Bhutan’s 10th Five-Year-Plan

Centrepiece is poverty reduction. Attention to agriculture and allocation of resources are the unique features of this plan

The 10th Plan has generated unprecedented interest and debate in the history of development planning in Bhutan. Political exigencies have contributed to this debate in a newly established democratic setup. On many occasions, the political discussion loses out to academic merits and demerits of the issues involved. As a student of economics I have only academic interest in the nature of 10th FYP.

In my opinion, the 10th FYP is a major departure from earlier development plans in at least two perspectives: first, it is the first time the issue of poverty reduction finds a central place in the planning process; second, the allocation of resources across the dzongkhags is based on more objectively defined criteria.

To understand the dynamics of the strategy of this plan, it should be noted that this plan is formulated against a backdrop of the findings of the poverty analysis report (PAR) 2007 and the democratic elections in 2008. PAR 2007 mentioned that 98 percent of the poor live in rural Bhutan and incidence of rural poverty is about 31 percent as compared to only 1.7 percent in urban areas. Poverty reduction automatically came to occupy top priority.

The plan rightly accords due importance to rural and agriculture sectors in its approach to poverty reduction. The tenth plan also explicitly recognises that higher an average growth rate of 8-9 percent would be critical to meet the millennium development goals related to poverty reduction targets. In the scheme of things, a higher growth rate in the agriculture sector (of about 4.3 percent p.a.) is considered to be critical to the success in realising targeted reduction in poverty. How realistic is this objective requires a critical analysis of the broader issues involved.

Considering that the agriculture sector has witnessed long term deceleration in its growth rate since 1990, how planners shift the agriculture sector into higher gear in the next five years is a real challenge. We have to remember that this deceleration was caused by supply constraints, such as decline in productivity growth, steep reduction in share of total investment and infrastructural bottlenecks.

Over a period of time, these bottlenecks have become deep rooted.

I have three questions – Are adequate resources available to remove these bottlenecks? What arrangements are being made to provide greater access to credit to the agriculture sector? Finally, will the present financial crisis limit the scope of exports of commercial crops, crucial to macro level food security as assumed by the plan?

How these questions are answered will ensure critical alignment of goals with strategies. Since the 7th FYP, the share of agriculture in resource allocation declined steeply from 18.3 percent to 6.9 percent in the 9th FYP. In the 10th FYP, the share of agriculture has increased to almost 10 percent. This expansion is definitely a welcome change but it may not be sufficient to push agriculture on to a higher growth trajectory of 4.5 percent, especially from the average of 2.3 percent agriculture registered in the first seven years of the present century. The plan emphasises the need for more capital intensive, technological choices and the triple gem approach (productivity growth, accessibility and marketing) for the agriculture sector. With the expected increase in capital intensity of technology, the resources earmarked for agriculture will not be sufficient.

The other important aspect is how private investment, an important corollary of public investment, is going to be financed. The plan document has not given consideration to the need for complementarity between the two. In the last two decades, the allocation loanable fund, in terms of percentage share, by financial institutions to the agriculture sector has declined drastically from an already low of 6 percent to less than 3 percent. The plan document does not spell out anything explicitly about the institutional arrangements for greater credit inflow towards this sector. For these reasons, I doubt the ability of the agriculture sector to meet growth targets and consequently the ability to reduce poverty at a desired rate.

The 10th plan focuses on handling the issue of macro level food security by expanding the scope of small scale commercial farming, catering to high-value-low-volume products for export. Organic products and other such, whose demand mainly comes from USA and Europe, are reeling under the financial crisis and may not have adequate demand as expected. If the crisis continues for some more years, the strategy regarding export orientation of agricultural activities will need a revision or else the macro level food security would be seriously compromised.

The second important feature of this plan is the proposed use of objective criteria for allocation of resources across the dzongkags and gewogs. It also proposes that resources be allocated in a ratio of 60:40 between dzongkhags and gewogs. The resource allocation formula for local governments includes factors, with weight given in parenthesis, such as – population (70%), food security based on the use of poverty incidence as a proxy variable (15%), geographical area (5%), and environment index based on forest coverage as a proxy variable (10%). This lends greater transparency in the manner resources are regionally allocated and is a welcome step, which enhances the perception of good governance.

Often there is a trade off between the issue of equity and efficiency.

The proposed formula can be rated as good on equity consideration but definitely misses out on the efficiency front. To make the point clear, let me assume a situation where a small dzongkhag and gewog uses the resources more efficiently, contributes more to the exchequer but receives less funds from the government as it has less population and less poverty.

It removes incentives to perform better. In my opinion, the formula should include some consideration to performance and efficiency.

I am aware that balancing the needs of equity and efficiency is a tightrope walk. We all recognise that planners have to synthesise many conflicting issues and, for an outsider, it is easy to find loopholes, but through these discussions we are able generate greater understanding of the issues involved.

By: Sanjeev Mehta
Source: Kuenselonline

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