Terming the lowering of the 12th Plan average annual GDP growth target to 8% from 8.2% as a reasonable modification', Prime Minister Manmohan Singh on Thursday said the target still looked ambitious, considering (likely) less than 6% growth in 2012-13.
He also highlighted the need to gradually prune subsidies for coal, petroleum products and natural gas, in line with global energy prices. India will need to grow over 9% in the last three years and even more than 11% in last year of the Plan period to achieve the desired 8% average.
Singh was speaking at the meeting of National Development Council. Despite the global slowdown, the PM said India still managed to achieve an average of 7.9% in the 11th Plan period. He said: Achieving a scaled down growth rate of 8% in the 12th Plan is an ambitious task. Poverty has declined at a faster rate since 2004, at 2% every year.
In his closing remarks, Singh directed the Planning Commission to examine the problems afflicting power projects. Several chief ministers have drawn attention to the problem of fuel availability affecting power plants. This is indeed an urgent problem, which needs to be tackled. I am requesting the Planning Commission to make a quick review of the situation and submit a report within three weeks, he said.
After the NDC conference, Planning Commission deputy chairman Montek Singh Ahluwalia said the lowering of overall GDP growth rate, however, would not lead to any cut in Plan expenditure. He said sectoral growth targets will be decided separately by the panel.
The PM said the government was open to further changes in the Plan if the circumstances demanded. A Plan is not a rigid blueprint. It is a broad directional and aspirational document, which must allow for modification on the basis of experience. We will keep this in mind as we implement the Plan, and make improvements and modifications in consultation with the states as we go along," he said.
Earlier in the day, Singh said the top priority for the government was to reverse the slowdown: We cannot change the global economy, but we can do something about the domestic constraints that have contributed to downturn."
Singh commended some states determination for a higher growth rate.
Making a strong case for reducing the subsidy burden, PM also hinted at tough decisions such as raising energy prices and cut in subsidies to achieve its growth target. Immediate adjustment of prices to close the gap is not feasible, but some phased price adjustment is necessary. Unfortunately energy is under-priced in our country. Coal, petroleum products and natural gas are all priced below international prices. This also means that electricity is effectively underpriced for some consumers. Subsidies should be well designed and kept under fiscal limits, he said.
Rapid and sustainable growth was not possible without bring local energy prices in line with international benchmarks, he said.
Talking about fiscal impact of higher subsidies, he said the failure to control subsidies within these limits only means that other plan expenditures have to be cut or the fiscal deficit target exceeded.
Singh said the government is working to finetune the Backward Regions Grant Fund (BRGF), under which special assistance is given to such regions.
The Planning Commission is currently working on a restructured design of BRGF, which will come into effect from next year. We will try to reflect the concern of CMs by recognising the special needs of the extremely backward areas. The restructured BRGF will provide substantial additional funds to make an impact, he said.