Macroeconomic Modelling of Emerging Scenarios for India's Twelfth Five-Year Plan

India's 12th Five-Year Plan (2012-13 to 2016-17) emphasises 'faster, sustainable and more inclusive growth'. The GDP growth target for the Plan was initially fixed at 9 per cent and later revised to 8 per cent against the backdrop of significant contraction of domestic output during the first two years of the Plan period. The Plan document has set a target of achieving a 2 percentage point reduction in poverty per annum. However, the document has cautioned that achieving the revised growth target also needs special efforts and structural reforms in the economic, social and political systems. For the first time, the Planning Commission has proposed to work on 'scenario planning' for the 12th Plan. It has proposed three scenarios: 'The Flotilla Advances', 'Muddling Along' and 'Falling Apart'. The main thrust of scenario analysis is to highlight the need for specific interventions in policy to achieve the goals of the Plan. Using the macroeconometric model developed by the National Council for Applied Economic Research (NCAER) in India, the study finds that GDP growth rate will decline significantly under the Falling Apart scenario compared with the other two scenarios. As a result, poverty reduction is expected to be marginal under this scenario. The Falling Apart scenario will also lead to an unsustainable fiscal and current account deficit situation over the medium term. The other important finding of the study is that investment in social infrastructure (education and health) and physical infrastructure would not only achieve higher economic growth but also sustain it in the long term and both infrastructures have a similar impact on growth.