9th Five Year Plan (Vol-1)
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Objectives, Strategy and Perspective of Development
Introduction || Objectives of Ninth Plan || Population Growth and Demographic Profile : Perspective || Growth Target for Full employment : Perspective || Growth Performance and Poverty : Perspective || Food Requirement and Agricultural growth : Perspective || Energy and Natural Resources : Perspective || Annexures

Growth Target for full employment : Perspective

1.75 The need for providing adequate work opportunities for the growing labour force and also to reduce the base level of unemployment significantly has been taken as the most pressing task for determining the minimum required growth performance of the economy. The planning model generates steady state growth paths between the terminal year of the perspective period and the base year in a manner which ensures both inter-sectoral consistency and consistency between the investment requirements and the availability of investible resources. Using constant sectoral incremental capital output ratios (ICORs) and constant sectoral employment elasticities, alternative growth paths can be evaluated in terms of their impact on the generation of work opportunities. The details of the ICORs and the employment elasticities are discussed in Chapters 2 and 4 respectively.

1.76 The base line scenario was developed on the basis of a steady state growth path yielding 6.5 per cent average growth per annum over the perspective period. This was consistent with the growth rate that has been observed on the average during the Eighth Plan period. It was found that the work opportunities generated along this growth path were such that the unemployment rate would actually increase from 1.5 per cent in the base year of the Ninth Plan to 2.5 per cent in the terminal year of the perspective period (2011-12). In other words, maintenance of the Eighth Plan growth performance is likely to be inadequate not only to reduce the level of unemployment but also to absorb the additions to the labour force. An alternative growth path targetting an average annual growth rate of 7.4 per cent during the perspective period has also been examined. At this rate of growth the unemployment rate reduces significantly to -3.5 per cent in the terminal year. In other words, not only are the new additions to the work force gainfully absorbed and the backlog of unemployment is removed, but also that the realisation of full employment is likely to occur significantly earlier than the 15 year time horizon. The macro economic parameters of these alternative scenarios are presented in Table 1-6.

Table 1-6 :  Alternative Growth Perspectives
                                  (per cent)
                       Eighth Plan    15 year Perspective Plan
                                     Scenario I  Scenario II
1. Growth rate of GDP      6.8            6.5         7.4
2. Investment rate        24.9           27.4        29.8
(a) Private               16.6           18.5        21.2
(b) Public                 8.3            8.9         8.6
3. Saving rate            23.8           25.3        27.2
(a) Private               22.4           23.6        25.1
(b) Public                 1.4            1.7         2.1
4. CAD to GDP ratio        1.1            2.1         2.6
5. ICOR (absolute)         3.7            4.2         4.0
6. Unemployment rate       1.5            2.5        -3.5
(Terminal year)
Note :
(1) Growth Rates of GDP is at Factor Cost
(2)Investment and Saving rates are expressed as ratios to GDP at market prices.
(3) Unemployment is on Usual Status basis.

1.77 It would be seen that the investment requirement of the two scenarios are not as different as could be expected from the difference in the growth rates. The principal reason for this is that in Scenario-I the ICOR increases sharply from the 3.7 level achieved during the Eighth Plan to 4.2. In Scenario-II, however, the value of ICOR remains at 4.0. This difference arises principally due to the fact that the share of investment in infrastructure, which are the sectors with the highest ICORs, in total investment is higher in Scenario-I than in Scenario-II. This is partly due to the relatively high growth rates that have been assumed for infrastructural sectors in view of the serious shortfalls that have been experienced in these sectors. This is especially true for Rail and Other transport and for Electricity. The reduction in ICOR in Scenario-II does not, however, occur principally by increase in the growth rate of agriculture, which is assumed to rise to 4.8 per cent per annum in Scenario-II as compared to 3.9 per cent in Scenario-I, which is in line with the higher demand arising out of the higher growth rate, but more due to an increase in the shares of manufacturing and services. The broad sectoral growth rates in the two scenarios are presented in Table 1-7.

Table 1-7 : Sectoral Growth Rates in Perspective Plans
                                        (per cent per annum)
Sectors                       Scenario I      Scenario II
Agriculture  and  Allied              3.9            4.8
Manufacturing                     8.0            9.6
Infrastructure :
Group 1                           6.3            6.6
Group 2                           9.6           10.4
Services                          6.8            7.5
GDP at factor cost                6.5            7.4
NOTES : (1) Infrastructure Group 1 contains Construction, Rail and Other Transport.
(2) Infrastructure Group 2 contains Electricity, Gas and Water supply and Communications

1.78 The main difference between the two scenarios in terms of the policy implications lies in the substantial step up that is required in public savings in Scenario-II. The results indicate that unless public savings, particularly the savings of the Government, is enhanced substantially it would not be possible to attain the higher growth path. The alternative to this would be to increase the inflow of foreign savings through a wider CAD. While this may be a viable option, it would depend upon the ability of the country to attract sufficient foreign direct investment (FDI) to finance the foreign exchange requirements without having to resort to increasing external debt or other financial liabilities. In other words, the principal responsibility for generating adequate work opportunities to reduce unemployment in the country and to improve the quality of life rests with the Government, which would need to reduce its existing revenue deficit in the budget and eventually bring it to a surplus. As in all these exercises, the Government includes both the Centre and the States, but the division of responsibility between the two cannot be determined in such an aggregated model. This would depend upon a realistic assessment of the responsibilities of the different wings of Government and their ability to raise the necessary resources. Such an exercise can only be done for a shorter period and would need to be confined to the immediate future. The possibilities that exist during the Ninth Plan period are detailed in Chapters 2 and 3.

1.79 Although the perspective is developed under steady state growth assumptions, it is normally not feasible to change the required parameter values right from the initial years of the perspective period. It is therefore necessary to divide the perspective period into its constituent five year plan periods in order to assess the feasibility of attaining the required parameter values. A possible composition of the 7.4 per cent growth perspective plan is presented in Table 1-8.

Table 1-8 : Planwise Decomposition of Perspective Period
                                                   (per cent)
                         IXth Plan      Xth Plan     XIth Plan
1. Growth rate of GDP      6.5            7.7         8.1
2. Investment rate        28.2           29.8        31.3
(a) Private               18.8           21.5        23.3
(b) Public                 9.4            8.3         8.0
3. Saving rate            26.1           27.3        28.2
(a) Private               24.5           25.3        25.6
(b) Public                 1.6            2.0         2.6
4. CAD to GDP ratio        2.1            2.6         3.1
5. ICOR (absolute)         4.3            3.9         3.9
6. Unemployment rate       1.8            neg.       -3.5
Note :
(1) Growth Rates of GDP is at Factor Cost
(2) Investment and Saving rates are expressed as ratios to GDP at market prices.
(3) Unemployment is on Usual Status basis.

1.80 As would be seen, the parametric values appear to be quite reasonable, and should be achievable with some effort on the part of the Government and the public sector. The Ninth Plan is the medium-term characterisation of this growth path. The details of the policies and approaches required to attain this growth trajectory are given in Chapter 2.

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