THE ELEVENTH FIVE-YEAR PLAN
This is a snapshot of the Eleventh Plan with respect to the MSME sector. For more details please visit:
http://planningcommission.nic.in/plans/planrel/fiveyr/11th/11_v3/11v3_ch7.pdf
VISION
The central vision of the Eleventh Plan is to build on India’s strengths to trigger a development process which ensures broad-based improvement in the quality of life of the people, especially the poor, SCs/STs, other backward castes (OBCs), minorities and women. The National Development Council (NDC), in approving the Approach to the Eleventh Plan, endorsed a target of 9% GDP growth for the country as a whole. This growth is to be achieved in an environment in which the economy is much more integrated into the global economy, an integration that has yielded many benefits but also poses many challenges.
If this is achieved, it would mean that per capita GDP would grow at about 7.6% per year to double in less than ten years. However the target is not just faster growth but also inclusive growth, that is, a growth process which yields broad-based benefits and ensures equality of opportunity for all.
This broad vision of the Eleventh Plan includes several inter-related components: rapid growth that reduces poverty and creates employment opportunities, access to essential services in health and education especially for the poor, equality of opportunity, empowerment through education and skill development, employment opportunities underpinned by the National Rural Employment Guarantee, environmental sustainability, recognition of women’s agency and good governance.
STRATEGY: POLICIES FOR INCLUSIVE GROWTH
The strategy for inclusive growth in the Eleventh Plan is not just a conventional strategy for growth to which some elements aimed at inclusion have been added. On the contrary, it is a strategy which aims at achieving a particular type of growth process which will meet the objectives of inclusiveness and sustainability. This strategy must be based on sound macroeconomic policies which establish the macroeconomic preconditions for rapid growth and support key drivers of this growth. It must also include sector-specific policies which will ensure that the structure of growth that is generated, and the institutional environment in which it occurs, achieves the objective of inclusiveness in all its many dimensions.
MACROECONOMIC FRAMEWORK
The broad macroeconomic framework of the Plan envisages a continuation of the uptrend in domestic investment and savings observed in the Tenth Plan taking domestic investment from an estimated 35.9% of GDP in 2006–07to an average of 36.7% of GDP in the Eleventh Plan period. This is expected to be supported by the domestic savings rate of 34.8% of GDP in the Eleventh Plan period. These investment rates are broadly consistent with achieving an average growth rate of 9% per year in the Eleventh Plan period. The Plan also implies a substantial increase in the total resources for the Central and State Plans from 9.46% of GDP in the Tenth Plan to 13.54% of GDP in the Eleventh Plan. This outcome depends upon government non-Plan expenditure, especially subsidies remaining under control and a significant improvement in the IEBR of the public sector in both the Centre and the States.
The macroeconomic projections involve a rise in the current account deficit from 1.1% of GDP in 2006–07 to an average of 1.9% of GDP in the Eleventh Plan period, based on oil prices at the average level of 2006–07. The recent hardening of oil prices, if it continues, will involve a further increase in the current account deficit by up to 1 percentage point of GDP. Even if this were to happen, it will be feasible to finance the increased deficit given India’s export potential and the prospect of continuing inflows of foreign investment. The real challenge in the persistence of high oil prices lies in the need to pass on these prices to consumers which could moderate growth a little in the short run.
On balance, the Plan target of 9% per year appears achievable with some downside risks if oil prices harden further. The broad sectoral composition of growth associated with this projection involves doubling the growth rate of agriculture to 4% per year compared with a little over 2% per year in the Tenth Plan and raising the industrial growth rate from 9.2% in the Tenth Plan to between 10% and 11% in the Eleventh Plan. Further, manufacturing is targeted to grow at over 12% per year and this is expected to provide high-quality employment.
INDUSTRY AND MINERALS
The pace of industrial growth quickened during the Tenth Plan and manufacturing in particular showed considerable dynamism. It will be necessary to build on this momentum during the Eleventh Plan and, indeed, impart additional impetus to generate 10% growth in industry, and even higher growth in manufacturing. This will not only provide the additional job opportunities needed to absorb some of the surplus labour in the rural workforce but also generate employment for the new entrants that are expected to join the labour force both in rural and urban areas. For this, industries must not only grow, but grow in a manner that leads to the absorption of large numbers of workers.
Industries face a number of impediments in the country, which need urgent attention if industrial growth is to be sustained over a long period. Improvement of physical infrastructure must clearly come at the top of the agenda of action for achieving rapid industrialization. Continuous supply of good quality electrical power from the grid is critical for industries, but the situation in this regard is very unsatisfactory. Large-scale units can deal with this problem by setting up captive power plants, but this is not an economical option for small and medium units. Manufacturing also entails movement of large volumes of goods in order to compete in a globalized context and manufacturers need transport infrastructure which can ensure speedy and reliable movement.
Deficiencies in the road infrastructure must be addressed urgently to increase the competitiveness of Indian manufacturing. Much the same is true of ports where insufficient port capacity and inadequate navigation aid facilities and cargo handling equipment lead to longer pre-berthing detention and turnaround time for ships.
These problems are compounded by the fact that large vessels do not call on many Indian ports because of the lack of depth of the draft and poor connectivity with the hinterland. Without substantial improvement in all these aspects of the transport infrastructure, growth in manufacturing cannot be sustained.
A skill deficit has also emerged in virtually all areas of manufacturing as one of the major impediments to rapid industrial growth. The shortages are at all levels, from executives and designers at the top to base-level skilled worker such as tailors and machine operators. There is a huge gap in the vocational training capacity, which is less than one-fourth of the entrants to the work force per annum.
There is an urgent need to attend to skill development and the Eleventh Plan strategy in this regard.
The perceived lack of flexibility in some of our labour laws, such as Chapter V-B of the Industrial Disputes Act, 1947 and the Contract Labour (Regulation and Abolition) Act, which focus on job protection, remains a psychological block for entrepreneurs against establishing new enterprises with a large workforce. Existing industrial units have learnt to live with Chapter V-B of the Industrial Disputes Act, albeit at some cost, but newcomers are often deterred. The Contract Labour (Regulation and Abolition) Act also results in the industry letting go of the opportunities for seasonal supplies, particularly in international markets. In a globalized world where our manufacturers have to compete with others who enjoy greater flexibility, it is necessary to find practical solutions for the problems created by these laws.
The Micro and Small Enterprises (MSE) Sector accounts for the bulk of the employment in manufacturing and has been one of the sources of strength for manufacturing in the country. It has largely withstood the test of international competitiveness resulting from external economic liberalization since 1991–92. However, the ceiling on investment in plant and machinery, together with reservation of a large number of items for exclusive manufacture by small-scale industries, has in the past barred these units from undertaking efforts for upgrading technology, adopting modern manufacturing methods and achieving economies of scale. The loss of fiscal benefits by a small-scale unit graduating into a larger unit is an additional disincentive against expansion and leads to horizontal expansion and deliberate fragmentation.
During the Tenth Plan period, major steps were taken to alleviate these problems: the number of reserved items was reduced from 675 to 114 and the ceiling on investment in plant and machinery was raised generally from Rs 3 crore to Rs 5 crore by the Micro, Small and Medium Enterprises Act, 2006. The Act also contains a number of provisions aimed at strengthening these enterprises and, in fact, seeks to integrate the three tiers—medium, small, and micro. This process must continue in the Eleventh Plan.
Small-scale and medium enterprises are the main beneficiaries of the investment incentives for modernization, upgradation, and additional capacity creation given in schemes such as the Technology Upgradation Fund Scheme for the textile sector. The schemes for establishment of industrial parks such as the Scheme for Integrated Textile Park in the same sector are also aimed at obtaining additional investment in small-scale and medium enterprises. These schemes will be continued and replicated in other areas during the Eleventh Plan.
Small-scale units are handicapped by insufficient flow of credit despite the measures taken to stimulate priority sector lending by Scheduled Commercial Banks and expansion of direct lending operations by the Small Industries Development Bank of India (SIDBI). During the Eleventh Plan, credit flows to these units will need to be monitored and improved.
The Central Public Sector Enterprises (CPSEs) on the whole have registered a strong performance during the Tenth Plan. The number of profit-making CPSEs has gone up and the number of loss-making ones has reduced. Granting of full autonomy to CPSEs remains an unfinished agenda before the government. A great deal of progress has been made in the revival of sick CPSEs, but close monitoring would be needed to implement their restructuring plans. Another issue of importance is the development of a mechanism to ensure optimum investment decisions by large profit-making enterprises.
A package of fiscal and other incentives has been in place since 1997 aimed at facilitating industrial development of the States of the North East Region (NER). During the Tenth Plan, similar schemes were notified for Jammu and Kashmir (J&K), Himachal Pradesh and Uttarakhand. While the response in the NER and the valley in J&K has not been significant, there is evidence that these incentives have stimulated industrial investment in Jammu, Himachal Pradesh, and Uttarakhand. However, there are complaints from other States, particularly the adjoining ones, of flight of capital induced by excise duty exemptions. Because of the distortions induced by excise duty exemptions in particular, consideration needs to be given to replacing the incentives, fully or partly, by an accelerated programme of infrastructure improvement.