Parliament has been preoccupied with issues like the leakage of the Pathak report and a privilege motion to consider our multiple economic challenges. Last week I had written about some preconditions necessary for a successful Eleventh Five year Plan. I realise that not of all these can be met but there are some on which concerted action can make a difference, like re-classification of accounts, and a vastly improved design for centrally sponsored schemes. In this piece I propose to deal with some critical choices which need to be made by the Planning Commission before presenting the Approach Paper to the National Development Council.

First, for an 8-9 per cent rate of growth, the domestic rate of savings must increase from around 27.1 per cent to 32.3 per cent. This has been predicated on a marginal increase in household savings but substantial increase in government savings from a negative figure to a positive 2.6 per cent. Where are the government savings expected to come from, especially as privatisation has come to a halt? There is mention of increasing tax ratio but this could adversely impact private savings with an uncertain impact on the overall savings rate. Besides, the assumed elasticity of private savings to net income has not been explained.

Second, there has been considerable controversy surrounding the Fiscal Responsibility and Budget Management (FRBM) Act. What are the assumptions underlying the discussion about the timing of priority expenditures versus enforcement of the FRBM—how could we know that delaying the FRBM targets by X years would be enough time to begin accomplishing these goals? What about implementation difficulties? What would be a credible time for resuming attention on fiscal responsibility targets? What would reassure international investors that the relaxation was temporary?

... contd.