Summary of CPI (M)’s Comments on
Planning Commission’s Approach Paper to the XI Plan
(Submitted to the Chairman & Dy. Chairman of the Planning Commission
on July 15, 2006)
Ø The National Common Minimum Programme of the UPA Government had placed employment generation and addressing the agrarian crisis and rural distress as its topmost priorities. Unfortunately, the Approach Paper to the XI Plan prepared by the Planning Commission does not reflect these priorities. It rather chooses to only emphasize the achievement of a target growth rate of 8-9%.
Ø The problems of unemployment and poverty cannot be solved only through the achievement of a higher growth rate. In order to chart out a trajectory of “more inclusive growth”, as suggested by the title of the Approach Paper, it is imperative to reorient the Planning approach and clearly define the social goals, by having targets with regard to employment, poverty reduction and social sector achievements. GDP growth should be considered as a means to expand employment, alleviate poverty and improve social sector indicators rather than being viewed as an objective in itself.
On Public Investment
Ø Although the annual average GDP growth rate of 7% achieved during the X Plan was higher than the GDP growth attained during any of the earlier Plan periods, Agriculture, which employs over 50% of the country’s workforce, registered a growth of only 1.8% during the X Plan against the Plan target of 4%.
Ø The Investment-GDP ratio at 27.5% fell short of the 28.4% target of the X Plan. The major reason for this underperformance of investment during the X Plan is a much lower rate of public investment, which has been only around 7% of GDP against the X Plan target of 8.4%. The Approach Paper for the XI Plan, however, seems to continue with a similar approach of restraining public investment by the Government and the PSEs.
Ø The NCMP of the UPA Government has made several commitments to the people. Calculating the public expenditure required to meet the NCMP commitments and suggesting measures to mobilize additional resources to finance such expenditure should be the foremost priority of the XI Plan.
Ø Many of the Central Public Sector Enterprises currently hold their profits as rather than engaging in active expansion and investment. The CPSEs should be reinvigorated to undertake massive capital expenditure, diversifying their activities if necessary.
On Employment Generation
Ø The GDP growth experienced in India over the past decade and a half has failed miserably in expanding gainful employment opportunities. Despite this there is no concrete strategy in the Approach Paper, which would ensure greater employment generation along with higher GDP growth.
Ø Instead several policy initiatives suggested in the Approach Paper, such as liberalising the entry of foreign players into retail trade and reducing the list of industries reserved for the small scale sector at an accelerated pace, would actually diminish employment opportunities even further.
Ø The XI Plan needs to work out employment generation targets concretely, so that unemployment can be progressively reduced. Sector and sub-sector wise employment targets should be worked out, along with the required quantum of public and private investment.
Ø Strategies should also be adopted to improve the quality of jobs and increase the share of organised workforce to total workforce. Specific provision should also be made for the social security of the workers in the unorganised sector.
Ø The misplaced belief contained in the Approach Paper regarding labour market flexibility leading to greater employment generation in the manufacturing sector should be abandoned. These proposals have been opposed by the Trade Unions, and therefore no consensus exists on such reform of the labour laws. The XI Plan should not contain such contentious proposals, which violate the spirit of the NCMP.
On the Agrarian Crisis
Ø A great economic challenge facing the country at present – the agrarian crisis reflected in high and unsustainable levels of peasant debt and the lack of viability of cultivation because of the cost-price relationship for many crops – is barely considered in the Approach Paper. The Plan projections assume that GDP in agriculture will grow at a faster rate of 4%, which it has not done for the past decade, and yet does not chalk out any strategy to ensure this.
Ø The unbridled entry of corporate players and promotion of contract farming as endorsed in the Approach Paper could have a further adverse impact on the peasantry. If contract farming is to be undertaken then the contract cannot be between peasants and the corporates alone; the State must insert itself as a party to the contract to ensure that the interests of the peasants are properly defended.
Ø The Approach Paper’s lack of comprehension of the nature of the agrarian crisis manifests itself in its attributing several “problems facing agriculture” to the provision of subsidized power, under-pricing of canal water and fertilizer subsidy thereby advocating their withdrawal. The consequences of removing these subsidies, which would entail rising input costs in the context of falling or subdued commodity prices, would be thoroughly detrimental to the interests of the peasantry.
Ø The way out of the current crisis of the agrarian economy cannot be found unless the centrality of State interventions is recognized. Strengthening and widening of the price-support system, the creation of a Price Stabilization Fund for agricultural commodities and universalising crop insurance are conspicuous by their absence in the Approach Paper. Strict enforcement of priority sector lending norms besides the revitalization of the cooperative credit institutions is urgently required, in the context of rising indebtedness. The XI Plan should specify steps to provide debt relief to the peasants and bring down the interest rate on farm loans.
On Food Security and Stability of Essential Commodity Prices
Ø The silence of the Approach Paper on the vital question of food security is a very serious shortcoming. The Government had to recently import wheat, as well as sugar and pulses, in order to meet domestic shortages which had led to steep price rises. In this backdrop, besides emphasizing increased production of cereals and other essential commodities, it is important for the XI Plan to take a fresh look at the targeted Public Distribution System which has failed to ensure food security for the poor and vulnerable sections of the population.
Ø The XI Plan has to address further issues, which are related to the question of food security. A proper evaluation regarding the consequences of the dilutions of the Essential Commodities Act and permitting futures trade in essential commodities has to be made. Concrete ways of stabilizing prices of essential commodities have to be explored including a strengthening controls and prohibition of futures trade in essential commodities.
On the FRBM Act
Ø The Approach Paper has recognised some of the difficulties posed by the rigid and unreasonable demands of the FRBM Act and has even suggested a postponement of the FRBM targets for fiscal and revenue deficits, by a period of two years. It has also made the point that the focus on revenue deficit should be abandoned, since a number of items of expenditure which contribute to human capital formation are listed as revenue expenditure.
Ø The FRBM Act should be scrapped in toto, since it makes no sense to put a ceiling either on the fiscal deficit or on the revenue deficit in the Indian context. The obsession with curbing the size of the fiscal deficit and cutting down upon Government expenditure in order to impose fiscal discipline irrespective of the economic situation is not based upon any sound economic theory. Fiscal responsibility cannot be enforced through meaningless formulae, which puts bizarre constraints on necessary and desirable revenue spending and does not allow anti-cyclical fiscal stances.
On Centre-State Relations
Ø The Twelfth Finance Commission while providing debt relief, made such provision conditional upon State Governments enacting Fiscal Responsibility legislation. Today, since the VAT rates are given to them and since their borrowing limits are determined by the Centre, there is very little elbowroom available to States for garnering resources. And the availability of even these resources depends on their “behaving properly” to the satisfaction of the Centre.
Ø To further democratise Centre-State relations some proposals have been made, including one, which suggests that all international treaties and Free Trade Agreements, which the Union Government signs, must be ratified both by the Parliament, and, where they impact heavily on the fortunes of the States, by the National Development Council.
On Public-Private Partnerships
Ø The Approach Paper advocates an “aggressive effort” to promote Public Private Partnerships in infrastructure projects. The justification for favouring PPPs over public investments is given in terms of scarcity of public resources. It is also argued that PPPs improve efficiencies in the provision of services to users and also enable Governments to transfer construction and commercial risks to the private sector, “which is best suited to manage them”. These arguments are more in the nature of articles of faith.
Ø While PPPs may be found to be an advantageous mode of developing infrastructure in certain cases, a shift from public investment to PPP as a preferred mode for the development of infrastructure projects in general, cannot be acceptable since it affects the basic structure of the economy. Privatisation under the garb of PPPs, like in the recent case of modernisation of Delhi and Mumbai Airports is neither in the interest of overall infrastructure development nor the health of the PSEs.
On Social Sector Initiatives
Ø Raising user charges for education and health services, which has been suggested in the Approach Paper would be inimical to the objective of inclusive development. High fees for school education and primary healthcare would militate against bulk of the poor, especially the socially deprived sections, for whom school education and healthcare continue to remain inaccessible. Moreover, the important objective of universalising the ICDS, which has been ignored in the Approach Paper, needs to be reaffirmed.
Ø The Plan outlays for Bharat Nirman continue to be non-transparent. While the target outcomes for irrigation, rural roads, water supply, housing, electrification and telecommunication connectivity are reiterated in the Approach Paper, there is no discussion either on the outlays or the outcomes achieved so far. The XI Plan should make a proper evaluation of the outlays and outcomes of the projects under Bharat Nirman in a transparent manner.
On the Mining Sector
Ø The Approach Paper hints at further liberalization of the laws and rules governing the mineral sector, in order to attract more private capital, including foreign capital. A recent report by a Planning Commission panel has also recommended granting of captive mines to private parties virtually free of cost and further liberalization of controls on export of minerals. These steps are inimical to the national interest.
Ø Minerals are scarce and exhaustible natural resources, their rate of extraction, the prices charged for them, the conditions under which they are extracted and the uses to which the extracted minerals as well as the proceeds from their extraction are put, are matters that should be socially determined. Export of minerals should be discouraged.
On Financial Sector Liberalization
Ø Further liberalization of the financial sector has been advocated by the Approach Paper including an increased role for foreign financial institutions and moving towards capital account convertibility. The recent crash experienced in the stock market which was caused by massive fund pull out by FIIs and the volatility being experienced since then has shown the speculative nature of such investments and their unreliability.
Ø Moving towards capital account convertibility, by making it possible for domestic citizens, not just foreigners, to take out or bring in funds freely, would only enhance such volatility and open up the possibility of a sudden capital flight and currency meltdown. In fact the XI Plan should heed the views expressed by the RBI in this regard and suggest means to effectively regulate the speculative entities and mobilize higher taxes from them.