Growth At Lowest 5-Yr Rate For Two Decades

MUMBAI: The Ninth Five-year Plan period (1997-02) looks like recording the lowest GDP growth in any five-year Plan in the last two decades.

After recent revisions by the CSO, it appears that GDP growth in the Ninth Plan will average 5.4 per cent annually, lower than in the Eighth Plan (6.7 per cent), Seventh Plan (5.9 per cent) or Sixth Plan (5.6 per cent).

We have to go back to the Fifth Plan (1974-78) to find a lower rate (4.7 per cent). So, is talk of faster growth after economic liberalisation highly inflated? Not entirely

Politicians abandon five-year plans in crisis years (like 1978-80 and 1990-92) and re-start them after things settle down.

If we club the 3.4 per cent growth in the crisis years 1990-92 with the Seventh Plan (1985-90), the average comes down to 5.2 per cent for the seven years, slower than in the Ninth Plan. Since the bankruptcy of 1991 was caused by the policies of the Sixth Plan, such clubbing has economic logic.

Former chief economic advisor Shankar Acharya has long held that economic reform has had two distinct phases. The Eighth Plan period (1992-97) witnessed unprecedented rapid growth of 6.7 per cent annually

This then slipped to 5.4 per cent in the following five years. What does this imply?

First, that the burst of reforms in 1991 yielded good dividends that then declined for want of follow-up reforms. The fiscal deficit of the centre and states is now as as high as in 1991, above 10 per cent of GDP.

The arrears of State Electricity Boards are up from around Rs 2,000 crore in 1990 to an estimated Rs 40,000 crore today, equal to the entire GDP of small countries. Clearly, second-generation reforms are required if growth is to accelerate again.

External circumstances have also been unfavourable recently. The world economy boomed in 1992-97 and India with it. But there followed the Asian financial crisis of 1997-99 and the global recession of 2001, which slowed exports and hence industrial output in the Ninth Plan.

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