Finance minister P Chidambaram and Planning Commission deputy chairman Montek Singh Ahluwalia seem to differ strongly on what needs to be done to catapult the economy to an 8-9% growth orbit over the next five years.
On August 14, Chidambaram wrote to Ahluwalia, questioning fundamental assumptions of the approach to the 11th Five-Year Plan (2007-12). The finance minister did not accept the Plan panels view that the burgeoning current account deficit (CAD) would hinder economic growth, saying, it was the governments inability to provide a supportive investment climate.
According to the Plan panel, the CAD as a percentage of the GDP is likely to grow from 2% to 2.8% as the GDP itself grows 9% from 7% over the five-year period. To contain the risks posed by a higher CAD to balance of payments, it seems to have settled for a GDP growth rate of 8.5%. But the finance ministry thinks insufficient private investment due to a lack of a reforms push, is the main obstacle to growth.
Chidambaram questioned the logic that poor demand would inhibit farm growth. It is more supply-side bottlenecks, such as wheat, pulses, sugar and edible oils, which is dragging down agriculture growth, he wrote.
Reacting to the Plan panel highlighting lack of credit at reasonable rates to agriculture and the failure of the organised credit system, Chidambaram wrote, it may be useful for the panel to suggest how to strike a balance between adequate credit and cheap credit. In other words, please dont preach.
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