India is moving toward finalising its Twelfth Five-Year Plan, for 2012-17. The process is long and fascinating. A 140-page draft approach paper was made available late last year, and has been followed by an exceptional process of consultation and discussion, including meetings across the country, a website that allows citizen discussions of specific points and issues, and even a Facebook page. The Plan document, and the framework of 12 strategy challenges, are encompassing in nature, as befits the ambitious goal of faster, sustainable and more inclusive growth.
The world?s other emerging giant, China, also still has Five-Year Plans. In this case, it is only a year or two ahead of India?its Twelfth Plan was finalised last year, and covers the period 2011-15. One cannot imagine the Chinese government having online discussions by citizens for shaping such a document, and certainly not a Facebook page. But more than the process, which is ultimately mostly top-down at the formulation stage for both countries (because that is where the expertise and knowledge mostly reside), the tenor and goals of the two Plans are quite different.
India?s Plans tend to have the feel of ?everything but the kitchen sink?. Perhaps that is inevitable, given that India needs to put so many things right. The 12 strategy challenges include health, education, rural development, urbanisation, agriculture, industry, transport, energy, environment, innovation and so on. There are foci as well, of course. For example, in manufacturing, the draft approach document lists some sectors that will receive special attention, or priority, and talks about identifying constraints and implementing policies to remove these constraints and build capabilities. Elsewhere, the institutional and regulatory barriers are discussed, but there is a lack of crispness in the draft.
China?s Plan is just as comprehensive in many respects, but when it gets specific, it seems to provide clearer direction, or what is known in the management literature as ?strategic intent?. The most striking example of this is in the identification of seven ?Strategic Emerging Industries?. These are biotechnology, new energy, high-end equipment manufacturing, energy conservation and environmental protection, clean-energy vehicles, new materials, and next-generation information technology. Putting aside more general issues of industrial targeting and its merits and drawbacks, one could argue that the Chinese and Indian approaches are not too different. But the Chinese Plan includes preferential tax, fiscal and procurement policies designed to support the select seven SEIs. By contrast, India?s Plan just has vague and scattered discussions.
Take information technology (IT) as an example, to compare conceptual approaches. India?s draft Plan has numerous references to IT, and especially to its uses in contexts such as monitoring the environment, accountability of governance, and IT-enabled services of many kinds. The manufacturing priorities list IT hardware and electronics. But none of this captures the sense of strategic vision of the concept of ?next-generation IT?. On the implementation side, India?s planners cannot, of course, decide tax, fiscal or procurement policies. The finance ministry has primacy over many such matters. The Indian system is different than China?s authoritarian regime, which can be more coordinated and even ruthless. India?s planners do talk about its siloed ministries and the need for greater coordination in and across many areas of identified strategy challenges. Ultimately, a well-functioning leadership team could do much better for India, even in the context of democratic institutions. The barriers to this happening in the current government can be guessed at, but are hard to address in practice.
So, China?s advantage is not really that it is authoritarian while India is democratic. China has stronger and more focused political leadership, but leadership does not have to be weak in a democratic setting. China seems to do a better job of focusing on priorities and integrating goals and implementation. Democracy does make these tasks harder in India, but again they are not impossible for a democracy to achieve. India?s planners are beginning to articulate what needs to improve on this front.
Returning finally to industrial targeting, the debate on its merits has revived, after a period when it seemed that only the market could be relied on. China?s present approach to SEIs is very much reminiscent of what Japan, South Korea, Taiwan and Singapore all have done to varying degrees, with some success. But India also seems to have priorities, just as it did in the past. Then, the government was supposed to take the ?commanding heights? of the economy, but failed in some critical ways, allowing inefficiency and stagnation to flourish. India?s government still treats business with suspicion, whereas China sees it as a tool of national advancement. But the solution is not for government to cosy up to business?that just fosters cronyism and corruption. The answer lies in the right combination of shared vision and practical distance, with policies that align incentives where needed. Achieving that in India will need high-level planning.
The author is professor of economics, University of California, Santa Cruz