Unfazed by large scale protests over diesel price hike, Prime Minister Manmohan Singh on Saturday asserted it was a step in the right direction and expressed the hope that economy would rebound in the second half of the current fiscal.
"The recent increase in diesel prices is an important step in the right direction," he said while addressing the meeting of the Full Planning Commission which was called to approve the 12th Five Year Plan document.
The Prime Minister also made a case for comprehensive review of energy policy saying it was vital for energy security of the country.
Energy, Singh said, "is a difficult area where policy needs a comprehensive review. We are energy deficient and import dependence is going up. It is vital for our energy security that we increase domestic production and also increase the energy efficiency. Read PM's speech
"Rational energy pricing is therefore critical. Our energy prices are out of line with the world prices", he added.
The government had recently increased the price of diesel by Rs. 5 a litre and capped the use of subsidised LPG cylinder to six in a year per family, evoking sharp protests all over the country.
Referring to global economic issues, Prime Minister said, "these short term problems present a challenge, but they should not lead to undue pessimism about our medium term prospects.
"The economy has gained many strengths. Our immediate priority must be to orchestrate a rebound in the second half of the current year. We should then try to accelerate growth to reach around 9% by the end of the Plan period," he added.
The 12th Plan (2012-17) is proposing an annual average growth rate of 8.2%, which is lower than the earlier estimate of the 9%. The economy recorded a growth rate of 7.9% in the 11th Plan.
According to the Prime Minister, the 11th Plan growth rate was commendable, "for a period which saw two global crises – one in 2008 and another in 2011".
Singh further said that poverty declined twice as fast between financial years 2004-05 and 2009-10 than it did in the previous ten years, while the agriculture grew at 3.3% per year in the 11th Plan, much faster than the 2.4% observed in the 10th Plan.
As regards the growth prospects in the 12th Plan, Singh said, "we must also recognise that the 12th Plan is starting in a year when the world economy is experiencing difficulties and our economy has also slowed down".
Referring to scaling down of the target in the 12th Plan from the original estimate of 9% to 8.2%, he said, "some downward revision is realistic given the state of the world".
Cautioning that growth could slip if adequate actions were not taken, Prime Minister said, "I believe we can make Scenario I (which envisages growth rate of 8.2%) possible. It will take courage and some risks but it should be our endeavour to ensure that it materialises. The country deserves no less."
Referring to the infrastructure sector, Singh said efforts would be made to speed up implementation of the projects.
"This is critical for removing supply bottlenecks which constrain growth in other sectors. It will also boost investor sentiment to raise the overall rate of investment," he said while calling on the infrastructure ministries to set ambitious goals for their sectors over the 12th Plan.
The country needs close to $1 trillion of investment in infrastructure (in the 12th Plan period), he said, adding, "We have to work hard to achieve this".
The Prime Minister said he would himself review the performance of the infrastructure ministries to ensure speedy implementation of the targets.
He also emphasised the need for reviving investment in the economy to push growth. "The second component relates to macro-economic balance. To achieve the target of 8.2% growth we need to revive investment in the economy. The investment environment is therefore critical," he added.
At the same time, he said, efforts were needed to encourage Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII) to deal with the problem of current account deficit.
"Because export prospects are weak, the Plan projects a current account deficit of 2.9% of GDP. This must be financed mainly through FDI and FII flows...I believe we can attract the financing we need provided our fiscal deficit is seen to be coming under control and the growth momentum is regained," he said.
On fiscal deficit, he said, "(it) is too high and is attracting adverse comment from analysts. It must be brought down over the medium term to release domestic resources for productive deployment in the economy".
Talking about the social sector targets in the 12th Plan, Singh said, ambitious programmes were being put in place in areas like health, education, water resource management, MGNREGA, PMGSY, and the National Rural Livelihoods Mission.