Thursday, June 13, 2013

Five Year Plan

India’s 12th 5 year Plan

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)?
                The first overarching implication of India’s most current Five Year Plan involves the water resource for India. India has a water shortage despite strong rainfall. Water shortfalls are common for companies when they have low rainfall, but shortage with strong rainfall is a bad problem for a country to face. Currently, India has 16% of the world population but only 4% of the fresh water. This shows a significant larger portion of the world’s population lives in India than fresh water is available to adequately meet everyone’s needs. There is excessive use of water in the country to make matters worse due to incorrect pricing in the industry in India. This is further compounded by the fact that 80% of the water goes to irrigation and a quality issue with the water. The quality issue is due to fertilizer, pesticide, and waste disposal contamination. In order to fix these problems, India’s plan proposes the creation of a regulatory body that hopefully will come up with new ways to aid as many people as possible suffering from any water shortage.
                A second implication is the focus on the service industries. The service industries will provide the greatest potential generator of employment moving into the future for India. Information technology is project to only represent 12% of growth and is trivial to the overall employment so it can be ignored for the most part. Not to be ignored, Tourism, hospitality, and construction are major employers and the key to the planned growth in the 12th 5 year plan of India. Tourism has the highest growth potential in the coming years. This highest growth potential is supposed to last until 2021 but does not come without any risks. The biggest problem for India’s tourist industry is the capacity constraints from airports, hotels, security, and infrastructure.
                A third implication is the energy challenges that India will face going forward. In order to achieve the desired growth of 9%, India will need 6-7% growth in each of the five years. This is higher energy achievement than what was previously managed over the last twenty years. With this growth in required energy, India will become much more dependent on foreign energy sources like oil, natural gas, and coal. The overall dependence of India will rise from 36.5% to 38%. As dependence and need both rise, India will place more emphasis on exploration and production.
                A final implication is on the railways in India. India has railways that carry 22 million passengers and 923 million of freight a day but are of poor quality. The plan for India over the next five years is to create western and eastern dedicated freight corridors. On top of the new corridors, the railways will need substantial investment and improved financial performance. In order to reach this improved performance, India plans to de-politicize the fare structure of the railways in India. These are just a few important implications of India’s 5 year plan as there are many more issues addressed.

What are some of your key observations and takeaways from the 12th Five Year Plan?

                After reading the five year plan for India, I had one major observation and takeaway that always seemed to be in my mind as I thought about each point. India seems to have a good sense of many of its issues and ideas for improvement. The government has a good grasp and wants to see India have a promising next five years. However, my biggest takeaway was that it seemed to be a lot of things for the government to do to improve India. I did not find that many ideas really were about stimulating the private sector to improve India and do a lot of the government’s job for them. This should be the most desirable outcome as will be the best for long term growth. The government can do a lot for its people but ultimately, the people have to fund any government improvements. The biggest growth in history has always been funded by private resources as this allows for the developments and growth that is needed while also passing the costs on to private sectors that will most reap the rewards instead of citizens. I would like to see India focus more on this private sector.

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?

            I think India can achieve the growth rate of the plan at 8.2%. In fact, I think it is necessary for India to reach this goal for India to have a successful next five years. Whenever reports like this are issued, I assume that the reported numbers are optimistic. If the optimistic number is less than the growth economists feel is needed for India to create enough jobs for market stability then India could be in a difficult position going forward. Less growth then needed would mean that unemployment would rise in India. This would increase the poverty that India already faces as an issue in the company. In addition, this could slow the education growth planned in the region if children are needed to work at a younger age to help support their family. This could very easily lead to more children going to work instead of college like India’s five year plan hopes to accomplish.
                For the US, less growth for India will likely also affect the US market. If there is less growth and opportunity in India, more Indians are likely to look for work in other countries. This may not even be just low level workers but skilled workers that feel they have better opportunities in the US. With high unemployment rates currently in the United States, an influx of foreigners looking for work will put more Americans out of work. Not achieving the growth that is necessary would be a bad situation for both the US and India.

What are some of this plan’s targets and longer-term priorities? How do these differ from our priorities in the USA, and why?

                A main target and long term priority for India is urbanization and improving life for people living in the rural areas. This is very different than the priorities in the USA. People living in the rural areas in America have the necessary resources to live a life just as equal as people in the city even though it may be very different by choice. Water is safe. Food is plentiful. Technology is available. This is not the case in many rural areas for India. This makes it very understandable why India has to have different priorities than the USA. It is important that India’s plan is able to help bring clean water, food, education and technology to the rural areas to help them develop and be a key component to the growth of India over the next five years.

What were some of the accomplishments (and failures) from some of India’s previous Five Year Plans?

                Previous five year plans have had many accomplishments for India. One such accomplishment is an Increase in National Income. India’s national income has been on a steady rise since India began having five year plans and they hope to see this continue with their next five year plan as this is a strong indicator of economic development. Second, there has been a strong development in agriculture. There has been a steady upward trend since India began having five year plans. Third, much like agriculture there has been a development of transport and communication. In fact, the first two plans had more than a quarter of the total outlay developed to this area. Finally, throughout the plans, there have been many successful steps to increase employment. These are just a few examples of accomplishments that India has had under their previous five year plans. There are also many failures of the plans but I think the biggest drawback of the plans has been the unequal distribution of income and wealth. This is an issue that is beginning to face the US and a wide wealth gap is never something that a country wants to achieve. There are other failures but I feel overall the plans have had more success than failure.

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?

                It is not possible for the USA to have this type of strategic planning. Our democracy is built upon a lot of elections and this does not provide the stability for a five year plan to have a chance to be enacted. Instead, I consider the USA having multiple two year plans that different interests push and they eventually become what happened over the period. There would be pros to this type of plan for the USA in that it would provide more stability, but the cons of losing some of the electoral process would not be easily sold to American citizens or to the political party that is not currently in control. If a Five Year Plan option came up for vote, I would vote against it as I feel flexibility is very important and think a balance between parties is very important in our system and worry a five year plan would put too much influence into the hands of too few individuals.