Approach Paper to 12th Plan

8/6/2019 Approach Paper to 12th Plan

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PMs Opening Remarks at the Full Planning Commission Meeting

on 21

stApril, 2011

*****

The Prime Minister, Dr. Manmohan Singh, addressed the Full PlanningCommission meeting in New Delhi today. Following is the text of the

Prime Ministers opening remarks at the meeting:

This meeting of the Planning Commission has been called to discuss thekey challenges our economy will have to face in the Twelfth Plan.

We have just entered the last year of the Eleventh Plan, and this is an

appropriate time to develop an Approach to the Twelfth Plan. To kick off

our discussion, I had asked the Planning Commission to prepare apresentation on some of the key issues we need to address.

The Planning Commission presentation which has been circulated for this

meeting brings out the fact that we will end the Eleventh Plan with about

8.2 percent GDP growth. This is short of the 9% target, but it is acommendable achievement for a Plan period which saw a severe drought

as well as a global economic slowdown.We have also made important progress towards our goal of greater

inclusiveness. Enrollment rates have increased, drop out rates have

fallen, gender gaps are being reduced. Infant mortality rates have fallen.

It is true that progress in this area has been less than we had targetedand we must ensure that we do much better in future.

One of the problems in judging progress in socio-economic development

is that the relevant data become available only after a considerable lag.For example, most of the discussion on poverty reduction is based on

data for 2004-05, which is well before the Eleventh Plan began.I am told that the latest data for 2009-10 have just become available andwill provide the first authoritative measure of the extent of progress in

poverty reduction during the Eleventh Five Year Plan period. I urge the

Commission to prepare estimates of poverty based on the latest data andmake them available for public discussion as soon as possible.

The Twelfth Plan must build on what we have achieved and indeed do

better in the next five years. The objective must be faster, more inclusive

and also sustainable growth. For this we need to define new targets forthe Twelfth Plan. We need to identify the critical areas where existing

policies and programmes are not delivering results, and should, therefore,

be strengthened or even restructured. We also need to consider what newchallenges have emerged which call for altogether new initiatives.

I have specially asked the Commission to examine challenges relating to

energy, water and urbanisation which are likely to become more severe. A critical issuein any Plan is the availability of resources. The Planning

Commission and the Finance Ministry should work to come to an agreed

position on the resources that would be available for the 12th Plan,

consistent with the objective of ensuring fiscal viability. However, we do


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know that resources will be a constraint. This underlines the need to focus

more on efficiency of resource use, and also supplement public resources

with private investment, wherever feasible.I understand the presentation will take about 30 minutes. Thereafter, I

will invite the Minister Members, to share their thoughts on the issues

raised in the presentation.

PMs Concluding Remarks at the Full Planning Commission

Meeting at Yojana Bhavan on 21st

April, 2011

*****

Following are the excerpts of the Prime Minister, Dr. Manmohan Singhsconcluding remarks at the Full Planning Commission meeting in New Delhi

today:

We have had a very thorough and stimulating discussion of some of the

critical issues that the economy will face in the Twelfth Plan period.I would like to thank the Ministers for their comments. I think we can all

agree that the presentation on objectives and challenges made by thePlanning Commission has been generally endorsed by the Ministers.

There was general agreement that the Planning Commission should focus

on policy and governance reforms, while working towards a growth target

of between 9.0 to 9.5 percent for the Twelfth Five Year Plan. We shouldalso set monitorable targets related to different dimensions of

inclusiveness, and then work to achieve these targets by appropriate

design of policy and funding of Plan schemes.We have had a preliminary discussion of resource availability during the

Twelfth Plan period. The Planning Commission presentation has rightly

emphasized the importance of working within the overall target of fiscalconsolidation. This is an important constraint that we must recognize. The

Planning Commission and Finance Ministry together must come up with a

realistic assessment of Plan size for the Centre and the States.Many of the Ministers have made a number of important points, some of

which elaborate the ideas in the presentation, while some also add new

dimensions. I have particularly noted the suggestions of the Finance

Minister to improve the functioning of the legal system and methods ofdispute resolution, and on improving the functioning of key infrastructure

sectors. Other Ministers have also made a number of suggestions for

different sectors.The Planning Commission should take account of all the comments made

today and prepare a draft Approach to the Twelfth Plan as quickly as

possible. It goes without saying that sustainability and low carbon issuesshould be kept in mind. This document should be discussed with the

States in regional consultations that have been mentioned.

Thereafter a revised Approach document could be circulated to Ministries

concerned. The Approach paper can then be brought to the Cabinet, after


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which it could go to the National Development Council. We should aim at

an NDC meeting sometime in July.

Issues for Approach to the 12

th

Five Year PlanPresentation by

Planning Commission

21 April 2011http://planningcommission.gov.in

Full Planning Commission Meeting2

Process of Formulating the 12

thPlan

We have commenced a very wide consultative process on the

challenges for the 12

thPlan

Over 900 CSOs across the country have participated, as well as manyindustry associations and think tanks

Internet being used for first time to reach out to broader community

including several hundred sectoral experts

Planning Commission has launched a dedicated websitehttp://12thplan.gov.in This site is also linked to Facebook. 32,000

netizens have visited these two sites and have left many insightful

comments A series of regional consultations with States are planned in May

Dialogue with other stakeholders continues3

Eleventh Plan Experience GDP growth likely to average 8.2% over 11

th

Plan: short of the 9%target, but remarkable given the global crisis and drought

In the 10

th

Plan GDP growth averaged 7.7 % We have also seen progress on inclusiveness: Agricultural growth,

Poverty Reduction, Education, Health, Upliftment of SCs/STs,

Minorities etc. However progress on inclusiveness less than expected. We are likely

to miss Millennium Development Goals (MDG), except perhaps on

poverty Inflation has accelerated in the last two years

Current international environment is very uncertain

Global pressure on food, oil and other commodity prices

Financial conditions & exchange rates are likely to be volatile due


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to sovereign debt related problems in Europe/US, and readjustment

of extra-ordinary monetary/fiscal easing4

Key Messages from Consultations Strong demand from all sectors of society to improve Implementation,

Accountability and Service Delivery

Citizens Groups broadly support the stated objectives of existinggovernment programmes. However, the design and institutional

arrangements are weak. Greater devolution and empowerment needed

Government programmes need a new architecture: greaterlocalisation, break-down of silos, feedback from citizens, and

mechanisms for learning and sharing of best practices

A major contribution to economic growth now comes from the private

sector. A policy environment that supports this dynamism is thereforeimportant

Create environment for nurturing enterprise, improving markets,

supporting innovation, providing access to finance and inculcating

respect for common pool resources5Twelfth Plan Objectives

Basic objective : Faster, More Inclusive, and Sustainable Growth Is 10% growth feasible? Realistically, even 9% will need strong

policy action. Could aim at 9.0 to 9.5 percent

Energy, Water and Environment present major sectoral challenges. Can

we address them without sacrificing growth? Can we find resources to create a world class infrastructure?

For growth to be more inclusive we need:

Better performance in agriculture Faster creation of jobs, especially in manufacturing

Stronger efforts at health, education and skill development

Improve effectiveness of programmes directly aimed at the poor Special programmes for socially vulnerable groups

Special plans for disadvantaged/backward regions6

Agriculture and Rural Development Target at least 4% growth for agriculture. Cereals are on target for 1.5

to 2% growth. We should concentrate more on other foods, and on

animal husbandry and fisheries where feasible

Land and water are the critical constraints. Technology must focus onland productivity and water use efficiency.

Farmers need better functioning markets for both outputs and inputs.

Also, better rural infrastructure, including storage and food processing States must act to modify APMC Act/Rules (exclude horticulture),

modernize land records and enable properly recorded land lease

markets. RKVY has helped convergence and innovation and gives State

governments flexibility. Must be expanded in Twelfth Plan

MGNREGS should be redesigned to increase contribution to land

productivity and rain-fed agriculture. Similarly, FRA has potential to


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improve forest economies and tribal societies. But convergence with

NRLM required for enduring rural livelihoods7

Water Revisit Indias water balance estimates basin-wise. Must map all

aquifers over next five years to facilitate aquifer management plans

AIBP is not achieving its objectives. It must be restructured toincentivise irrigation reform and efficiency of resource use. Setting of

Water Regulatory Authority must be a precondition

Strong case for higher priority to watershed management Separation of electricity feeders for agriculture can improve quality of

power availability

Proportion of water recycled by urban India and industry to be raised to

protect water levels, and improve surface and groundwater quality Rational water use may need :

New Groundwater Law reflecting Public Trust Doctrine

New Water Framework Law (as in the EU)

Need to evolve political consensus. Perhaps discuss in a special NDC Need National Water Commission to monitor compliance with

conditionalities imposed in the investment clearance of importantprojects8

Industry (1)

Manufacturing performance is weak. Need to grow at 11-12% per year

to create 2 million additional jobs per year. Growth in 11th

Plan is in

8% ballpark Indian industry must develop greater domestic value addition and

more technological depth to cater to growing domestic demands and

improve trade balance Tune-up FDI and trade policies to attract quality investment in critical

areas

Improve business regulatory framework: cost of doing business,transparency, incentives for R&D, innovation etc.

Land and infrastructure constraints are a major problem. States should

develop special industrial zones with good connectivity and

infrastructure Clusters need to be supported to enhance productivity of MSMEs

Better consultation and co-ordination in industrial policy making9

Industry (2) Some sectors should be given special attention because they contribute

most to our objectives eg:

Create large employment: textiles and garments, leather andfootwear; gems and jewelry; food processing industries

Deepen technological capabilities: Machine tools; IT hardware and

electronics

Provide strategic security: telecom equipment; aerospace;


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shipping; defence equipment

Capital equipment for infrastructure growth: Heavy electrical

equipment; Heavy transport and earth-moving equipment Sectors with global competitive advantage: automotive;

pharmaceuticals and medical equipment

MSMEs: innovation, employment and enterprise generation Sectoral plans are being prepared for each of the above with

involvement of industry associations and the concerned Ministries10

Education and Skill Development Must aim at universalisation of secondary education by 2017

Must aim at raising the Gross Enrolment Ratio (GER) in Higher

Education to 20 percent by 2017 and 25 percent by 2022

Must focus on quality of education (11th

Plan emphasis was on

quantity). Must invest in faculty development and teachers training

Must aim at significant reduction in social, gender and regional gapsin education. Targets to be set for this purpose

Major curriculum reforms in vocational/skill development to ensureemployability in response to changing market needs

Development and operationalisation of PPP models in School and

Higher Education in accordance with the needs of a fast growing

economy Research and innovation in higher education must be encouraged with

cross-linkages between institutions and industry 11

Health Better health is not only about curative care, but about better

prevention

Clean drinking water, sanitation and better nutrition, childcare, etc.Convergence of schemes across Ministries is needed

Expenditure on health by Centre and States to increase from 1.3% of

GDP to at least 2.0%, and perhaps 2.5% of GDP by end of 12th

Plan

Desperate shortage of medical personnel. Need targeted approach to

increase seats in medical colleges, nursing colleges and other licensedhealth professionals

Improve quality of NRHM services vs. quantity of NRHM

infrastructure. Structured involvement of PRIs/CSOs can help Role of PPP in secondary and tertiary healthcare must be expanded

Health insurance cover should be expanded to all disadvantaged

groups Focus on women and children; ICDS needs to be revamped 12

Energy (1)

Commercial energy demand will increase at 7% p.a. if GDP grows at 9%.

This will require a major supply side response and also demand


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management

Energy pricing is a major issue. Petroleum and Coal prices are

significantly below world prices and world prices are unlikely to soften.1. Power Sector Issues

We must set a target of 100,000 MW capacity in 12

thPlan (against likely

achievement of 50,000 MW in Eleventh Plan)

Coal availability will be a major constraint Long term health of power sector seriously undermined (losses `70,000

crore per year). AT&C losses are coming down, but too slowly. State

governments must push distribution reform

Hydro-power development seriously hindered by forest and environmentclearance procedures. Himalayan States complain strongly

Electricity tariffs not being revised to reflect rising costs. Regulators are

being held back from allowing justified tariff increases

Open access is not being operationalised13Energy (2)

2. Coal Production On optimistic assumption about Coal India production, we will need to

import 250 million tonnes in 2017-18

Must plan for corresponding expansion of rail and port capacity

Coal India must become a coal supplier and not just a mining company.Should plan to import coal to meet coal demands. This requires blending

of imported and domestic coal as supplied by Coal India

Environment and forest clearances of coal mining projects, including fewprivate sector captive projects, will be critical. GoM is examining this

3. Petroleum and Natural Gas

Need further expansion of new NELP blocks. Stable and clearerproduction sharing contracts will incentivise exploration and encourage

investment

Pipeline network for transportation of natural gas and LNG is limited.Need quick expansion14

Energy (3)

4. Other Energy Sources

Nuclear power programme must continue with necessary safety review Solar Mission is seriously underfunded. Is bidding sufficiently

competitive?

Need longer term energy solution for cooking in rural areas. Expand LPGnetwork (with cash subsidy for the deserving, not subsidised prices). Also

use off grid solar and bio-mass energy

Wind power development, including off shore wind power, needs to beencouraged

5. Demand Side Management

Expansion in supply will need to be supported by demand side

management


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Rational energy pricing will help

Energy standards for high energy consuming industry, electrical

appliances, energy efficient buildings or enhanced use of electric/hybrid vehicles15

Transport Infrastructure

Railways Western and Eastern Dedicated Freight Corridors (DFC) mustbe completed by the end of the Twelfth Plan

High Speed Rail link between Delhi-Mumbai and Delhi-Kolkata in the

Twelfth Five Year Plan Use more PPP in railways and state highways to complement

government investment. Capital intensive transport projects should rely

on private investment to release resources for other priorities

Complete the linkages between the ports and the existing road and railnetwork. Need to deepen existing ports. Increase bulk/container capacity

Ensure sufficient provision for maintenance of the already-built roads

Invest in unified tolling and better safety on highways

Improve bus services/public transport in smaller cities, towns anddistricts.

Metros in urban areas through PPPs wherever feasible16Managing Urbanisation

Indias urban population is expected to increase from 400 million in

2011 to about 600 million or more by 2030

Critical challenges are basic urban services especially for the poor:water, sewerage, sanitation, solid waste management, affordable

housing, public transport

Investment required in urban infrastructure is estimated at `60 lakhcrore over the next 20 years

We need to develop and propagate innovative ways of municipal

financing, through Public-Private Partnerships (PPPs) Land management strategies key for good urban development as well

as financing urban infrastructure development

Need training and capacity building for urban planning and urbanservices management; for corporators and municipal officials

Reform of JNNRUM for the next phase, and convergence with RAY

for an integrated approach17

12th

Plan Resources for the Centre

(as percent of GDP) Resources for the Plan are being worked out in collaboration with

the Ministry of Finance

A preliminary picture (as % of GDP) is :11

th

Plan

Realization


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12

th

PlanProjections

2011-12

BE2016-17

1 Tax Revenue (Net) 7.7 8.0 7.2 8.8

2 Non-Tax Revenue incld.Disinvestment

2.4 1.9 2.2 1.6

3 Fiscal Deficit 4.9 3.3 4.6 3.0

4 Total Resources (1+2+3) 15.0 13.3 14.0 13.45 Non-Plan Expenditure 10.3 8.0 9.1 7.2

6 Centres GBS (4-5) 4.7 5.4 4.9 6.2

(a) Assistance to States 1.2 1.3 1.2 1.4

(b) GBS for Centre 3.5 4.1 3.7 4.87 IEBR of PSUs 2.9 3.3 2.9 3.6

8 Central Plan {6(b)+7} 6.4 7.4 6.6 8.418Resource Allocation Priorities in 12

th

Plan

Health and Education received less than projected in Eleventh Plan.Allocations for these sectors will have to be increased in 12

th

Plan Health, Education and Skill Development together in the Centres Plan

will have to be increased by at least 1.2 percent point of GDP

Infrastructure, including irrigation and watershed management andurban infrastructure, will need additional 0.7 percentage point of GDP

over the next 5 years

Since Centres GBS will rise by only 1.3 percentage points over 5years, all other sectors will have a slower growth in allocations

Must reduce the number of Centrally Sponsored Schemes (CSS) to a

few major schemes. For the rest, create new flexi-fund which allow

Ministries to experiment in other CSS areas Use of PPP must be encouraged, including in the social sector, i.e.

health and education. Efforts on this front need to be intensified

Distinction between plan and non-plan being reviewed by RangarajanCommittee19

Issues for Special Category States

Large number of Government employees means very limited scope forStates own resources for the Plan

Private Sector investment relatively subdued implies greater role for

public investment

Infrastructure gaps lead to higher cost of goods and services:


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Accelerated efforts are required to develop infrastructure

High proportion of forest cover and mountain eco-systems become

constraints on rapid development. Forest clearances are difficult to getand States have to pay NAV. They demand monetary compensation for

providing eco services to the nation

States share for Centrally Sponsored Schemes is not uniform North Eastern States contribute only 10% share for most CSS

States such as J&K, HP and Uttarakhand have to contribute normal

state share under many CSS20Governance and Empowerment

Citizen feedback reveals general dissatisfaction with state of public

service delivery. Total Quality Management needs to be introduced at all

levels. Delivery and policy functions need to be separated in GovernmentMinistries

Social Mobilisation: People should be active agents of change. Flagship

programmes need to provide human and financial resources for social

mobilisation, capacity building and information sharing Professionally managed delivery organisations are needed with clear

mandates and accountability. We need much better mechanisms forconvergence of government departments on systemic issues

Devolution can be effective only if the autonomy of PRIs/ULBs is

increased and their human resource capabilities improved. How can the

Centre help? Mechanisms need to be created at all levels to understand the needs of

vulnerable sections of the society and inform policy-makers

Diagnostics of Failure and Mainstreaming of Success: horizontal linkagesneed to be created for exchange of information and best practices

Institutional mechanisms for conflict resolution, particularly for land and

water22Resource Allocation among Major Sectors in the

Central Plan during Eleventh Plan

(`

Crore in 2006-07 Prices )

No. Sectors/ Ministries Projection Realisation % Realisation

1. Health 123,901 75,533 612. Education 238,608 142,659 60

3. Women & Child Development 48,420 34,981 72

4. Agriculture 54,801 43,583 805. Roads Transport & Highways 73,530 63,332 86

6. Power 26,924 28,164 105

7. Urban Development 14,261 23,312 1638. Rural Development 231,380 281,199 122

9. Railways 40,513 58,042 143

10. Others 244,522 205,635 84

11. Grand Total 1,096,860 956,440 8723


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Assumptions behind Non-Plan Expenditure

Pay and Allowances: 8 percent annual growth

Pension: 12 percent annual growth Defence: 10 percent annual growth

Non-plan grants: 14 percent

Subsidies: 5 percent annual growth Others: 8 percent annual growth

Page 1 of 11Planning Commission

Issues for the Approach to the Twelfth Plan

The meeting of the Planning Commission on 21st

April considered a

presentation on Issues for the Approach to the 12

thPlan. Based on the discussion,

the Commission will prepare a Draft Approach Document which will be discussedwith the States in May and will be finalised by June.

The following are the main points in the presentation and the subsequent

discussions.

Eleventh Plan PerformanceGDP growth for the 11

th

Plan is likely to be 8.2%, which is less than thetarget of 9%, but is a remarkable achievement given the worst drought in 30 years

and the global recession. We have also seen progress on various aspects of

inclusiveness, though the progress has been less than what was targeted.Agricultural growth has improved from 2% in the Tenth Plan to 3%, but this is

below the 4% target. There has also been progress in poverty reduction and in the

areas of health, education and in upliftment of SC/STs. However, trends revealthat we are likely to miss the Millennium Development Goals (MDGs) in several

of the targets, especially those relating to health.

Inflation has accelerated in the past two years and is now an area of concern.

The global environment is also highly uncertain, both in terms of the strength ofrecovery in the developed countries and also the volatility in commodity prices,

especially oil. International financial markets are yet to stabilize, and the

extraordinary easing of global money supply has yet to play itself out.Planning Commission has undertaken extensive consultations with a wide

range of organizations and individuals, which reveals that citizen groups support

the broad objectives of existing government programmes, but they have little faithin the design of these programmes and the manner of execution. There is a

perception that government programmes, especially Centrally Sponsored Schemes,

are not sensitive enough to local needs. Also, Government works in silos with little

effort to achieve convergence and co-ordination across Ministries and between


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Centre and States, even though most problems require inter-Governmental and

inter-Ministerial co-ordination. Page 2 of 11

Twelfth Plan ObjectivesThe basic objective for the Twelfth Plan must be faster, more inclusive and

sustainable growth.

A key issue is what the Growth target should be. The target of 10% is beingmentioned, but our internal assessment is that even 9% will be difficult given the

constraints we face. In the short to medium run, the main constraints relate to

insufficient agricultural growth leading to inflation, growing skill shortages, andthe unsettled global economy. In the longer run, the environment and natural

resources, particularly energy and water, pose serious challenges. We are therefore

proposing a target range of GDP growth of 9 to 9.5%.

It is our conviction that an inclusive growth strategy is essential to addresssome of the main growth constraints outlined above, and to make the target growth

rate feasible. The following are the key instruments for making growth more

inclusive:

(i) Better performance in agriculture (at least 4% growth).(ii) Faster creation of jobs in manufacturing. We should specify a target for

extra jobs to be created in this sector in next 5 years. This will be workedout in greater detail, but at its heart lies our ability to spread industrial

growth more widely.

(iii) Both agricultural and manufacturing growth will depend upon the

creation of appropriate infrastructural facilities in a widely dispersedmanner. Rural connectivity is particularly important in this regard,

especially in the backward areas and the north-east.

(iv) There must be a much stronger effort at health, education and skilldevelopment

(v) Reforming the implementation of flagship programmes to increase their

effectiveness in achieving the objective of greater inclusion.(vi) Special challenges focused by vulnerable groups and backward regions.

The need for a special focus on backward regions has particularly

become urgent.Agriculture and Rural Development

We must aim for a target of 4% agricultural growth. Cereals will grow only

at 1.5 to 2.0% and we need not set higher targets for this. However, other food

(horticulture, dairying, fisheries etc.) need to grow at more than 5%. This calls fora change in agricultural strategy as these are all perishable products, and therefore

subject to much higher degree of market risk than food-grains, oil seeds or natural

fibres. In the case of these products, which are all relatively high value, Page 3 of 11investments and institutional development are more important than subsidies or

price support systems.

Nevertheless, we must focus on raising land productivity and water useefficiency. State specific strategies are needed. Dry areas need to focus on

livestock. Most importantly, markets must be reformed. An important beginning

has been made by granting statutory status to warehouse receipts. However, the

real benefits from this measure can accrue only when the appropriate warehouse


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infrastructure and supporting backward linkages have been created and a

nationwide trading platform has been put in place. Consideration should be given

to extending infrastructure status to a wider range of agricultural market facilitiesin the same manner as for warehouses. States must modify the Essential

Commodities Act (ECA) and the APMC Act (perhaps exclude horticulture and

perishables entirely from the ambit of APMC), rebuild the extension system,increase the involvement of private sector in marketing, and also facilitate leasing

in/out of land by farmers. State agricultural universities and extension networks are

in a bad shape and need strengthening.MGNREGS has helped generate employment and income in rural areas but

it can do much more to increase land productivity, particularly in rainfed areas.

This calls for redesign of the programme in the Twelfth Plan. In addition,

MGNREGA has transformed rural labour relations, which is bound to affect theproduction decisions of farmers, both in terms of crops as well as technologies.

The Agricultural support systems must facilitate this transition, which requires

greater flexibility and responsiveness.

Forest economies and tribal societies need greater protection and promotion.Steps need to be taken to make PESA and FRA more effective. This can be in

conjunction with schemes for increasing resources directed to the backwardregions.

Water

Water is emerging as a major problem, both for drinking as well as for

irrigation. Urban and industrial demand for water is going up rapidly, withoutcommensurate augmentation of supply. To address this critical problem, we need

to put an integrated strategy in place immediately. The elements of this strategy

could be:(i) Re-estimate Indias water balance basin-wise. All aquifers must be

mapped over the next five years and aquifer management plans put in

place.(ii) AIBP must be restructured to incentivize irrigation reform and

efficiency of water use. Setting up Water Regulatory Authority should Page 4 of 11

be made a precondition for AIBP approvals. Some States are alreadydoing this.

(iii) Watershed management must be given higher priority, with

convergence of programmes and better technical support.

(iv) Separation of electrical feeders for agriculture with high-quality assured,even if rationed, power supply can potentially reduce ground water use.

(v) Water recycling in urban areas and by industries should be enforced to

protect water levels and water quality in both surface and ground watersources.

(vi) The legal and policy framework needs to be improved. We may

consider promulgating a new Groundwater Law reflecting the principlesof Public Trust Doctrine, and a new Water Framework Law along the

lines of the one that exists in the European Union.

(vii) A National Water Commission may be put in place to monitor

compliance with conditionalities imposed in clearance of important


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projects.

Since water is primarily a State subject, we will need to evolve a political

consensus along the lines of what was done in the case of power. Perhaps a specialNational Development Council meeting could be convened for this purpose.

Industry

Manufacturing performance is weak. Growth of manufacturing in the 11th

Plan is likely to be only 8%. We need to raise this to 11-12% per year in the 12

thPlan to create the jobs for our growing labour force. This has become a particularly

urgent need since it is now clear that agriculture will no longer absorb more

workers, and may indeed release some of the existing work-force. In our

estimation, the manufacturing sector will have to create around 3 to 4 million jobsover and above the pace of job creation in the recent past.

We are fortunate to have an abundance of entrepreneurial talent in the

country, which needs to be harnessed effectively if we are to achieve the desired

growth in manufacturing. The corporate sector has largely been unfettered, andhas demonstrated its dynamism. There are, however, limits to which it can grow.

A large part of the additional growth will have to come from the MSME sector,which continues to face a plethora of hurdles in realizing its true potential. The

Twelfth Plan will need to focus on this.

Page 5 of 11

For accelerating manufacturing growth, therefore, we need a strategy to:(i) Achieve greater domestic value addition and technological depth in

Indian industry to cater to growing domestic demand and to improve our

trade position.(ii) Attract investment, including FDI, in critical areas where manufacturing

capacity should modernised and developed.

(iii) Improve the business environment and reduce the cost of doing business.This is largely an agenda item for state governments. (Procedural

wrangles and corruption affect small business the most.)

(iv) Land and infrastructure constraints must be addressed effectively. Again,this is largely in the domain of the State, but the Centre can incentivise.

(v) Promoting clusters is a very effective way of helping manufacturing

and promoting MSMEs. State Governments should be incentivized to

support clusters.Education

Education has received less funds in the Eleventh Plan than was envisaged.

This is partly because the sector made a slow start, but also because of resourceconstraints. The Twelfth Plan has to correct this.

Eleventh Plan focused on quantity in school expansion. We have recordedsignificant success in this regard, with enrolment rates going up rapidly,

especially in primary education. However, scholastic achievement tests show

that learning achievements of the students are well below desired levels.

Twelfth Plan must focus on quality. This includes teacher training and


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evaluation, and also measures to enforce accountability.

We now need to rapidly build capacity in secondary schools to absorb the

graduates from expanded primary enrolments. States must facilitate PPP insecondary education. States are keen to do this, and we are collaborating with

them on this. The drop-out rates between primary and secondary education

continue to be extremely high, which raises questions regarding the perceptionsof the utility of secondary education among the people. This will need to be

changed through introducing higher skill content at the secondary schools level.

Vocational education will need to be given greater emphasis and made moreattractive.

The gross enrolment ratio (GER) in higher education must be targeted to

increase from nearly 18% today to say 25% by 2016-17 and perhaps 30% by

2020. Private universities and colleges have played a major role in increasingenrolment in higher education in recent years, but there are concerns regarding

both equity and quality. Measures will need to be taken to further promote Page 6 of 11

private initiatives in higher education while addressing the concerns that have

arisen.Skill Development needs a major focus at all levels. We must involve PPP

to ensure that the skills developed also lead to employability.Health

The quality of health services needs to be improved through NRHM. We

must also focus on preventive aspects of health care, particularly drinking

water, sanitation, nutrition, better maternal and child services andimmunisation.

Shortage of qualified medical personnel at all levels is a major hurdle in

improving the outreach of the healthcare system, especially the public healthfacilities. This needs to be corrected expeditiously. Efforts are already

underway to increase the out-turn of doctors. This will have to be accelerated,

and similar efforts have to be put in place for nurses and medical technicians.However, such efforts will take time to have sufficient impact. In the

meanwhile, systems will need to be put in place for more effective PPP models

in primary health care.Role of PPP in secondary and tertiary health care must be explored with

greater vigour. Planning Commission needs to evolve appropriate concession

models to facilitate this. We are in touch with states to study their experiments,

and best practices will need to be propagated in the country.

Expenditure on health by the Centre and States needs to be increased from

1.3 percent of GDP at present to 2.0 percent (and perhaps even 2.5 percent) bythe end of 12

th

Plan.Energy

GDP growth of 9% requires commercial energy growth of 7%. The likely

achievement in 11

th


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Plan is 5.5%. Unless we can ensure adequate growth in

commercial energy availability, the GDP growth target cannot be achieved.

The following policy issues have to be addressed.(i) We need to create 100,000 MW of new power capacity in the Twelfth

Plan. The ability to do so is seriously undermined by persisting large

losses in the discoms, estimated at Rs.70,000 crore per year. Theselosses are being sustained only because banks continue to lend to

what are effectively bankrupt discoms. State Governments have to be

incentivised to implement distribution reforms which reduce ATC Page 7 of 11losses. Some states are succeeding but in general the progress is too

slow. Better performing states should be rewarded.

(ii) Forest and environment clearance procedures are hindering both coal

availability and hydro-power development. State governments withcoal and hydro resources have been complaining strongly about the

costs being borne by them.

(iii) The implementation of past policy initiatives is incomplete. Prices of

electricity are not sufficiently flexible and regulators are beingrestrained from allowing periodic price increases. Open access is still

not a reality, and needs to be incentivized.(iv) At present, petroleum, gas and coal prices all three are out of line

with world prices and world energy prices are unlikely to soften.

Domestic prices need to be better aligned to give the right signals to

both consumers and investors. We need to adopt a time-boundprogramme to achieve this alignment over three years.

(v) Coal production will be a major constraint partly due to weak

performance of Coal India and partly environmental constraints.Because coal production cannot be increased sufficiently, we must

plan now for coal imports to rise from 80 million tonnes to 250

million tonnes by the end of the 12th

Plan. This will require

corresponding expansion of rail and port capacity.(vi) Coal India must become a coal supplier and not just a mining

company. It should plan to import coal and carry out price pooling

and blending to meet the needs of the users.

(vii) In the petroleum and natural gas sector, we need further expansionof new NELP blocks and a clear policy for exploration of shale gas,

integrated development of oil and gas blocks. Bidding in various oil

exploration rounds in the past has not attracted oil majors. Term ofPSCs should perhaps be clear to attract investment. This is an area

where foreign participation in exploration also brings in up-to-date

technology.(viii) Nuclear power programme must continue, with necessary safety

review. Active efforts need to be made to allay the apprehensions of

people regarding the safety of nuclear power plants.

(ix) Solar mission is seriously underfunded and requires more support. It


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is also not clear whether the current bidding process is sufficiently

competitive and provides appropriate incentives for improving

efficiency. Wind power too requires greater support, especially foroff-shore locations which have not been sufficiently explored.

(x) Demand side management of energy is as important as action on the

supply side. Realistic pricing will help. However, we also need morepro-active standard setting for appliances, vehicles and buildings. Page 8 of 11

Transport

GDP growth at 9% or more will need to be supported by much fasterexpansion in transport infrastructure than we have seen in the past. The

requirements of energy efficiency also require a shift from road to rail in

freight.

The following are some of the important issues that arise:(i) The Dedicated Freight Corridor project is a major capacity enhancing

investment for the Railways. It must be put on a monitoring system

such that both corridors are completed before the end of the Twelfth

Plan. For this purpose, milestone must be clearly fixed, andresponsibility assigned.

(ii) The Railways have to undertake an ambitious programme ofmodernisation and technical upgradation which increases their freight

carrying capacity. Unless this is done they will not be capable of

facilitating the shift from road to rail transport which is crucial for

energy efficiency. This can only be achieved if (a) the Railways desistfrom diverting resources to gauge conversion and uneconomic

passenger lines and (b) Railways financing is improved to be able to

support medium term expansion.(iii) Improved Railway financing requires rationalisation of freight:

passenger fares in the Railways. If this is not done, the Railways will

simply not achieve financial viability.(iv) The Railways must move speedily to implement the PPP projects that

are pending in diesel and electric locomotives.

(v) Rail and road linkages to ports must have top priority.(vi) The NHAI programme needs to be put on a track where monitorable

milestones targets are set for the 12

th

Plan with maximum emphasison viable BOT projects to reduce the demand for Government

resources.

(vii) The port expansion programme has been seriously delayed. PPP inports should be exploited. Much more needs to be done to deepen

ports. Page 9 of 11

Plan Size and ResourcesThe feasible size of the Twelfth Plan will be worked out in consultation with

the Finance Ministry. As in the past, a Working Group has been set up under the

Chairmanship of the Chief Economic Adviser. The size will depend upon:

(a) the buoyancy in revenues


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(b) the tolerable level of the fiscal deficit

(c) the extent to which we can control non-Plan expenditure including

subsidies.A tentative picture available at present suggests that the Centres GBS could

increase from 4.9% of GDP in 2011-12 to 6.2% of GDP in 2016-17. Most of this

increase will be in the last two years of the Plan since in the first three years thefiscal deficit will have to be compressed from 4.6% in 2011-12 (the base year) to

4.1%, 3.5% and finally 3.0% in 2014-15.

A key assumption affecting the resource projection is that non-Planexpenditure growth can be contained below GDP growth. The absence of a Pay

Commission in this period will help. However, critical to this projection is the

assumption that subsidies will grow by only 5% per year. It may be difficult to

contain food subsidy within that limit, depending on the outcome of the FoodSecurity Act. However, strong action will be needed in containing fertiliser subsidy

and petroleum subsidies.

Allocation Priorities in the 12

thPlan

The increase in the GBS as a percentage of GDP between 2011-12 and 2017-18 is therefore only 1.3 percentage point. However, we have to provide a

significant increase for health, education, and infrastructure as a percentage of

GDP.

Health and Education received only about 60% of the planned allocation inthe 11

th

Plan as against an over-all realization of 87%. This was partly on accountof major new schemes being launched during the Plan, and partly due to limitations

in the absorptive capacity in these sectors. The preparatory work done during the

11th

Plan has led to significant improvement in absorptive capacities, and these

sectors both require and are ready for significant increases in allocations. It isestimated that the GBS allocated to these two sectors, including skill development

initiatives, will need to be increased by at least 1.2 percentage point of GDP.

Infrastructure investments have seen significant improvement during the

11th

Plan, but the pace of infrastructure development needs further acceleration if

the glaring infrastructure gaps are to be bridged within a reasonable time-frame.Although PPPs have been successful in a number of infrastructure sectors, and

efforts will need to be continued in further encouraging private sector involvement,

it is felt that public investment in infrastructure, particularly irrigation, watersheddevelopment and urban infrastructure, will need an additional 0.7 percentage points

of GDP increase over the next five years. Page 10 of 11

These sectors will therefore need an increase of 1.9 percentage points of GDP

as GBS during the 12


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th

Plan. The GBS for the other sectors as a percentage of GDP

must therefore go down. The allocation of these sectors will increase in absoluteterms, but more slowly than real GDP. This reprioritisation must be accepted.

The above situation emphasises the importance of resorting to PPP as much

as possible. This is particularly important in the social sectors, where onlytentative beginnings have been made. Several states have initiated interesting

models of PPP in social service delivery. These experiments need to be evaluated

and best practices up-scaled to the national level.The innovations made at the state level in a range of sectors make a

compelling reason for reconsideration of the Centrally Sponsored Schemes (CSS).

The States have consistently argued that the CSS are structured too rigidly to

permit innovations and to meet local specificities. There is merit in this argument.It is, therefore, proposed to reduce the number of CSS to only a few major schemes

which are of a national character and dictated by the rights and entitlements of

citizens. For all the rest, it is proposed to create flexi-funds in the concerned

Ministries which can be used to support state-level innovations and/or up-scalingof successful experiments. The success of the Rashtriya Krishi Vikas Yojana

(RKVY), which is in effect a flexi-fund scheme, as compared to the other CSSlends further credibility to this approach.

A compelling argument has also been made regarding the lack of ownership

of the CSS by the States, and its consequent effect in terms of poor

implementation. It has been proposed therefore that the model used in the newAPDRP should be extended to all other CSS as well. In this model, central funds

are initially provided as loans to the state governments, which are subsequently

converted to grants on achievement of pre-specified outcome or output targets.Governance and Empowerment

Citizen feedback reveals general unhappiness with governance and public

service delivery. Four important dimensions have been pointed out: (i)programmes and schemes are often designed without adequate understanding of

the desires and limitations of the beneficiaries, especially the most disadvantaged;

(ii) systems for informing the people of their rights and entitlements are very poorand often exclusionary; (iii) the service delivery personnel, apart from issues of

corruption, are inadequately informed of their duties and responsibilities and take

little pride in their work; and (iv) complaint redressal systems are not independent

of the delivery mechanism resulting in non-responsive behavior.People should be active agents of change and this can be achieved only if

flagship programmes provide human and financial resources for social

mobilization, capacity building and an information strategy. The involvement ofcivil society organizations (CSOs) in programme design through wide

consultations should become a norm. Delivery and policy functions, the latter Page 11 of

11including concurrent evaluation, need to be separated in Government Ministries in

order to introduce objectivity in programme design and redesign. Consideration

needs to be given to setting up professionally managed delivery organizations with

clear mandates and accountability.


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Information dissemination methodologies need to be entirely recast. The

poorest and most disadvantaged need to be targeted specifically. It is also felt that

women and the youth are the most effective agents of change, and advantageshould be taken of organizations which work closely with them to spread relevant

programme information through formal and informal channels.

Total Quality Management needs to be introduced at all levels in servicedelivery organisations. Training of service delivery personnel and periodic review

of performance are essential.

Complaint recording and redressal systems have to be created at an armslength from the delivery system, and these should be empowered to enforce and

monitor compliance. Advantage can be taken of IT systems to increase

transparency and responsiveness.

Government departments engaged in related areas tend to work in silos. Weneed much better mechanism for converging the activity of these departments. In

many areas there is need for effective mechanisms for resolution of interMinisterial and

inter-departmental differences. This is particularly true in the field

where the Collector is potentially the only possible focus of convergence but isactually far too overburdened.

Documents

Approach Paper to 12th Plan