was 14.5 per cent and 15.3 per cent for rural and urban householdsrespectively, which translate to annualised rates of increase of 7.0 per cent and 7.4 per cent for urban and rural households.These are much higher than the corresponding values for the period 2004–05 to 2009–10 which was 1.7 per cent and 1.9 percent respectively.A large part of the reason for the much higher growth in real MPCE in the most recent period may well have been that condi-tions in 2009–10 was unusually depressed on account of the combination of the global crisis that had occurred a year earlier andthe very poor monsoon of 2009. The initial findings of the 68th Round fully justifies the decision that was taken to go in for alarge sample survey in 2011–12 (before the results for the 2009–10 survey was available) instead of the normal five-year interval.From this, the inference is that the rate of decline in poverty in the period 2009–10 to 2011–12 would be much higher thanthat which emerged from the NSSO surveys for the periods 2004–05 to 2009–10. Or to put it another way the rate of decline inpoverty in the period 2004–05 to 2011–12 would be much higher than that for the period 1993–94 to 2004–05.Decile-wise annual growth in real MPCE for the periods 1993–94 to 2004–05 and 2004–05 to 2011–12 as given in Table 2.8shows that growth in consumption across deciles was much more inclusive in the period 2004–05 to 2011–12 as compared tothe period 1993–94 to 2004–05. TABLE 2.8 Decile-wise annual growth in MPCEURP at constant prices (2004–05) (%) Deciles Rural Urban (% of population) 1993–94 to 2004–05 2004–05 to 2011–12 1993–94 to 2004–05 2004–05 to 2011–12 First (0–10) 0.70 2.91 0.66 2.96 Second (10–20) 0.49 3.00 0.54 3.28 Third (20–30) 0.56 3.15 0.66 3.39 Fourth (30–40) 0.55 3.17 0.91 3.42 Fifth (40–50) 0.54 3.17 1.00 3.41 Sixth (50–60) 0.55 3.30 1.24 3.35 Seventh (60–70) 0.52 3.40 1.36 3.30 Eighth (70–80) 0.61 3.45 1.35 3.40 Ninth (80–90) 0.71 3.48 1.47 3.45 Tenth (90–100) 1.61 3.71 2.30 4.52 Average 0.85 3.40 1.49 3.72NOTES that of China the sum of mainland China, Hong Kong and1. The shares of Bangladesh, Vietnam and Cambodia rose from Taiwan. 2.6 per cent, 0.9 per cent and 0.5 per cent in 2000 to 4.5 per 4. Computed from balance of payment data in the World cent, 3.1 per cent and 0.9 per cent respectively (International Economic Outlook database of the IMF. Trade Statistics 2011, WTO). 5. Stephen G. Cecchetti, Global Imbalances: Current Accounts2. Angus Maddison, Contours of the World Economy 1-2030 AD and Financial Flows (Myron Scholes Global Markets Forum, (Oxford University Press, 2007). The regional identifier ‘Asia’ University of Chicago, September 2011). does not include Middle East/West Asia in conformity with 6. World Investment Report (UNCTAD, 2011). conventional practice. 7. Data on trade flows in this sections are from International3. For purposes of comparison, India in 1950 is the sum of Trade Statistics (WTO, 2010). India, Pakistan and Bangladesh (then East Pakistan) and
  • 74. 3Financing the PlanINTRODUCTION 3.5. As shown in Table 3.1, the realised GBS for the3.1. This Chapter presents projections of the public Plan was 89.23 per cent of the projected amount.sector resources for the Twelfth Plan period given the Realised CA to States and UTs at `338913 crore wastarget Gross Domestic Product (GDP) growth rate of 104.33 per cent of the projected level. As a percent-8.2 per cent. The estimates show resource availabil- age of GBS, this increased from 22.85 per cent toity for the Twelfth Plan of `8050123 crore at current 26.72 per cent. This increase in the share of CA toprices for the Centre and States taken together. States and UTs is a reflection of the stimulus pack- ages offered by the Government as countercyclical3.2. These projections imply that public sector measures, resulting in increased resource transfersresources for the Plan will be at 11.80 per cent of to States through CSS in health, education andGDP in the Twelfth Plan as against 10.96 per cent rural development, which expanded well beyondrealised in the Eleventh Plan. However, the outcome what was originally projected. Central Public Sectorwill depend critically on achievement of buoyancy in Enterprises (CPSEs) achieved 64.57 per cent oftax revenue, effective control over subsidies and an resources projected in the Plan. A large part of theimprovement in the resource mobilising capacity of shortfall is accounted for by under-recoveries of thePublic Sector Enterprises (PSEs) both at the Central public sector enterprises (PSEs) due to market priceand State levels. controls imposed by the government.PUBLIC SECTOR RESOURCES IN THE ELEVENTH 3.6. The total resources available for the CentralPLAN Plan, consisting of GBS for the Central Plan plus3.3. This section presents an overview of the PSEs’ resources, worked out to be 74.84 per cent ofresources of the Centre and States in the Eleventh the projected level, that is, `1613882 crore at 2006–07Plan period. prices.Centre’s Plan Resources 3.7. The composition of the GBS in the Eleventh3.4. The Gross Budgetary Support (GBS) in Eleventh Plan as actually realised reflects a significant dete-Plan was projected at `1421711 crore at 2006–07 rioration of non-debt contribution compared to theprices. This included `324851 crore of Central Plan projections. The share of Balance from CurrentAssistance (CA) to the States and union territo- Revenues (BCRs) in GBS was projected to be 46 perries (UTs). With the Eleventh Plan resources of cent, but deteriorated sharply to (–)14.01 per cent.Central Public Sector Enterprises (CPSEs) projected Therefore, to bridge the gap, the realised share ofat `1059711 crore, total resources available for the borrowings had to increase to 108.92 per cent asCentral Plan was fixed at `2156571 crore. against the projected share of 54.00 per cent.
  • 75. Financing the Plan 71 TABLE 3.1 Projected vis-à-vis Realised Financing Pattern of the Plan Outlay of the Centre (` Crore at 2006–07 Prices) Sources of Funding Projection Eleventh Plan (2007–12) Projection Realisation % Realisation 1 BCR 653989 –177679 –27.17 (46.00) (–14.01) 2 Borrowings including net MCR* 767722 1381639 179.97 (54.00) (108.92) 3 Net Flow from abroad 0 64563 4 Gross Budgetary Support for the Plan (1 + 2 + 3) 1421711 1268523 89.23 5 CA to States and UTs’ Plan 324851 338913 104.33 (22.85) (26.72) 6 GBS for Central Plan (4 – 5) 1096860 929610 84.75 (77.15) (73.28) 7 Resources of PSEs 1059711 684272 64.57 8 Resources for Central Plan (6 + 7) 2156571 1613882 74.84Note: Figures in parentheses are percentages of GBS to Plan (S. No. 4). * MCR: Miscellaneous Capital Receipts.3.8. The overall negative BCR during the Eleventh Plan was the fact that revenue receipts of the CentrePlan as against the projection of substantial positive decreased by 2.20 percentage points of GDP fromBCR was partly due to global financial crisis slowing 10.87 per cent in 2007–08 to 8.66 per cent in 2011–12.down economic growth and partly due to counter Between 2007–08 and 2011–12, gross tax revenue ascyclical fiscal measures and Sixth Pay Commission a proportion of GDP decreased by about 1.71 per-awards. The BCR, which turned out to be positive in centage points, of which 0.16 percentage points wasthe last year of the Tenth Plan, had improved further the decrease in the share of the States. The gross taxin the first year of the Eleventh Plan. However, BCR GDP ratio continuously declined from 11.89 perturned negative in next two years, as well as the last cent in 2007–08 to 10.33 per cent in 2010–11 andyear of the Eleventh Plan. further to 10.18 per cent in 2011–12. Tax revenues (net of States’ shares) decreased by about 1.56 per-Revenue Receipts centage points from 8.81 per cent in 2007–08 to 7.253.9. Gross Tax Revenue of the Centre which grew at per cent in 2011–12. Non-tax revenue fell by aboutan Average Annual Growth Rate (AAGR) of 20.5 per 0.64 percentage points from 2.05 per cent of GDPcent in the Tenth Plan, declined to 14.23 per cent in in 2007–08 to 1.41 per cent of GDP in 2011–12. Thethe Eleventh Plan. Net of the share of the States, the decline in non-tax revenue has been largely due totax revenues of the Centre grew at 13.31 per cent. a steep decline in interest receipts by about twoNon-tax revenue has grown at an AAGR of 16.55 per percentage point owing to debt consolidation andcent in the Eleventh Plan as against 4.31 per cent in the resetting of interest rates, and disintermediationTenth Plan. However, much of the increase was due in borrowings arising from the award of the 12thto one off nature of proceeds of 3G/BWA Telecom Finance Commission (FC).Spectrum auction in 2010–11. The average annualgrowth of revenue receipts of the Central Government Non-Plan Revenue Expenditureduring the Eleventh Plan was 13.08 per cent. 3.11. The Non-Plan Revenue Expenditure (NPRE) increased by 0.77 percentage points from 8.44 per3.10. An important factor underlying the poor cent of GDP in 2007–08 to 9.21 per cent of GDP inresource mobilisation performance in the Eleventh 2011–12 (refer to Table 3.2). This was mainly because
  • 76. 72 Twelfth Five Year Plan TABLE 3.2 by the Centre due to economic slowdown caused by NPRE and Its Components global financial crisis. The percentage of interest pay- Items 2007–08 2011–12 ments to revenue receipts increased from 31.56 per cent in 2007–08 to 37.2 per cent in 2009–10 and only Actual RE marginally declined to 35.94 per cent in 2011–12. 1 Interest 171030 275618 However, the debt burden of the Centre has declined     (3.43) (3.11) by almost 2 percentage points from 46.2 per cent in 2 Pension 24261 56190 2007–08 to 44.2 per cent of GDP as per 2011–12 (BE).     (0.49) (0.63) 3 Salary 44361 99716 Fiscal Deficit     (0.89) (1.13) 3.14. The gross fiscal deficit of the Centre, as a per 4 Subsidies 70926 216297 cent of GDP, increased from 2.54 per cent in 2007–     (1.42) (2.44) 08 to 5.89 per cent in 2011–12 (RE). The Fiscal posi- tion at the State level, on the other hand, was stable 5 Other NPRE 110283 167919 primarily because borrowing of the States are con-     (2.21) (1.90) trolled by the Centre. The gross fiscal deficit of the 6 (Total) NPRE 420861 815740 States, as a per cent of GDP, has been within the     (8.44) (9.21) projected level, except in 2009–10. Nevertheless,Source: Planning Commission. the combined fiscal deficit of the Centre and StatesNote: Figures in parentheses are percentages of GDP. increased from 3.97 per cent in 2007–08 to 8.09 per cent in 2011–12 (RE). The average combined fiscalof an increase in salary payments due to Sixth Pay deficit for the Eleventh Plan, as a percentage of GDP,Commission award and sharp increase in subsidies was 7.34 per cent with 5.15 per cent for the Centre,by 1.02 per cent of GDP. Subsidies increased sharply and 2.23 per cent for the States. The year-wise figuresfrom 1.42 per cent of GDP in 2007–08 to 2.44 per of fiscal deficit are provided in Table 3.3.cent of GDP in 2011–12. 3.15. The net flow from abroad for externally aided3.12. During the Eleventh Plan, expenditure on sub- projects is another source of plan financing. Thesidies increased by 205 per cent from `70926 crore share of the net inflow from abroad, through thisin 2007–08 to `216297 crore in 2011–12. The food route was 2.2 per cent of GBS in the Tenth Plan.subsidy and petroleum subsidy increased by about This was expected to decline due to early repayment139 per cent and 1445 per cent respectively over of costlier debt. No specific target was fixed for thethis period. The sharp increase in petroleum subsi-dies was due to rise in international crude oil prices, TABLE 3.3rupee depreciation and inadequate passing of the Gross Fiscal Deficitincrease in retail prices. The abolition of the prac- Year Centre States Combinedtice of providing subsidies in securities and bringingsubsidies transparently into budget accounting by 2007–08 2.54 1.49 3.97cash subsidies, particularly for petroleum and fertil- 2008–09 5.99 2.26 8.17isers is another important factor for increase in sub- 2009–10 6.48 3.02 9.46sidy expenditure. Subsidy rationalisation, including 2010–11 4.87 2.15 6.99direct transfer of cash subsidy to the poor, is a prior- 2011–12 (RE) 5.89 2.21 8.09ity policy objective of the government and some ini- Eleventh Plan Average 5.15 2.23 7.34tiatives are under consideration. (2007–12) Source: Indian Public Finance Statistics 2010–11 (Ministry of3.13. The borrowings of the Central Government Finance) and Annual Financial Statement 2012–13.have been much higher than the projected borrowing Note: RE stands for Revised Estimates.
  • 77. Financing the Plan 73Eleventh Plan. But net inflow from abroad contrib- 3.18. IEBR contributed 64.3 per cent of the Planuted about 5.09 per cent of the GBS in the Eleventh outlay of CPSEs during the Eleventh Plan the restPlan, which was 0.24 per cent of the GDP. being budgetary support. Of this, IR contributed 55.28 per cent and EBR 44.72 per cent. In the origi-Central Public Sector Enterprises nal projections, IR were to contribute 45.53 per cent3.16. The Internal and Extra Budgetary Resources and EBR were to contribute only about 54.47 per(IEBR) of the CPSEs was projected to provide cent. The Eleventh Plan realisation of IR has been`1059711 crore, but the actual realisation was only relatively better than the EBR. Consequently, EBR`684272 crore which was 64.57 per cent of the pro- have been well within the Eleventh Plan target ofjected amount. As a result, the realised share of IEBR 54.47 per cent.in the Central Plan resources was only 42.4 per cent,much lower than the projected share of 49.14 per cent. States Resources in the Eleventh Plan 3.19. The Eleventh Plan resources of the States and3.17. The investment by CPSEs is financed through UTs were projected at `1488147 crore at 2006–07budgetary support provided by the Central Govern- prices. The realisation at 2006–07 prices is placed atment, which is a part of GBS and IEBR raised by `1347842 crore which is 90.57 per cent of the pro-CPSEs on their own. IEBR comprises of Internal jected level. The realised pattern of funding showsResources (IR) and Extra-Budgetary Resources (EBR). a considerable shortfall over the projected levelsIR comprise retained profits—net of dividend paid to (as shown in Table 3.4). BCR was realised only atgovernment, depreciation provision, carried forward about 71.26 per cent over the projected level. Withreserves and surpluses. EBR consist of receipts from resources of the PSEs being slightly higher by aboutthe issue of bonds, debentures, External Commercial 4.2 per cent and borrowings restricted to 92.44 perBorrowings (ECB), suppliers’ credit, deposit receipts cent of the projected level, the share of States’ ownand term loans from financial institutions. resources in the aggregate plan resources has shown TABLE 3.4 Eleventh Plan Resources of States and UTs (` Crore at 2006–07 Prices) Sources of Funding Projection Realisation % Realisation 1 Balance from current revenues 385050 274400 71.26     (25.87) (20.36)   2 Resources of PSEs 128824 134234 104.20     (8.66) (9.96)   3 Borrowings including net MCR 649422 600295 92.44     (43.64) (44.54)   4 State’s own resources (1 + 2 + 3) 1163296 1008929 86.73     (78.17) (74.86)   5 CA to States’ and UTs’ Plan 324851 338913 104.33     (21.83) (25.14)   6 Aggregate plan resources (4 + 5) 1488147 1347842 90.57 7 GBS to Plan (6 – 2) 1359323 1213608 89.28 8 GBS as percentage of GDP 5.06 4.51  Source: Planning Commission.Note: Figures in parentheses are percentages of Aggregate Plan Resources.
  • 78. 74 Twelfth Five Year Planmarginal decline to 74.86 per cent against the projec- framework targets. Service tax has emerged as a verytion of 78.17 per cent. promising source of revenue. Efforts are being made to introduce unified Goods and Service Tax (GST) in3.20. Performance of the States can be analysed, consultation with States. This will be a major reformbroadly, in terms of three components, namely the of the indirect tax system.BCR reflecting non-debt resources, States’ borrow-ings reflecting debt-based funding, and CA, which is Effect of Fiscal Responsibility and Budgetnow all grant. Management Act (FRBMA) 3.24. FRBMA, 2003 and the associated rules which3.21. The BCR of the States was expected to be came into force with effect from 5 July 2004,`385050 crore and the actual realisation was only enjoined the Central Government to lay down before71.26 per cent of the amount. The States’ own tax the Parliament the Medium Term Fiscal Policyrevenues have increased due to improvements made Statement. During 2011–12, the fiscal deficit tar-possible through the introduction of value-added tax get of the Centre could not be met due to decline(VAT). The share of Central taxes devolved to the in economic growth impacting tax collection andStates has also improved owing to increased share high international crude prices leading to increaserecommended by 13th FC. However, compression in subsidy-related expenditure. With proposal forof non-Plan expenditure has not been as expected. additional mobilisation of indirect tax resource, fis-This was largely due to salary increase of State/UT cal deficit is estimated to decline during the TwelfthGovernment employees following the Sixth Pay Plan. The gradual scaling down of the fiscal deficitCommission award. will inevitably restrict the government from making larger public investments through borrowing, but it3.22. As a consequence, reliance on borrowing will certainly pay in the long run. Borrowings whichincreased marginally. Against a projected contribu- increase resource availability also increase the out-tion of 43.64 per cent of the Plan resources, borrow- standing debt, and thereby increase the interest bur-ing in the Eleventh Plan was marginally higher at den. High fiscal deficits also lead to other undesirable44.54 per cent. CA to States and UTs in the Eleventh consequences such as uncertainty about macro-fun-Plan was 104.33 per cent of the projected level, and damentals which can affect investor confidence andits contribution to Plan resources has been 25.14 make the climate unsuitable for private investmentper cent as against the projection of about 21.83 per with adverse effects upon economic growth.cent. This has been the consequence of the increasedexpenditure on social sector through stimulus pack- 3.25. The projection of fiscal deficits based onage offered by the Central Government. Medium Term Fiscal Policy Statement 2012–13 indi- cates that debt resources for funding of GBS for thePUBLIC SECTOR RESOURCES IN THE Twelfth Plan will be higher initially but is projected toTWELFTH PLAN decline gradually. The Centre’s net borrowing whichCentre’s Resources was 5.9 per cent of GDP in 2011–12 (RE) is esti-3.23. There have been several important develop- mated to decline to 5.1 per cent of GDP in 2012–13ments during the Eleventh Plan that have implica- (BE). The fiscal deficit as percent of GDP is furthertions for financing of the Twelfth Plan. The Indian projected to decline to 4.5 per cent in 2013–14, 3.9Economy resiliently faced the global financial crisis per cent in 2014–15, 3.2 per cent in 2015–16 and 3.0of 2008. However, slower growth adversely impacts per cent of GDP in the last year of the Twelfth Plan.growth in Centre’s resources, particularly taxes.The Sixth Central Pay Commission award has been Effect of the 14th FCimplemented. The 13th FC award for 2011–15 3.26. The recommendations of the 13th FC hadis under implementation with some changes in important implications for Plan financing. Thethe fiscal responsibility and budget management 13th FC Award increased the devolution to the States
  • 79. Financing the Plan 75from 30.5 per cent to 32 per cent of divisible pool. This economic scenario, yields a projection of GBS of thehas increased the State Share to Gross Tax Revenue of Centre, which indicates that it will grow from 5.13the Centre (exclusive of cesses, surcharge and cost of per cent of GDP in 2012–13 to 5.22 per cent of GDPcollection which does not constitute shareable pool) in 2016–17. The average GBS for the Central Planfrom about 26 per cent to more than 28 per cent, in the Twelfth Plan period stands at 5.23 per cent ofthereby increasing their capacity to finance the Plan. GDP as against 4.69 per cent of GDP realised in theThis increased capacity is kept in mind when deter- Eleventh Plan.mining the Plan resources of the States/UTs. 3.30. The Gross Tax Revenue as a percentage of GDP3.27. The 13th FC recommendations cover the is estimated to increase from 10.62 per cent in 2012–13period up to 2014–15, which includes the first (BE) to at least the levels achieved in 2007–08. Thethree years of the Twelfth Plan. The projections tax revenue (net of States’ share) increases fromof resources for the Twelfth Plan have been made 7.60 per cent of GDP in 2012–13 to 8.79 per cent ofassuming 28.45 per cent of tax devolutions of the GDP in 2016–17, averaging 8.27 per cent during theGross Tax revenue. This has been assumed by factor- Twelfth Plan. Collection of direct tax has remaineding in the surcharges being phased out and keeping higher than the indirect tax collection since 2008–09the same ratio beyond 13th FC period till the termi- and projected to have similar trend during Twelfthnal year of the Twelfth Plan. This might change later Plan. Corporate tax collection averages 69.37 perafter the recommendations of 14th FC are available. cent of direct tax collection during the Twelfth Plan. It increases from 4.25 per cent of GDP in 2012–13 toEffect of Service Tax and GST 4.83 per cent of GDP in 2016–17 averaging 4.57 per3.28. The introduction of service tax has provided cent of GDP, that is, 0.76 percentage points increasea promising source of revenue, but there are some over the average Eleventh Plan realisation.caveats which have to be kept in mind before makingprojections for the Twelfth Plan. First, the scope for 3.31. Subsidies in the first year of the Twelfth Planexpanding the service tax net to more and more ser- have been taken as per 2012–13 (BE), which is likelyvices gets narrower as the net is widened. The con- to be somewhat higher when the final figures becometribution of the expanding net will, therefore, reduce available. With the reforms being undertaken, theover time. Second, the preponderance of small ser- total subsidies, as a proportion of GDP, are projectedvice providers below the taxable limit of turnover to decline to 1.5 per cent by 2016–17. Inability toconstrains the scope of revenue mobilisation beyonda certain level. The introduction of GST will usher pass on increases in global oil prices to the consum-in major reforms of indirect taxes in the Centre and ers would have a substantial impact on resources forStates. The Central Government is working with the Plan, if this situation is not rectified urgently.Empowered Committee of States to work out a con- The realised subsidies in the Eleventh Plan and pro-sensus in this regard. The Twelfth Plan assumptions jection for the Twelfth Plan are shown graphically inon tax resources of the Centre and States envisage Figure 3.1.revenue neutrality of GST although there might bepositive spin-off effects of GST mainly through bet- 3.32. Twelfth Plan resources for the Centre andter tax compliance. its funding are summarised in Table 3.5. The GBS available for the Plan is estimated at `3568626 crore3.29. Keeping in mind the implication of the Mid- at current prices. CA to the States’ and UTs’ PlanTerm Fiscal Policy Statement and also the prospects works out to be `857786 crore. IEBR of Centralfor higher collection of taxes including service tax, public sector enterprises (CPSEs) is estimated atan assessment has been made of the likely GBS of the `1622899 crore. The total resources available forCentre. The resource projection based on the esti- the Central Plan outlay are, therefore, projected atmates made by the Working Group on the Centre’s `4333739 crore. This is only an indicative outlay.resources with some changes given the changed The actual realisation can change depending on how
  • 80. 76 Twelfth Five Year Plan 3.00 Central Subsidies as per cent to GDP 2.50 2.00 1.50 1.00 Eleventh Plan Realisation Twelfth Plan Projection 0.50 0.00 9 0 1 2 3 4 5 6 7 –0 –1 –1 –1 –1 –1 –1 –1 –1 8 –0 08 09 10 11 12 13 14 15 16 07 20 20 20 20 20 20 20 20 20 20 Year FIGURE 3.1: Central Subsidies as Per Cent to GDP TABLE 3.5 was projected at 2.31 per cent for the Eleventh PlanProjection of the Twelfth Plan Resources of the Centre which turned negative by (–)0.61 per cent. However, (` Crore at Current Prices) with buoyancy in tax revenue and a decline in non- Sources of Funding Projection plan expenditure, BCR is estimated to be 1.88 per 1 Balance from current revenues 1387371 cent of the GDP for the Twelfth Plan. The imposi-     (38.88) tion of the fiscal deficit ceiling ensures that borrow- 2 Borrowings including net MCR 2181255 ings, including net miscellaneous capital receipts, decline from 5.06 per cent of GDP in Eleventh Plan     (61.12) to 3.35 per cent in the Twelfth Plan. 3 Gross Budgetary Support to Plan (1 + 2) 3568626 (100) States’ Resources 4 CA to States and UTs’ Plan 857786 3.34. The fiscal deficit of the States as a whole     (24.04) remained below 3 per cent of GDP during the 5 Total GBS for Central Plan (3 – 4) 2710840 Eleventh Plan period. While prescribing different     (75.96) fiscal paths for individual States, the 13th FC has also 6 Resources of PSEs including Borrowed 1622899 set the fiscal deficits target of 3 per cent of GDP to be Resource (45.48) achieved by 2014–15 by all the States. Accordingly, 7 Total Resources for Central Plan (5 + 6) 4333739 the fiscal deficit limit of all States which has been a little over 3 per cent of the GDP in 2012–13 is pro-Source: Planning Commission.Note: Figures in parentheses are percentages of GBS to Plan jected to remain around 2.22 per cent during the(S. No. 3). Twelfth Plan period. This inevitably limits the scope for mobilising debt resources of the States, therefore, have to look at improving revenue realisation andthe resource position evolves from year to year. The controlling non-Plan expenditure.financial position will be reviewed at the time ofMid-term Appraisal. 3.35. The Aggregate Plan resources of the States and UTs including PSE resources have been projected to3.33. Table 3.6 compares the funding pattern in the be `3716385 crore at current prices (see Table 3.7).Twelfth Plan with the Eleventh Plan realisation as This comprises of `2858599 crore of own resourcespercentages of GDP. The BCR as percent of GDP (including borrowings) and `857786 crore of CA.
  • 81. Financing the Plan 77 TABLE 3.6 Resources of the Centre in Eleventh and Twelfth Plan (as % of GDP) Sources of Funding Eleventh Plan Twelfth Plan % Increases (+)/ Realisation Projections Decreases (–) 1 Balance from Current Revenues –0.61 1.88 2.49 2 Borrowings including net MCR 5.06 3.35 –1.71 3 Net Flow from Abroad 0.24 0.00 –0.24 4 Gross Budgetary Support to Plan (1 to 3) 4.69 5.23 0.54 5 CA to States and UTs’ Plan 1.26 1.26 0.00 6 GBS for Central Plan (4 – 5) 3.43 3.97 0.54 7 Resources of PSEs 2.53 2.38 –0.15 8 Resources for Central Plan (6 + 7) 5.96 6.35 0.39Source: Planning Commission. TABLE 3.7 Twelfth Plan Resources of States and UTs (` Crore at Current Prices) Sources of Funding Projection State UTs Total 1 Balance from Current Revenues 885939 74040 959979   (24.80) (51.39) (25.83) 2 Resources of PSEs 376043 4276 380319   (10.53) (2.97) (10.23) 3 Borrowings 1494258 24043 1518301   (41.83) (16.69) (40.85) 4 State’s Own Resources (1 to 3) 2756240 102359 2858599   (77.16) (71.05) (76.92) 5 CA to States’ and UTs’ Plan 816083 41703 857786   (22.84) (28.95) (23.08) 6 Aggregate Plan Resources (4 + 5) 3572323 144062 3716385   (100.00) (100.00) (100.00)Source: Planning Commission.Note: Percentage of Total is in the parenthesis.UTs account for 3.88 per cent of the combined `274400  crore at 2006–07 prices in the Eleventhaggregate Plan resources of the States and UTs. Plan, is projected to increase to `959979 crore at current prices. This represents an increase of 0.393.36. As a proportion of GDP, aggregate Plan percentage points of GDP over the Eleventh Plan.resources of the States and UTs are projected at However, projections of resources of PSEs show a5.45 per cent of GDP, registering an increase of growth of 0.06 percentage points as compared with0.44 percentage points over the Eleventh Plan reali- the Eleventh Plan. CA to the States remains almost atsation (refer to Table 3.8). The BCR, which was the same level as percentage of GDP.
  • 82. 78 Twelfth Five Year Plan TABLE 3.8 Eleventh Plan Realisation and Twelfth Plan Projection of Resources of States and UTs (% of GDP) Sources of Funding Eleventh Plan Twelfth Plan % Increases (+)/ Realisation Projections Decreases (–) 1 Balance from Current Revenues 1.02 1.41 0.39 2 Resources of PSEs 0.50 0.56 0.06 3 Borrowings 2.23 2.22 0.01 4 States’ Own Resources (1 to 3) 3.75 4.19 0.44 5 CA to States’ and UTs’ Plan 1.26 1.26 0.00 6 Aggregate Plan Resources (4 + 5) 5.01 5.45 0.44Source: Planning Commission.3.37. Mobilisation of resources of such a magnitude was the outcome of expansionary fiscal measures offor the Twelfth Plan is contingent upon significant the Centre to counter economic slowdown affectedimprovement in the States’ own resources, mainly by global financial crisis and inevitable increase inthrough improved BCR. The States will have to step expenditure. With sharp fall in revenue collection,up efforts to increase their own tax and non-tax the Centre had to mobilise more resources throughrevenue collections through better tax administra- borrowings. As against this, tighter fiscal disciplinetion, plugging the scope for leakages and recovery is envisaged both for Centre and States during theof cost-based user charges. It is assumed that there Twelfth Plan period. Assuming that the economywould not be any additional burden on account of will return to a higher growth trajectory and withPay-Commission related salary increase for major- good revenue buoyancies, the revenue collection isity of the States during the Plan period. Further, the projected to grow annually by about 17 per cent ondevolution of taxes have been assumed at the 13th average. This is reflected in the large improvementFC level for the last two years of the Plan. in BCR which is projected to increase from 3.71 per cent of the total public sector plan resources in the3.38. As shown in Table 3.8, the CA being transferred Eleventh Plan to 29.16 per cent of the total publicto the States in the Twelfth Plan amounts to 1.26 per sector plan resources for Centre and States takencent of GDP which is same as the Eleventh Plan. together in the Twelfth Plan.However, CA is not the only means of Plan trans-fer. Substantial plan transfers take place through the 3.40. The financing plan outlined above will poseCentrally Sponsored Schemes (CSS) which have been major challenges. As shown in Table 3.10, the totalgreatly expanded in the Twelfth Plan. Accordingly, resources for the Central and State Plans takenthe States will receive larger transfer of total plan together have to increase from an average of 10.96resources from the Centre. per cent of GDP in the Eleventh Plan to an average of 11.80 per cent of GDP in the Twelfth Plan. The3.39. Table 3.9 compares the structure of financ- increase of 0.84 per cent of GDP in total resourcesing projected in the Twelfth Plan for the Centre for the Plan has to be achieved keeping borrowingand States, combined with that actually realised in within the stipulated limit and reducing the fiscalthe Eleventh Plan. The most notable feature is that deficit of the Centre and States to 3 per cent on eachthe Twelfth Plan projections show relatively modest account in the last year of the Twelfth Plan. Takingdependence on borrowings amounting to 45.96 per account of the resources mobilised by the public sec-cent of the total Plan resources compared with 66.77 tor, the combined BCR of the Centre and the Statesper cent in the Eleventh Plan realisation. The higher has to increase by more than the projected increasedependence on borrowings during the Eleventh Plan in Plan resources.
  • 83. Financing the Plan 79 TABLE 3.9 Overall Financing Pattern: Eleventh and Twelfth Plans (` Crore at Current Prices) Sources of Funding Eleventh Plan Realisation Twelfth Plan Projection Centre States and Total Centre States and Total UTs UTs 1 Balance from Current Revenues –242390 381536 139146 1387371 959979 2347350 (–11.97) (22.11) (3.71) (32.01) (25.83) (29.16) 2 Borrowings including net MCR 1751691 752815 2504506 2181255 1518301 3699556 (86.50) (43.62) (66.77) (50.33) (40.85) (45.96) 3 Net Inflow from Abroad 80043 0.00 80043 – – – (3.95) (2.13) 4 Centre’s GBS (1 + 2 + 3) 1589344 – 1589344 3568626 – 3568626 (78.48) – (42.37) (82.35) – (44.33) 5 Resources of PSEs/Local Bodies 857244 170039 1027283 1622899 380319 2003218 (42.33) (9.85) (27.39) (37.45) (10.23) (24.88) 6 State’s Own Resources (1 + 2 + 5) – 1304390 1304390 – 2858599 2858599 – (75.58) (34.77) – (76.92) (35.51) 7 CA to States and UTs’ Plan –421458 421458 – –857786 857786 – (–20.81) (24.42) – (–19.79) (23.08) – 8 Resources of the Public Sector 2025130 1725848 3750978 4333739 3716385 8050123 Plan (1 + 2 + 3 + 5 + 7)Source: Planning Commission.Note: Figures in parentheses are percentages of Resources of the Public Sector Plan. TABLE 3.10 Plan Resources as Per Cent of GDP S. No. Item Eleventh Plan Twelfth Plan Increase over Eleventh Plan I Aggregate Plan Resources Centre 5.96 6.35 0.39 States 5.00 5.45 0.45 Centre and States 10.96 11.80 0.84 II Balance from Current Revenues Centre –0.61 1.88 2.49 States 1.02 1.41 0.39 Centre and States 0.41 3.29 2.88Source: Planning Commission.3.41. The Centre’s BCR, realised in the Eleventh expected to improve from 1.02 per cent of GDP asPlan, averaged (–)0.61 per cent of GDP. It is pro- realised in the Eleventh Plan to 1.41 per cent of GDPjected to average 1.88 per cent of GDP in the Twelfth in the Twelfth Plan. As can be seen from Table 3.10,Plan, that is, an improvement of 2.49 percentage the projected improvement required in the com-points of GDP. Similarly, the BCR of the States is also bined BCR of the Centre and States taken together is,
  • 84. 80 Twelfth Five Year Plantherefore, 2.88 percentage points of GDP. It must be section. This section focuses on the allocation ofemphasised that achievement of these BCR targets is Public Sector Resources for the Twelfth Plan betweena key element in the financing of the Plan. the Centre and the States/UTs and the proposed sec- toral distribution of the resources in keeping with3.42. Underlying the projected BCR is a projection the objective of achieving faster and more inclusivethat tax revenues (net to Centre) would grow from growth.7.60 per cent of GDP in 2012–13 to 8.79 per cent ofGDP in 2016–17. NPRE is expected to decline from 3.46. The projected assessment of resources of the8.53 per cent of GDP in 2012–13 to 7.09 per cent in public sector for the Twelfth Plan at `8050123 crore2016–17. Thus the projected improvement of 2.49 at current prices comprises of the Centre’s share atper cent of GDP in BCR of the Centre is expected to `4333739 crore and the States/UTs share at `3716385come slightly more from contraction in NPRE than crore. The resources for the Central Plan includesgrowth in taxes. the GBS component of `2710840 crore and the IEBR component of `1622899 crore at current prices.3.43. The assumption of growth in tax revenues Resource allocation in the Central sector accord-of the Centre and the States built into the projec- ing to different Heads of Development is indicatedtions is not unreasonable. Tax revenues recorded in Annexure 3.1 and the Ministry/Department-wisein the recent past has shown a lot of swings due to details of budgetary support and IEBR are indicatedeconomic slowdown affected by the global financial in Annexure 3.2. Table 3.11 indicates the sources ofcrisis. The annual growth of gross tax revenue col- funding public sector outlays for Centre and Stateslection which dipped to 2–3 per cent in 2008–09 and for the Twelfth Plan.2009–10, returned to a healthy growth of 27 per centin 2010–11 followed by 13.69 per cent in 2011–12 3.47. The Twelfth Plan resources of the States and(RE). With the recovery of the economy and pro- UTs are projected at `3716385 crore at current prices,posal to mobilise additional tax revenues, gross tax out of which States’ own resources are `2858599revenue is estimated to grow by about 19.5 per cent crore and the CA to States and UTs is `857786 crorein 2012–13 (BE) over the previous year. Efforts will at current prices. Head of Development-wise alloca-continue in the Twelfth Plan period towards achiev- tion for the States/UTs with States/UTs-wise coreing the targeted tax-to-GDP ratios. However, the plan details are furnished in Annexure 3.3. TheseBCR projections are equally dependent upon the allocations would be finalised in consultation withability to moderate the growth in NPRE and this the States.aspect of the projections deserves focused attention. 3.48. A comparison of the distribution of the total3.44. There are several factors which could make GBS in the Eleventh and the Twelfth Plan has beenit difficult to contain expenditures to the projected shown in Table 3.12. In comparison to the Eleventhlevel. There is inevitable upward pressure of increas- Plan realisation, there is an increase of 132.12 pering expenditure on subsidies, particularly on fertil- cent in the projected GBS for the Centre for theiser and petroleum due to increasing international Twelfth Plan. CA to State/UT Plans for State sectorcrude oil prices, and also on food owing to proposed programmes is about 103.53 per cent higher than thefood security legislation. The subsidy regime needs grant component realised during the Eleventh Plan.to be urgently reformed to keep the total subsidy The share of the projected grant component of the CAwithin the ceiling of 1.5 per cent of GDP in 2016–17 to States/UTs plan in the total GBS for Twelfth Planthat the resources projections have built in. has slightly decreased from the level realised in the Eleventh Plan (from 26.52 per cent to 24.04 per cent).Allocation of Public Sector Resources3.45. The projection of the overall resources for the 3.49. The projection of GBS allocation to differentTwelfth Plan has been presented in the preceding sectors, Ministries/Departments and the support to
  • 85. Financing the Plan 81 TABLE 3.11 Public Sector Allocation for Twelfth Plan (` Crore at Current Prices) Centre   Sources of Funding Allocation 1 Budgetary Support 2710840 2 IEBR 1622899 3 Total Centre (1 + 2) 4333739   States and UTs   Sources of Funding Allocation 4 States’ Own Resources 2858599 5 CA to State/UT Plan 857786 6 Total States and UTs (4 + 5) 3716385   Total Public Sector Outlay 7 Grand Total (3 + 6) 8050123Source: Planning Commission. TABLE 3.12 GBS Allocation in Eleventh and Twelfth Plans (` Crore at Current Prices) Items Eleventh Plan Realisation Twelfth Plan Projections Amount % Share in Amount % Share in % Increase over Total GBS Total GBS Eleventh Plan Central Plan (Central Sector and 1167886 73.48 2710840 75.96 132.12 Centrally Sponsored Schemes) CA to State Plan 421458 26.52 857786 24.04 103.53 Total 1589344 100.00 3568626 100.00 124.53Source: Planning Commission.the State/UT Plan has been made in tune with the resources to the priority areas identified for ensur-approach adopted for the Twelfth Plan for ‘faster, ing inclusiveness. A broad picture of the structuralsustainable and inclusive growth’. The Twelfth Plan change in terms of sectoral allocation of Centre’saims at putting the economy on a sustainable growth budgetary resources (GBS including CA to Statetrajectory with a growth rate of 9.1 per cent by the Plans for major sectoral programmes) in Twelfthend of the Plan period by targeting robust growth in Plan as compared to Eleventh Plan has been shownagriculture at 4 per cent per year and by creating pro- in the Table 3.13.ductive employment at a faster pace than before. TheTwelfth Plan focuses on poverty reduction, ensuring 3.50. It may be noted that the biggest increase inaccess to basic physical infrastructure, health and allocation of Centre’s GBS is for Health and Childeducation facilities to all while giving importance Development, Urban Development and Education.to bridging the regional/social/gender disparities The share of Health and Child Development inand attending to the marginalised and the weaker Centre’s GBS goes up to 11.45 per cent as com-social groups. Accordingly, a major structural shift pared to 7.09 per cent in the Eleventh Plan. Theacross sectors has been proposed by allocating more share of Urban Development increases from
  • 86. 82 Twelfth Five Year Plan TABLE 3.13 Allocation of Centre’s GBS by Major Sectors—Eleventh Plan Realisation and Twelfth Plan Projection (` Crore in Current Prices) S. No. Major Sectors Eleventh Plan Twelfth Plan % Increase over Eleventh Plan Realisation % Share Projection % Share 1 Agriculture and Water Resources 116554 7.33 284030 7.96 143.69 2 Rural Development and Panchayati Raj 397524 25.01 673034 18.86 69.31 3 Scientific Departments 58690 3.69 142167 3.98 142.23 4 Transport and Energy 204076 12.84 448736 12.57 119.89 5 Education 177538 11.17 453728 12.71 155.57 6 Health and Child Development 112646 7.09 408521 11.45 262.66 7 Urban Development 63465 3.99 164078 4.60 158.53 8 Others 458849 28.87 994333 27.86 116.70   Total Plan Allocation 1589342 100.00 3568626 100.00 124.53Source: Planning Commission.3.99 per cent in the Eleventh Plan to 4.60 per cent Programme (HADP)/North East Council (NEC)in the Twelfth Plan. The share of Education goes accounts for 14.31 of the total CA. The remain-up to 12.71 per cent in Twelfth Plan. The percent- ing 64.85 per cent of CA to the States is assigned toage increase in GBS for Scientific Departments, Additional Central Assistance (ACA) for variousAgriculture and Water Resources is also substantial. flagship programmes and other schemes in accor-The increase in budgetary support for Infrastructure dance with the priority set for the Twelfth Plan, suchin Transport and Energy Sectors is impressive con- as the AIBP, National Social Assistance Programmesidering that a large proportion of investments in (NSAP), BRGF, RKVY and JNNURM includingthese sectors would be made from the resources of MP’s Local Area Development Programme.CPSEs (IEBR) and through Public–Private Partner-ships (PPPs). The resources for Rural Development 3.52. The overall plan outlay of all the States andProgrammes in the areas of Housing, Employment UTs is projected to increase from `1725848 crore inand livelihood had been substantially increased dur- the Eleventh Plan to `3716385 crore in the Twelfthing the Eleventh Plan as compared to the initial allo- Plan (both at current prices), an increase of 115.34cations. Even a moderate increase in resources for per cent on a comparable basis. The aggregate pic-these programmes proposed in the Twelfth Plan over ture indicates that the States would be allocatingthis high base means a substantial budgetary supportfor these programmes. more than proportionate increase to social services (41.68 per cent), transport (11.53 per cent) and3.51. The Twelfth Plan proposes to provide `857786 agriculture and allied activities (6.85 per cent). Thecrore at current prices as CA to State/UT Plans. aggregate picture, it must be noted, conceals wideTable 3.14 indicates the details of sector-wise CA inter-State variations in terms of Plan sizes relativecomponent of the resources of the States/UTs. Out to GSDP, per capita plan expenditure and percentageof the total CA to States/UTs of `857786 crore at cur- sectoral outlays.rent prices, 20.84 per cent (that is, `178739 crore)has been earmarked for the Gadgil-Mukherjee ISSUES IN PLAN FINANCINGFormula driven NCA. Special Plan Assistance (SPA) 3.53. Several conceptual issues that have a bear-for Special Category States and Special Central ing on the structure of the Plan financing and pub-Assistance (SCA) for the Border Areas Develop- lic expenditure management were discussed in thement Programme (BADP)/Hill Area Development Eleventh Plan document. These issues included
  • 87. Financing the Plan 83 TABLE 3.14 Projected CA to States/UTs’ Plan for Twelfth Plan (` Crore at Current Prices)Sectors Programme AllocationState Development Plan Normal CA 178739Special Category States Special Plan Assistance 36436 Special CA (Untied to any project) 63858 Central Pool for North East and Sikkim 6218Agriculture Rashtriya Krishi Vikas Yojana 63246SCA Border Area Development Programme/Hill Area Development 10122 Programme/North Eastern Council 6108Irrigation Accelerated Irrigation Benefit Programme 91435Urban/Local Area Development Jawaharlal Nehru Urban Renewal Mission 101917 MPs’ Local Area Development Programme 19775Balanced Regional Development Backward Region Grant Fund 76677 Bodoland Territory Council 340Elderly and Weaker Section National Social Assistance Programme 48642Infrastructure Roads and Bridges 12410Externally Aided Projects Various EAPs 81912E-Governance National e-Governance Action Plan 3537Tribal Development Tribal Sub-Plan 7787 Grants-in-aid under Article 275 (1) 6924UT Plans 41073Total 857786the classification of expenditure into Plan and 3.55. The HLEC has recommended abolition ofNon-Plan, Revenue and Capital, fund transfers Plan and Non-Plan distinction in the Budget and aof Centrally Sponsored Schemes (CSS) as Central shift in the approach of public expenditure manage-Plan rather than as CA to State Plans, mode of fund ment to a more holistic view, from one year hori-transfer to States (consolidated fund versus societ- zon to a multi-year horizon, and from input-basedies route), monitoring of plan expenditure, scope of budgeting to the budgeting linked to outputs andthe Public Sector Plan and the problems posed by outcomes. The HLEC has also outlined broad redefi-the FRBM framework to constrain grants for capital nition of roles of Ministry of Finance, Planningassets. Commission, Administrative Ministries of the Central Government and State Governments. It has3.54. A High Level Expert Committee (HLEC) on proposed a change in the annual budgeting process.Efficient Management of Public Expenditure wasconstituted by the Planning Commission under the 3.56. The HLEC has supported the proposal to intro-Chairmanship of Dr. C. Rangarajan to look into vari- duce a new multidimensional budget and account-ous issues mentioned above and suggest measures ing classification for Union and State Governmentsfor efficient management of public expenditure. The in respect of functions, programmes and schemes. ItHLEC has made 25 recommendations across the 5 has recommended extension of Central Plan Schemeterms of reference. Monitoring System (CPSMS) through interfaces with
  • 88. 84 Twelfth Five Year PlanState treasuries and Core Banking Solution (CBS) to FRBM Act of the Centre to give statutory recogni-enable real-time tracking of all Schemes for which tion to the concept of ‘Effective Revenue Deficit’resources are transferred to States and their agencies. and to introduce medium-term expenditure frame-These measures will enable a comprehensive view of work statement along with the other three state-the resources transferred to States and their agencies ments envisaged under the FRBMA. This wouldas well as utilisation across different Schemes. help Ministries/Departments to reallocate resources on priority schemes and weed out those which have3.57. The HLEC has recommended phase out of outlived their utility. The Committee constituted todirect mode of transfer to autonomous societies/ review the list of the Heads of Accounts of Unionagencies so as to fully ensure treasury mode of trans- and States has submitted its Report. The recommen-fer of Central Plan funds for better accountability. In dation on transfer of Plan resources to States onlythe transition period, till the complete switch over through the Consolidated Fund (Treasury) route willto treasury mode, several measures have been rec- be implemented along with other recommendationsommended in respect of accounting, auditing and to improve accountability of resources. The recom-submission of utilisation reports by the societies/ mendation of the HLEC relating to abolition of Planagencies. and Non-Plan classification is under consideration to determine its feasibility, especially in so far as it3.58. The HLEC is in favour of continuing the relates to interaction with the States.Revenue-Capital categorisation. It recommends thatall transfers should be treated as revenue expendi- FINANCING INFRASTRUCTURE:ture in accounts, but there was a merit in exclud- THE SHIFT TO PPPing the grants for capital assets for the purpose of 3.61. It is widely recognised that adequate invest-FRBM compliance. The Committee recommends ment in the development of infrastructure is a pre-that aggregate control for FRBM compliance may requisite for higher growth. In this context, stepsshift from the conventional Revenue Deficit to have been taken by the government to create an‘Adjusted Revenue Deficit’ (revenue deficit adjusted enabling environment to promote investment into the extent of grants for capital assets). This should, infrastructure.however, be subject to rigid compliance to the defi-nitional requirements of capital assets as well as ACHIEVEMENTS OF THE ELEVENTH PLANmaintenance of asset records/registers available in 3.62. To meet the infrastructure deficit at the begin-public domain. ning of the Eleventh Plan, an increase in investment in physical infrastructure was envisaged from about3.59. As regards the scope of the Public Sector Plan, 5 per cent of GDP witnessed during the Tenth Planthe HLEC has recommended inclusion of invest- to about 9 per cent of GDP by 2011–12 (terminal yearment outlays funded by IEBR of Centre. The scope of the Eleventh Plan). This was estimated to requireof Public Sector Plan, according to the Committee, an investment of `2056150 crore during the Eleventhshould also include the resources of local bodies. Plan as compared to an estimated investment ofAs regards the PPP projects, the Committee rec- `916176 crore during the Tenth Plan. Further, theommends that only the annuity commitments or contribution of the private sector in infrastructureViability Gap Funding (VGF) should be a part of the investment was expected to rise from about 22 perPlan, but there should be a separate supplement to cent in the Tenth Plan to about 30 per cent in thethe Central/State budgets providing comprehensive Eleventh Plan.information on PPPs. Sector-Wise Investments3.60. Some recommendations of the HLEC have 3.63. On the basis of the figures of actual investmentbeen accepted. The ongoing CPSMS would be for the first four years of the Eleventh Plan and provi-expanded to facilitate better tracking and utilisation sional figures for the fifth year, it is expected that theof funds. The amendments have been made in the total investment in infrastructure during the Eleventh
  • 89. Financing the Plan 85Plan would be `1907579 crore (as against projected the public sector under-performing at 84 per cent ofinvestment of `2056150 crore) at 2006–07 prices. The the target and the private sector over-performing tocontribution of the private sector would be about reach 113 per cent. The achievement was not uniform37 per cent compared to 30 per cent originally pro- across all sectors. While Telecommunication, Oil andjected for the Eleventh Plan which is much higher than Gas Pipelines, Roads and Bridges sectors exceeded22.04 per cent realised in the Tenth Plan. The details their investment targets, investment in Ports,of investment over the Tenth Plan and Eleventh Plan Railways, Water Supply and Sanitation and Storageperiods are shown in Table 3.15. The investment was much below expectations. The share of privaterealised during the Eleventh Plan period has been investment in different sectors over the Eleventh Planabout 93 per cent of the original projections, with period is given in Figure 3.2. TABLE 3.15 Sector-Wise Investments: Tenth Plan and Eleventh Plan (` Crore at 2006–07 Prices)Sectors Tenth Plan Total Eleventh Plan Actual Original Anticipated % Increase of Anticipated Projections Eleventh Plan Anticipated % of Original over Tenth Plan Actuals ProjectionsElectricity (incl. RE) 274661 666525 618356 125.20 92.77Centre 103431 255316 166141 60.63 65.07States 102054 225697 148819 45.94 65.94Private 69176 185512 303396 338.59 163.55Roads and Bridges 152616 314152 361822 137.08 115.17Centre 71536 107359 155367 117.19 144.72States 68143 100000 134246 97.01 134.25Private 12937 106792 72209 458.14 67.62Telecommunications 144669 258439 309271 113.78 119.97Centre 50626 80753 68628 35.56 84.99Private 94042 177686 240643 155.89 135.43Railways (incl. MRTS) 103493 261808 195340 88.75 74.61Centre 100077 201453 172113 71.98 85.44States 2743 10000 11727 327.44 117.27Private 672 50354 11501 1610.14 22.84Irrigation (incl. WS) 121475 253301 195688 61.09 77.26Centre 9661 24759 11629 20.37 46.97States 111814 228543 184059 64.61 80.54Water Supply and SN 60577 143730 97351 60.71 67.73Centre 21508 42003 37243 73.16 88.67States 37958 96306 59989 58.04 62.29Private 1111 5421 119 –89.33 2.20Ports (incl. ILW) 22351 87995 35536 58.99 40.38Centre 2630 29889 4398 67.24 14.71States 916 3627 2216 141.95 61.10Private 18805 54479 28922 53.80 53.09 (Contd)
  • 90. 86 Twelfth Five Year Plan(Table 3.15 Contd) Sectors Tenth Plan Total Eleventh Plan Actual Original Anticipated % Increase of Anticipated Projections Eleventh Plan Anticipated % of Original over Tenth Plan Actuals Projections Airports 7354 30968 29282 298.20 94.56 Centre 3855 9288 9708 151.85 104.52 States 717 50 929 29.64 1858.00 Private 2782 21630 18644 570.20 86.20 Storage 5591 22378 14203 154.03 63.47 Centre 3065 4476 4709 53.64 105.21 States 124 6713 1669 1250.17 24.86 Private 2402 11189 7825 225.72 69.93 Oil and Gas pipelines 23389 16855 50730 116.90 300.98 Centre 21088 10327 27818 31.91 269.37 States 2279 – 3335 46.35 – Private 23 6528 19578 85737.54 299.91 Grand Total 916176 2056150 1907579 108.21 92.77 Centre 387477 765622 657755 69.75 85.91 States 326748 670937 546989 67.40 81.53 Private 201951 619591 702836 248.02 113.43 Grand Total 916176 2056150 1907579 108.21 92.77 Public 714225 1436559 1204743 68.68 83.86 Private 201951 619591 702836 248.02 113.43 GDPmp 18246267 27044506 26934373 – – Investment as % of GDP con. mp 5.02 7.60 7.18 – – 90 80 70 Per Cent Share 60 50 40 30 20 10 0 Ports Telecom Airports Electricity Roads & Railways Bridges FIGURE 3.2: Private Sector Investment in Infrastructure (Per Cent Share)
  • 91. Financing the Plan 87Infrastructure Investment and GDP dipped to 6.51 per cent of GDP in the terminal year of3.64. Table 3.16 depicts the share of infrastructure as the Eleventh Plan period primarily due to slowdowna percentage of GDP. This has increased from 5.04 in the Telecommunication sector. The Eleventhper cent in the Tenth Plan to about 7.10 per cent of Plan as a whole is likely to see an increase of aboutGDP in the Eleventh Plan. It can also be seen that 2.06 per cent of GDP in infrastructure investment asthe share of private sector as percentage of GDP has compared to the Tenth Plan. Three-fourths of thisgone up from 1.12 per cent to 2.64 per cent during increase is because of higher private participation.the same period. The relative share of public and private investment as percentage of GDP is given in Figure 3.3.3.65. Starting from a base of 5.61 per cent of GDP in2006–07, infrastructure investment reached an all- STRATEGY FOR THE TWELFTH PLANtime high of 8.41 per cent of GDP in 2010–11, part of 3.66. The strategy for the Twelfth Plan encour-which was contributed by telecom operators invest- ages private sector participation directly as well asing in the auction of 3G spectrum. The percentage through various forms of PPPs, wherever desirable TABLE 3.16 Investment during the Eleventh Plan as Percentage of GDP (` Crore at Current Prices)Years Tenth Plan Base Year 2007–08 2008–09 2009–10 2010–11 2011–12 Total (Actual) of Eleventh (Actual) (Actual) (Actual) (Actual) (RE) Eleventh Plan Plan (2006–07) (Actual)GDPmp 16598847 4294706 4987090 5630063 6457352 7674148 8855797 33604450Public Investment 668983 185760 227009 286651 313151 381794 375732 1584338Private Investment 186023 61621 96177 140568 144665 285990 220104 887504Total Investment 855006 247381 323186 427219 457816 667784 545836 2385980 Investment as Per Cent of GDPPublic Investment 3.92 4.18 4.33 4.82 4.57 4.68 4.02 4.46Private Investment 1.12 1.43 1.93 2.50 2.24 3.73 2.49 2.64Total Investment 5.04 5.61 6.26 7.32 6.81 8.41 6.51 7.10 9.00 8.00 Private Public Total 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 3 4 5 6 7 8 9 0 1 2 –0 –0 –0 –0 –0 –0 –0 –1 –1 –1 02 03 04 05 06 07 08 09 10 11 20 20 20 20 20 20 20 20 20 20 FIGURE 3.3: Investment in Infrastructure as a Per Cent of GDP
  • 92. 88 Twelfth Five Year Planand feasible. The share of private sector in infra- 3.70. The projected investment in infrastructurestructure investment will have to rise substantially over the Twelfth Plan would be possible only if therefrom about 37 per cent anticipated in the Eleventh is a substantial expansion in internal generation andPlan to about 48 per cent in the Twelfth Plan. It is extra-budgetary resources of the public sector, inexpected that competition and private investment addition to a significant rise in private investment.will not only expand capacity, but also improve the The scale of private investment would require a sig-quality of service, besides minimising cost and time nificant reinforcement of the enabling policy andoverruns in implementation of infrastructure proj- regulatory environment.ects. The year and Sector-wise projections for theTwelfth Plan are given in Table 3.17. Institutional Framework for PPP3.67. The Central share in the overall infrastructure Cabinet Committee on Infrastructureinvestment is likely to decline from 34.30 per cent 3.71. The approach to PPPs must remain firmlyin the Eleventh Plan to 28.91 per cent in the Twelfth grounded in principles which ensure that PPPs arePlan, and the States’ share is likely to decline to 22.90 formulated and executed in public interest with aper cent compared to 28.50 per cent in the Eleventh view to achieving additional capacity and deliveryPlan. The share of the private sector is expected to of quality public services at reasonable costs. Theseincrease from 37.20 per cent in the Eleventh Plan to partnerships must ensure investment for supple-48.19 per cent in the Twelfth Plan. menting scarce public resources while improving efficiencies. The government’s current initiativesFinancing Infrastructure Investment in the in the area of PPPs are designed to achieve theseTwelfth Plan objectives.3.68. The total public sector investment in infra-structure envisaged in the Twelfth Plan is `1628129 3.72. The following steps have been taken to pro-crore by the Centre and `1289709 crore by the States. mote private investment in infrastructure sector:Investment by the private sector, which includes PPPprojects, makes up the balance of `2713853 crore, 1. Setting up robust institutional structure forwhich is 48.19 per cent of the required investment appraising and approving PPP projectsduring the Twelfth Plan, a much higher share than 2. Developing standardised documents such asthe anticipated 37.20 per cent during the Eleventh model concession agreements across infrastruc-Plan. Of the projected investment of `1628129 crore ture sectorsby the Central Government, `974151 crore is likely to 3. Increasing availability of finance by creatingbe funded out of IEBR. In the case of States, `730569 dedicated institutions and providing viabilitycrore is expected from budgetary resources, while gap fundingabout `559140 crore is expected from their IEBR, asper details in Table 3.18. This would require a much 3.73. The Committee on Infrastructure (CoI) washigher scale of effort by the public sector undertak- constituted in August 2004 under the Chairmanshipings, especially for raising debt on commercial terms. of the Prime Minister, with the objectives of initiat- ing policies that would ensure time-bound creation3.69. The total requirement of debt by the public of world class infrastructure, delivering servicesand private sectors is likely to be `2811571 crore. matching international standards, developing struc-However, the availability of debt financing for tures that maximise the role of PPPs and monitoringinfrastructure during the Twelfth Plan is estimated the progress of key infrastructure projects to ensureat `2301101 crore. There is a likely funding gap of that targets are achieved. In July 2009, the CoI wasabout `500000 crore for the debt component, the replaced by a Cabinet Committee on Infrastructuredetails of which are given in Table 3.19. Measures (CCI) under the Chairmanship of the Prime Minister.would have to be taken for addressing this gap. CCI reviews and approves policies and projects across
  • 93. Financing the Plan 89 TABLE 3.17 Projected Investment in Infrastructure—Twelfth Plan (` Crore at Current Prices)Sectors Total Twelfth Plan Projections Eleventh 2012–13 2013–14 2014–15 2015–16 2016–17 Total Plan Twelfth PlanElectricity 690193 228405 260094 296050 335873 381244 1501666Centre 195200 69059 77650 87228 97616 109242 440796States 184696 56338 62337 68909 75888 83572 347043Private 310297 103008 120107 139913 162369 188429 713827Renewable Energy 89224 31199 42586 58116 79059 107613 318573Centre 9634 3631 4739 6179 8027 10427 33003States 1018 744 883 1047 1237 1462 5372Private 78572 26825 36965 50890 69795 95724 280198Roads and Bridges 453121 150466 168828 190368 215134 244610 969406Centre 194678 61920 66805 72224 78025 84554 363529States 165903 47844 51222 54786 58377 62204 274433Private 92540 40702 50801 63358 78732 97852 331445Telecommunications 384962 105949 138432 182651 242053 274814 943899Centre 86375 15203 14827 14446 14023 13611 72110Private 298586 90746 123606 168204 228030 261203 871789Railways 201237 64713 78641 97137 122370 158938 521799Centre 192147 59988 70202 82078 95601 111351 419221Private 9090 4725 8439 15059 26769 47587 102578MRTS 41669 13555 17148 22298 29836 41322 124158Centre 21469 5889 6784 7808 8953 10266 39700States 14786 4732 5451 6274 7194 8249 31901Private 5414 2934 4912 8215 13688 22806 52557Irrigation (incl. Watershed) 243497 77113 87386 99178 112506 128186 504371Centre 14426 4679 5952 7713 10161 13666 42171States 229071 72434 81434 91466 102346 114520 462200Water Supply and Sanitation 120774 36569 42578 49666 57975 68163 254952Centre 46003 13999 16396 19185 22364 26070 98015States 74607 22335 25732 29617 33959 38939 150582Private 164 235 451 864 1651 3154 6355Ports (+ILW) 44536 18661 25537 35260 49066 69256 197781Centre 5480 2888 3415 4034 4747 5586 20670States 2759 794 930 1089 1269 1480 5563Private 36298 14979 21192 30138 43050 62189 171548Airports 36311 7691 10716 15233 21959 32116 87714Centre 11873 2456 2710 2988 3282 3605 15041States 1030 268 351 458 596 776 2449Private 23408 4967 7655 11787 18081 27735 70224 (Contd)
  • 94. 90 Twelfth Five Year Plan(Table 3.17 Contd) Sectors Total Twelfth Plan Projections Eleventh 2012–13 2013–14 2014–15 2015–16 2016–17 Total Plan Twelfth Plan Oil and Gas pipelines 62534 12211 16604 23833 36440 59845 148933 Centre 35179 9335 11367 13827 16757 20308 71594 States 4070 832 985 1164 1372 1616 5969 Private 23284 2044 4253 8842 18311 37921 71370 Storage 17921 4480 6444 9599 14716 23202 58441 Centre 5956 1711 2026 2396 2823 3326 12280 States 2116 623 717 826 947 1085 4198 Private 9850 2146 3701 6377 10947 18791 41963 Grand Total 2385980 751012 894996 1079389 1316986 1589308 5631692 Centre 818420 250758 282874 320107 362379 412012 1628129 States 680056 206944 230041 255636 283185 313903 1289709 Private 887504 293310 382082 503646 671423 863393 2713853 Grand Total 2424015 751012 894996 1079389 1316986 1589308 5631692 Public 1498476 457702 512915 575743 645564 725916 2917838 Private 925539 293310 382082 503646 671423 863393 2713853 GDPmp 33604450 10150618 11645987 13358028 15347089 17661485 68163208 Investment as % of GDPmp 7.10 7.40 7.69 8.08 8.58 9.00 8.26 TABLE 3.18 Source-Wise Projected Investment (` Crore at Current Prices) 2012–13 2013–14 2014–15 2015–16 2016–17 Total Twelfth Plan Centre 250758 282874 320107 362379 412012 1628129 Central budget 107664 117805 129245 142220 157044 653978 Internal generation 68200 76544 86126 96695 109011 436576 Borrowings 74894 88524 104736 123464 145957 537575 States 206944 230041 255636 283185 313903 1289709 State budget 127290 136027 145413 155499 166340 730569 Internal generation 23429 27651 32419 37555 43401 164456 Borrowings 56225 66363 77804 90131 104162 394684 Private 293310 382082 503646 671423 863393 2713853 Internal accruals/Equity 87992 114625 156131 208142 267652 834542 Borrowings 205318 267457 347515 463281 595740 1879311 Total projected investment 751012 894996 1079389 1316986 1589308 5631692 Non-debt 414575 472652 549334 640110 743449 2820121 Debt 336437 422344 530054 676876 845859 2811571
  • 95. Financing the Plan 91 TABLE 3.19 Likely Sources of Debt (` Crore at Current Prices)  2012–13 2013–14 2014–15 2015 –16 2016–17 Total Twelfth PlanDomestic Bank Credit 119066 165122 222037 296242 380653 1183119NBFC’s 56973 82252 115136 159915 213911 628188Pension/Insurance funds 21681 26083 30427 35216 39255 152661ECB’s 46799 56867 66999 78321 88179 337164Likely Total Debt Resources 244519 330149 434369 569637 722426 2301101Estimated Requirement of Debt 336437 422344 530054 676876 845859 2811571Gap between Estimates and 91918 92195 95685 107239 123433 510470Likely Requirementinfrastructure sectors. It considers and decides on authority such as for toll collection, besidesfinancial, institutional and legal measures required to enabling private control over monopolistic services.enhance investment in infrastructure sectors. Implementation of PPP projects, therefore, requires appropriate advisory services in terms of preparationPPP Appraisal Committee and Empowered of project agreements, structuring of projects andInstitution so on. Planning Commission has operationalised a3.74. A Public–Private Partnership Appraisal scheme for technical assistance to project authoritiesCommittee (PPPAC) consisting of the Secretary, by providing consultants for projects. The MinistryDepartment of Economic Affairs, as Chairman, and of Finance has also created an India InfrastructureSecretaries of the Planning Commission, Department Project Development Fund (IIPDF) to provide loansof Expenditure, Department of Legal Affairs and the for meeting development expenses, including theAdministrative Department concerned, as Members cost of engaging consultants for PPP projects.was constituted for speedy approval of PPP projects.The project proposals are appraised by the Planning Viability Gap FundingCommission and approved by the PPPAC. The 3.77. The VGF Scheme was notified in 2006 toEmpowered Institution (EI) approves projects for enhance the financial viability of competitively bidproviding Viability Gap Funding to the infrastruc- infrastructure projects, which are justified by eco-ture projects at the State level. nomic returns, but do not pass the standard thresh- olds of financial returns. Under the scheme, grantRegulatory Framework assistance of up to 20 per cent of capital costs is3.75. In recent years, independent regulatory author- provided by the Central Government to PPP proj-ities have been established in the power, telecom, ects undertaken by any Central Ministry, Stateand civil aviation sectors. Tariffs in the port sector Government, statutory entity or local body, thusare also fixed by an independent authority. These leveraging budgetary resources to access a largerauthorities discharge numerous responsibilities, pool of private capital. An additional grant of up towhich were earlier in the domain of the government. 20 per cent of project costs can be provided by theFor initiating further improvements in the regula- sponsoring Ministry, State Government or projecttory structures and practices, Regulatory Reforms authority.Bill is under consideration of the Government. India Infrastructure Finance Company LimitedAdvisory Services (IIFCL)3.76. PPP projects are based on long-term con- 3.78. IIFCL was incorporated by the Ministrytracts and may involve delegation of governmental of Finance in consultation with the Planning
  • 96. 92 Twelfth Five Year Plan Box 3.1 Infrastrcuture Debt Fund Infrastructure projects are capital intensive and have long payback periods, and, therefore, require long-term funds at comparatively low costs. Infrastructure projects in India are financed mainly by commercial banks, as insurance and pension funds do not normally lend for new projects. The present bond market lacks depth to address the needs for a long-term debt. With a view to overcoming these shortcomings, Infrastructure Development Funds (IDFs) are being set up for channelising long-term debt from domestic and foreign pension and insurance funds, as well as from other sources. These IDFs will also carry adequate credit enhancement in terms of implicit government guarantees for repayment of debt. The Reserve Bank of India, and the Securities and Exchange Board of India have already laid down regulatory framework for the IDFs. Besides augmenting debt resources for financing infrastructure, the IDFs would refinance PPP projects after their construction is completed and operations have stabilised. By refinancing bank loans of existing projects, the IDFs are expected to take over a significant volume of the existing bank debt, and this will release an equivalent volume of fresh lending for infrastructure projects.Commission in 2006 for providing long-term loans The Committee is expected to give its report byfor financing infrastructure projects that typically 31 March 2013.involve long gestation periods. IIFCL provides finan-cial assistance up to 20 per cent of the project cost Standardised Documents and Processesboth through direct lending to project companies, 3.81. The government has decided to formulateand by refinancing banks and financial institutions. standard documents for bidding and award of PPPIIFCL raises funds from both domestic and over- concessions. Adoption of a standardised frameworkseas markets on the strength of government guaran- ensures transparency in the allocation of risks, coststees. IIFCL has sanctioned loans aggregating `40373 and obligations while minimising the potential forcrore for 229 projects involving a total investment disputes and malfeasance.of `352047 crore and disbursed `20377 crore till 31March 2012. Please refer to Box 3.1. 3.82. The Model Concession Agreements (MCAs) published by the Secretariat for PPP and3.79. IIFCL is expected to graduate in the Twelfth Infrastructure at the Planning Commission for vari-Plan from the existing role of a normal lender to ous sectors are listed in Box 3.2. MCAs for PPPs inthat of a catalyst mobilising additional resources for electricity distribution, power generation, modernfinancing of infrastructure. This could be achieved storage facilities, hospitals, school education, dripby IIFCL providing guarantees for bonds issuedby private infrastructure companies rather than Box 3.2expanding its direct lending operations. This would Model Concession Agreements for PPPenable mobilisation of insurance and pension funds,external debt and household savings. IIFCL would • National Highwaysalso make subordinated debt available as an addi- • State Highways • Operation and Maintenance of Highwaystional source of finance. Further, IIFCL may also • National Highways (six laning)substitute its take-out financing scheme with an • Operation of Container TrainsInfrastructure Debt Fund. Please refer to Box 3.1. • Re-development of Railway Stations • Procurement-cum-Maintenance Agreement for Loco-High Level Committee on Financing Infrastructure motives3.80. In order to review the existing framework • Non-metro Airportsfor financing of infrastructure and to make recom- • Greenfield Airports • Port Terminalsmendations in this regard, a High Level Committee • Transmission of Electricityon Financing Infrastructure has been constituted. • Urban Metro Rail
  • 97. Financing the Plan 93irrigation and Industrial Training Institutes are for monitoring of PPP projects that would ensureunder preparation. compliance of the contractual framework contained in the concession agreements with a view to safe-3.83. Standardised guidelines and model documents guarding the interests of the public exchequer andthat incorporate key principles relating to the bid the users. The Central Ministries are expected toprocess for PPP projects have also been developed. submit quarterly reports relating to defaults on theThese are indicated in Box 3.3. part of the concessionaires and the project authori- ties which would be placed before the Cabinet Committee on Infrastructure for review. Box 3.3 Model Bidding Documents for PPP Projects Engineering, Procurement, Construction (EPC) • Model Request for Qualification (RFQ) Document for Contract PPP projects 3.86. The conventional item-rate contracts are gen- • Model Request for Proposal (RFP) Document for PPP erally prone to time and cost overruns, particularly projects • Model RFP Document for Selection of Technical in the national highway sector, resulting in enhanced Consultants cost to the exchequer, as also considerable delays • Model RFP Document for Selection of Legal Advisers in the completion of projects. Developed coun- • Model RFP Document for Selection of Financial tries have moved to Engineering, Procurement and Consultants and Transaction Advisers Construction (EPC) contracts where the contrac- • Model RFP Document for Selection of Transmission tor is responsible for design and construction on a Consultants turnkey basis and for a fixed price. The Planning Commission has published a model EPC contract for3.84. The government has identified several areas Highways. It is expected that about 20000 km of two-for reform of policies and processes. A number of lane National Highways would be developed underGuidelines and Manuals have been issued in pur- this model. A similar document is also being pre-suance of the initiatives described above. These are pared for Dedicated Freight Corridor of the Indianlisted in Box 3.4. Railways.3.85. The government has recently issued Guidelines PPPs in Infrastructurefor Monitoring of PPP Projects. These Guidelines 3.87. Private investment in infrastructure is beingseek to establish a two-tier institutional mechanism encouraged in an environment which ensures com- petition and transparency. Protection of public interest is being ensured by institutionalising the Box 3.4 necessary frameworks and processes for due dili- Guidelines and Manuals gence, checks and balances. However, it is recognised • Guidelines for Financial Support to PPPs in that unless governance issues, such as those related Infrastructure (VGF Scheme) to competition in service provision, collection of user • Guidelines on Formulation, Appraisal and Approval of charges, institutional capacity, regulation, and dis- PPP Projects (PPPAC) pute resolution continue to be adequately addressed, • Guidelines for Establishing Joint Ventures in mobilisation of sufficient resources for the requisite Infrastructure • Guidelines for Monitoring of PPP Projects infrastructure investment may not be possible. • Scheme for Financing Infrastructure Projects through the IIFCL 3.88. Till 31 March 2012, the PPPAC had approved • Manual of Specifications and Standards for Two-laning 285 PPP projects involving an investment of `247300 of Highways crore. The Empowered Institution has approved • Manual of Specifications and Standards for Four- 105 projects involving an investment of `57710 crore laning of Highways (for global ranking in PPP, refer to Box 3.5).
  • 98. 94 Twelfth Five Year Plan Box 3.5 was `23187 crore. Further, it was observed that Global Ranking in PPP introduction of PPP has led to a significant rise in the collection of revenues, especially non-aviation According to a World Bank Report on Private Participation revenues. in Infrastructure, private participation in the first semester of 2011 was highly concentrated in just one country, India. The Report further states that India has been the top 3.91. Airports Authority of India has identified 15 recipient of PPI activity since 2006 and has implemented operational Airports for taking up operation and 43 new projects which attracted total investment of maintenance of both terminal and air side through US$20.7 billion in 2011. India alone accounted for almost PPP. This would be taken up in two phases. In the half of the investment in new PPI projects in developing first phase, nine airports, namely Guwahati, Jaipur, countries implemented in the first semester of 2011. The Ahmedabad, Bhubhaneshwar, Lucknow, Gaya, Report maintained that India remained the largest market for PPI in the developing world. In the South Asian region, Udaipur, Khajuraho and Amritsar would be taken India attracted 98 per cent of regional investment and up; and in the second phase, six airports would be implemented 43 of the 44 new projects in the region. taken up for operation and maintenance through PPP. Kolkata and Chennai airports have been con-PPP in Highways structed by AAI with an investment of about `42003.89. The National Highway network of the coun- crore. PPP in management and operation of airportstry spans about 70548 km. The National Highway is not only preferable for reasons of efficiency andDevelopment Project (NHDP), covering a length of superior services but also important for keeping pas-about 54000 km of highways, is India’s largest road senger charges low, because of the ability of privatedevelopment programme in its history. The govern- entities to raise non-aviation revenues that cross-ment has encouraged increased private sector par- subsidise airport charges. This proposition is borneticipation in upgrading the arterial road network of out by the international experience and the experi-the country to world class standards. More than 60 ence of PPP metro airports in India. It is, therefore,per cent of the estimated investment requirement is recommended that these large airports should beexpected to be financed through PPP. With several awarded under the PPP mode for their managementkey projects on the anvil spanning a length of about and operation.45000 km (including six-laning of four-laned roads,expressways and port connectivity projects) and a 3.92. Five green field airports including Navilarge number of projects in States, there are increas- Mumbai, Goa, Kannur, Chandigarh and Kota haveing opportunities for the domestic and foreign been identified for development through PPP. Forplayers in the sector. The government has decided building and operating a Greenfield airport on PPPto widen 20000 km of less than two-lane National basis, a precise policy and regulatory frameworkHighways to two-lane standard in the EPC mode. has now been spelt out in the Model Concession Agreement for Greenfield Airports.PPP in Civil Aviation3.90. During the Eleventh Plan, the private sec- PPP in Urban Infrastructuretor played a major role in the development of 3.93. Private sector participation needs to be encour-metro airports through PPP. The development aged in urban infrastructure sectors like water sup-of greenfield international airports at Hyderabad ply and sewerage and solid waste management. Inand Bengaluru along with the redevelopment of urban transport, private sector can provide morethe Delhi International airport was successfully efficient transport services, construct and maintaincompleted during this period. The redevelopment modern bus terminals with commercial complexes,of Mumbai International airport, which was also over bridges, city roads and so on. PPP initiativestaken up through PPP, is at an advanced stage of are also being undertaken to develop metro rail sys-completion. Investment by the private sector on the tems in Indian cities (refer to Box 3.6 for details onfour metro airports during the Eleventh Plan period Hyderabad Metro Rail Project).
  • 99. Financing the Plan 95 Box 3.6 awarded. To create Transmission Super Highways, Hyderabad Metro Rail Project the government has allowed private sector partici- pation in the transmission sector. A PPP project at Hyderabad Metro Rail Project is presently under Jhajjar in Haryana for transmission of electricity was construction on PPP mode with a total project cost of `12132 crore. The project is spread over three high density awarded under the PPP mode. Further, to enable pri- traffic corridors of Hyderabad with total length of 71 km vate participation in distribution of electricity, espe- and is being developed on Design, Build, Finance, Operate cially by way of PPP, a model framework is being and Transfer (DBFOT) mode. The project was awarded developed by the Planning Commission. to the successful bidder for a VGF of `1458 crore which will be provided by the Central Government while the PPP in Railways remaining investment will be made by the concessionaire. 3.96. Dedicated Freight Corridor Corporation of This will be the single largest private investment in a PPP project in India. It is also one of the largest metro rail India Limited (DFCCIL) has been set up for imple- projects built and operated by a private entity anywhere menting the Dedicated Freight project and the in the world. The project demonstrates how large volumes Ministry of Railways would explore the possibilities of private capital can be deployed in public projects in of attracting private investment in some segments of a transparent, efficient and competitive manner.The this project. Indian Railways has decided to redevelop concession has been awarded on the basis of the Model 50 railway stations in the metropolitan cities and Concession Agreement for Urban Transit developed by major tourist centers like Delhi, Jaipur, Chandigarh, the Planning Commission. Patna, Bypanahalli, Bhubneshwar, Mumbai CST, Howrah and so on as world-class stations through PPP. The proposal to set up of production units forPPP in Ports manufacturing of electric and diesel locomotives at3.94. The government has encouraged private sec- Madhepura and Marhowra respectively and passen-tor participation in port development and opera- ger coaches at Kanchrapara through PPP has alreadytions. Foreign direct investment up to 100 per cent been approved. Further, movement of containeris permitted under the automatic route for port trains has already been opened to the private sector,development projects. Private investment has been and this has acquired more than 25 per cent shareenvisaged on PPP basis in ports of Kolkata, Haldia, of the market. Construction of an elevated metro railParadip, Vizag, Ennore, Chennai, Tuticorin, Cochin, project in Mumbai is being undertaken through PPP.New Mangalore, Mormugao, Mumbai, JNPT andKandla. PPP in Sports Infrastructure 3.97. The Planning Commission, in consultationPPP in Power with the Ministry of Sports and Youth Affairs, is3.95. To attract private sector participation, govern- developing a model for operation and managementment has permitted the private sector to set up coal, of sports infrastructure through PPP. Large publicgas or liquid-based thermal, hydel, wind or solar funds were invested to create world class facilities inprojects with foreign equity participation up to 100 the stadia for CWG Delhi in 2010. It is proposed toper cent under the automatic route. The govern- take up management and operation of existing stadiament has also launched Ultra Mega Power Projects as well as development of new stadia through PPP.(UMPPs) with an initial capacity of 4000 MW to The objective is to utilise these facilities optimallyattract `160–200 billion of private investment. Out throughout the year and also generate revenues forof the total nine UMPPs, four UMPPs at Mundra their operation and maintenance.(Gujarat), Sasan (Madhya Pradesh), Krishnapatnam(Andhra Pradesh) and Tilaiya Dam (Jharkhand) PPP in Micro Irrigationhave already been awarded. The remaining five 3.98. A scheme for setting up Micro IrrigationUMPPs, namely in Sundergarh District (Orissa), Systems (MIS) through PPP will be launched in pur-Cheyyur (Tamil Nadu), Girye (Maharashtra), Tadri suance of the government’s objective to enhance(Karnataka) and Akaltara (Chattisgarh) are yet to be irrigation efficiency, productivity and farm incomes
  • 100. 96 Twelfth Five Year Planby employing more efficient means of irrigation in although they may not be completely ruled out.integrated clusters.The absence of organised opera- However, concessions which would provide reim-tions in the farm sector would be overcome by bursement of service costs could attract considerablefarmers coming together for the purpose of imple- private investment. The main advantages of adopt-menting this scheme through a single entity in every ing the PPP approach in the social sectors would bevillage. The existing subsidies which are provided enhanced investment, reduction in time and costby the Central and State Governments for on-farm over-runs, improvement in efficiencies and betterMIS equipment and solar systems would be availed quality of performance.of under this scheme. Similarly, budgetary supportwould continue to be provided for the development PPP in Educationof infrastructure. PPP in MIS would help in dou- 3.103. A scheme for setting up 2500 schools underbling the irrigation efficiency as compared to flow PPP mode is being rolled out in the Twelfth Plan.irrigation. The purpose of the scheme is to meet the govern- ment’s objective of establishing world-class schoolsPPP in Storage of Foodgrains for providing quality education to underprivileged3.99. A scheme for setting up modern storage facili- children who cannot afford to pay the tuition fee thatties through PPP under the VGF has been formulated good private schools charge. It is expected that thein pursuance of the Government decision to create scheme will help in creating capacity for providing2MMT of modern storage facilities in the form of quality education to 40 lakh children, out of whichsilos. This would enhance food security, reduce wast- 25 lakh will be from the underprivileged category.age and improve the quality of stored foodgrains. 3.104. The respective rights and obligations of the3.100. Silos will be constructed and operated under private entity and the government will be codifiedthe PPP mode across several states. Land for con- in an agreement with the former undertaking tostruction and operation of silos would be provided deliver the agreed service on the payment of a uni-on licence to the private entity and up to 20 per cent tary charge by the government. Recurring tuitionof the total project cost will be provided as VGF. For support would be provided for up to 1000 studentsstorage of foodgrains at the Silos, the Concessionaire from under privileged categories at par with thewill be entitled to receive a recurring storage charge amount that the Central Government spends on awhich shall be payable on adherence to performance student in Kendriya Vidyalaya. There would be noand maintenance standards. It is expected that in capital support and land would have to be procuredthe first phase, a capacity of 2 million MT of silo by the private entity. Infrastructure support shall becapacity would be created under the PPP mode. made available by the government for the under- privileged students at the rate of 25 per cent of thePPPs in Social Sectors recurring tuition support. The concession would be3.101. The Twelfth Plan lays special emphasis on the for a period of 10 years. There will be no financialdevelopment of social sectors in view of their impact bidding. Predetermined criteria relating to capacityon human development and quality of life, especially and track record of the respective applicants will beof the underpreviliged sections. The physical targets taken into account in selection of the private entities.set in the Plan cannot be met out of public resourcesalone. It is, therefore, imperative that resources have 3.105. The scheme for 2500 PPP schools should beto be attracted from the private sector to ensure that viewed as an opportunity to evolve innovative waystargets, in physical and financial terms, are met by to empower and enable non-government players tothe end of the Twelfth Plan period. engage in providing world-class education, especially to children from low-income families. The objective3.102. In the social sectors, it may not be pos- should be to combine the respective strengths of thesible to adopt the user-charge-based concessions, public and private sectors to complement each other
  • 101. Financing the Plan 97in pursuit of the shared goal of good education for the ITIs. It is expected that 30 lakh youth, includingall. In particular, adoption of the PPP mode would 15 lakh youth from socially and economically disad-lead to rapid expansion of access to world-class edu- vantaged groups would be initiated into vocationalcation by low-income families. training and will acquire skills through the ITIs set up under this scheme.PPP in Health Care Services3.106. Several State Governments are experiment- Financial Support to PPPs in Social Sectorsing with delivery of health services through different 3.110. A scheme for financial support to PPPs inmodels. Planning Commission is also in the pro- the social sectors is being formulated as part of thecess of preparing a scheme for setting up secondary Twelfth Plan initiative to enhance investments andand tertiary care hospitals through PPPs at various coverage in social sectors, and also to expand the roleDistrict Headquarters. The principle objective of of private participation.the scheme is to create a health care delivery mecha-nism comprising multi-specialty hospital to meet the 3.111. The scheme envisages that capital invest-growing health care needs of the poor, and for sup- ment and recurring costs to be incurred by a non-plementing human resources in the sector by setting government entity on the delivery of services to EWSup nursing schools and medical colleges. families, based on a concession agreement between government (or a statutory authority) and a non-3.107. It is expected that in the Twelfth Plan, the pro- government entity, will be provided by the respectiveposed scheme will be rolled out by the Government, State Governments, who in turn will be eligible forand a 200-bed district-level hospital would serve a Viability Support Funding (VSF) from the Centralcatchment area of about 8–10 lakh of population (20 Government.lakh for a 300-bed tertiary care hospital). This willhelp families from the economically disadvantaged Capacity Building in the Statesgroups get access to quality health care through 3.112. The State Governments generally do not havehospitals set up under this scheme, especially those dedicated staff resources for handling PPP projectswho are covered under the Rashtriya Swasthya Bima or for building the requisite capacity. Such capac-Yojna (RSBY). ity is critical for conceptualising project proposals, engaging consultants, interacting with and super-PPP in Skill Development vising consultants, analysing and processing their3.108. As part of the government’s initiative to aug- advice for government approvals, interacting withment the programmes for skill development, the prospective investors, executing the project docu-Prime Minister had announced setting up of 1500 ments and monitoring implementation. Therefore,ITIs through PPP in unserved blocks. The objective the Planning Commission may need to provideis to create centres of excellence in vocational educa- financial assistance (ACA) to the State Governmentstion especially for the youth from low-income fami- for the setting up a nodal Secretariat for PPP in eachlies in order to improve their prospects of gainful State.employment. The programme will be expanded tocover a total of 3000 blocks during the Twelfth Plan. 3.113. The aforesaid PPP Secretariat in each State would be responsible for identifying areas in the3.109. A major proportion of the costs incurred respective States amenable to PPP, conceptualiseby an ITI are of a recurring nature, and it is there- the projects, initiate and approve feasibility stud-fore, proposed to provide support for the recurring ies, appraise and approve bid documentation, guideexpenditure incurred by an ITI towards training stu- the process and so on. This would enable capacitydents from underprivileged families. Further, it is building in the States. The total expenditure on thisproposed to provide capital grant to meet a part of scheme over the next five years would be limited tothe cost of creating the infrastructure for setting up about `100 crore.
  • 102. 98 Twelfth Five Year Plan Box 3.7 India Front-Runner in the PPP Race: ADB According to a study by the Economic Intelligence Unit of the Economist commissioned by Asian Development Bank (ADB), while UK and Australia have been categorised as mature economies, India is positioned in the league of developed economies like Republic of Korea and Japan on implementation of PPP projects for infrastructure development. India has outscored China and Japan to rank second on PPP projects performance among the Asian nations and fourth in the Asia-Pacific nations. As per the Report, PPP development in India has been driven by strong political will and advances in public capacity and processes. The Report states that PPP projects have a huge level of overall acceptance and use in India. It states that government agencies have a relatively high level of proficiency in PPP projects and that as a result of introduction of Model Concession Agreements, the risk allocation has been improving. In terms of finance, matters have improved, with a variety of initiatives (such as the creation of the Viability Gap Funding and the India Infrastructure Finance Company Limited) enabling greater participation of private finance in infrastructure.3.114. To conclude, the gains of private participation targets, while also ensuring inclusiveness. It is envis-in meeting the policy objectives of the Government aged that by the end of the Twelfth Plan, not onlyhave been significant during the Eleventh Plan. will there be `5631692 crore worth of investmentThese initiatives will be expanded and reinforced in infrastructure sectors, but also that PPPs wouldduring the Twelfth Plan, especially in social sec- have successfully forayed into the social sectors totors such as health, education, skill development promote universal access, while ensuring quality inand so on with a view to meeting the investment the delivery of services.
  • 103. ANNEXURE 3.1 TABLE 3A.1 Sectoral Allocation for Public Sector’s Resources—Eleventh Plan (2007–12) Realisation and Twelfth Plan (2012–17) Projections (in ` Crore)S. Heads of Centre States and UTs Centre, States and UTsNo. Development Budgetary Support IEBR Total Outlay Budgetary Resources Total Outlay Eleventh Twelfth % Eleventh Twelfth % Eleventh Twelfth % Eleventh Twelfth % Eleventh Twelfth % Plan Plan Increase Plan Plan Increase Plan Plan Increase Plan Plan Increase Plan Plan Increase1 Agriculture and 60339 133965 122.02 344 671 95.04 60683 134636 121.87 102422 228637 123.23 163105 363273 122.72 Allied Activities2 Rural 179925 267047 48.42 0 0 0  179925 267047 48.42 108284 190417 75.85 288209 457464 58.73 Development3 Special Area 0 0 0  0 0 0  0 0 0 42817 80370 87.71 42817 80370 87.71 Programmes4 Irrigation and 2325 17212 640.30 1 0 0  2326 17212 639.98 227008 404800 78.32 229334 422012 84.02 Flood Control5 Energy 43374 98541 127.19 460709 987456 114.33 504083 1085997 115.44 180188 352468 95.61 684271 1438466 110.226 Industry and 50452 120372 138.59 97058 171718 76.92 147510 292090 98.01 38143 85212 123.40 185653 377302 103.23 Minerals7 Transport 227637 491713 116.01 182232 327769 79.86 409869 819482 99.94 203316 384690 89.21 613185 1204172 96.388 Communications 5308 29699 459.51 53208 51285 –3.61 58516 80984 38.40 0 0 0 58516 80984 38.409 Science, 50615 130054 156.95 0 0 0  50615 130054 156.95 18682 37296 99.64 69297 167350 141.50 Technology and Environment10 Economic 45706 181321 296.71 18 155 761.11 45724 181476 296.89 43652 124136 184.38 89376 305612 241.94 Services11 Social Services 492408 1190416 141.75 63672 83845 31.68 556080 1274261 129.15 641496 1390582 116.77 1197576 2664843 122.5212 General Services 9795 50500 415.57 2 0 0  9797 50500 415.46 45800 57459 25.46 55597 107959 94.18  Total 1167884 2710840 132.12 857244 1622899 89.32 2025128 4333739 114.00 1651808 3336068 101.96 3676936 7669807 108.59
  • 104. ANNEXURE 3.2 TABLE 3A.2Budget Support, IEBR and Outlay for Central Ministry/Department—Eleventh Plan (2007–12) Realisation and Twelfth Plan (2012–17) Projections (` Crore in Current Prices)S. Ministry/Department Budgetary Support IEBR Total OutlayNo. Eleventh Twelfth % Increase Eleventh Twelfth % Increase Eleventh Twelfth % Increase Plan Plan Plan Plan Plan Plan1 Department of Agriculture and Cooperation 38003 71500 88.14 0 0   38003 71500 88.142 Department of Agriculture Research and 9989 25553 155.81 0 0   9989 25553 155.81 Education3 Department of Animal Husbandry, Dairying 4970 14179 185.29 0 0   4970 14179 185.29 and Fisheries4 Department of Health and Family Welfare 84339 268551 218.42 0 0   84339 268551 218.425 Department of Ayurveda, Yoga and 3032 10044 231.27 0 0   3032 10044 231.27 Naturopathy, Unani, Siddha and Homoeopathy (AYUSH)6 Department of Health Research 1894 10029 429.51 0 0   1894 10029 429.517 Department of Aids Control 1500 11394 659.60 0 0   1500 11394 659.608 Department of School Education and 137734 343028 149.05 0 0   137734 343028 149.05 Literacy9 Department of Higher Education 39804 110700 178.12 0 0   39804 110700 178.1210 Ministry of Power 31102 54279 74.52 175090 386517 120.75 206192 440796 113.7811 Department of Road Transport and 77498 144769 86.80 17891 64834 262.38 95389 209603 119.73 Highways12 Department of Rural Developmenta 281438 412965 46.73 17707 0 299146 412965 38.0413 Department of Land Resources 10244 30296 195.75 0 0   10244 30296 195.7514 Ministry of Drinking Water and Sanitation 45711 98015 114.42 0 0   45711 98015 114.4215 Department of Science and Technology 8636 21596 150.07 0 0   8636 21596 150.0716 Department of Scientific and Industrial 6941 17896 157.85 0 0   6941 17896 157.85 Research17 Department of Biotechnology 4840 11804 143.89 0 0   4840 11804 143.8918 Department of Space 15836 39750 151.01 0 0   15836 39750 151.0119 Ministry of Women and Child Development 47396 117707 148.35 0 0   47396 117707 148.35
  • 105. 20 Railways 75976 194221 155.64 113863 225000 97.61 189838 419221 120.8321 Ministry of Urban Development 25133 54311 116.09 11002 11489 4.43  36135 65800 82.1022 Department of Posts 1714 5527 222.55 0 0 – 1714 5527 222.5523 Department of Telecommunications 3416 20825 509.54 53208 51285 –3.61 56625 72110 27.3524 Department of Information Technology 9634 36078 274.49 1810 3944 117.90  11444 40022 249.7225 Ministry of Home Affairs 10323 52839 411.83 0 0   10323 52839 411.8326 Ministry of Housing and Urban Poverty 3537 7850 121.92 41465 71355 72.09 45002 79205 76.00 Alleviation27 Ministry of Micro, Small and Medium 9175 24124 162.93 1072 1890 76.34 10247 26014 153.87 Enterprises28 Ministry of Tribal Affairs 4558 7746 69.93 0 0   4558 7746 69.9329 Ministry of Social Justice and Empowerment 16271 32684 100.87 0 0   16271 32684 100.8730 Ministry of Minority Affairs 7283 17323 137.85 0 0   7283 17323 137.8531 Ministry of Labour & Employment 4321 13223 205.98 0 0   4321 13223 205.9832 Ministry of Information & Broadcasting 2873 7583 163.95 0 1000   2873 8583 198.7533 Department of Atomic Energy 19211 41615 116.62 12601 65572 420.36 31812 107187 236.9434 Department of Chemicals and 2629 2890 9.93 12 3 –74.61 2641 2893 9.53 Petrochemicals35 Department of Pharmaceuticals 249 2968 1090.72 0 127   249 3095 1141.4836 Department of Fertilisers 728 1484 103.78 6027 15437 156.14 6755 16921 150.5037 Ministry of Civil Aviation 4353 16983 290.15 28525 16215 –43.15 32877 33198 0.9738 Ministry of Coal 1454 4617 217.59 25169 108244 330.07 26623 112861 323.9239 Department of Commerce 7743 15133 95.43 0 0   7743 15133 95.4340 Department of Industrial Policy and 4457 12601 182.74 0 0   4457 12601 182.74 Promotion41 Department of Consumer Affairs 761 1260 65.63 0 0   761 1260 65.6342 Department of Food and Public Distribution 323 1523 370.88 345 671 94.53 668 2194 228.2743 Ministry of Corporate Affairs 211 233 10.57 0 0   211 233 10.5744 Ministry of Culture 3098 7275 134.85 0 0   3098 7275 134.8545 Ministry of Development of North Eastern 459 955 108.02 0 0   459 955 108.02 Region (Contd)
  • 106. (Annexure 3.2 Contd) S. Ministry/Department Budgetary Support IEBR Total Outlay No. Eleventh Twelfth % Increase Eleventh Twelfth % Increase Eleventh Twelfth % Increase Plan Plan Plan Plan Plan Plan 46 Ministry of Earth Sciences 3226 9506 194.67 0 0   3226 9506 194.67 47 Ministry of Environment and Forests 8545 17874 109.17 0 0   8545 17874 109.17 48 Ministry of External Affairs 3347 18467 451.80 0 0   3347 18467 451.80 49 Department of Economic Affairs 7675 21379 178.54 0 0   7675 21379 178.54 50 Department of Financial Services 23530 103261 338.85 0 0   23530 103261 338.85 51 Department of Expenditure 24 23 –4.33 0 0   24 23 –4.33 52 Ministry of Food Processing Industries 1615 5990 270.79 0 0   1615 5990 270.79 53 Department of Heavy Industry 1153 4680 305.78 7636 17543 129.74 8790 22223 152.84 54 Department of Public Enterprises 45 50 11.41 0 0   45 50 11.41 55 Ministry of Law, Justice and Company 1555 5802 273.22 0 0   1555 5802 273.22 Affairs 56 Ministry of Mines 1070 2332 117.95 5535 18221 229.22 6605 20553 211.19 57 Ministry of New and Renewable Energy 3605 19113 430.17 6025 13890 130.55 9630 33003 242.72 58 Ministry of Panchayati Raj 636 6437 912.41 0 0   636 6437 912.41 59 Ministry of Personnel, Public Grievances 788 1385 75.65 0 0   788 1385 75.65 and Pensions 60 Ministry of Petroleum and Natural Gas 126 5147 3984.92 258953 436541 68.58 259079 441688 70.48 61 Ministry of Planning 1808 14717 714.21 0 0   1808 14717 714.21 62 Ministry of Shipping 2146 6960 224.33 15718 21990 39.90 17864 28950 62.05 63 Ministry of Statistics and Programme 792 3709 368.20 0 0   792 3709 368.20 Implementation 64 Ministry of Steel 134 200 49.04 57572 90975 58.02 57706 91175 58.00 65 Ministry of Textiles 19922 25931 30.16 0 0   19922 25931 30.16 66 Ministry of Tourism 4913 15190 209.14 18 155 761.11 4932 15345 211.13 67 Ministry of Water Resources 2603 18118 595.98 0 0   2603 18118 595.98 68 Ministry of Youth Affairs and Sports 7830 6648 –15.10 0 0   7830 6648 –15.10   Grand Total 1167885 2710840 132.12 857244 1622899 89.32 2025129 4333739 114.00Note: a Includes `28000 crore as central share of Rural Development Flexi Fund (DoRD + DoLR + DoDWS).
  • 107. ANNEXURE 3.3 TABLE 3A.3aS. No. Head of Development Proposed Sectoral Allocations for States and Union Territories in the Twelfth Plan (Current Prices) (` in Crore) Andhra %age of Arunachal %age of Assam %age of Bihar %age of Pradesh Total Pradesh Total Total Total Budgetary Budgetary Budgetary Budgetary Plan Plan Plan Plan1 2 3   4   5   6  I Agriculture and Allied Activities 17137.88 5.00 1113.93 5.27 3272.60 5.90 15612.62 6.83II Rural Development 33706.50 9.83 203.57 0.96 3674.63 6.62 12774.42 5.59III Special Area Programmes 91.98 0.03 855.25 4.05 10755.61 19.39 7515.45 3.29IV Irrigation and Flood Control 75000.00 21.88 544.40 2.58 8050.63 14.51 21784.52 9.54V Energy 40000.00 11.67 1332.00 6.31 4408.27 7.95 17381.47 7.61VI Industry and Minerals 10000.00 2.92 104.50 0.49 1169.89 2.11 4077.45 1.78VII Transport 22351.89 6.52 1511.70 7.16 5285.66 9.53 41437.54 18.14VIII Communication 0.00   0.00   0.00   0.00  IX Science, Technology and Environment 64.39 0.02 106.80 0.51 1126.07 2.03 2418.15 1.06X General Economic Services 8736.86 2.55 12996.92 61.52 2259.49 4.07 19729.70 8.64XI Social Services 133247.35 38.87 2165.43 10.25 13369.39 24.10 79595.51 34.841 Education 24084.32 7.02 539.10 2.55 4125.29 7.44 29957.34 13.112 Medical and Public Health 11795.20 3.44 275.00 1.30 1332.45 2.40 5125.57 2.243 Water Supply and Sanitation 6505.30 1.90 500.00 2.37 865.45 1.56 4334.34 1.904 Housing 11755.24 3.43 268.43 1.27 91.50 0.17 10116.31 4.435 Urban Development 40000.00 11.67 401.85 1.90 3951.50 7.12 7749.48 3.396 Others Social Services 39107.29 11.41 181.05 0.86 3003.20 5.41 22312.47 9.77XII General Services 2505.15 0.73 191.50 0.91 2108.11 3.80 6125.16 2.68XIII Total Bugedtary Plan (I to XII) 342842.00 100.00 21126.00 100.00 55480.35 100.00 228452.00 100.00XIV Local Bodies Resources 0.00 – 0.00 – 0.00 – 0.00 –XV PSEs Resources 0.00 – 0.00 – 0.00 – 0.00 –XVI Total Plan Outlay (XIII + XIV + XV) 342842.00 21126.00 55480.35 228452.00
  • 108. TABLE 3A.3bS. No. Head of Development Proposed Sectoral Allocations for States and UTs in the Twelfth Plan (Current Prices) (` in Crore) Chhattisgarh %age of Goa %age of Gujarat %age of Haryana %age of Total Total Total Total Budgetary Budgetary Budgetary Budgetary Plan Plan Plan Plan1 2 7   8   9   10  I Agriculture and Allied Activities 8283.74 6.97 1045.52 3.87 19711.80 7.79 6287.97 5.36II Rural Development 3668.52 3.09 881.04 3.26 10919.49 4.32 8086.95 6.90III Special Area Programmes 3313.50 2.79 83.50 0.31 1276.30 0.50 263.14 0.22IV Irrigation and Flood Control 11952.26 10.06 1586.05 5.88 51502.27 20.35 10030.53 8.56V Energy 7337.03 6.17 2235.14 8.28 7890.21 3.12 9661.88 8.24VI Industry and Minerals 1972.32 1.66 403.96 1.50 8926.81 3.53 842.83 0.72VII Transport 13017.31 10.95 2341.05 8.67 29064.04 11.49 12844.29 10.96VIII Communication 0.00 — 0.00 — 0.00 — 0.00 —IX Science, Technology and Environment 2840.14 2.39 727.98 2.70 2268.98 0.90 1528.03 1.30X General Economic Services 5206.92 4.38 1685.53 6.24 9075.94 3.59 2286.18 1.95XI Social Services 61260.26 51.54 13377.88 49.56 112103.55 44.31 64448.52 54.971 Education 30013.19 25.25 3842.29 14.23 15201.10 6.01 19581.16 16.702 Medical and Public Health 5948.67 5.01 1042.33 3.86 16706.00 6.60 4868.07 4.153 Water Supply and Sanitation 2376.07 2.00 1264.96 4.69 14435.90 5.71 6773.87 5.784 Housing 786.88 0.66 224.60 0.83 9448.61 3.73 1094.24 0.935 Urban Development 10442.26 8.79 2320.38 8.60 31906.01 12.61 10291.07 8.786 Others Social Services 11693.19 9.84 4683.32 17.35 24405.99 9.65 21840.12 18.63XII General Services 0.00 0.00 2624.35 9.72 283.62 0.11 959.67 0.82XIII Total Budgetary Plan (I to XII) 118852.00 100.00 26992.00 100.00 253023.00 100.00 117240.00 100.00XIV Local Bodies Resources 4421.00 — 540.00 — 0.00 — 13190.00 —XV PSEs Resources 8455.00 — 1067.00 — 30600.00 — 73570.00 —XVI Total Plan Outlay (XIII + XIV + XV) 131728.00 — 28599.00 — 283623.00 — 204000.00 —
  • 109. TABLE 3A.3cS. No. Head of Development Proposed Sectoral Allocations for States and Union Territories in the Twelfth Plan (Current Prices) (` in Crore) Himachal %age of Jammu and %age of Jharkhand %age of Karnataka %age of Pradesh Total Kashmir Total Total Total Budgetary Budgetary Budgetary Budgetary Plan Plan Plan Plan1 2 11   12   13   14  I Agriculture and Allied Activities 2173.83 9.68 2843.09 6.45 4157.42 3.77 19824.01 8.94II Rural Development 1084.93 4.83 1541.78 3.50 10657.89 9.67 7170.73 3.23III Special Area Programmes 153.36 0.68 1959.49 4.45 5507.82 5.00 2966.35 1.34IV Irrigation and Flood Control 1661.50 7.40 1914.33 4.35 13620.18 12.36 39430.95 17.78V Energy 3549.83 15.81 11195.82 25.41 8372.10 7.59 23165.55 10.45VI Industry and Minerals 227.34 1.01 1066.82 2.42 1346.77 1.22 3649.23 1.65VII Transport 4734.45 21.09 4428.87 10.05 17281.89 15.68 28426.51 12.82VIII Communication 0.00 — 0.00 — 0.00 — 0.00 —IX Science, Technology and Environment 841.38 3.75 268.39 0.61 1285.66 1.17 2296.95 1.04X General Economic Services 585.20 2.61 3216.63 7.30 9610.32 8.72 5971.63 2.69XI Social Services 7088.23 31.57 13196.14 29.95 36293.06 32.92 85428.94 38.521 Education 2905.73 12.94 6434.76 14.61 10709.36 9.71 17331.06 7.822 Medical and Public Health 131.79 0.59 2991.54 6.79 3816.28 3.46 7899.31 3.563 Water Supply and Sanitation 1777.52 7.92 1473.40 3.34 2093.32 1.90 12606.59 5.684 Housing 339.78 1.51 71.81 0.16 147.38 0.13 7031.07 3.175 Urban Development 395.30 1.76 600.09 1.36 6586.83 5.97 16620.80 7.496 Others Social Services 1538.11 6.85 1624.55 3.69 12939.89 11.74 23940.11 10.80XII General Services 349.96 1.56 2423.63 5.50 2106.89 1.91 3433.15 1.55XIII Total Budgetary Plan (I to XII) 22450.00 100.00 44055.00 100.00 110240.00 100.00 221764.00 100.00XIV Local Bodies Resources 0.00 — 0.00 — 0.00 — 0.00 —XV PSEs Resources 350.00 — 0.00 — 0.00 — 33486.00 —XVI Total Plan Outlay (XIII + XIV + XV) 22800.00 — 44055.00 — 110240.00 — 255250.00 —
  • 110. TABLE 3A.3dS. No. Head of Development Proposed Sectoral Allocations for States and Union Territories in the Twelfth Plan (Current Prices) (` in Crore) Kerala %age of Madhya %age of Maharashtra %age of Manipur %age of Total Pradesh Total Total Total Budgetary Budgetary Budgetary Budgetary Plan Plan Plan Plan1 2 15 16 17 18I Agriculture and Allied Activities 8831.00 11.47 17076.50 8.46 19324.87 7.03 642.98 3.08II Rural Development 3339.00 4.34 12946.70 6.41 9089.07 3.31 946.89 4.54III Special Area Programmes 2031.00 2.64 8356.90 4.14 1140.70 0.41 338.58 1.62IV Irrigation and Flood Control 3327.00 4.32 27313.50 13.53 47990.34 17.45 3219.66 15.44V Energy 8323.00 10.81 20941.90 10.37 20694.87 7.53 1563.00 7.50VI Industry and Minerals 3912.00 5.08 5839.70 2.89 2174.94 0.79 435.31 2.09VII Transport 8540.00 11.09 24641.00 12.21 33854.78 12.31 1126.12 5.40VIII Communication 0.00 — 0.00 — 0.00 — 0.00 —IX Science, Technology and Environment 3189.00 4.14 569.00 0.28 2761.04 1.00 1148.29 5.51X General Economic Services 1975.00 2.56 3501.49 1.73 3351.45 1.22 401.97 1.93XI Social Services 33207.00 43.13 79820.22 39.54 119699.61 43.53 10755.50 51.591 Education 4731.00 6.14 20217.00 10.02 14612.18 5.31 754.73 3.622 Medical and Public Health 3534.00 4.59 6314.20 3.13 10200.86 3.71 1301.04 6.243 Water Supply and Sanitation 4656.00 6.05 3116.40 1.54 6073.25 2.21 3664.02 17.574 Housing 412.00 0.54 2002.30 0.99 9376.97 3.41 248.45 1.195 Urban Development 6920.00 8.99 8767.30 4.34 23960.91 8.71 620.98 2.986 Others Social Services 12954.00 16.82 39403.02 19.52 55475.44 20.17 4166.29 19.98XII General Services 326.00 0.42 855.09 0.42 14918.34 5.42 269.72 1.29XIII Total Budgetary Plan (I to XII) 77000.00 100.00 201862.00 100.00 275000.00 100.00 20848.00 100.00XIV Local Bodies Resources 25000.00 — 0.00 — 0.00 — 0.00 —XV PSEs Resources 0.00 — 8291.00 — 0.00 — 0.00 —XVI Total Plan Outlay (XIII + XIV + XV) 102000.00 — 210153.00 — 275000.00 — 20848.00 —
  • 111. TABLE 3A.3eS.No. Head of Development Proposed Sectoral Allocations for States and Union Territories in the Twelfth Plan (Current Prices) (` in Crore) Meghalaya %age of Mizoram %age of Nagaland %age of Odisha %age of Total Total Total Total Budgetary Budgetary Budgetary Budgetary Plan Plan Plan Plan1 2 19   20   21   22  I Agriculture and Allied Activities 2114.47 10.74 346.35 2.85 1795.13 13.81 8387.40 7.40II Rural Development 1116.94 5.68 178.69 1.47 492.07 3.79 2214.07 1.95III Special Area Programmes 101.94 0.52 238.06 1.96 834.18 6.42 9964.07 8.79IV Irrigation and Flood Control 755.79 3.84 460.20 3.78 1142.08 8.79 17597.77 15.53V Energy 2679.50 13.62 656.20 5.40 748.89 5.76 14086.59 12.43VI Industry and Minerals 213.34 1.08 1817.44 14.95 341.70 2.63 478.96 0.42VII Transport 1489.01 7.57 3658.71 30.09 1271.74 9.78 14139.76 12.48VIII Communication 0.00 — 0.00 — 0.00 — 0.00 —IX Science, Technology and Environment 335.67 1.71 162.70 1.34 83.39 0.64 2283.38 2.01X General Economic Services 4231.86 21.50 1154.40 9.49 1585.58 12.20 2374.24 2.10XI Social Services 6124.98 31.12 3270.95 26.90 3932.85 30.25 40335.83 35.591 Education 2512.03 12.77 1379.61 11.35 831.32 6.39 15107.90 13.332 Medical and Public Health 1427.12 7.25 269.77 2.22 208.43 1.60 2723.77 2.403 Water Supply and Sanitation 873.75 4.44 363.42 2.99 231.69 1.78 3410.99 3.014 Housing 67.72 0.34 643.53 5.29 361.73 2.78 1365.53 1.215 Urban Development 997.53 5.07 399.65 3.29 980.07 7.54 2634.32 2.326 Others Social Services 246.83 1.25 214.96 1.77 1319.61 10.15 15093.32 13.32XII General Services 515.51 2.62 216.29 1.78 772.39 5.94 1459.92 1.29XIII Total Budgetary Plan (I to XII) 19679.00 100.00 12160.00 100.00 13000.00 100.00 113322.00 100.00XIV Local Bodies Resources 0.00 — 0.00 — 0.00 — 0.00 —XV PSEs Resources 2321.00 — 0.00 — 0.00 — 11051.00 —XVI Total Plan Outlay (XIII + XIV + XV) 22000.00 — 12160.00 — 13000.00 — 124373.00 —
  • 112. TABLE 3A.3fS. No. Head of Development Proposed Sectoral Allocations for States and Union Territories in the Twelfth Plan (Current Prices) (` in Crore) Punjab %age of Rajasthan %age of Sikkim %age of Tamil Nadu %age of Total Total Total Total Budgetary Budgetary Budgetary Budgetary Plan Plan Plan Plan1 2 23   24   25   26  I Agriculture and Allied Activities 1524.19 2.92 7254.82 5.58 469.30 4.14 20680.00 10.04II Rural Development 4733.82 9.08 10436.99 8.02 1302.98 11.51 23870.00 11.59III Special Area Programmes 0.00 0.00 2891.62 2.22 161.02 1.42 0.00 0.00IV Irrigation and Flood Control 2985.06 5.73 4097.46 3.15 912.50 8.06 8700.00 4.22V Energy 13850.09 26.57 48692.80 37.43 681.27 6.02 24258.00 11.78VI Industry and Minerals 1437.62 2.76 665.22 0.51 412.63 3.64 5470.00 2.66VII Transport 5215.42 10.00 7042.65 5.41 65.29 0.58 20850.00 10.12VIII Communication 0.00 — 0.00 — 0.00 — 0.00 —IX Science, Technology and Environment 259.95 0.50 1245.18 0.96 455.02 4.02 410.00 0.20X General Economic Services 829.16 1.59 2467.21 1.90 681.53 6.02 3880.00 1.88XI Social Services 20529.21 39.38 44126.56 33.92 5241.30 46.28 97400.00 47.281 Education 6647.36 12.75 9886.80 7.60 2014.56 17.79 18090.00 8.782 Medical and Public Health 1598.75 3.07 4999.62 3.84 812.43 7.17 10830.00 5.263 Water Supply and Sanitation 3671.84 7.04 9786.27 7.52 1319.69 11.65 11310.00 5.494 Housing 34.47 0.07 1588.22 1.22 93.25 0.82 3380.00 1.645 Urban Development 1192.42 2.29 10469.87 8.05 978.45 8.64 10690.00 5.196 Others Social Services 7384.36 14.16 7395.77 5.69 22.93 0.20 43100.00 20.92XII General Services 769.47 1.48 1164.48 0.90 942.16 8.32 470.00 0.23XIII Total Budgetary Plan (I to XII) 52134.00 100.00 130085.00 100.00 11325.00 100.00 205988.00 100.00XIV Local Bodies Resources 5863.00 — 5978.00 — 0.00 — 2000.00 —XV PSEs Resources 27362.00 — 60929.00 — 0.00 — 3262.00 —XVI Total Plan Outlay (XIII + XIV + XV) 85359.00 — 196992.00 — 11325.00 — 211250.00 —
  • 113. TABLE 3A.3gS. No. Head of Development Proposed Sectoral Allocations for States and Union Territories in the Twelfth Plan (Current Prices) (` in Crore) Tripura %age of Uttar %age of Uttarakhand %age of West Bengal %age of Total Pradesh Total Total Total Budgetary Budgetary Budgetary Budgetary Plan Plan Plan Plan1 2 27   28   29   30  I Agriculture and Allied Activities 980.78 6.84 24354.83 8.51 2672.88 5.93 8582.90 5.52II Rural Development 425.67 2.97 8322.73 2.91 3082.42 6.84 11142.45 7.16III Special Area Programmes 899.49 6.27 7753.24 2.71 68.11 0.15 10849.50 6.97IV Irrigation and Flood Control 583.54 4.07 30080.39 10.51 3604.40 8.00 13385.80 8.60V Energy 398.28 2.78 39532.33 13.81 6036.17 13.39 4513.00 2.90VI Industry and Minerals 197.25 1.38 20520.35 7.17 177.99 0.39 5934.70 3.81VII Transport 732.03 5.10 30197.92 10.55 6923.99 15.36 10484.10 6.74VIII Communication 0.00 — 0.00 — 0.00 — 0.00 —IX Science, Technology and Environment 317.49 2.21 2603.71 0.91 1615.59 3.58 1859.80 1.20X General Economic Services 4921.19 34.32 6644.83 2.32 1207.22 2.68 1079.60 0.69XI Social Services 4658.13 32.48 114863.17 40.11 18522.50 41.09 84511.75 54.311 Education 848.83 5.92 36876.85 12.88 4973.78 11.03 22353.60 14.372 Medical and Public Health 1048.22 7.31 16647.76 5.81 3132.16 6.95 6925.45 4.453 Water Supply and Sanitation 278.45 1.94 7390.37 2.58 3093.75 6.86 5183.00 3.334 Housing 176.55 1.23 4529.59 1.58 0.00 0.00 5534.25 3.565 Urban Development 680.69 4.75 15326.69 5.35 3278.18 7.27 20425.25 13.136 Others Social Services 1625.39 11.33 34091.92 11.91 4044.62 8.97 24090.20 15.48XII General Services 226.15 1.58 1466.50 0.51 1168.74 2.59 3257.40 2.09XIII Total Budgetary Plan (I to XII) 14340.00 100.00 286340.00 100.00 45080.00 100.00 155601.00 100.00XIV Local Bodies Resources 0.00 — 0.00 — 100.00 — 0.00 —XV PSEs Resources 0.00 — 40613.00 — 1400.00 — 16194.00 —XVI Total Plan Outlay (XIII + XIV + XV) 14340.00 — 326953.00 — 46580.00 — 171795.00 —
  • 114. TABLE 3A.3hS. No. Head of Development Proposed Sectoral Allocations for States and Union Territories in the Twelfth Plan (Current Prices) (` in Crore) Andaman %age of Chandigarh %age of Dadra %age of Daman and %age of and Nicobar Total Total and Nagar Total Diu Total Islands Budgetary Budgetary Haveli Budgetary Budgetary Plan Plan Plan Plan1 2 31 32 33 34I Agriculture and Allied Activities 331.80 2.68 7.01 0.13 45.88 1.04 205.49 4.97II Rural Development 497.42 4.02 27.26 0.51 160.95 3.64 298.27 7.21III Special Area Programmes 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00IV Irrigation and Flood Control 145.26 1.17 1.60 0.03 356.51 8.05 93.82 2.27V Energy 296.67 2.40 420.26 7.81 893.11 20.18 325.25 7.87VI Industry and Minerals 40.05 0.32 4.77 0.09 8.86 0.20 100.75 2.44VII Transport 5093.78 41.16 454.42 8.44 660.32 14.92 937.77 22.68VIII Communication 0.00 — 0.00 — 0.00 — 0.00 —IX Science, Technology and Environment 900.96 7.28 95.98 1.78 94.34 2.13 182.69 4.42X General Economic Services 277.55 2.24 35.22 0.65 168.49 3.81 103.92 2.51XI Social Services 3967.65 32.06 4287.80 79.64 1921.02 43.40 1741.28 42.111 Education 1357.25 10.97 1026.11 19.06 481.79 10.89 413.88 10.012 Medical and Public Health 672.92 5.44 660.33 12.26 653.35 14.76 850.41 20.573 Water Supply and Sanitation 508.04 4.11 199.96 3.71 224.48 5.07 211.55 5.124 Housing 251.59 2.03 276.50 5.14 240.89 5.44 14.46 0.355 Urban Development 796.17 6.43 2007.89 37.29 263.67 5.96 170.19 4.126 Others Social Services 381.69 3.08 117.01 2.17 56.83 1.28 80.80 1.95XII General Services 823.86 6.66 49.69 0.92 116.53 2.63 145.75 3.52XIII Total Budgetary Plan (I to XII) 12375.00 100.00 5384.00 100.00 4426.00 100.00 4135.00 100.00XIV Local Bodies Resources 0.00 — 0.00 — 0.00 — 0.00 —XV PSEs Resources 0.00 — 0.00 — 0.00 — 0.00 —XVI Total Plan Outlay (XIII + XIV + XV) 12375.00 — 5384.00 — 4426.00 — 4135.00 —
  • 115. TABLE 3A.3iS. No. Head of Development Proposed Sectoral Allocations for States and Union Territories in the Twelfth Plan Total All (Current Prices) (` in Crore) States and UTs Delhi %age of Total Lakshadweep %age of Total Puducherry %age of Total Budgetary Budgetary Budgetary Plan Plan Plan1 2 35   36   37    I Agriculture and Allied Activities 0.00 0.00 227.91 7.84 1316.07 6.40 228636.99II Rural Development 882.00 0.98 48.84 1.68 491.22 2.39 190416.89III Special Area Programmes 0.00 0.00 0.00 0.00 0.00 0.00 80370.15IV Irrigation and Flood Control 400.00 0.44 37.21 1.28 532.29 2.59 404799.79V Energy 4820.20 5.36 130.23 4.48 1397.47 6.80 352468.37VI Industry and Minerals 199.00 0.22 26.74 0.92 1015.14 4.94 85212.39VII Transport 21954.62 24.39 777.91 26.76 1853.20 9.01 384689.75VIII Communication 0.00  — 0.00 —  0.00 —  0.00IX Science, Technology and Environment 546.50 0.61 238.37 8.20 164.99 0.80 37295.98X General Economic Services 992.50 1.10 118.61 4.08 791.94 3.85 124136.27XI Social Services 57185.50 63.54 1223.27 42.08 11680.82 56.82 1390581.231 Education 12240.50 13.60 422.10 14.52 2674.40 13.01 345178.282 Medical and Public Health 13500.00 15.00 186.05 6.40 2052.44 9.98 152481.293 Water Supply and Sanitation 11000.00 12.22 86.05 2.96 1100.55 5.35 132760.244 Housing 2700.00 3.00 284.89 9.80 1169.13 5.69 76127.875 Urban Development 8700.00 9.67 143.02 4.92 2308.37 11.23 253977.196 Others Social Services 9045.00 10.05 101.16 3.48 2375.93 11.56 430056.38XII General Services 3019.68 3.36 77.91 2.68 1315.86 6.40 57458.63XIII Total Budgetary Plan (I to XII) 90000.00 100.00 2907.00 100.00 20559.00 100.00 3336066.44XIV Local Bodies Resources 0.00 — 0.00 — 0.00 — 57092.00XV PSEs Resources 4275.52 — 0.00 — 0.00 — 323226.52XVI Total Plan Outlay (XIII + XIV + XV) 94275.52 — 2907.00 — 20559.00 — 3716384.96
  • 116. 4Sustainable DevelopmentINTRODUCTION UNFCCC principle of Common but Differentiated4.1. Sustainable Development as defined by the Responsibility (CBDR). The Government has alsoBrundtland Commission in 1987 ‘is development formulated the National Action Plan on Climatethat meets the needs of the present without compro- Change that provides for eight missions to help themising the ability of future generations to meet their country adapt to the effects of climate variability andown needs’. This implies that economic growth and change.development have to be guided by the compulsion ofsustainability, because none of us has the luxury, any SUSTAINABLE ECONOMIC GROWTHlonger, of ignoring the economic as well as the envi- 4.3. It is often said that Gross Domestic Product isronmental threat, that a fast-deteriorating ecosystem not the best way of measuring the true well-beingposes to our fragile planet. None of us is immune to of nations, because the pursuit of growth can be atthe reality of climate change, ecological degradation, the cost of the environment. There is obviously adepletion of the ozone layer and contamination of two-way relationship between environment andour freshwater. economic growth. Natural resources and raw mate- rials such as water, timber and minerals directly4.2. India has been actively involved in interna- provide inputs for the production of goods andtional fora relating to environmental protection, services. However, Industrial growth, which playsand has been part of 94 Multilaterals Environmental a major role in boosting the GDP, can cause someAgreements such as the Ramsar Convention on environmental damage. Manufacturing sector canWetlands, Convention on International Trade in lead to environmental degradation during all stagesEndangered Species of Fauna and Flora (CITES), of production cycle, namely, (i) procurement andConvention on Biological Diversity (CBD), among use of natural resources, (ii) industrial processes andmany others. India has also signed the United activities and (iii) product use and disposal. AnotherNations Framework Convention on Climate Change, important sector of the economy—agriculture—alsoand has acceded to the Kyoto Protocol in 2002. has certain practices which harm the environment.Despite not having binding mitigation commitments For instance, activities like the use of chemical fer-as per the United Nations Framework Convention tilisers result in both water pollution and soil dete-on Climate Change (UNFCCC), India has commu- rioration. Unregulated withdrawal of ground waternicated its voluntary mitigation goal of reducing the plays havoc with water balance in the ecosystem.emissions intensity of its Gross Domestic Product(GDP) by 20–25 per cent, over 2005 levels, by 4.4. Conventional ways of measuring GDP in2020. The Indian Government is committed to the terms of production do not take into account the
  • 117. Sustainable Development 113environmental damage caused by production of A Business Model for Sustainablegoods and services. Only after GDP is adjusted for Developmentenvironmental costs that growth of adjusted GDP 4.6. While in the mid 1990s, local authorities werecan be called a measure of the increase in total pro- probably the most active players trying to achieve sus-duction in the economy. Recognising this problem, tainable development, the focus has recently shiftedthe Planning Commission has commissioned an to business as a major actor. Many responsible busi-Expert Group under Professor Partha Dasgupta to ness managers and their firms have opted for eco-prepare a template for estimating green national efficiency as their guiding principle. Eco-efficiency isaccounts, which would measure national production the economic value added by a firm in relation to itswhile allowing for the negative effects on national aggregated ecological impact. The World Businessresources. Council for Sustainable Development (WBCSD) has defined eco-efficiency as follows:4.5. Environment is a public good that is rival andnon-excludable. It is not owned by any one individ- ‘Eco-efficiency is achieved by the delivery of competi-ual, and one person’s consumption affects its qual- tively priced goods and services that satisfy humanity available for others. Several economic activities needs and bring quality of life, while progressivelygenerate negative externalities through the environ- reducing ecological impacts and resource intensityment. Pricing natural resources properly, making throughout the life-cycle, to a level at least in line withpollution more costly and removing fossil fuel sub- the earth’s carrying capacity.’sidies should be good for preservation of environ-ment, and for sustaining growth in the long run. 4.7. Similar to the concept of eco-efficiency, but soBetter regulation can help protect human health and far less explored in corporate sustainability is the con-environment, support green technologies, and boost cept of socio-efficiency, that is, the relation between agreen private investment and jobs. This section first firm’s value added and its social impact. While it canmakes a business case for sustainable development, be assumed that corporate impact on environment isand then deals with financial and non-monetary usually negative, this may not be true for the socialincentives. impact. Depending on the type of socio-efficiency, one can either try to minimize the negative social impact, or maximize the positive social impact while pursuing the value-added activity. Both eco-efficiency and socio-efficiency promote economic sustainability of the businesses in the long run. BUSINESS CASE FOR SUSTAINABLE FINANCIAL INCENTIVES Financial Incentives DEVELOPMENT 4.8. The role of economic instruments in financing ECONOMIC and promoting sustainable development is well rec- GROWTH ognised. The following economic instruments can help achieve sustainable development through their influence on behavioural patterns leading to sustain- able consumption and production in the economy: NON-MONETARY INCENTIVES Environmental Taxes 4.9. An ‘environment’ or ‘green’ tax is imposed on a product (or a complementary product) that damages the environment, in an attempt to reduce its produc- FIGURE 4.1: Policy Alternatives for Sustainable Growth tion or consumption. Well-designed environmental
  • 118. 114 Twelfth Five Year Plantaxes and other economic instruments can play an Similarly, excessive use of nitrogenous fertilizers andimportant role in ensuring that prices reflect envi- over-drawing of water, backed by subsidies at bothronmental costs, in line with the ‘polluter pays Centre and State levels, is playing havoc with the sus-principle’. Environmental taxes can be simple and tainability of soil and water ecosystem.efficient financial instruments for improving theproductivity of natural resources. Environmental Funds and Technology Transferstaxes on water and fossil fuels need not be part of 4.11. A major stumbling block in making green busi-the general revenues of the Government; rather they ness widespread is the lack of financial resources.should be directly ploughed back into environmen- The primary objective of developing green technol-tally sustainable action on these fronts. Coal Cess ogy is to replace the obsolete and inefficient systemsis a good example of environment tax imposed by with more energy-efficient and clean technologies.Government of India in recent times, whose pro- Research & Development (R&D) funding assistanceceeds are channelled to the National Clean Energy paves the way for leveraging the knowledge of edu-Fund. Some benefits of environment taxation are cational and research institutions to create technolo-enumerated below: gies that can be viewed as cutting-edge and advanced. Micro, Small and Medium Enterprises (MSMEs)• They provide incentives for measures that protect have limited financial resources, and therefore tend the environment, and deter actions that lead to to employ cheap, yet inefficient, technologies that environmental damage. invariably lead to non-compliance with regulations.• Economic instruments such as taxes can enable Funds need to be made available to assist the indus- environmental goals to be achieved at the lowest try adopt green technologies within their own prem- cost, and in the most efficient way. ises, and also for building common environmental• By internalizing environmental costs into prices, protection infrastructure within the industrial clus- they help signal the structural economic changes ters. Funds need to be allocated in a manner that needed to move to a more sustainable economy. both existing and infant institutions can be continu-• They can encourage innovation and development ously upgraded. of new technology.• The revenue raised by environmental taxes can 4.12. The Government of India (GoI) has already set be used to reduce the level of other taxes. This up a National Clean Energy Fund (NCEF) in 2010 by could help reduce distortions, while raising the imposing a cess on coal at an effective rate of `50 per efficiency with which resources are used in the tonne. The Government expects to collect `10000 economy. crore under the Clean Energy Fund by 2015. The NCEF will support projects, programmes and poli-Subsidies4.10. There has been a growing recognition of fiscal cies that promote clean energy technologies. Thisand environmental implications of the subsidy poli- fund can be used to establish a focused investmentcies in energy, water and agriculture sectors. Most vehicle for companies investing in green technology,of these subsidies pose a threat to the environment. and environmentally supportive businesses such asIn the energy sector, for example, with the disman- renewable energy, green transport, and water andtling of the Administered Pricing Mechanism (APM) waste management among others.in April 2002, subsidies on all oil products wereremoved, barring liquid petroleum gas and kerosene, 4.13. Compensatory Afforestation Fund is an inno-which are used by households. However, the policy vative mechanism for attracting additional resourceshas subsequently been reversed leading to a large and to the forestry sector. Money is collected for com-regressive subsidy on diesel that has distorted the pensatory afforestation from user agencies in lieu ofuse of energy in transport and industrial sectors, and the land granted for non-forestry purpose, presentlyworsened the problem of hazardous air pollution. at the rate of `0.8 million per hectare.
  • 119. Sustainable Development 1154.14. Another fund, the National Gene Fund, has have already been put into place. The Nationalbeen established, which will be used to build capacity Environmental Policy (NEP), 2006 articulates thatat Panchayat level for in situ conservation of genetic only such development is sustainable which respectsdiversity of indigenous crop varieties. The Twelfth ecological constraints and the imperatives of socialPlan should facilitate such initiatives. justice. The National Agricultural Policy (NAP) focuses on sustainable development of agriculture,Certificates and Obligations by promoting technically sound, economically via-4.15. The mounting pressure on conventional ble, environmentally non-degrading and sociallyenergy sources has made energy conservation a focus acceptable use of the country’s natural resources.area for the Government. The Perform, Achieve and The NAP also states that improving the quality ofTrade (PAT) scheme is an example of a certificate land and soil, its rational utilisation, conservationbased trading scheme promoting energy efficiency. of water and sensitising the farming community toSimilarly, Renewable Energy Certificate (REC) environmental concerns should receive high prior-mechanism is a market-based instrument introduced ity. The National Electricity Policy (NEP) under-to promote renewable energy, and facilitate renew- scores the use of renewable sources of energy, asable purchase obligations, which legally mandate a does the Integrated Energy Policy (IEP) of 2010. Thepercentage of electricity to be procured by distribu- National Urban Sanitation Policy, 2008 seeks to gen-tion companies from renewable energy sources. REC erate awareness, eliminate open defecation, promotemechanism aims to address the mismatch between integrated citywide sanitation, safe disposal and effi-availability of renewable energy resources in a State cient operation of all sanitary installations. However,and the requirement of the obligated entities to meet we need to tackle upfront the looming water crisis,their renewable purchase obligations. made worse by the supply of free water and electric- ity; and the health and environmental hazards posedNon-monetary Incentives by excessive use of very cheap nitrogenous fertiliser.4.16. Non-monetary incentives are policy instru- Some important perspectives for achieving sustain-ments that typically do not have a monetary value, able development in our country are listed below:but definitely have a financial impact that promotessustainability. These incentives can be used as a bar- Greenhouse Gas Emissionsgaining tool by the Government to encourage con- 4.18. India’s sustained efforts towards reducing theservation of resources in an economy. Activities such emission intensity of its GDP will ensure that coun-as those encouraging judicious use of water, planting try’s per capita emissions will continue to be lowertrees, car pooling and avoiding use of plastic bags can than developed countries. It is estimated that India’sbe rewarded so that it encourages the practice, and per capita emission in 2031 will still be lower than theacts as an example for others. Through the initiation global per capita emission in 2005 (in 2031, India’sof innovative policies and awards, the Government per capita GHG emissions will be under 4 tonnes ofcan provide recognition, which will encourage Carbon Dioxide equivalent (CO2eq.) which is lowersustainable development amongst the citizens and than the global per capita emission of 4.22 tonnesthe firms. of CO2eq. in 2005). Even then India has taken upon itself the voluntary target of reducing the emissionSetting an Agenda for Sustainable intensity of its GDP by 20–25 per cent, over the 2005Development levels, by 2020.4.17. There is a general impression that India is con-suming more than what its ecosystem can sustain, Sustainable Agriculture Developmentand hence there is a need for programmatic inter- 4.19. The major thrust of the agricultural develop-disciplinary planning and inter-agency efforts at ment programmes is on improving the efficiency ofall levels. A number of national strategies and poli- use of scarce natural resources, namely, land, watercies, which inculcate the principle of sustainability, and energy. This can be achieved through improved
  • 120. 116 Twelfth Five Year Planproductivity, which in turn will improve the welfare production; prevention of pollution; energy effi-of farmers and agricultural labour, and help eradi- ciency and inter-company partnering. An EIP alsocate rural poverty. Conservation of land resources seeks benefits for neighbouring communities tocan promote a sound land use, matching the land assure the net impact of its development is positive.capabilities with development alternatives. Pricing In particular, we should consider converting ourwater and electricity appropriately will help recharge Special Economic Zones (SEZ) and townships alongthe depleting aquifers. Shifting urea to a nutrient- the Mumbai–Delhi Industrial Corridor into Eco-based subsidy regime is also the need of the hour, industrial hubs as outlined above.which cannot be neglected any longer. Sustainable Management of Himalayan EcosystemIndustrial Development and Urbanisation and Western Ghats4.20. Industry plays a critical role in technology 4.24. The Hill Area Development Programmeinnovations, which are crucial for economic and (HADP) and the Western Ghats Developmentsocial development of the country. It is also impor- Programme (WGDP) need to be continued in thetant to facilitate diffusion and transfer of environ- Twelfth Plan with renewed vigour so that natu-mentally sound technologies and management ral resources of these fragile areas can be preservedtechniques, which are a key element of any sustain- and used in a more sustainable manner. These pro-able development strategy. grammes also need to be continued because most of the hill areas lack infrastructure, particularly roads,4.21. A major environmental concern in urbanising power, educational institutions and health care cen-India relates to high levels of water pollution due to tres. These areas deserve high priority under thepoor waste disposal, inadequate sewerage and drain- flagship programmes, particularly Sarva Shikshaage, and improper disposal of industrial effluents. Abhiyan (SSA) and the National Health MissionThe dumping of solid waste in low-lying areas con- (NHM). It has also been observed that many nation-tributes to both land and groundwater pollution. The wide programmes are not suitable for hilly areas, forJawaharlal Nehru National Urban Renewal Mission example, wages should be higher than the wages pre-(JNNURM) needs a more focused approach over the scribed under wage employment programmes. ThisTwelfth Plan period so that we resolve these issues at also holds true for the norms set out for some otherthe earliest. programmes, as settlements are often small hamlets, which do not qualify for coverage or are too expen-Eco-Industrial Hubs sive to cover. Local solutions and people’s participa-4.22. An eco-industrial park (EIP) or estate is a com- tion in decision-making need to be encouraged. Themunity of manufacturing and service businesses ecological and biodiversity issues should be dealtlocated together on a common property. Member with on high priority. The programme should there-businesses seek enhanced environmental, economic fore have a twofold objective of preserving ecologicaland social performance through collaboration in balance and creating sustainable livelihood oppor-managing environmental and resource issues. By tunities for the local communities. Further, most ofworking together, the community of businesses these areas lack political power and consequentlyseeks a collective benefit that is greater than the sum adequate funding. The highly fragile and backwardof individual benefits each company would realise by pockets of the Western Ghats should be allocatedonly optimizing its individual performance.1 more funds by the respective State Governments.4.23. The goal of an EIP is to improve the economic 4.25. The Bill to include the Darjeeling Gorkhaperformance of the participating companies while Hill Council Area in the Sixth Schedule needs to beminimizing their environmental impacts. Com- expeditiously considered. Moreover, the G.B. Pantponents of this approach include green design of Institute for Himalayan Environment and Develop-the park infrastructure (new or retrofitted); cleaner ment (GBPIHED) should reorient its activities to
  • 121. Sustainable Development 117evolve as a centre of excellence and as a resource led to innovations in the areas of poverty eradication,base for advice on sustainable development of the green city development initiatives, entrepreneurshipHimalayan States. The focus of research should development, empowerment of women and manage-include socio-economic development of the moun- ment of forest and water resources. Common-pooltain habitations. An Indian Alpine Initiative should natural resources must be managed rationally toalso be started for tracking the dynamics of alpine improve availability and to ensure equity in accessbiomes in the context of climate change. and benefit-sharing. At the local level, strengthening democratic institutions will lead to better and moreCoastal Zone Management sustained management of natural resources.4.26. The Coastal Regulation Zone notificationregulates activities based on vulnerability of coastal 4.29. Biodiversity and ecosystem services are freelyareas to human activity. Coastal areas are currently available public goods and all of humankind, par-classified into four categories (CZ 1 to 4) with dif- ticularly the poor, depend on them for their live-ferent levels of permissivity for development activi- lihood. Environmental education and awarenessties. Category 1 includes ecologically sensitive areas, programmes can be used to influence economiccategory 4 includes islands, while categories 2 and 3 behaviour and encourage the formation of volun-permit construction activities based on vulnerability. tary agreements between firms and local authorities/ communities. Public disclosure of information on4.27. The Swaminathan Committee has recom- polluting activities of industries can promote envi-mended that local circumstances and vulnerabilities ronmental/green labelling of products, which canshould be the basis of coastal zone management and create pressure in the market to manufacture envi-regulations. For this purpose, scientific and local ronment-friendly products. The GoI launched theinformation should be used in preparation of envi- eco-labelling scheme known as Ecomark in 1991 forronmental plans for coastal areas. Conservation of easy identification of environment-friendly prod-life forms (and their habitats such as nesting/ spawn- ucts. The Ecomark label is awarded to consumering sites), and integration of their environment with goods which meet the specified environmental crite-human well-being is important. Participation of civil ria and the quality requirements of Indian Standards.society and local fishing/coastal communities in thecoastal zone management committees should be LOW CARBON STRATEGIES FOR INCLUSIVEensured for building a better consensus for coastal GROWTHzone environment regulation issues. 4.30. India needs to adopt a lower carbon strategy for inclusive growth in order to improve the sustain-Public Participation for Sustainable ability of its growth process, while carbon mitigationDevelopment will be an important co-benefit. Any such strategy4.28. Effective management of resources requires must ensure that the focus is not just on low carbonparticipation by all stakeholders. As part of the development, but on increasing productivity thatnational sustainable development agenda, the Indian effectively lowers the use of fossil fuels.Government has taken measures to develop policyinstruments that encourage the active participation 4.31. An Expert Group on Low Carbon Strategiesof stakeholders and environmental NGOs in national for Inclusive Growth was appointed by the Planningdevelopment programmes at the grass-roots level. Commission. It has submitted its interim report,The engagement of multi-stakeholder platforms such which outlines the low carbon strategy for majoras Green Rating for Integrated Habitat Assessment carbon emitting sectors, namely, Power, Transport,(GRIHA), Joint Forest Management (JFM), women Industry, Buildings and Forestry. It has also com-empowerment under Integrated Infrastructure puted the emission reduction numbers bottoms-upDevelopment (IID), National Knowledge Network using the inventory building approach in a way simi-(NKN) and Waste Minimization Circles (WMC) have lar to the official greenhouse gas (GHG) inventory
  • 122. 118 Twelfth Five Year Planbuilding system. The ‘determined effort’ scenario examines the direct effects. In the final report, aassumes effective implementation of mitigation poli- more detailed analysis will assess the direct as wellcies that require continuous upgradation of technol- as the indirect effects, the pathways through whichogy as well as finance from both public and private policy actions operate and the interactions amongsources. The ‘aggressive effort’ scenario requires, in them, which will lead to a more informed analysis ofaddition to the ‘determined effort scenario’, design synergies and trade-offs.and implementation of new policies that need tobe supported through technology and finance from The focus areas identified by the Expert Group areinternational sources. discussed sector-wise below:4.32. The final report of the Expert Group will Powerinclude an economy-wide modelling and analysis of 4.34. In the business-as-usual scenario India wouldco-benefits in a cross-cutting framework. It will spell rely heavily on coal to meet its surging powerout the policy actions required to implement low demand. However, this poses an enormous environ-carbon strategies up to 2030, and also suggest some mental and natural resource challenge, as Power sec-finance strategies for the same. To evaluate the alter- tor is the highest contributor (38 per cent) to India’snative policy instruments, a four-pronged strategy GHG emissions. There are several initiatives whichof ‘growth, inclusion, carbon mitigation and local would improve efficiency and reduce pollution andenvironment benefits’ has been formulated. Taken carbon footprints from this sector. These are dis-together, the economy-wide modelling and co-ben- cussed in greater detail in the chapter on energy, andefits analysis will provide the analytical tools for for- therefore, only the main points are summarised here:mulating the low carbon strategies for sustainableand inclusive growth. Advanced Coal Technologies 4.35. It has already been announced that 50 perThe Expert Group has identified twelve focus areas cent of the Twelfth Plan target and the coal-basedfor the Twelfth Plan: capacity addition in the Thirteenth Plan would be through super-critical units, which reduce the use of Box 4.1 coal per unit of electricity produced. Super-critical Twelve Focus Areas for the Twelfth Plan (SC) power plants, which operate at steam condi- 1. Advanced Coal Technologies tions 560o C/250 bars, can achieve a heat rate of 2. National Wind Energy Mission 2235 kCal/kWh as against a heat rate of 2450 kCal/ 3. National Solar Mission kWh for sub-critical power plants. The specific CO2 4. Technology Improvement in Iron and Steel Industry emission for super-critical plants is 0.83 kg/kWh as 5. Technology Improvement in Cement Industry against 0.93 kg/kWh for sub-critical plants. Super- 6. Energy Efficiency Programmes in the Industry critical technology is now mature and is only mar- 7. Vehicle Fuel Efficiency Programme ginally more expensive than sub-critical power 8. Improving the Efficiency of Freight Transport 9. Better Urban Public and Non-motorized Transport plants. Determined efforts are needed to achieve 10. Lighting, Labelling and Super-efficient Equipment these results, and prioritisation of coal linkages will Programme be necessary to incentivise adoption of super-critical 11. Faster Adoption of Green Building Codes technology. 12. Improving the Stock of Forest and Tree Cover 4.36. It is also necessary to invest in research andCo-benefits Framework development of ultra-supercritical (USC) units4.33. Annex 4.2 provides an indicative and qualita- (Box 4.2). These operate at USC steam conditionstive analysis of the co-benefits that may be associated (620° C/300 bars) and can achieve a much lowerwith each of the twelve policy thrust areas identi- heat rate of 1986 kCal/kWh, while the specific CO2fied by the Expert Group. This initial analysis only emissions are only 0.74 kg/kWh. This technology
  • 123. Sustainable Development 119 Box 4.2 Importance of Clean Coal Technology: Ultra-super Critical Power Plants An Ultra Super Critical (USC) coal-based power plant has an efficiency of 46 per cent compared with 34 per cent for a sub critical plant and 40 per cent for a Super Critical (SC) plant. Thus, with an USC or SC plant, the savings in coal consumption and reduction in CO2 emission can be substantial. A 10,000 MW power plant will generate 60 billion units of electricity per year at around 70 per cent load factor. It has a specific heat of 1870 kcal/kwh compared to 2530 kcal/kwh for a sub-critical plant. Thus, every unit generated with USC will save 0.165 kg [(2530-1870)/4000] coal of 4000 kcal/kg; and 60 billion units will save 9.9 million tonnes of coal per year. When we substitute a sub-critical coal plant with solar plants, for every kwh generated we save 0.63 kg of coal (2530/4000). Thus, 15.6 billion units (1000*9.9/0.63) will have to be generated by solar plants to save the equivalent 9.9 million tonnes of coal. Since a solar plant generates 1500 units per KW of installed capacity, the matching installed capacity needed will be nearly 100,000 MW (15.6*1000/15000). To put it simply, faster adoption of USC and SC technology can save as much coal as would be saved by installation of ten times the solar power capacity. While from a long term perspective we need the solar option, from a medium term perspective, development of USC and SC technology should be pursued vigorously.also requires the development of special materi- increases the power generation potential. At theals that can withstand high temperatures and pres- same time, the size of wind turbines has increased—sures. The government should support research and while the earlier turbines were typically less thandevelopment to promote indigenous manufacturing 1 MW, the recent designs go up to over 5 MW. Takingof USC units. The first USC plant, which is a joint these into consideration, the wind potential in Indiaeffort of BHEL, NTPC and IGCAR, is expected to is now estimated at about 103000 MW for 80 m hubbe operational in 2017. Deployment of USC plants height. This is based on meso-scale weather modelsmay be suitably incentivised and targeted during the and a land utilization rate at 2 per cent thought to beThirteenth Plan period. reasonable for Indian conditions. Some recent stud- ies have estimated India’s wind potential to be over4.37. Coal gasification provides opportunities for 500000 MW based on still higher hub heights andhigher efficiency. However, Indian coal has very high more land availability. However, this assessment isash content and initial results suggest that efficiency yet to be validated by experts working under Indiangain over sub-critical units is only marginal. Under- conditions.ground coal gasification is an important technol-ogy since it enables utilisation of deep coal deposits, 4.39. Recent technological innovations, includingwhich cannot be mined using conventional means raising the height of the tower, could make wind aor because they are located in environmentally frag- major renewable source of power generation forile regions. It also allows the possibility of in situ India and we could safely target a wind capacitycarbon capture. Given India’s coal shortage, there addition of 30000 MW by 2020. However, as notedshould be greater research in this technology, includ- in Chapter 12, wind potential is unevenly distributeding execution of a few pilot projects. Another poten- across the country; only Karnataka, Tamil Nadu,tially promising technology is coal bed methane and Andhra Pradesh, Maharashtra and Gujarat haveit may be desirable to undertake some pilot action in significant potential. Therefore, realisation of windthis regard. potential requires careful regional level planning and coordination.Wind Power4.38. India has a potentially large capacity for adding 4.40. Wind power has significant seasonal and evengeneration capacity based on wind power. Since, the intra-day variations. Therefore, setting targets forpower generated by a wind turbine is highly sensitive wind power capacity addition, without making ato wind speeds, the global practice is now to build careful assessment of the capacity of the regional gridtowers in the range of 80–120 m, which significantly to balance its intermittency with alternative sources,
  • 124. 120 Twelfth Five Year Planmay lead to a situation, where either the wind gen- • Mechanisms for using the National Clean Energyeration cannot be utilised, or when the wind suddenly Fund (NCEF) to finance development of localdies down, the loss of generation could impact grid grids by state distribution companies that willstability and operation. Wind capacity addition needs help evacuate wind power and solve the loadto be complemented by other energy sources, which curve problems on the supply side.have a quick ramp-up time. There are several pos- • Prioritise the development of pumped hydro stor-sible options to handle this intermittency—pumped age, which may be suitable for complementingstorage hydro, open-cycle gas turbines, compressed wind power.air and high power density batteries. Till recently, • Invest in R&D in energy storage options thatthese were not considered necessary since total wind can provide backup for longer durations, likecapacity was only about 13000 MW. However, if compressed air and high power density batterieswind power has to reach 100000 MW and more, the among others.balancing issues will be critical. These variations area result of technical factors associated with the wind 4.42. India also has considerable off-shore windresource, as well as non-technical factors including potential, particularly in Tamil Nadu and Andhraland policy among others. It will become increasingly Pradesh. It is also important to undertake studies tonecessary to address these factors, if the resource examine the economic viability and risks associatedpotential of wind energy is to be realised. with off-shore wind in the Indian conditions.4.41. To summarise, achieving ambitious wind gen- Solar Powereration targets requires careful coordination between 4.43. The Jawaharlal Nehru National Solar Missionmultiple Central and State agencies, particularly (JNNSM) envisages grid parity for solar power bytransmission and distribution utilities, financial 2022 and sets an ambitious target of setting up 20000institutions and so on. We need to set up a National MW for solar power with phased scale-up of capac-Wind Energy Mission, similar to the National Solar ity, coupled with technological innovation. SolarMission for effective formulation and implementa- photovoltaic and solar thermal are each expected totion of policies both at the National and State levels. contribute 50 per cent of the above target, in additionThe objectives of the Mission should also include, to a 2000 MW target for off-grid solar power. Thebut not be limited to the following: Government has facilitated generous financial incen- tives for grid-connected solar plants in the form of• Incentivising the industry to invest in indigenous feed-in tariffs valid for 25 years. The Government design and manufacture of turbines suited for has also incentivized state-level utilities to acceler- India’s low wind speed regimes. Presently, Indian ate solar capacity addition by mandating a three per wind farms use turbines that are designed for cent solar power target by 2022 (under the National global markets. Tariff Policy) and by providing opportunity for addi-• Land tenure policies that will encourage mixed tional revenue streams through instruments such as land use for wind generation and agriculture Renewable Energy Certificates (RECs). (without having to pay commercial rents that will increase the cost of wind power). These pow- 4.44. The feed-in tariff is determined through a ers must be delegated to the local sub-divisional competitive (bidding) process. In the two rounds officer. of bidding so far, developers have bid at prices sub-• The bidding models currently being pursued need stantially lower than the nominal tariffs specified by to be revisited, so that farmers, wherever willing, Central Electricity Regulatory Commission (CERC). are able to benefit from mixed land use and a cost- There are indications that the cost of solar cells could plus approach can be used to determine feed-in reduce further. Solar photovoltaic technologies have tariffs provided it is done through an independent several advantages: they can provide distributed regulator. power, enable quick capacity addition and work with
  • 125. Sustainable Development 121diffused solar radiation. Solar thermal technolo- erratic in the rural areas, most of them rely on dieselgies are conducive for utility-scale power genera- for back-up power. Rural micro-grids can not onlytion, and have the advantage of energy storage and be used to meet the requirements of the telecom tow-hybridization with biomass/gas to achieve greater ers, but also to provide power to the rural communi-capacity-utilisation. This can be used to provide base ties for lighting and irrigation water pumping.load power. However, solar thermal technologiesonly work on direct beam radiation and utility-scale 4.48. Currently, several national and state level agen-plants require large amount of land and water, which cies are involved with implementation of solar powercould be potential impediments in scaling it up. projects, and it is difficult to coordinate and align their efforts. The solar industry is likely to attract4.45. Amongst all the power generation sources, solar large investments in the coming decade, and it ispresents a unique opportunity for inclusive growth by important that a single nodal agency is made respon-providing clean off-grid electricity to the rural com- sible for the overall monitoring and implementationmunities. The NSM has targeted 2000 MW of off-grid of the JNNSM.solar power by 2022. Current guidelines limit a solarmicro-grid to 100 kW per site and provide a capital 4.49. The off-grid and even grid-connected solarsubsidy of 30 per cent. The concept of micro-grid, power projects under National Solar Mission haveeven though attractive, has so far not been effective taken a long time for financial closure. This isin augmenting rural power generation. This is mainly because of the reluctance of local banks to providebecause the developers have found it difficult to get financing, due to lack of stability of policies and pos-reasonable returns on their investments and they are sibility of default by the utilities. The government should immediately classify solar power projects asunable to collect adequate revenues to cover operat- ‘priority lending’ so that banks start giving it dueing expenses despite the initial capital subsidy. importance in their credit plans.4.46. Since the capital subsidy mechanism is not 4.50. Further discussion is needed in designing thesufficient to incentivise developers to take the risk institutional structures for ownership and opera-of setting up micro-grids, there is a need to exam- tion of decentralised off-grid solar power systems.ine other options given that rural electricity supply For example, enabling local panchayats with a stakecauses loss to the power utilities and it could take in ownership could ensure local maintenance andseveral years before reliable grid power reaches all operation, as also community-ownership leading tothe villages. First, there is a need for relaxing the improved payment collection. An alternative modelcap on total and site-based project capacity. This would be to have entrepreneurs bid for setting upcould help rural industrial consumers who have high of a cluster of such plants in a contiguous area, andload requirements, but are constrained by guideline then maintain and operate them on cluster basis.restrictions. Second, there is merit in providing ageneration-based incentive, similar to that provided 4.51. In order to encourage indigenous manufac-for grid-connected systems. This would make the turing of components used in solar power genera-off-grid solar projects bankable and assure the devel- tion, GoI has mandated for all the projects allottedopers of steady revenue stream. in 2010–11 that 100 per cent PV modules should be manufactured in India. It has been further mandated4.47. The rapidly growing telecom sector provides that from 2011–12 onwards, 100 per cent of cellsan excellent synergy for augmenting solar power in used in indigenous modules should be manufacturedrural areas. At present there are close to 0.2 million in India.telecom towers and about 40 per cent of these arein the rural areas. This number is expected to dou- 4.52. There is a need to review these policies.ble in the next few years. The electricity supply being Crystalline silicon and thin films are the two proven
  • 126. 122 Twelfth Five Year Plantechnologies for solar photovoltaic systems. Of these, consensus-building at the national and local levels. Itcrystalline silicon dominates the global market; how- is unlikely that large nuclear capacity could be addedever, there is considerable interest in thin-film sys- over the Twelfth Plan period.tems, given the potential for lower costs. The globalmanufacturing capacity is several times that of India, 4.55. Accelerated development of hydro-powerand several institutions around the world are pursu- potential is critical for our economy. Apart from theing cutting-edge research leading to a rapid decrease need to harness the country’s water resources for irri-in solar cell costs. India needs easy access to the best gation and flood control, the motivation for acceler-available global technology to ensure rapid adop- ated development of hydro power is two-fold: first, ittion of solar power. At the same time, developing is required for meeting India’s peak power demand;domestic industry for manufacturing solar cells is and second, it is vital for large-scale integration ofimportant. The manufacturing policy should strike a solar and wind capacity into the grid. Storage hydrobalance between these two objectives, and mandate power has a multiplier effect in facilitating renew-a more gradual indigenisation of cell and module able energy as it provides the flexibility necessarymanufacture. The following steps need to be taken: to respond to fluctuations caused by intermittent sources of renewable power, particularly wind and1. Our customs duty structure should not be solar. Prioritised development of this resource, along inverted along solar industry’s value chain (basic with close monitoring of a few carefully selected and intermediate inputs should not attract hydro-projects is important during the Twelfth and higher tariffs than finished products). the Thirteenth Five Year Plans.2. The electricity tariff policy of the Government should be neutral to the type of solar technology Industry being deployed in the approved projects. 4.56. Indian industry is among the largest in the3. Export subsidies (explicit and implicit) avail- world and has some of the most advanced plants and able to foreign manufacturers must be matched technologies available globally. This sector is also by tariff/domestic policy to the extent it pro- one of the largest consumers of energy, and improv- vides a level playing field to the domestic solar ing the efficiency of energy use is critical for energy manufacturers. security, improving industry profitability and com-3. R&D efforts for indigenous manufacturers petitiveness, and reducing the sector’s overall impact should be incentivised by permitting them on climate change. Since this sector is growing rap- to compete with government laboratories for idly, the opportunities to introduce more efficient research funding through the budgetary sources. technologies are quite large as the capital stock will more than double in the next 10 years.4.53. Nuclear and hydro power are also importantfor emissions reduction, but they face some critical Industrial Energy Consumption Overviewchallenges, which are briefly summarised below: 4.57. In 2007, the industrial use of energy in India stood at 150 million tonnes of oil equivalent (Mtoe),4.54. Nuclear power is considered an important accounting for 38 per cent of the country’s totalsource for low carbon and base-load power gen- energy use. Though India is the fourth largest con-eration. India has ambitious plans in nuclear power sumer of global industrial energy, surpassed only bythrough a combination of Light Water Reactors, China, the United States and Russia, its share is onlyHeavy Water Reactors and Fast Breeder Reactors. 5 per cent of the total. In 2007, total final energy useHowever, global concerns regarding safety of nuclear in industry across the globe amounted to 3,019 Mtoepower following the Fukushima nuclear accident leading to direct emissions2 of 7.6 gigatonnes of CO2in 2011 have slowed down nuclear power capac- (Gt CO2) and indirect emissions3 of 3.9 GtCO2.ity addition. Future growth will require addressing Analysis by International Energy Agency (IEA) sug-public concerns about safety of nuclear power, and gests that the industry worldwide needs to reduce
  • 127. Sustainable Development 123its direct emissions by about 24 per cent of the 2007 Historical energy consumption (in PJ) and specific energylevels to halve global emissions, from the 2005 levels, consumption (in GJ/tcs) 1,800 40by 2050. 35.2 32.0 1,600 1,400 30 1,200 29.2 SEC, GJ/tcs4.58. Industrial Energy and Emissions Intensity: 1,000 PJ 20Iron and Steel, Cement, Chemicals and Petro- 800chemicals, Pulp and Paper and Aluminium are the 600 400 10five most energy-intensive industrial sectors in India. 200These accounted for 56 per cent of India’s indus- 0 0 1995 2000 2007trial energy consumption in 2007. The CompoundAnnual Growth Rate (CAGR) of the energy con- Total Energy Consumption SECsumption of manufacturing industries in India from Source: Ray and Reddy, 2008; Singhal, 2009.1990 to 2008 was 9.8 per cent. The energy intensity FIGURE 4.2: Iron and Steel Industryof Indian industries has shown a decreasing trend;however, this trend needs to be accelerated and pol- Steel Production Processesicy interventions may be required to overcome chal- 4.61. Energy intensity reduction comes from changelenges the industry faces as a result of global energy in technology as well as from increase in efficiencyand emission linked constraints. iron and steel, and of a particular process. In India there are four maincement sectors accounted for nearly 60 per cent of process routes for manufacturing of steel.the total industrial GHG emissions in India in 2007.We deal with these in greater detail below. 1. BF–BOF: The blast furnace and basic oxygen furnace route.Iron and Steel Sector 2. DRI–EAF: Coal or gas based direct reduced iron4.59. India’s iron and steel sector is the largest user (sponge iron) and electric arc furnace route.of industrial energy in India, consuming 38 million 3. COREX–BOF : The Corex process followed bytonnes of oil equivalent (Mtoe) in 2007. India pro- basic oxygen furnace for conversion of iron intoduced 53 million tonnes (Mt) of steel in 2007, an steel,increase of over 10 per cent per year since 2000India 4. Induction Furnace : The induction furnace routeis now the fifth largest producer of steel in the world. for melting and production of steel.Considering a steel consumption of 200 kg per capitaper year (up from 48 kg per capita in 2008) to achieve Future Projectionsa level of economic development comparable to 4.62. In 2007, 47 per cent of the steel was manufac-global standards, India will need approximately 280 tured using BF–BOF process; 27 per cent using IF;Mt of steel per year.4 Most of this will be produced 20 per cent from COREX/FINEX–BOF and thedomestically, as India has comparative advantage in remaining 6 per cent from DRI–EAF. DRI–EAFsteel production. is the most energy efficient process, but it depends on the availability of scrap (India is the largest pro-Energy and Emissions ducer of DRI steel in the world). It is expected that4.60. The Iron and Steel industry was estimated to BF–BOF will continue to dominate Indian steel pro-have a Specific Energy Consumption5 (SEC) of about duction till 2020, while the share of COREX–BOF is29.2 GJ/tonne of crude steel (tcs) and emission inten- expected to increase.sity of 2.78 tCO2/tcs in 2007.6 We find that althoughsteel production in India has expanded rapidly, the 4.63. By 2020, the total steel production could reachenergy intensity and specific emission ratios have 200 mT assuming an average economic growth ratedeclined considerably. Figure 4.2 depicts this trend of 8 per cent. The Expert Group has estimated thatover the last two decades. emission intensity of the iron and steel industry
  • 128. 124 Twelfth Five Year Plancould further reduce by 14 to 17 per cent, over 2007 Consumption (SEC) has reduced from 3.89 GJ/tlevels, by 2020. in 1995 to 3.3 GJ/t in 2007, which implies energy intensity reduction by about 1.5 per cent every year.8Policy Measures Figure 4.3 depicts this historical trend for the cement4.64. From a policy planning perspective, there are a sector.number of measures that could provide the pathwayfor reduction of emissions intensity in the iron and 600 4 3.9steel sector: 500 SEC, GJ/t cement 3.6 3.3 3 4001. A shift in the process mix of the iron and steel PJ 300 2 sector towards more efficient processes 2002. Diffusion of energy efficient technologies into 1 100 the sub-processes of various process routes men- 0 0 tioned above 1995 2000 20073. Waste heat recovery systems for moisture reduc- tion and power generation Total Energy Consumption SEC4. Utilization of renewable energy in specific pro- Source: PCRA, 2009; CMA, 2006. cess/plant/colony applications FIGURE 4.3: Cement Industry: Historical Trends of Total5. Increased use of waste as alternate fuels Energy (in PJ) and Specific Energy Consumption (GJ/tonne)6. Increased scrap utilisation7. Improving quality of coke and coal before its use Cement Production Processes in the industry 4.67. The cement industry comprises mostly of dry8. Low carbon captive power generation suspension preheater and dry precalciner plants, and a few old wet process and semi-dry process plants.Ministry of Steel and Department of Industrial Policy The average installed capacity per plant in India isand Promotion need to work together and evolve a about 1.2 million tonnes per annum (MTPA) assuitable policy framework so that progress along the against more than 2.1 MTPA in advanced countriesabove dimensions is incentivised to improve the effi- like Japan. Production from large plants (with capac-ciency of iron and steel industry in our country. ity above 1 MTPA) accounts for 88 per cent of the total production.Cement Sector4.65. India is the second largest cement producer in 4.68. Three types of cements are produced in India:the world, second only to China.7 Its per capita con- the Portland Pozzolana Cement (PPC), which hassumption in 2008 was approximately 150 kg, which the maximum share of the total production (67 peris almost a third of the world average. As of March cent), followed by Ordinary Portland Cement (25 per2009, Indian cement industry comprised of 148 large cent) and Portland Slag Cement (8 per cent).cement plants and 365 mini-cement plants, with Blended cement9 is another form of cement which isinstalled capacities of 219 Mt and 11 Mt respectively. very popular in India.India’s cement industry is the largest consumer ofpower among all industries, but it has managed to 4.69. The production mix in the Indian cementattain efficiencies comparable to the best in the world. industry is characterized by a large proportion of blended cement (which consumes less energy andEnergy and Emissions is less emissions-intensive than ordinary Portland4.66. The production of cement has increased by cement). Although the market share of blended146 per cent from 67 Mt in 1995 to 165 Mt in cement in India (75 per cent) is much higher than2007, while over the same period, Specific Energy the US (4 per cent), China (40 per cent) and Japan
  • 129. Sustainable Development 125(25 per cent) (2005 data), the percentage of blending Energy Efficiency Interventions in the Industrymaterial could improve further. Most PPC cementplants use fly ash to the extent of 20–30 per cent PAT Mechanism Overvieweven though the Bureau of Indian Standards permits 4.72. Perform-Achieve-Trade (PAT) is a market-usage of up to 35 per cent.10 based mechanism under the National Mission for Enhanced Energy Efficiency (NMEEE), under theFuture Projections Prime Minister’s National Action Plan for Climate4.70. By 2020, the total cement production could Change (NAPCC). The aim of PAT, as mandatedreach 500 mT assuming an average economic growth by NMEEE, is to improve cost-effectiveness andrate of 8 per cent. In this sector, reduction in energy enhance energy efficiency in energy-intensive largeconsumption is primarily attributed to reduction in industries through certification of energy sav-the energy intensity of production processes. The ings, which could be traded. The Ministry of PowerExpert Group has estimated that emission intensity (MoP) has in March 2007 notified industrial unitsof cement industry could further reduce by 13 to 16 and other establishments consuming energy moreper cent, over 2007 levels, by 2020. than the prescribed threshold in nine industrial sec- tors, namely Thermal Power Plants, Iron & Steel,Policy Measures Cement, Pulp and Paper, Textiles, Fertiliser, Chlor-4.71. From a policy planning perspective, there are alkali, Aluminium and Railways. The industries noti-a number of measures that could provide the path- fied are referred to as Designated Consumers (DCs).ways for further reduction in emissions intensity in Table 4.1 gives the details.the cement sector: PAT Framework1. Diffusion of energy-efficient technologies in var- 4.73. The PAT framework has been developed as per ious sub processes of cement manufacture. the legal requirement under the Energy Conservation Act 2001 and situation analysis of the designated2. Waste heat recovery systems for moisture reduc- tion in coal and raw materials and for power generation. TABLE 4.13. Utilisation of renewable energy in specific pro- Sector-wise Annual Energy Consumption of Designated Consumers cess/plant/colony applications.4. Increased use of waste as alternate fuels, ratio- Sector Minimum Annual Energy Number of nalizing the various policies that regulate this Consumption for the DC Probable DCs activity. (Tonnes of Oil Equivalent)5. Increased blending using fly ash from thermal Aluminium 7500 11 power plants and granulated blast furnace slag Cement 30000 83 from steel plants, and the increased use of com- Chlor-alkali 12000 20 posite cements. Fertiliser 30000 236. Improving quality of coke and coal before its use Iron and Steel 30000 101 in the industry. Pulp and 30000 517. Low carbon captive power generation. Paper8. Increase of blended cements in the public pro- Railways11 – 8 curement process. (diesel loco workshops)Department of Industrial Policy and Promotion Textiles 3000 128needs to evolve a suitable policy framework to incen- Thermal 30000 146tivise full realisation of the potential offered by the power plantsabove measures in the cement industry. Source: BEE, 2011.
  • 130. 126 Twelfth Five Year Planconsumers. The PAT framework includes the fol- more plants and sectors could be added. Petroleumlowing elements: refineries, petrochemicals, gas crackers/naphtha crackers, sugar, chemicals, port trusts, transport1. Methodology for setting specific energy consump- (industries and services), electricity transmission tion (SEC12) for each DC in the baseline year. and distribution companies, and commercial build-2. Methodology for setting the target to reduce the ings and establishments are some of the probable Specific Energy Consumption (SEC) by the tar- DCs that could be added in the second PAT cycle. get year from the baseline year.3. The process to verify the SEC of each DC in the Rationale and Target Setting baseline year and in the target year by an accred- 4.76. The DCs of the 8 sectors account for about 231 ited verification agency. mMtoe (million metric tonnes of oil equivalent) of4. The process to issue energy savings certificates energy consumption annually (as per the 2007–08 (ESCerts) to those DCs who achieve SEC lower data), which is about 54 per cent of the total com- than the specified value. mercial energy consumed in the country. The target5. Trading of ESCerts. under the scheme will be defined in terms of the per-6. Compliance and reconciliation of ESCerts. centage reduction of Specific Energy Consumption7. Cross-sectoral use of ESCerts and their possible (SEC) from the baseline value. synergy with renewable energy certificates. 4.77. The methodology of establishing SEC reduc-4.74. The first PAT cycle will be covered in 3 years tion for each Designated Consumer is on a gate-to-(2012–15). In the first phase, the energy-intensive gate basis. The targeted energy saving in the firstDCs (as depicted in Table 4.1) are assigned individ- commitment period of 3 years (2012–2015) is esti-ual SEC targets and are allotted a 3-year time period mated at 10 million metric tonnes of oil equivalentto accomplish it. The Monitoring and Verification (mMtoe), which will amount to 4.2 per cent energy(M&V) is carried out from the second year onwards. intensity reduction over three years. Further, theAfter the completion of M&V, energy saving certifi- overall target reduction of 10 mMtoe would becates will be issued and trading will be permitted. 13 apportioned amongst identified sectors in propor- tion to their relative energy use. The break-up of4.75. In the next cycle(s) of PAT scheme (post energy consumption and the apportioned energy2015–16), the number of DCs may get revised as reduction of each sector are depicted in Table 4.2. TABLE 4.2 Initial Estimate of Energy Consumption and Energy Reduction Targets Sector Energy Consumption in Share of Consumption Apportioned energy Number of 2007 (mMtoe) in 2007 (%) reduction by 2015 probable DCs (mMtoe)over 2007 levels Aluminium 2.42 1.05 0.11 11 Cement 14.47 6.25 0.6 83 Chlor-alkali 0.43 0.19 0.02 20 Fertiliser 11.95 5.16 0.51 23 Iron and Steel 36.08 15.58 1.56 101 Pulp and Paper 1.38 0.60 0.06 51 Textiles 4.5 1.94 0.2 128 Thermal power plants 160.3 69.24 6.92 146 Total 231.53 100 10.00 563Source: BEE, 2011.
  • 131. Sustainable Development 1274.78. The PAT scheme is an energy intensity type of reduction issues of a relatively small number of largecap-and-trade scheme as it does not place an abso- industries, which contribute significantly to emis-lute cap on the total energy consumption in the sions. Many of the provisions of NMEEE such asindustry. Some people argue that a simpler alterna- strong baseline, monitoring & verification, penaltytive for achieving energy efficiency and for mobi- and trading mechanisms are not easily extendablelizing finances with greater certainty, would be to to a large number of small and medium units. Someimplement a carbon tax scheme. Both approaches recent studies15 have emphasised the need for devel-have their own advantages and disadvantages. These oping a strong framework for increasing awarenessare compared in the section below. and facilitating upgradation of technology in small and medium enterprises.Cap-and-Trade vs Carbon Tax4.79. Cap-and-trade programmes are often designed 4.82. India is experimenting with both cap-and-to achieve greater reductions over time, so the cap trade in the form of the PAT scheme and a carbonmay be lowered in subsequent years to enable market tax in the form of a cess on coal (`50 per tonne). Bothparticipants achieve emission reductions gradually. are in early stages of implementation. While the cap-To achieve compliance with the capped emission and-trade mechanisms have a greater certainty inlevel, market participants are allocated allowances emissions reduction, as a tool for financing they faceto emit (1 tonne per allowance) with the total num- greater uncertainty. Carbon tax mechanisms, on theber of allowances summing to the level of the cap. other hand, can provide greater certainty as a sourceMarket participants can purchase allowances from of financing, while uncertainty on emissions reduc-other participants to cover excess emissions, or sell tion can be brought down by using energy or emis-allowances, if they reduce emissions below their allo- sion intensity benchmarks.cation. Such trading increases economic efficiency. 4.83. Studies on the demand side of energy consump-4.80. A carbon tax is an alternative to a cap-and- tion have shown that pay-back periods for energytrade (see Table 4.3). It can be given other names efficiency measures are in the range of two to eightlike cess, surcharge and levy among others. Although years. Yet firms do not take up such measures onboth policies generate a carbon price signal, there is a their own. The major barriers are perceived risk,fundamental difference in the way in which the level uncertainty about technology, costs of disruptionof carbon price signal is determined under the two and initial financing. What is needed is a mecha-regimes. A carbon tax fixes the price of carbon and nism to insure risk and assure finance on reasonableallows the quantity of emissions to adjust in response terms. The need of the hour is to set up a special fundto the level of tax. In contrast, a cap-and-trade sys- with seed capital that will be managed at an arm’stem fixes the quantity of aggregate emissions, and length from the Government, with the participationallows the price of CO2 emissions to adjust to ensure of the private industry.the emissions cap is met.14 UK’s Climate ChangeLevy (CCL) and Australia’s Clean Energy Package 4.84. While the PAT should continue to evolve,are examples of carbon tax. it would be useful to envisage a combined Energy Efficiency Package—consisting of the PAT schemeFoundations of a New Policy Initiative for the and an Energy Conservation Fund, to be imple-Indian Industry mented by a unified Central Government agency,4.81. Global trends in energy and environment are namely the Bureau of Energy Efficiency (BEE). Thelikely to have a major impact on the profitability of legal provision for this already exists in the EnergyIndian industry, as also on the larger goal of energy Conservation Act 2001, wherein under Section 13,and strategic security. The existing National Mission the BEE is empowered to levy fees for services pro-on Enhanced Energy Efficiency NMEEE has been vided for promoting efficient use of energy and itdesigned to deal with energy efficiency and emission conservation. These services, like capacity building,
  • 132. 128 Twelfth Five Year Plan TABLE 4.3 Cap-and-Trade vs Carbon TaxCap-and-Trade Carbon TaxIt sets a steadily declining ceiling on carbon emissions, and by Uncertainty about how much will it reduce carbon emissions.creating a market that rewards companies for slashing CO2 However, tax linked to benchmarks of energy or emissions(corporations that reduce emissions below their allotment can intensity can help improve certainty with respect tosell them on the open market), it uses the free enterprise system mitigation.to achieve emissions reduction.It does not provide cost certainty as price of permits fluctuates Carbon tax provides cost certainty by setting a clear price onand could be highly volatile in the spot market. carbon emissions for many years ahead.It needs a market monitoring agency to examine issues such as It is simple to understand and implement.rent seeking, cornering the market and so on.The design leaves out many small and medium organizations Carbon tax covers the entire economy, including automobiles,(who together may release significant portion of the emissions). households and other units impossible to reach in a cap-and- trade.The revenues are likely to be bargained away well before the first Carbon tax raises a clear amount of revenue, which can betrade ever takes place. used for targeted purposes or rebated to the public.It can be more easily manipulated to allow additional emissions; The chances of manipulation are remote. The structure of theif the permits become too pricey, regulators would likely sell or tax does not allow periodic regulator intervention.distribute more permits to keep the price ‘reasonable’.The long-term signals from cap-and-trade are less powerful, Clear signals and impetus for behavioural changes.and the behavioural changes (for example, choice of the type ofpower plant) could turn out to be far fewer.Political pressures could lead to different allocations of Political pressures could lead to exemptions of sectors andallowances, which affect distribution, but not environmental firms, which reduces environmental effectiveness and driveseffectiveness and cost-effectiveness up costs.It will be a difficult process to adopt different international Carbon-taxing nations can easily offset import priceallowances and make it at par with the domestic allowance. differences with a ‘border tax adjustment’.The setting of the price (in an open market) could be very The process is more transparent and trustworthy.opaque.One of the immediate consequences is the design of financial This directly rewards innovation in engineering.and legal instrumentspreparation of detailed project reports and finance 4.86. Energy Conservation Fund could be used tofor adoption of energy-efficient technologies, are leverage and/or finance energy-efficient technologyparticularly important for non-PAT industrial units, upgradation of the domestic industry, particularlywhich are smaller in size and cannot arrange such non-PAT industry, on terms softer than commercialhelp on their own. borrowing. While participation under the scheme would be compulsory for non-PAT industry, indus-4.85. Unlike the coal cess which is deposited in the trial units participating in the PAT scheme couldGovernment account, the energy efficiency fee will be permitted after one or two PAT cycles are over,be deposited in the Central Energy Conservation but in a manner that does not crowd out the smallerFund managed by the BEE (Section 20 of the Energy non-PAT industry.Conservation Act). The collections from the feecould be supplemented by international funding, as 4.87. The UK Carbon Trust Fund could be a work-well as block grants from the Central Government able model for such an effort. An integrated Energythrough the NCEF. Efficiency Package of the kind suggested above,
  • 133. Sustainable Development 129which covers both PAT and non-PAT industry, • Its star rating, on a 1 to 5 scale, as compared toneeds to be carefully evolved over the Twelfth Plan other vehicles of the same type and in the sameperiod. The Expert Group on Low Carbon Strategies (weight) category.should also delve into greater detail on this. • A pointer on a band indicating the fuel efficiency position of this vehicle among all vehicles of theTransport same category.Vehicle Fuel Efficiency Programme Fuel Efficiency Standards4.88. The number of motor vehicles in India has 4.91. Given the relatively smaller size of the averagebeen growing at about 10 per cent per annum, while- Indian vehicle, the Indian vehicle fleet is among thepassenger and freight activity by road increased 15 most fuel-efficient in the world. The fuel efficiencyand 6 per cent per annum respectively between standards should ensure that this characteristic of2001–02 and 2005–06, the last year for which data Indian vehicles is encouraged and preserved. Someis available.16 In turn, the fuel consumption has measures are suggested below:also increased, with petrol and diesel consumptionincreasing 10 and 8 percent respectively over the • The standards should be applicable to all vehiclesEleventh Plan period. GHG emissions from the sold in India—whether manufactured domesti-transport sector have also grown at 4.5 per cent cally or imported.per anum between 1994 and 2007.17 Therefore, in • Ambitious efficiency improvement programmes,addition to ensuring that automobiles pay for their such as Japan’s ’top runner’ programme definefull externalities such as congestion, pollution and efficiency standards based on the best perform-reduced safety, India needs to urgently introduce ers in the industry18. However, given the efficiencyfuel efficiency norms for the automobile industry levels of the Indian fleet; Indian standards may be derived considering the average efficiency of theto address both energy and environmentchallenges. global vehicle fleet of a given type, the best per-Countries such as the US, Canada, Japan and the EU former and the average efficiency of Indian fleet.have already enacted such fuel economy legislations. • The standards must ensure that Indian vehicles retain their global fuel efficiency advantage andFramework of Fuel Efficiency Norms remain among the most fuel-efficient in their4.89. Fuel efficiency norms can be defined within a class. It should be noted that the average efficiency‘standards and labelling’ framework. Vehicle label- of passenger cars in India improved by 3 per centling is a demand side measure to enable consum- per annum between 2006–07 and 2009–10, in spiteers to take an informed decision while purchasing a of an increase of 2 per cent per annum in aver-vehicle, whereas fuel efficiency standards are supply age kerb weight of cars sold in that period.19 Thisside measures for manufacturers to adhere to. is comparable to the rate of efficiency improve- ment proposed in the European Union and SouthVehicle Labelling Korea.204.90. Vehicles should carry prominent labels simi- • There has been a tendency for vehicles to getlar to those made popular by the appliance label- heavier without a corresponding increase in capa-ling scheme introduced by the BEE. These labels city, as seen in the 2 per cent per annum increaseshould give the consumer sufficient information in average kerb weight of cars sold in India. Thisabout the relative efficiency of the vehicle to enable is not a desirable trend as it leads to increased fuelhim to make an informed choice. It must contain the consumption without additional benefits. There-following: fore, standards must contain an explicit disincen- tive against up-weighting of vehicles. This can be• The fuel efficiency of the vehicle (in litres/100 km) achieved by making the standards not linear, but as determined by an approved test mechanism. a sub-linear function of the vehicle weight. In the
  • 134. 130 Twelfth Five Year Plan sub-linear case, the permitted fuel efficiency loss significantly more energy-efficient than road freight, for a given increase in vehicle weight is lower at a with the energy intensity of rail freight being 0.18 MJ/ higher weight as compared to the permitted loss tonne-km, while the intensity for road freight being at lower weight levels. 1.6 MJ / tonne-km , that is a nine-fold difference.• The BEE has already proposed a fuel efficiency scheme for passenger cars, and sought feedback 4.93. However, the share of rail in total freight car- on the scheme at a public consultation held on 1 ried has steadily deteriorated from about 88 per cent November 2011. Given the rapid rate of growth at Independence to about 40 per cent at present, and of vehicles in the country, this process needs to be the share of road freight has increased correspond- expedited. Some suggestions on further course of ingly. Figure 4.4 shows the historical trends in modal action are as follows: shares of freight transport. Such a change in freight – BEE is in the process of publishing an alterna- modal share has not only increased the emissions, tive proposal based on the inputs received. This but has had other adverse effects listed below: should be followed by another round of public consultations to ensure that significant con- 1. It has hurt the country’s energy security as road cerns are addressed. It should then notify the freight is powered by diesel, and India imports norms, say, by September 2012. over 80 per cent of its petroleum requirements. – Consumption of diesel by heavy commer- 2. It has worsened the balance of payments situa- cial vehicles (buses and trucks) is consider- tion due to increased oil imports. ably more than the fuel consumption of cars 3. It has worsened the fiscal deficit given that diesel and two wheelers. Therefore, norms must be is a subsidized fuel in India. defined for these vehicles also at the earliest— 4. It has worsened local air pollution in the form of say, by the end of 2012. tail-pipe emissions from diesel-powered com- – Two wheelers account for about 70 per cent mercial vehicles, which have been shown to have of the vehicle sales as well as vehicle fleet in serious health effects in the form of respiratory the country. Therefore, norms must soon be problems, cancers and so on. defined for them also. – The definition of fuel efficiency norms must Increasing the Share of Rail Freight in India not only be expedited, but also be based on 4.94. As a principle, railways (which are more cap- public consultations with all stakeholders ital-intensive) should be the major freight mode including the citizens groups and the automo- along the major corridors, while road (with its bile industry. greater reach and flexibility) should be the preferred – A clear-cut policy should be put into place for mode from the ‘spine’ to the interior parts of the encouraging electric vehicles, including facili- country. India’s Integrated Energy Policy of 2006 ties for recharging. also recognizes that there should be an increased role for railways in carrying freight in the country.Improving the Efficiency of Freight Transport GoI initiated the DFC project by setting up a special4.92. India’s growing economy has resulted in purpose vehicle called Dedicated Freight Corridorincreased demand for movement of freight in the Corporation of India (DFCCIL) in 2006. The DFCcountry, with freight movement increasing roughly project is expected to result in over 10000 km of ded-in proportion to the GDP. This has resulted in a icated rail routes over six key corridors connectingcorresponding increase in energy consumption and India’s four largest cities. The first phase of two cor-GHG emissions from freight transport. In order to ridors is expected to be complete by 2016–17. Theseimprove the efficiency of freight movement, it is corridors would be built with modern technologynecessary to devise policy instruments to incen- supporting higher axle loads, greater train lengthstivize modal shift to the more efficient modes of and speeds, thus further improving efficiency andfreight transport, namely the railways. Rail freight is reducing GHG emissions. However, work on these
  • 135. Sustainable Development 131 100% 1200 90% 1000 80% 70% 800 billion tonne km model share 60% 50% 600 40% 400 30% 20% 200 10% 0% 0 1950–51 1960–61 1970–71 1980–81 1990–91 2000–01 2004–05 Total freight travel demand Road Railways Airlines Water FIGURE 4.4: Modal share of freight transport in India27corridors is behind schedule. The Government needs 0.3 per cent. In contrast, water transport occupiesto use all its energies to ensure this is completed as about 6 per cent of the freight modal share in Europe.soon as possible. For details of the dedicated freight There is considerable room for improvement in thiscorridor project see Chapter 13. regard, and the GoI must initiate a serious study of how this potential can be maximized without affect-Improving the Efficiency of Road Freight ing other uses of the water or waterways.4.95. Road is expected to play an important part infreight movement even after a modal shift to railways. Improving Urban Public and Non-MotorizedTherefore, there is a need to ensure that road freight Transportperforms as efficiently as possible. There is a percep- 4.97. Our need for mobility has been growing rap-tion that current road freight is inefficient because idly. Official data indicates that passenger-km trav-of reasons such as sub-optimal utilization of trucks, elled by Indians is increasing at a rate of about 15 perinefficient border crossing, toll regimes, insufficient cent per annum.22 Consistent with this, automobileuse of multi-axle and tractor-trailer trucks, and lack sales in the country are increasing around 10 perof hub-and-spoke like arrangements for efficient dis- cent per annum. From an emissions perspective, thispersal of heavy loads onto smaller trucks for last mile indicates rapid growth of emissions from the pas-connectivity. The Transport Policy Committee needs senger transport sector, since most of the transportto further investigate these bottlenecks and suggest is powered by petroleum products. Further, suchsolutions to overcome them. an increase of transport activity has also results in increased imports, since India’s net import depen-Water-Borne Freight dence for petroleum products is about 80 per cent.4.96. Freight carriage by waterways—both inland Given India’s energy insecurity and balance of pay-and coastal—is the most efficient form of freight ment problems, there is a need to move transporttransport. Though India has a long coastline and in a more efficient direction so that mobility needsabout 15000 km of inland waterways, the share of our citizens are met with a lower consumption ofof water in freight transport is negligible at about fossil fuels.
  • 136. 132 Twelfth Five Year Plan4.98. Figure 4.5 depicts passenger transport activity 4.99. The way forward therefore is to promote pub-and emissions in 2007. The important points to note lic and non-motorized transport in cities, and rail forare: intercity passenger travel, while discouraging the use of private vehicles in cities, as well as intercity trans-1. Only 4 per cent of the total passenger transport port by air. This will have important co-benefits, activity is by private automobiles in cities, but such as: they contribute about 20 per cent of passenger transport emissions. 1. Making mobility more inclusive as the promoted2. Air transport supports only 0.4 per cent of total modes are typically more affordable. passenger transport, but contributes 15 per cent 2. Improving the country’s energy security. to emissions from it. 3. Reduce air pollution in the country’s cities,3. Rail supports 11 per cent of passenger activity, towns and villages. and contributes just 5 per cent of the passenger 4. Reducing congestion on our city roads. transport emissions. 5. Improving road safety since studies show that4. Non-motorized transport supports 4 per cent of public transport modes have lower per passenger- passenger transport activity in the country with- km fatality rates than private transport modes. out causing any emissions at all. 100% 24 10 80% 5184 35 60% 40% 4 20% 770 13 256 224 4 0% 280 0 Activity Emissions Air - IC Road - IC Rail - IC Private - U Public - U NM - USources: Ministry of Road Transport and Highways, Year book 2006-07, Directorate General of Civil Aviation, Indian Railways,Ministry of Petroleum and Natural Gas and Study on traffic and transportation policies and strategies in urban areas in India, Ministryof Urban Development, May 2008.Note: NM-U: Non-motorised transport (Urban), Public-U: Public transport (urban), Private-U: Private transport (Urban), Road-IC:Road transport (inter-city), Rail-IC: Rail transport (inter-city), Air-IC: Air transport. FIGURE 4.5: Passenger Transport Activity and Emissions in 2007
  • 137. Sustainable Development 133We should focus on policy instruments to encour- Lighting, Labelling and Super-efficientage greater use of public and non-motorized trans- Equipment Programmeport in India’s cities and towns, while discouraging 4.102. Lighting and appliances (such as refrigera-the use of private motor vehicles. Official projections tors, air conditioners, water heaters, fans and so on)show that the current trend is exactly the opposite, account for about 10 per cent of the total electric-as public and non-motorized transport is losing its ity consumption in India, which was estimated toshare to private motorized vehicles. However, since be 68 billion kWh in 2010–11. With rising incomesurban transport is a State subject, the levers available and increasing penetration of appliances in house-with the Union Government are limited; and it is the holds, the demand for electricity for lighting andState Governments and Urban Local Bodies which appliances is expected to rise to 155 billion units byhave an important role to play in realizing the trans- 2016–17. Over the Eleventh Plan period, the stan-formation objective described above. The GoI can, dards and labelling programme of the Bureau ofhowever, leverage the funding under the Jawaharlal Energy Efficiency BEE has enabled consumers toNehru National Urban Renewal Mission (JnNURM) identify and purchase more energy-efficient appli-to further these objectives. ances. Labels have already been introduced for 13 appliances25. They have been made mandatory forSupporting Public Transport four appliances, namely, frost-free refrigerators,4.100. Most urban bus utilities in the country are room air conditioners, tube lights and distributionfinancially unviable, and a significant part of their transformers. As a result of this programme, thefinancial burden is due to capital expenditure (to average energy efficiency ratio (EER) of air condi-buy buses) and taxes. Some studies23 suggest that tioners sold in India increased from 2.2 in 2006–07these expenses—including various taxes on fuel form to 2.8 in 2011–12; and the average consumption ofabout 20 per cent of the total expenditure of a bus a 300 litre frost free refrigerator declined from 547utility, and that these are comparable to or higher kWh per day in 2006–07 to 368 kWh per day inthan taxes on private vehicles. Such taxation policy 2011–12. Overall, savings due to the standards and labelling programme avoided an installed capacity ofis clearly contrary to the objective of promoting over 7500 MW during the Eleventh Plan period.public transport and discouraging private transport.Government needs to revisit its taxation policy of 4.103. The BEE has tightened the labelling normsvehicles and ensure that tax burden on bus utilities is for refrigerators and air conditioners w.e.f. 1 Januaryconsiderably lowered. It could also consider refund- 2012, and has notified a second tightening of normsing fuel taxes collected from the bus utilities. to come into effect from 1 January 2014. As a result of these interventions, a further 30 per cent reduc-Urban Planning and Governance tion in the average energy consumption of refrigera-4.101. Urban Local Bodies (ULBs) in India currently tors and air conditioners is expected by 2016–17, asdo not have the capacity to deal with the challenges compared to those sold in 2011–12.posed by rapid urbanization. As a result, presently,the urban planning in the country does not go 4.104. Annexure 4.1 provides an estimation of thebeyond provision of basic services to a chaotic urban electricity savings from various appliances in thesprawl, and simply does not take an integrated view market. While the actual savings may be differentof the modern urban requirements, including trans- due to changes in assumptions underlying sales pro-port. This needs to be addressed urgently and capaci- jections, the list of the top five appliances that con-ties of ULBs need to be strengthened to enable mixed tribute about 85 per cent of the total savings will notland use planning and preparation of an integrated change. Of the five appliances, while refrigeratorstransport plan for each city in the country.24 and air conditioners have already effectively adopted
  • 138. 134 Twelfth Five Year Planthe BEE’s standards and labelling programme; a at 70W. The penetration of five-star fans (which aregreater emphasis is needed for enhancing the effi- rated at 50W) has been only 2 per cent, reflectingciency of lighting appliances, motors and fans. the price-sensitive nature of this market. During the Twelfth Plan period, development, introduction and4.105. In the area of lighting, a major shift has taken market penetration of super-efficient fans, which areplace during the last 10 years due to large scale rated at 35 or less, will be promoted in a manner thatreplacement of incandescent bulbs by Compact boosts their sales volume, while also making themFluorescent Lamps (CFLs), which consume only 20 affordable.per cent as much electricity as incandescent bulbs toproduce the same amount of light. During 2011–12, 4.108. Motors are the fifth application where mar-the sales of CFLs in India exceeded 300 million; a ket transformation towards more energy-efficient15 times increase as compared to the sales in 2002. motors could lead to large scale savings. Most ofHowever, incandescent bulbs continue to be used the motors are, however, sold to businesses (ratherprimarily in households where the higher first- to end-consumers), who incorporate them intocost of CFLs continues to be a barrier. The Bachat other products, such as pumps, fans, air condition-Lamp Yojana (BLY) provided an innovative business ers and so on. Consequently, direct sales incentivesmodel to sell CFLs to households at the same price for efficient motors may not be the most appropri-as incandescent bulbs, the balance being recovered as ate or efficient way of promoting their uptake. Acarbon credits. However, a sharp decline in the price more aggressive labelling programme that will helpof carbon credits has effectively made this business in selection of energy-efficient motors may be moremodel non-viable. effective. Branding of products containing efficient motors (for example, ‘energy efficient motor inside’)4.106. At the same time, the emergence of solid state could help inform the end-consumers about thelighting, based on Light Emitting Diode (LED), pre- energy efficiency of products they are buying.sents an opportunity for another quantum jump inlighting energy efficiency. LED-based lighting appli- 4.109. During the Twelfth Plan period, the Super-ances (bulbs and tube-lights) are ‘super-efficient Efficient Equipment Programme (SEEP) for super-lights’ in as much as they use only half as much elec- efficient fans, LED bulbs and tube lights, seeks totricity as fluorescent devices (CFLs and tube lights) incentivize the sale of these products to increase theirto produce the same amount of light. However, their volumes and bring down their prices for large-scaleprice is still much higher than those of CFLs; even adoption. This ‘virtuous cycle’ could be jump-startedthough the price of a 5 W LED bulb (equivalent to a though provision of a financial incentive for each10W CFL or a 50W incandescent bulb) declined from super-efficient fan or light that is sold, that wouldabout `.1200 in June 2010 to `.550 in December 2011. help lower the price for end-consumers and enhanceFurther price decreases are possible with increased sales volume. This will provide confidence to manu-sales volume. During the Twelfth Plan period, facturers to invest in the development, manufactureenhanced procurement of LED bulbs and LED tube and marketing of these products, which would oth-lights could create the sales volume necessary to bring erwise find limited markets because of their higherdown prices to levels where large scale penetration of price. The incentive should decrease with increas-LED lights in India would become a reality. ing volumes and reducing prices, till it is no longer needed. In terms of the transaction costs, it would4.107. In a similar manner, ‘super-efficient fans’, be cost-effective to provide the incentive directly towhich use half as much electricity as conventional the manufacturers, once third-party verification offans, could be of great help in reducing electric- sales volume has been carried out. However, per-ity demand from this widely used appliance in the formance standards for each of the super-efficientcountry. The current sales of ceiling fans in India is devices need to be put into place before the start ofabout 30 million per year and most of them