Objectives and strategies of 12th Five Year plan.

Second generation reforms-Corporate Governance, CSR,

External sector and Capital account convertibility

BY: ABHINATH JHA ASHOK TIWARI

Twelfth Five Year Plan

(2012–2017)

Faster, More Inclusive and

Sustainable Growth

Five Year Plan

The five years plan in India is framed, executed and monitored by the Planning Commission of India. The economy of India is based in part on planning through its Five-Year Plans, which are developed, executed and monitored by the Planning Commission. The Planning Commission was set up in March, 1950 by a Resolution of the

Government of India.

12th five year plan

The union cabinet on approved the 12th five yearplan with its aim to renew Indian economy. Theplan would infuse a huge fund of rupee 47.7 lakh crand this will help to accomplish the economicgrowth to an average level of 8.2%. The plan isexpected to be one that encourages thedevelopment of India’s agriculture, education,health and social welfare through governmentspending .

Objectives

• Better performance in agriculture• Faster creation of jobs in manufacturing• Wider industrial growth• The creation of appropriate infrastructural facilities to

enhance agricultural and manufacturing growth• Stronger efforts at health, education and skill

development• Reforming the implementation of flagship programs• Special challenges focused on vulnerable groups and

back ward sections• Economic stability

Vision of rapid, sustainable and

more inclusive growth

Economic Growth

• Real GDP Growth Rate of 8.0 per cent.

• Agriculture Growth Rate of 4.0 per cent.

• Manufacturing Growth Rate of 10.0 per cent.

• Every State must have an average growth rate

in the Twelfth Plan preferably higher than that

achieved in the Eleventh Plan.

Poverty and Employment

• Head-count ratio of consumption poverty to be

reduced by 10 percentage points over the preceding estimates by the end of Twelfth Five Year

Plan.

• Generate 50 million new work opportunities in

the non-farm sector and provide skill certification

to equivalent numbers during the Twelfth

Five Year Plan.

Education

• Mean Years of Schooling to increase to seven years by the end of Twelfth Five Year Plan.

• Enhance access to higher education by creating two million additional seats for each age cohort aligned to the skill needs of the economy.

• Eliminate gender and social gap in school enrolment (that is, between girls and boys, and between SCs, STs, Muslims and the rest of the population) by the end of Twelfth Five Year Plan.

Health

• Reduce IMR to 25 and MMR to 1 per 1,000 livebirths, and improve Child Sex Ratio (0–6 years)to 950 by the end of the Twelfth Five Year Plan.

• Reduce Total Fertility Rate to 2.1 by the end ofTwelfth Five Year Plan.

• Reduce under-nutrition among children aged 0–3 years to half of the NFHS-3 levels by the endof Twelfth Five Year Plan.

Infrastructure, Including Rural Infrastructure

• Increase investment in infrastructure as a percentageof GDP to 8.2 per cent by the end of Twelfth Five Year Plan.

• Increase the Gross Irrigated Area from 90 million hectare to 103 million hectare by the end of Twelfth Five Year Plan.

• Provide electricity to all villages and reduce AT&C losses to 20 per cent by the end of Twelfth Five Year Plan.

• Connect all villages with all-weather roads by the end of Twelfth Five Year Plan.

• Upgrade national and state highways to the minimum two-lane standard by the end of Twelfth Five Year Plan.

• Complete Eastern and Western Dedicated Freight Corridors by the end of Twelfth Five Year Plan.

• Increase rural tele-density to 70 per cent by the end of Twelfth Five Year Plan.

Environment and Sustainability

• Increase green cover (as measured by satellite imagery) by 1 million hectare every year during the Twelfth Five Year Plan.

• Add 30,000 MW of renewable energy capacity in the Twelfth Plan.

• Reduce emission intensity of GDP in line with the target of 20 per cent to 25 percent reduction over 2005 levels by 2020.

Service Delivery

• Provide access to banking services to 90 per cent Indian households by the end of Twelfth Five Year Plan.

• Major subsidies and welfare related beneficiary payments to be shifted to a direct cash transfer by the end of the Twelfth Plan, using the Aadhar platform with linked bank accounts.

STRATEGIES

ECONOMIC GROWTH

• In 12th five year plan, 8.2% GDP growth is expected. Higher

investment and fund mobilization will induce market development

and employment.

• Well regulated and integrated markets would generate enough jobs

and live hood opportunities. Development through efficient capital

markets and public private partnership will further boost the

economy and thus may sustain the growth rate of 8.2 %.

• Growth of a sector through PPP model would lead to

decentralization of economies and inclusion of various sectors, such

that a parallel economic development is induced from this multi-

sectorial growth approach.

AGRICULTURE

India is now self dependent for domestic food demands as a result of green revolution and previous five year plans. Rural economy growth has to be enhanced by sustained agriculture growth and development of rural areas by providing rural infrastructure and amenities.

• A balanced regional development can be achieved through agro-dependent sectors.

• Innovative technologies and open-market economies would enhance HDI of rural population.

• Forest economies and tribal societies need greater protection and promotion

TRANSPORTATION

• In order to attain an overall growth urban governance, urban

renewal, finance and urban transportation reforms should be

focused.

• Adequate transport facilities would result in efficient distribution

network, thereby reducing in accessibility and consequently save

the cost involved. Improved connectivity would also help in

managing urbanization and reduction of migration in metro cities,

leading to development of small and medium town.

• Energy efficient transport systems needs to be incorporated with

emphasis on eco-friendly and renewable resources.

ENVIRONMENT

• With the fast pace of industrialization, India is already loosing area

under forest cover rapidly. More human interventions will lead to

severe loss of habitat.

• Environmental degradation and ecological imbalance are the two

aspects which result out of development initiatives at local and

global levels. Growth of economy without compromising on

environment is a key issue to be addressed as, sustainable growth

is essential now.

• Technological advancement, equitable distribution, affordability

along with public awareness is major points of concern.

DECENTRALIZATION

• Previous five years plans have faced the reluctance of public participation. The 12th five year plan however talks about decentralization, empowerment and information.

• The policy making process should trickles down to the lowest level of society and more people should have a say in the process.

• Citizens should be well informed and more powers should be given to the public to efficiently convey the issues by letting people know their powers and rights.

TECHNOLOGY

• Globalization has led to rapid industrialization and competition in the market. Technological and organizational innovation will help to enhance productivity and efficiency.

• Technological innovations leads to faster results and organizational innovation would help in efficient utilization of resources, facilitated by providing incentives and tax subsidies.

HEALTH CARE

• Healthcare conditions are improving in the country but its

affordability and accessibility is still an area to be focused on.

Curative and preventive healthcare would help in increasing general

quality of life.

• Focus on women and children is essential but importance to elderly

class and handicaps in order to achieve inclusive healthcare

development is essential.

• Shortage of qualified medical personnel at all levels is a major

hurdle in improving the outreach of the healthcare system,

especially the public health facilities

ENERGY

• Energy being the wheel of growth has to be focused to ensure faster and inclusive growth.

• Dependency on traditional energy resources has to be reduced with more emphasis on domestic renewable energy production. Use of Non Renewable Sources of Energy being restricted to priority based industries while promoting Non-Conventional Energy Resources for rest of the sector.

• Nuclear power program must continue, with necessary safety review. Active efforts need to be made to allay the apprehensions of people regarding the safety of nuclear power plants.

• Solar mission is seriously underfunded and requires more support. Wind power too requires greater support, especially for off-shore locations which have not been sufficiently explored

EDUCATION

• Education being a concerned sector in five year plans has to be now

emphasized more on accessibility, affordability and quality.

• The employability is to be increased for optimum exploitation of

human resources. Improvement in educational infrastructure,

research and developments.

• Vocational education will need to be given greater emphasis and

made more attractive. Skill Development needs a major focus at all

levels.

Conclusion

The economy entered the 12th plan period in an environment of great

promise but also one that presents major challenges. India has done

well on the growth front, but not so well on inclusion. Much of what

needs to be done to accelerate GDP growth to 8.2% so will be done by

the private sector, but the central and state governments have a crucial

role to play in providing a policy environment that is seen as investor

friendly and is supportive of inclusive growth.

Finally, the efficiency in implementation of projects on the ground needs to be greatly improved

Second Generation Reform

Corporate Governance, CSR, External sector and Capital account

convertibility

Historical Overview :

Pre-Independence :

1. Agrarian economy (70%

GDP from Agri. in 1947)

2. Food-deficient

3. Colonial exploitation

4. Zamindari system

5. Traditional industries

(Cotton Textiles – low

value-addition)

Pre-LPG• Resource poor economy

• Role of investment for the Govt.

• Socialistic thinking

– Soviet Influence on world

economists

• Optimally use of resources –Centralized

planning

• License Raj

– Sellers market

– No incentive for Quality or innovation

– Poor Customer service

– Cost plus pricing, no efficiency incentive

1st Generation Reforms

•De – Licensing

•Import liberalization

•Phased reduction of tariffs

•Reform Taxation – Direct & Indirect

•Reduction in tax rates

•Simplified tax regimes

•Forex reforms

•Allowed FII & FDI

•Dividend repatriation

•Repeal of FERA

2nd Generation Reforms• Successful

- Telecom reforms

- Banking Reforms

- Work in Progress

– Infrastructure

– Insurance – Life & Non Life

– Roads, Power, Ports, Airports

• Non Starters

– Labor law reforms

– Disinvestment

– Bureaucracy & Red tape

– Company Law reforms

– Exit Policy

Reform Objectives

• Acceptance of private sector as the engine of Economic growth

• Using Market forces and Competition to bring about efficiency – not regulation

• Bringing the benefits of foreign trade, foreign investment and technology to our economy

Corporate Governance

• Corporate Governance refers to the structures &processes for the efficient & proper direction &control of companies (both private and public) inthe interest of all stakeholders.

• It is safeguards against corruption andmismanagement, while promoting fundamentalvalues of a market economy in democraticsociety.

• It is a sincere commitment to creating andsustaining an ethical business culture in publicand private sectors

What is Corporate Governance ?

- Is a concept; one size does not fit all, HOWEVER:

- Basic Principles of Corporate Governance:

Accountability , Rights of Shareholders

Transparency, Interests of Stakeholders

Fairness, Good Faith, Diligence

Integrity, Trust, Disclosure

Responsibility , Controls, Commitment

Corporate Governance Framework

Governance Principles

Legal / Regulatory

Codes of Best Practice

Stakeholder Relations

Self Regulation

Ethical Standards

Risk Management

Why Corporate Governance Matters

• Enhances performance of companies

• Enhances access to capital

• Enhances long term prosperity.

• Provides a barrier to corrupt dealings- limiting discretionary decision

making, increasing oversight, introducing Codes of Ethics etc

• Impacts on the society as a whole:

Better companies, Better societies.

Conclusion

If a country does not have a reputation for strongcorporate governance practice, capital will flow elsewhere.

If investors are not confident with the level ofdisclosure, capital will flow elsewhere.

If a country opts for lax accounting and reportingstandards, capital will flow elsewhere.All enterprises in the country- regardless of how steadfast aparticular company’s practices may be- suffer theconsequences. Markets exist by the grace of investors andit is today’s more empowered investors that will determinewhich companies and markets will stand the test of timeand endure the weight of greater competition. It serves uswell to remember that no market has a divine right toinvestors’ capital

CSR- Corporate social responsibility

• What is CSR ?

It is extended model of corporate governance based on fiduciary duties owned to all the firm’s shareholders.

CSR is the responsibility of corporations to go above and beyond what the law requires them to do.

It is the responsibility of corporations to contribute to a better society and cleaner environment.

Types of CSR

According to Geoffrey Lantos : Three main type of CSR :-

• Ethical CSR : It’s about the responsibility to avoid harms or social injuries.

• Altruistic CSR : Contributing to the common good at the possible expenses of the business for altruistic, humanitarian or philanthropic causes.

• Strategic CSR : It’s about firm’s social welfare responsibilities that benefit both the corporation and stakeholders.

Benefits of CSR

• Increased employee loyalty & retention.

• Increased quality of products and services.

• Increase customer loyalty.

• Increase reputation and brand image.

• Access to capital & Market.

• Reduced regulatory oversight.

External sector

• The liberalisation of India's external sectorduring the past decade was extremelysuccessful in meeting the Balance of Paymentcrisis of 1990 and putting the BOP on asustainable path.

• These reforms improved the openness of theIndian economy vis-à-vis other emergingeconomies.

Cont….• India's economy is still relatively closed

compared to its 'peer competitors'. Furtherreduction of tariff protection and liberalisation ofcapital flows will enhance the efficiency of theeconomy and along with reform of domesticpolicies will stimulate investment and growth.

• The main lesson of the nineties is thatliberalisation of the current and capital accountincreases the flexibility and resilience of the BOP.This applies to trade, invisibles, equity capital,MLT debt flows, and the exchange market.

Capital account convertibility

• Capital account convertibility is a feature of anation's financial regime that centres on theability to conduct transactions of localfinancial assets into foreign financial assetsfreely and at country determined exchangerates.

CAC has 5 basic statements designed as points of action :

• All types of liquid capital assets must be able to be exchanged freely, between any two nations in the world, with standardized exchange rates.

• The amounts must be a significant amount (in excess of $500,000).

• Capital inflows should be invested in semi-liquid assets, to prevent churning and excessive outflow.

• Institutional investors should not use CAC to manipulate fiscal policy or exchange rates.

• Excessive inflows and outflows should be buffered by national banks to provide collateral.

Capital Account Transactions

• Capital Direct Foreign Investments.

• Investment in securities.

• Other Investments.

• Government Loans.

• Short-term investments.

The Tarapore Committee’s pre-conditions to adopting capital account convertibility in India

– Fiscal deficit should be reduced to 3.5 per cent. The Government should also set up a Consolidated Sinking Fund (CSF) to reduce Government debt.

– The Governments should fix the annual inflation target between 3 to 5 per cent. This was called mandated inflation target — and give foil freedom to RBI to use monetary weapons to achieve the inflation target.

– The Indian financial sector should be strengthened. For this, interest rates should be folly deregulated, gross non-paying assets (NPAs) should be reduced to 5 per cent, the average effective CRR should be reduced to 3 per cent and weak banks should either be liquidated or be merged with other strong banks.

The Benefits of Capital Account Convertibility:

1. Availability of large funds to supplementdomestic resources and thereby promoteeconomic growth.

2. Improved access to international financialmarkets and reduction in cost of capital.

3. Incentive for Indians to acquire and holdinternational securities and assets, and

4. Improvement of the financial system in thecontext of global competition.

Currently Restrictions : Capital Account

• Limits to companies borrowing abroad.

• Restriction on foreigner investing in India.

• Restriction on amount that FII can hold.

• Purchasing a company is allowed but limitexit on the amount that can be send.

• Global Diversification of household portfoliois practically non-existent.

Limits to Partial CAC

Limits specified by the RBI:-

• Private visit

• Business travel

• Gift or donation

• Employment /For studies abroad

• Investment : Foreign stock markets

• Borrowings

Reasons favoring Restrictions

• Good times- More inflow; Bad times- More outflow.

• Misallocation of Capital inflows.

• Export of domestic Savings.

• Entry of Foreign banks can create Unequal playing field.

• Highly volatile international finance (hot money)- Higher speculation.

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