Approach Paper for the Twelfth Five Year Plan - of Planning ...

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Macro-Economic Framework 27 public sector, but this has to be coupled with a more than proportional rise in private investment. Private and PPP investments are estimated to have accounted for a little over 30.0 per cent of total investment in infrastructure in the Eleventh Plan. Their share may have to rise to 50.0 per cent in the Twelfth Plan. 2.38 Some important steps that need to be taken in the Twelfth Plan period are as follows: (i) Equity markets are now well regulated. However, pension and insurance reforms have been pending and need to be undertaken on a fast-track basis. Mutual funds, insurance and pension funds are not only efficient routes through which household savings can be mobilised for corporate investment, but also vehicles that provide financial security to a large section of our population, hitherto excluded from the benefits of modern financial services. (ii) A large part of household savings are currently absorbed by the government to finance the fiscal deficit. As fiscal consolidation is undertaken and household savings remain high, more funds are likely to be available for corporate debt investment. The creation of a vibrant and liquid corporate bond market should be taken up on priority basis. Reform of the government securities market is also essential for the establishment of a Government Securities (G-Sec) yield curve for all maturities against which corporate bonds can be priced. The creation of public debt management office outside the RBI has been under consideration and should be expedited to free the RBI from the role of a debt manager, and to facilitate building up of institutions and use of technology to allow an integrated bond market to develop. (iii) Since investment in infrastructure has to increase as a per centage of GDP and about 50.0 per cent of the investment is projected to be in the private sector, the institutional mechanisms for supporting such investment deserves strong support. The Finance Ministry has announced guidelines for establishing infrastructure debt funds. This will help infrastructure companies to refinance short term bank debt with long term debt thereby freeing banks to finance new corporate investment. This will not only help leverage private investment in infrastructure, through speedier financial closure of public private partnerships, but also crowd-in private investment to propel Indian economy to a high growth path. (iv) The public sector banking system needs to achieve economies of scale through both capital infusion and consolidation. If government ownership of equity in public sector banks cannot be diluted below 51.0 per cent, there is no alternative to providing budgetary resources to build up the capital of the public sector banks. (v) Financial inclusion still remains a matter of concern. Until now, the approach was to open more and more rural branches, which involves very high costs. Fortunately, mobile and information technology permits the use of the banking correspondents’ model to improve financial access for ordinary households in under-served areas. This must be expedited in the Twelfth Plan. 2.39 The main conclusion that emerges from this Chapter is that despite the slowdown in growth in the current year, GDP growth target of 9.0 per cent for the Twelfth Plan is feasible from a macro-economic perspective. However, while growth at that pace is feasible, it cannot be said to be a forgone outcome. There are several imponderables, including considerable short-term uncertainties in the global economy, and also formidable supply constraints in energy and some other sectors on the domestic front. While there are possible downsides to this scenario, we should aim at an average 9.0 per cent GDP growth for the Twelfth Five Year Plan at this stage. We should however, build in some flexibility in our planning so that at the time of Mid-term Appraisal of the Twelfth Five Year Plan, we could consider raising the target rate of growth, if the global environment improves, and policy reforms, which could raise the growth potential of our economy, become a reality by that time.
3 Energy 3.1 Energy is a vital input for production and rapid growth of GDP will need to be supported by an increase in energy consumption. This is especially so in India, where large sections of the population are still without adequate access to energy. In this Chapter, we examine the likely energy requirement of 9.0 per cent growth and make an assessment of its feasibility and the implications for various aspects of energy policy including energy pricing. Projected Energy Demand 3.2 The extent of the increase in energy requirement over the Twelfth Five Year Plan depends on the elasticity of energy demand with respect to GDP, which has been falling over time and is currently around 0.80. Allowing for some further decline in the elasticity, a GDP growth rate of 9.0 per cent per year over the Twelfth Plan will require energy supply to grow at around 6.5 per cent per year. The ability to meet this energy demand depends on our ability to expand domestic production in critical energy sub sectors, notably petroleum, gas and coal, and meeting the balance requirement through imports. 3.3 The pattern of energy demand that may be needed to support 9.0 per cent GDP growth is shown in Table 3.1. The total energy requirement (in terms of million tonnes of oil equivalent) is projected to grow at 6.5per cent per year between 2010-11 and 2016-17. This is based on the assumption that the energy elasticity will decline over time. 3.4 The import requirement associated with the above energy projections are also shown in Table 3.1. It is worth noting that import dependence on oil is expected to increase from 76.0 per cent in 2010-11 to 80.0 per cent by the end of the Twelfth Plan. Import dependence on natural gas is projected to increase from 19.0 per cent in 2010-11 to 28.4 per cent in 2016-17. In the case of coal, it will increase from 19.8 per cent in 2010-11 to about 22.1 per cent in 2016-17. 3.5 If energy were plentifully available in global markets at affordable prices, large energy imports may not present serious problems, although even in those circumstances problems of energy security would remain. In fact of course, energy prices are rising globally and imports will be expensive. This underscores the need for moderating the growth of energy demand by achieving higher levels of energy efficiency while also increasing domestic supplies of energy as much as possible. Energy prices have a crucial role to play in achieving both objectives.
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8 Manufacturing Sector 8.1 The Elev
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10 Education and Skill Development
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11 Social and Regional Equity 11.1
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12 Challenge of Urbanisation Rising
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15 Governance 15.1 With rapid expan
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