New Delhi: The Planning Commission has warned that eight-nine per cent growth in the Eleventh Plan beginning next year would not be possible, without pushing up the investment rate by a whopping six per cent from the present level of 29.1 per cent of GDP.
In its draft approach paper to the Eleventh Plan, the Commission said growth would also have to be pushed up through both public and private investments, coupled with the ability to finance them.
It also said that the required investment of 35.1 per cent was much lower in comparison with the investment rate reported in China.
Such high level of investment can be financed by the combination of increased domestic savings and foreign savings, which meant more Foreign Direct Investment into the country.
Saying that the total domestic savings rate must spiral to 32.3 per cent from 27.1 per cent, the draft approach paper said that the growth of household and corporate savings would be determined by behavioural parameters, given the growth of income and GDP.
A significant portion of the needed increase in domestic savings will therefore have to come from an improvement in government savings which has shown a turnaround by around 2.5 per cent of GDP. But further improvement would require strong budgetary discipline by both the State and Central governments, the plan panel observed.
"Fortunately this buoyancy in tax revenues displayed in recent years suggests that the efforts at reforms of tax structure and tax administration were having an impact and continuation of these efforts in the Centre and also in the states should lead to rapid growth in tax revenues.
This phenomenon needs to be combined with moderation in the growth of current expenditure, especially in subsidies combined with progress in rationalising user charges to reduce losses in various public sector areas," the Plan Panel said.
Public investment is often an important determinant of private investment and for this reason it would be desirable to maintain the public investment at a reasonably high level especially if these are directed to key infrastructure development, it said.
Simulations from several models show that the base-line economic growth is around seven per cent per annum. However, all the models also indicate that with additional policy initiatives it is possible to raise the average growth rate to somewhere between eight to nine per cent in the Eleventh Plan, the Commission observed in the draft approach paper.
The Commission observed that private investment in the past has demonstrated growth rates of above 18 per cent per annum during the period 1994-95 to 1996-97 and could do so again, especially if the investment climate appeared favourable.
Public Private Partnership (PPP) offered a distinct possibility for increasing investments in certain key sectors, though to do it effectively required some institutional capacity in the public sector.
Given the inefficiencies often encountered in public investment, such partnership could increase economic efficiency and lower the capital requirement, provided that regulatory mechanisms were adequate, the Plan Panel observed.
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