India’s 12th Five Year Plan
Amy McDougall
Primary Question: What are some of the main overarching
implications of the most current Five Year Plan that are likely to affect businesses operating in India (both domestic and
Western)?
One of the main overarching implications
of the most current Five Year Plan is the energy quota that will be needed in India
to support its projected economic growth objectives. The Five Year Plan
estimates that India’s energy needs will increase by 6.5% over each of the next
five years and import dependence will most likely increase to 80% for India’s
energy needs.[1]
In India, along with the rest of the world, this is a pertinent conundrum for
the realm of business. There is a limited amount of oil in the world and in the
expected expansion in many business sectors, particularly manufacturing, will
need significant sources of new energy to match its growth. The IEA, estimates
that global demand for energy is going to increase over 8% over the next few
years[2]
and thus the companies/ countries that will do well in the face of this
alarming shortage will be the ones that prepare in advance and invest in either
alternative sources of energy or in business models that do not rely heavily on
energy for economic growth. India proposes five main measures to promote energy
efficiency within its borders, including Energy Efficiency in Industry where
467 industrial units have been identified as high energy consumers and through
a plan of tradable credits are expected to reduce their energy needs as a whole.
Reducing energy reliance is going to become even more crucial in the next five
years for businesses to succeed and develop long-lasting business models that
will prevail even in times of energy shortage.
Another overarching implication for
business in the next five years is who will be the leaders in the world’s
manufacturing sector. In both of President Obama’s State of the Union
addresses, he addressed manufacturing as a top priority in the United States in
order to stay competitive globally. In March 2012, according to a White House
transcript of a speech by President Barack Obama, “Over the past two years, the U.S. manufacturing sector has added more
than 400,000 jobs, the first period of sustained job growth since the 1990s.
The President’s proposals to revitalize American manufacturing build on that
momentum and recognize that a growing and vibrant manufacturing sector is
central to our ability to innovate, to export, and to create good-paying
American jobs. Over the previous decade manufacturing production and investment
stalled, and we lost ground to our competitors. To create an economy that is
built to last, we must ensure that the next generation of products are not only
invented here, but manufactured here as well.”[3] India has also realized that it must have a
strong manufacturing sector if it is going to be able to compete in a global
economy. With the ease that businesses have in outsourcing their manufacturing
to global leaders such as China, the world is finding that countries must maintain
a competitive edge in manufacturing or they are going to be left behind.
Manufacturing as a percentage of GDP is only 15% in India, whereas it is 34% in
China and 40% in Thailand.[4]
India is hoping to utilize the manufacturing sector to provide the additional
250 million jobs that are projected to open up in the next 15 years.[5]
In order to do so, businesses must be
investing not only in their technological capabilities, but they also must be
spending the time to eliminate efficiencies in their existing plants to create
core competences in efficiency and quality that cannot be met by international
competitors.
And finally, a third overarching theme
for businesses in the next five years is the ability to capture the rapidly
growing tourism industry. According to World Travel and Tourism (T&T),
expenditures related to travel and tourism is going to grow from $7340 billion
to $14,382 billion by 2019.[6] There is no other industry that is so
directly tied to the image and reputation of the country of residence. The
travel and tourism industry, which accounts for 7.6% of global employment, is
largely dependent on the locations that have positioned themselves as
attractive and safe locations for both leisure and business travel. As incomes
continue to grow, the percentage of disposable income that can be delegated
towards leisure tasks is becoming a lot more significant, providing large
business opportunities, especially for developing countries. These business
opportunities are largely connected to government spending on infrastructure
projects and community development. Thus, one of the largest ways a country can
help develop business in their home countries is to essentially “clean up” the
country so that the tourism industry can thrive. India, an exotic and exciting
destination for many travelers, would benefit significantly from investment
projects that will transform India to a hub of international and domestic
travel. Hotels, parks, museums, and cultural centers are all areas that can be
further developed to attract business and investment. In India it is estimated that the tourism and
travel sector will add an additional 78 jobs per million rupees of investment
(as opposed to 45 jobs per million rupees in the manufacturing sector).[7]
Today some are the largest areas of growth for business are not in “useful”
sectors but rather “leisure” sectors.
- What are some of your key observations
and takeaways from the 12th Five Year Plan?
For someone who did their
entire Senior Project on the significance of national re-prioritization of
hunger, I was first shocked to see that hunger was mentioned 0 times in India’s
Five Year Plan. Although it briefly mentions health and has occasional
references to nutrition, it was appalling to me that a country that is ranked
number 94 out of 119 on the World Food Program’s Global Hunger Index, with
North Korea and Sudan scoring better than them, India would not specifically
discuss hunger as a top policy initiative for the next five years.[8]
Although I highly respect India’s Five Year Plan strategy, one of my main
criticisms is that it over-projects and spreads itself very thin. It tries to
focus on everything and improve everything all at once, which has proven to be
largely ineffective. I would have appreciated seeing India prioritize its
objectives, analyzing where the root causes of India’s under-development lie. I
personally think that hunger is one of the top priorities of India. Having such
a large population that does not have its basic human needs met, makes the
country as a whole in a perpetual state of underdevelopment because it is not
capitalizing on its human potential. Growth in India will continue to be
extremely dichotomous between the rich and poor in India if the marginalized
are not made a top priority.
That being said, I did
think that the overall Five Year Plan was a good projected snapshot of the next
five years in India. I think that its projected growth of 9% per year is achievable
and the plan does propose some strong strategies for achieving that 9% growth.[9]
I think that perhaps the most compelling strategic goal of India’s 12th
Five Year Plan was under the realm of infrastructure and urban development.
India has one of the largest populations in the world and in order to sustain
its economic growth, it must be very careful and particular to create strong
foundations (literally) to prepare and sustain long-term growth. The Five Year
Plan rightfully emphasizes that a “whole city” approach to planning an improvement
must be taken creating ‘city master plans’ that take into account both hard and
soft infrastructure.[10]
With how fast India has and will continue to develop, it would be tempting to
get caught up in the whirl of growth without putting in the discipline of
mapping out its success. A good example of this is the slums. As large masses
of people flocked to the cities seeking employment and a better life, there was
no plan in place for this vast flood of people surging the cities, and as a
result overpopulated slums emerged to house the masses who had nowhere else to
go. If India plans to continue on this path of rapid development, it must be
matched with clear and organized processes to assist in periods of rapid
expansion. If it doesn’t India will be left to go back and try to fix problems
that surfaced due to poor pre-emptive planning.
I think that another key
element of India’s 12th Five Year Plan is the level of government
assistance and will to see these objectives through. Any country can map out an
idealized vision of where they would like to be in 5 years, but if they do not
have the leadership to see the nation through the difficult transitions that
must occur for their goals to be met, the country will be headed down a very
dangerous path. India has compared itself to its Asian neighbors on many
instances, but it has failed to demonstrate how a very different political
structure is going to meet the same goals of their Asian counter-parts. A good
example of this is India’s manufacturing sector. I agree with Rajeev Sibal of
the London School of Economics and Political Science when he says that India’s
goals of making manufacturing 25% of GDP in the next 10 years is lofty at best.[11]
India has a very fragmented and scattered political structure that makes large
national transformations almost impossible. Although it has the human and
resource capital to become a manufacturing giant, India’s tight political grip
on the economy makes it difficult for any industry to “take off” like it hopes
for. Economic policies, trade policies, tariffs, and political mobilization are
all important factors that would have to be put in place simultaneously
alongside the infrastructure and industry investment and development. India’s
Five Year Plan does address political corruption and organization, but it fails
to see that this is another one of those areas that should be highly
prioritized or all other goals will be stunted.
- Some economists argue that 10% GDP is the
minimum growth floor India needs to achieve to create enough jobs for its
markets and stability. The most recent plan appears to shoot for growth for
most of 2012-2017 at 8.2%. Can India achieve such growth over the next four or
five years? What may happen for them, and for us/the USA, if they come in lower
than that number?
Although the world has been excited for
India’s rapid growth over the past decade, it still is a developing country who
in my opinion will not reach 10% or more GDP growth in the next 5 years. India
in my opinion has come to a standstill. Some major investments need to be made
if long-term growth will be sustainable, and these major investments may not demonstrate
immediate GDP growth. That is one of the dangers of these 5 year plans. They
give a short term view of development and growth but are at risk of disguising
long-term implications. Although they were touched upon in the latest Five Year
Plan, areas such as education, health, human resource development, and
infrastructure projects all need to take precedent in India if long-term sustainable
growth is the goal, but these areas of growth are not going to result in automatic
economic growth. For example, it is estimated by the National Skill Development
Corporation that 8,664,000 new teachers and trainers will be needed to meet
demand by 2022.[12] Training that many
employees takes time and funds; however once those investments have been made,
the new human capital available acts as a development multiplier for future
Five Year Plans.
This is where I would argue though that it
is ok if India doesn’t see a 10% growth in its GDP for each of the next five
years, because the opportunity cost of this automatic growth, may be a more
sustainable long-term growth model. However, based off of India’s 12th
Five Year Plan, it is uncertain if a lack of immediate economic growth will
actually be a result of these long-term investments. In many ways India is like
a giant boulder that has been pushed down the hill, and no matter how hard
people try to steer it, its size and speed is difficult to control.
What will be difficult to predict however,
is the international implications if India does not meet that 10% growth. If a
giant like India were to collapse, markets across all different sectors could
also crash. The world, especially the United States, has begun to rely on India
for its large number of consumers and investment opportunities and a crash
could create financial chaos for many MNCs and trade partners with India. India
also already has one of the largest impoverished populations of the world which
creates a financial and moral burden amongst developed nations who feel they
have a responsibility to invest in India’s growth for the sake of human rights.
If India cannot meet the needs of its own people, then states like the USA are
going to have an even larger responsibility of taking care of a growing impoverished
population.
- What are some of this plan’s targets and
longer-term priorities? How do these differ from our priorities in the USA, and
why?
Approximately ¾ of India’s population is
reliant on rural incomes, which is why agricultural development is one of India’s
longer-term priorities. The USA on the other hand has only about 1% of its
population that claims to have a farming occupation. Thus, the U.S. and Indian
goals towards agriculture differ significantly. Also, according to Issues,
Priorities, and Challenges for Indian Agriculture: a Worldbank View by Rashid
Faridi, “India is a global agricultural powerhouse. It is the world’s
largest producer of milk, pulses, and spices, and has the world’s largest
cattle herd (buffaloes), as well as the largest area under wheat, rice and
cotton. It is the second largest producer of rice, wheat, cotton, sugarcane,
farmed fish, sheep & goat meat, fruit, vegetables and tea. The country has
some 195 m ha under cultivation of which some 63 percent are rainfed (roughly
125m ha) while 37 percent are irrigated (70m ha). In addition, forests cover
some 65m ha of India’s land.”[13]
In India’s 12th Five Year Plan it has recognized that it has
enormous capital when it comes to agriculture, and thus it must become a large
source of development in order to bring millions out of poverty. According to
the 12th Five Year Plan, “ Expansion of farm incomes is still the
most potent weapon for reducing poverty.”[14]
Thus, some challenges that India must prepare for according to Rashid Faridi
are raising agricultural productivity per unit of land, reducing rural poverty
through a socially inclusive strategy that comprises of both agriculture as
well as non-farm employment, ensure that agriculture growth responds to food
security needs, improving water resources and irrigation, facilitating
agricultural diversification, promoting high growth commodities, and developing
markets, agricultural credit and public expenditures.[15]
Another long-term priority of India’s 12th Five
Year Plan is urbanization vis-à-vis centrally developed city and regional
plans. Projections show that over 600 million of India’s populations will be
living in cities by the year 2030 and in order to prepare for that mass
flooding to urban areas, India must be proactive in its developmental plans.[16]
Strengthening government structures that can circumvent chaos with the mass
inflow of citizens to the cities will be crucial for long-term development. Failing
to provide sewage, water, transportation, housing, and roads that are organized
and fluid in structure will only result in an increase in Indian slums that are
very common throughout India. Slums create a whole slew of new sociological
issues that India now has to combat and by being pro-active in developing “master
plans,” these slum situations can be reduced or in some cases eliminated. This
long-term policy objective differs from the United States because the US is in
a different stage of development. Instead of massive urbanization, the United
States is witnessing more a transition to suburbs which are easier to regulate
and control. Thus city and regional planning is important in the United States
as well, but it has already made most of the infrastructural investments needed
to make these sociological transitions more smooth.
- What were some of the accomplishments
(and failures) from some of India’s previous Five Year Plans?
In the 10th 5 Year Plan
agricultural growth was at 2% and in the 11th 5 Year Plan it
increased to 3%; however this growth does not match the growing agricultural
needs of India in which over half of its population is dependent on agriculture
for its livelihoods. Agricultural investment though does represent one of
India’s accomplishments. As a percentage of GDP, agricultural investment has
raised 11% since 2002-2003.[17]
Infrastructural development is also one of
the successes of the 11th 5 Year Plan. Infrastructure investment
increased as a percentage of GDP from 5.7% to 8%.[18]
This increase in funds went to projects such as oil and gas pipelines and
telecommunications; however targets in electricity and transportation were
unfortunately not met.
India has also almost doubled its exports
in the last 10 years demonstrating policies of openness.[19]
Breaking down barriers and opening up India to the international economy is a
way to stimulate economic growth and enable India to capitalize on
international opportunities.
One of the major failures of India’s
previous Five Year Plans is combating hunger. In the most recent 5 Year Plan,
hunger is not mentioned once. Although it discusses agriculture and health, it
avoids the topic of hunger. From my own personal research I know that India has
one of the highest hunger rates in the world and so it is absolutely shocking
to me that hunger is not addressed in these 5 Year Plans. It seems that hunger
is the elephant in the room that policy makers are unwilling to talk about.
India also failed in its 11th
Five Year Plan in its capacity expectations for energy. The 11th
Plan targeted 78.7 GW of capacity and did not achieve over 50GW. This was
largely due to “poor project implementation, inadequate domestic manufacturing
capacity, shortage of power equipment, and slow-down due to lack of fuel,
particularly coal.”[20]
It’s 12 Year plan projects capacity creation of 100GW, but in order to achieve
that goal, it must learn from the mistakes of its past Five Year Plan.[21]
For manufacturing, India did well in its 11th
Five Year Plan with its auto industry, pharmaceuticals, and IT engineering
services. However it did not succeed in other manufacturing sectors because it
was unable to provide the cheapest option for companies to outsource value
stream activities too. Although manufacturing investments were made, compared
with its competitors, namely China, it has not been able to keep up in its
previous five year plans.
- Do you think this type of strategic
planning is possible in the USA? Would the pros outweigh the cons, and what
would be some of the pros and cons of a Five Year Plan in the USA? If a Five
Year Plan option was presented to American voters as a constitutional
amendment, would you vote for or against it, and why?
I think that this type of strategic
planning is definitely possible in the USA. It is a significantly smaller
country than India and it has had a lot more practice in making goals and
measuring their success against the benchmarks made in the past. However, in
the United States the difficult part would be deicing the “how” of the the 5
Year Plan. The United States is so split along the party lines that the
Republican-Democrat tug-o-war would make it extremely difficult to agree on one
5 Year Plan. The election of a different president every 4 years would make it
even more difficult to even create a 5 year plan.
This leads us however to what role the Five
Year Plans play. If the goal is for a nation to look ahead at the next five
years and establish a vision of where the nation should be, then I think Five
Year Plans are very useful. If the goal however is to create a step by step
road-map for the next five years, I think that is highly unrealistic and would
never pass as a constitutional amendment. It would be highly intriguing though if
a third neutral American body was in charge of creating a 5 Year Plan that
policy-makers would then be required to cooperate and achieve the goals and
objectives of the 5 Year Plan together. Under those circumstances, as a US
citizen I would definitely vote the 5 Year Plan strategy into the constitution.
That raises issue though of how would this body be created and who would be in
charge of appointing its members, placing some realistic restrictions on that
becoming possible.
Overall though, I think the United States
would benefit from creating 5 Year Plans that are not tied to whoever is in
office. I think that it is very easy for policy-makers to work aimlessly and
realize four years later that nothing ever got accomplished. So much time and
effort is spent tearing down the other party that our political system in many
ways has become extremely unproductive. I think that India is in a sense
realizing this as well as it uncovers that having a democratic political system
places road-bumps in the way of progress that citizens feel is necessary to
uphold their constitutional values and their personal freedoms. A nation like
China benefits a lot more from its 5 Year Plans than a democratic state such as
India or the USA because its government can pursue the 5 Year Plan with no
accountability nor debate.
China
however, has proven to the rest of the world that despite its differences in
governance, it has lifted more people out of poverty than any other nation and
has taken its place as the most rapidly developing nation in the world. Is
there a democracy/ development trade-off and if so, how does a nation like
India or the United States compensate for the time delays of democracy in order
to deliver the same levels of growth as an authoritarian state like China?
[1] India’s
12th Five Year Plan: Energy
[2] US
oil ouput to meet world’s new demand in next 5 years. Khaleei Times. 15 May 2013. http://www.khaleejtimes.com/biz/inside.asp?xfile=/data/market/2013/May/market_May28.xml§ion=market
[3] President
Obama Speaks on Manufacturing. The White
House. 9 March 2012. http://www.whitehouse.gov/photos-and-video/video/2012/03/09/president-obama-speaks-manufacturing/#transcript
[4] India’s
12th Five Year Plan: Manufacturing
[5] India’s
12th Five Year Plan: Manufacturing
[6] India’s
12th Five Year Plan: Services: Tourism, Hospitality, and Construction
[7] India’s
12th Five Year Plan: Services: Tourism, Hospitality, and
Construction
[8] Kounteya Sinha, "India tops world hunger chart."
The Times of India, February 27,
2009.
http://articles.timesofindia.indiatimes.com/2009-02-27/india/28009938_1_global-hunger-index-food-insecurity-india-ranks
(accessed June 6, 2012).
[9] India’s
12th Five Year Plan: An Overview
[10] India’s
12th Five Year Plan: Urbanization
[11]
Sibal, Rajeev, “India’s Manufacturing Sector: New Policy, No Progress.” The London School of Economics and Political
Science. http://blogs.lse.ac.uk/indiaatlse/2012/07/13/indias-manufacturing-sector-new-policy-no-progress/
[12] “Human
Resource and Skill Requirements in the Education and Skill Development Services
Sector.” National Skill Development
Corporation. http://www.nsdcindia.org/pdf/education-skill-development.pdf
[13] Faridi,
Rashid. “Issues, Priorities, and Challenges for
Indian Agriculture: a Worldbank View.” Rashid’s
Blog. 16 January 2012. http://rashidfaridi.com/2012/01/16/issuespriorities-and-challenges-for-indian-agriculturea-worldbank-view/
[14]
India’s 12th Five Year Plan: Farm Sector
[15]
Faridi, Rashid. “Issues, Priorities, and Challenges for
Indian Agriculture: a Worldbank View.” Rashid’s
Blog. 16 January 2012. http://rashidfaridi.com/2012/01/16/issuespriorities-and-challenges-for-indian-agriculturea-worldbank-view/
[16]
India’s 12th Five Year Plan: Urbanizaton
[17] India’s
12th Five Year Plan: Farm Sector
[18] India’s
12th Five Year Plan: An Overview
[19] India’s
12th Five Year Plan: An Overview
[20] India’s
12th Five Year Plan: Energy
[21] India’s
12th Five Year Plan: Energy
