Regions and Countries

	Table of Contents
p. 3 of 7 BACK | NEXT Executive Summary I. Current Development Trends and Issues II. The Government’s Development Strategy III. ADB’s Development Experience IV. ADB’s Strategy V. ADB’s Assistance Program VI. Risks, Performance Monitoring, and Evaluation

Country Strategy and Program 2003-2006: India

---

II. The Government’s Development Strategy

A. Development Goals and Strategy

14. The 10th Plan observes that “there is growing impatience in the country at the fact that a large number of our people continue to live in abject poverty and there are alarming gaps in social attainments even after five decades of planning.” The 10th Plan emphasizes that development must be defined not just in terms of increased GDP, but also more broadly in terms of human well-being, i.e., reduction in ‘income poverty’ as well as ‘human poverty.’ Hence, the 10th Plan’s strategy combines high growth with equitable growth and social development and it has specified, for the first time, a set of specific monitorable targets for key indicators of human development (Box 2). The 10th Plan also attempts a new kind of planning that focuses not just on the quantitative exercise of targets, resource requirements, and allocations but also on the policy and institutional measures to implement the allocations and accomplish the specified targets, i.e., good governance. The 10th Plan indicates that the role of government in production will continue to decline but increase in provision of better public services and a better regulatory environment for private enterprise. Thus, the strategy of the 10th Plan consists of four basic themes: high growth, equitable growth, human development, and reforms. The first three themes each have associated sectoral priorities. The last is a crosscutting theme, woven in with the other themes. This strategic approach is summarized in Figure 2.

15. The strategy to achieve a high annual growth target of 8.00% combines accelerated capital accumulation to raise the average investment rate from 24.23% to 28.41% with an increase in capital-use efficiency to reduce the ratio of incremental capital to output from 4.00 to about 3.55. Private sector development, infrastructure development, and increased foreign investment and trade are key to increasing efficiency. The strategy for equitable growth gives high priority to employment-intensive sectors such as agriculture, rural development, and services, and promotes balanced regional growth. Agriculture and rural development are critically important to meet the 10th Plan poverty reduction target¹¹ since 75% of the poor live in rural areas. Finally, to achieve the specific monitorable human development targets listed in Box 2, the 10th Plan programs an increase of almost 80% in social sector expenditure. However, increased public spending for social services is necessary but not sufficient for accelerated social development. The quality of social services delivered also has to be significantly improved. The 10th Plan observes that this can only be accomplished through greater accountability of service providers to their clients, decentralization, and more participatory service management.

B. Resource Mobilization and Investment

16. The 10th Plan assumes a step-up in the investment rate to 28.41% of GDP. Of this, 1.57% is to be covered by foreign capital inflows, a significant increase from 0.91% observed during the Ninth Five-Year Plan (9th Plan). The public investment rate is set at 8.44%, to be financed by public savings to the tune of only 0.44%. Thus, large preemption of private savings is assumed to continue to finance the bulk of public investment. Even the 0.44% public savings implies a significant turn-around in public savings compared to –2.5% in FY2001. Clearly, achievement of the 10th Plan target will be critically dependent on strong fiscal consolidation, at the central government level and in the states.

C. Role of External Assistance

17. Net external capital flows are projected at 1.57% of GDP for the 10th Plan period, as against 0.91% in the 9th Plan, or about $22 billion in FY2006, the terminal year of the 10th Plan. However, the bulk will consist of FDI, portfolio investment, commercial borrowing, and nonresident deposits. Gross official development assistance is estimated to be around $5.1 billion in FY2006. Focusing on the financial flow, however, understates the total development impact of such assistance. India has often emphasized the importance of the transfer of international best practices that are typically embodied in external assistance. ADB, the World Bank, and Japan account for about 90% of gross external assistance, mostly in the form of loans. The balance amount is made up of highly concessional international development assistance (IDA) resources and grant assistance from a large number of bilateral donors and United Nations agencies.

D. ADB’s Assessment of the Government’s Development Strategy

18. The emphasis of the 10th Plan on combining high growth with equitable growth and social development, leveraged by improved governance, is a sound strategy to maximize the poverty-reducing impact of development. The strategy is similar to ADB’s PRS, based on pro-poor growth, social development, and good governance. The strategies of the Government and ADB thus fit well together. The 10th Plan’s strong emphasis on increased resource allocation for social services and improving their quality is especially commendable, as is the shift away from excessive reliance on agriculture subsidies to investment in irrigation to increase cropping intensity and crop diversification through agribusiness development. Another important feature of the 10th Plan is its recognition that growth and investment will be led by the private sector. The role of Government is accordingly redefined as that of regulator, provider of public services, and creator of an enabling environment for private sector development. The candid assessment of the poor quality of governance and the emphasis on policy reforms and capacity building in Government is remarkable for an official government document. Although the 8% growth target will be difficult to achieve, the basic strategy of the 10th Plan is sound and merits strong support from India’s development partners. Their most important contribution would be to introduce international best practices to strengthen fiscal and other structural reforms highlighted in the 10th Plan.

______________

11. Rural poverty is targeted to decline almost 5 percentage points from current levels to 21.1% at the end of the 10th Plan.
    

Back I. Current Development Trends and Issues	Next III. ADB’s Development Experience