How to evaluate sectoral performance

Written by Sushim Banerjee | Updated: Aug 26 2014, 07:47am hrs
Now that it has officially been clarified that we no longer have a Planning Commission, there is an immediate question over the continuity of the five-year planning regime unless the job of framing the Plan and monitoring it is assigned to an alternate agency.

The five-year planning concept has been ingrained in all the sectoral planning and projections and the basic economic approach of the ruling party is reflected in the planning document. But over the years, the frequent changes in political power at the Centre, the emergence of regional economic considerations and gradual opening up and integration of India with major and minor economies of the world have truncated the role and relevance of the Planning Commission and made the planned targets of five years for reference purposes only.

As it is, the 12th Plan document was based on the premise of average GDP growth of 8%. In the first two years, GDP has grown at an average 4.6%. In the current fiscal, the optimistic assessment of GDP is 6%. To achieve the average 8% growth in five years, average GDP in the next two years must grow at 12.4%, which does not appear feasible. A nearly 2% drop in growth will be reflected in much lower investment than projected in the Plan.

Comparing the projected investment in the 12th Plan on infrastructure, an aspect which is of crucial importance for all supporting sectors like steel, it is reported that India spent around R2258.8 billion (central and states together and adopting BE of FY14) on infrastructure in the first two years. A back-of-the-envelope calculation shows this investment could trigger steel demand of around 11.3 mt from the infrastructure sector in these two years against projected demand of 112.6 mt of steel on fulfillment of the targeted investment in infrastructure as envisaged in the plan document. This relates to only direct steel demand emanating from the sector without considering the host of indirect demands generated in related sub-segments triggered by the specific infrastructure sector, like power to housing, roads, rail and port networks, urban infrastructure etc. The actual direct demand is nearly 10% of the planned demand as actual investment fell short of the target by 90%.

In the current fiscal, budgetary allocation of fund comprises around 14% of the original planned investment and hence marginally higher steel demand from the infrastructure sector may be expected as compared to the first two years level, but still terribly short of the target in the 12th Plan.

As there was no mid-term review of the Plan, moderation of the original target could not be done. Stalled projects in power, coal, other mining, ports, oil and gas have made the investment targets go haywire, although speedy clearances provided recently may usher in fresh doses of investment, but with a much lagged impact.

If targets for the next three years are not reviewed and reset, the performance of each sector as well as the total economy would be evaluated against severely unrealistic targets.

The author is DG, Institute of Steel Growth and Development.

The views expressed are personal