In an economy where the GDP has been growing at 5-6 per cent, itís difficult to believe that growth can be pushed up to eight per cent during the next five years. Prospects of drought have made people more sceptical.
Achieving the ambitious target of eight per cent depends both on an increase in investment and on more efficiency. While these may be technically feasible, they are unrealistic for the Indian economy.
A government that is quick to roll back even the smallest unpopular measure at the slightest opposition, can hardly be expected to take on the long list of tough decisions that are needed.
Looking at the scenario built by the Planning Commission, we see that the share of GDP invested should rise to 33 per cent. This has to be financed to some extent by foreign capital but largely by domestic savings.
For the last three years, household savings have been increasingly financing government consumption rather than going into productive investment. This can be easily corrected by raising taxes and cutting expenditure.
But these affect voters and interest groups. As a result, steps such as reducing public sector employment, cutting subsidies and raising user charges, will face political opposition.
Equally difficult will be the policy changes needed to increase productivity. For achieving a growth of eight per cent, industry has to grow by 10 per cent. In the last 10 years, this sector has grown at about seven per cent.
As the role of the public sector gets reduced, the onus of growth falls on the private sector. Creation of an industrial policy environment that will push up private sector investment and lead to improvements in growth is not simple. There are deeply-entrenched vested interests that would oppose such moves.
For instance, a recent ordinance aims to improve the system by which banks and other financial institutions can recover their money from defaulters. But there is huge pressure by industrial lobbies on the government to change it.
Loans to the order of a mind-boggling Rs 1.5 lakh crore are owed to lenders. Some of them, such as the IDBI, have been pushed to the verge of bankruptcy because of these defaults.
When the government saves them by doling out tax-payers money, it effectively channels public money to corrupt industrialists. But since those who gain from the current system are those who fund elections and contribute to parties, the pressure on the government to weaken the ordinance might well work.
Another policy that has restricted growth has been the reservation for small-scale industry. There is little rationale for this after allowing foreign companies to compete with the SSI units. Other than pandering to some petty industrialists, there is no reason why this policy should be continued.
Thus, the question is not whether the target of eight per cent growth is feasible, but whether itís realistic to think that the BJP has the strength to resist pressure from the support base of its voters and financiers.
And this, unfortunately, is why it may not be achieved.
(Ila Patnaik, Senior Fellow, Indian Council for Research on International Economic Relations)