FINANCIAL RESOURCES
1. Financing of the Public Sector Plan The resources for the Fifth Plan have been reassessed in consultation with the Ministry of Finance, State Governments and Union Territory Administrations. For the public sector, these are estimated at Rs. 19396 crores for the first three years of the Plan and at Rs. 19907 crores for the next two years, making a total of Rs. 39303 crores for the five-year period. The estimates for 1974-75 are at current prices while those for the subsequent years are at 1975-76 prices. The total for five-years would undergo a slight change if the resources for 197475 were also recomputed in terms of 1975-76 prices.
4.2. The above estimates do not take into account the provision for inventories and the internal resources of public financial institutions utilised for their own investment in fixed assets, as it was decided, subsequent to the formulation of the Draft Fifth Plan, to keep outside the Plan inventory changes and investment of public financial institutions in their own fixed assets. Additions to inventories in the Public Sector during the Fifth Plan period are now estimated at around Rs. 3000 crores. Taking this into account, the total development outlay in the public sector would work out to about Rs. 42300 crores. In money terms, this shows an increase of Rs. 5050 crores over the estimate in the Draft Fifth Plan. If adjustment is also made for internal resources of public financial institutions utilised for their own investment in fixed assets, the increase will be approximately Rs. 5150 crores. The estimate in the Draft Plan was, however, in terms of 1972-73 prices. If allowance is made for the rise in prices since then, the resources in real terms would be lower than anticipated earlier.
4.3. In view of the paramount need to promote growth with stability, the Plan has to be financed in a non-inflationary manner. This will call for strict fiscal discipline, further improvement in the performance of public enterprises, additional resource mobilisation and restraint on consumption, especially of the more affluent sections of the community. Monetary policy will have to be synchronised with fiscal policy in order to check undue expansion of the aggre-
gate monetary demand. It is becoming more and more clear that alongside planning of investment outlays, there has to be concurrent planning of credit, so that it is more purposefully regulated and kept within strict limits consistent with the requirements of increasing production. At the same time, it will be necessary to realise fully the production targets indicated in the Plan ; this is of crucial importance from the point of view of resource generation as well as maintaining conditions of price stability. Public distribution system will have to be enlarged and strengthened and it would be necessary to bring in a comprehensive system for stabilising the prices of essential commodities and eliminating short-term and speculative price fluctuations. With substantial food-stocks and foreign exchange reserves, the Government is now in a much better position to deal effectively with any possible adverse development in relation to the price situation, but strict vigilance and monitoring of economic trends and development would be necessary so that prompt remedial measures are taken when necessary.
4.4. The detailed scheme of financing the Fifth Plan in the public sector in set out in the Table on next page. Separate estimates for the Centre and the States are given in Annexures 7 and 8.
4.5. It will be seen that domestic budgetary resources are expected to provide Rs. 32,115 crores, or 81.7 per cent of the total resources required for financing the Plan. External assistance would account for Rs. 5834 crores, or 14.9 per cent of the Plan outlay. However, in view of the sharp rise in import prices of investment and intermediate goods, the effective contribution of external assistance in sustaining investment in real terms has been lower than would appear from this calculation. The balance of the Plan outlay amounting to 3.4 per cent of the total would be met through deficit financing. Brief comments on individual items of financing are given below.
Balance from Current Revenues 4.6. At 1973-74 rates of taxation, the balance for the Plan from the current revenues of the Central and State Governments in the first three years is estimated at Rs. 3338 crores. This is much below the original expectation, due mainly to revision of emoluments of Government employees, school teachers and employees of local bodies following the steep rise in prices, higher cost of materials, larger food and export subsidies and increased burden of debt service. The tax and non-tax revenues of the Central and State Governments have also been more buoyant, but this could offset only part of the increase in the non-Plan expenditure.
4.7. For the next two years, the balance from current revenues at 1973-74 rates of taxation is estimated at Rs. 1563 crores. This takes into account the normal growth of tax and non-tax revenue as a result of the anticipated growth of production and incomes and allows for only minimum increases in non-Plan expenditure. Provision for food subsidy has been made at the existing rates
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4.8. On the basis indicated above, the total of the balances from current revenues for the Fifth Plan at 1973-74 rates of taxation comes to Rs. 4901 crores as against the original estimate of Rs. 7348 crores. The Central and State Governments and their enterprises have, however, undertaken additional resource mobilisation far in excess of the target in the Draft Fifth Plan. Credit for this has been taken separately.
Contribution of Railways 4.9. Based on fares and freight in 1973-74, the contribution of railways towards the financing of the development programme in the first three years of the Fifth Plan is estimated at Rs. (-)1005 crores. The sharp deterioration in the contribution as compared to the original anticipation is attributable in a fair measure to slow growth of traffic, increase in working expenses due to revision of emoluments of railway employees and rise in the prices of fuel, stores, etc. and higher interest payments.
4.10. Taking into account the increase in freight traffic, which is expected to rise from an estimated 230 million tones in 1976- 77 to about 260 million tonnes in 1978-79 and allowing for further improvement in operational efficiency, the contribution of railways to the Plan is the next two years on the basis of fares and freight in 1973-74 has been taken at (-) Rs. 813 crores. On this basis, the total for the Fifth Plan works out to (-) Rs. 1818 crores.However, the measures taken by the Railways in the first 3 years are expected to yield Rs. 2393 crores over the Fifth Plan period. Thus, at the existing fares and freight the total contribution of railways to the Plan is estimated at Rs. 575 crores. Credit for the yield from the revision of railway fares and freight has been taken separately under additional resource mobilisation.
Contribution of Posts and Telegraphs 4.11. The contribution of posts and telegraphs at 1973-74 rates of postal and telecommunication charges is estimated at Rs. 181 crores for the first three years. This too reflects the impact of revision of emoluments of postal employees and increased cost of materials purchased by Posts and Telegraphs. For the next two years, such contribution is estimated at Rs. 199 crores, so that the total for the Fifth Plan works out to Rs, 380 crores. If account is also taken of the additional revenue raised by the Posts and Telegraphes through revision of postal and telecommunication rates so far, the aggregate contribution to the Plan would work jut to Rs. 1114 crores.
Contribution of other Public enterprises 4.12. The contribution of non-departmental enterprises of the Central Government is estimated at Rs. 1615 crores for the first three years. There has been a marked improvement in their performance due to better capacity utilisation
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and improved operational efficiency. Assuming that this trend will continue, their contibution for the next two years, on the basis of the existing pricing policies, has been taken at Rs. 1375 crores. The total for the Fifth Plan thus comes to Rs. 2990 crores.
4.13. The contribution of State Government enterprises, mainly State Electricity Boards and Road Transport Corporations, is estimated, at 1973-74 tariffs and rates, at (-) Rs. 167 crores for the first three years. Taking into account the anticipated generation and sale of power and the growth of road traffic, such contribution for the next two years has been taken at (-) Rs. 536 crores, making a total of (-) Rs. 703 crores for the Fifth Plan period as a whole. The deterioration in the contribution as compared to the estimates in the Draft Fifth Plan is due mainly to sharp increase in establishment costs and higher prices of fuels, spares and other materials. These enterprises have, however, gone in for further resource mobilisation which is expected to yield Rs. 2364 crores over the Fifth Plan period. Credit for this amount has been taken under additional resource mobilisation.
Market Borrowings 4.14. Net market borrowings by the Central and State Governments, State entreprises and local bodies during the first three years of the Plan are estimated at Rs. 3030 crores. Taking into account the likely further growth of bank deposits and the investible resources of the Life Insurance Corporation and Employees Provident Fund, such borrowings for the next two years have been taken at Rs. 2849 crores. This assumes investment of a higher proportion of the net accretion to bank deposits in Government and other approved securities, since the additional requirement of bank credit for food stocks in these years is not expected to be of a large order. However, while meeting the genuine requirements of the commercial sector, it will be necessary, as already mentioned, to observe strict disipline and restraint in the matter of credit expansion. Any excess liquidity in the banking system will have to be frozen through a flexible and timely use of monetary policy. Similarly, any return flow of bank funds from the Food Corporation will have to be dealt with as part of the overall problem of monetary management. in no case, can it be allowed to lead to any expansion of bank credit for nonpriority or inessential purposes.
Small Savings 4.15. Net collections of small savings in the first three years of the Plan are estimated at Rs. 1092 crores. Taking into account recent trends and other relevent factors, the estimate for the next two years has been taken at Rs. 930 crores; this will call for concerted efforts to increase small savings.
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State Provident Funds 4.16. Net receipts from State provident funds in the first three years of the Plan are estimated at Rs. 1050 crores. For the next two years, these have been taken at Rs. 937 crores, inclusive of the credit on account of the payment into provident funds of the first installment of the DA being impounded in the current year under the extended scheme of compulsory savings, together with interest thereon.
Term-loans from Financial Institutions 4.17. For the first three years, such loans are estimated at Rs. 340 crores. For the next two years, gross loans of the LIC to State Electricity Boards as also for water supply and sewerage schemes have been calculated by applying a growth rate of 10 per cent to the current year's allocations. The same procedure has been adopted in the case of REC loans. LIC loans to State Governments for housing have been tentatively taken at the current year's level for each of next two years. The actual allocation will be determined in consultation with the LIC as part of the Annual Plan exercise. Loans from the Reserve Bank for participation in the share capital of cooperatives are based on assessment of the States' requirements in this respect. The total gross loans for the next two years have been taken at Rs. 485 crores. After providing for repayments, the net loans come to Rs. 288 crores. On this basis, the total net loans in the Fifth Plan would amount to Rs. 628 crores.
Miscellaneous Capital Receipts 4.18. These reflect the net result of receipts and disbursements under a number of budget heads. The major sources of receipts are loan recoveries from households, special deposits by the Employees' Provident Fund and other non-Government provident funds and net accretion to other deposits and funds, while the major disbursements are loans for non-Plan purposes and capital outlays out- side the Plan, including outlay on State trading. The estimates for 1976-77 also take into account special borrowing of Rs, 480 crores from the Reserve Bank against compulsory deposits.
4.19. It may be noted that loans and other assistance to the Rural Electrification Corporation are being reckoned as non-Plan disbursement for the purpose of calculating net miscellaneous capital receipts. Since loans by this Corporation are treated as part of the States' Plan resources, assistance to it by the Centre has to be reckoned as non-Plan in order to avoid double counting.
4.20. For the first three years of the Plan, the miscellaneous items on capital account are expected to involve a net outgo of Rs. 556 crores, due mainly to large outlay on account of fertiliser transactions, substantial loans to public enterprises to meet their losses and budget support to the Rural Electrification Corporation and Food Corporation.
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4.21. Net miscellaneous capital receipts for the next two years are estimated at Rs. 1112 crores. These take into account anticipated receipts from compulsory deposits, special deposits of the Employees' Provident Fund and other non-Government provident funds, etc. and allow for necessary budget support to the Rural Electrification Corporation. The aggregate net miscellaneous capital receipts over the Fifth Plan period work out to Rs. 556 crores. This represents the net result of an inflow of Rs. 2222 crores at the Centre and outflow of Rs. 1666 crores in the States. The net outflow in the States is explained largely by loan repayments to the Centre. The same factor along with the anticipated receipts from compulsory deposits and special deposits of provident funds account for the large inflow at the Centre in spite of heavy non-Plan disbursements.
Additional Resource Mobilisation 4.22. The measures adopted by the Central and State Governments and their enterprises during the first three years (inclusive of some measures which are yet to be brought into force) are expected to yield more than Rs. 13,000 crores over the Fifth Plan period, which is only a little less than twice the level of Rs. 6850 crores indicated in the draft Plan (Annexure 9). The increase is shared by the Centre and the States.
4.23. The scheme of financing envisages further resource mobilisation of Rs. 900 crores (inclusive of States' share) by the Central Government and its enterprises over the next two years. Besides, the State Governments and their enterprises are expected to raise additional resources of Rs. 701 crores, inclusive of some amount which is expected to be raised through better collection of taxes and other Government dues and economies in non-Plan expenditure.
4.24. At the Centre, some reliance may have to be placed on indirect taxes. Such taxes may have to be used selectively for achieving certain policy objectives, e. g. curbing conspicuous consumption, promoting economic use of scarce resources and mopping up windfall profits in certain lines of activity. Rationalisation of the pricing policies of public enterprises would also be necessary in order to bring prices in better alignment with costs. Selective taxation of commodities and adjustments in product prices would involve only a sectional rise in prices and, given overall monetary restraint, there need be no significant impact on the general price level. In any case, the alternative to raising additional resources would be increased resort to deficit financing. This would inevitably lead to a general rise in prices and affect more seriously the vulnerable sections of the community. In a sense, therefore, there is hardly any choice in the matter of additional taxation and rationalisation of pricing policies of public enterprises.
4.25. Recently, a Committee has been set up to review the existing structure of indirect taxes-Central, State and Local, and to advise the Government on the measures to be taken in this field. The recommendations of the Committee should
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help in rationalising and improving this structure in conformity with the normal canons of taxation.
4.26. In the case of States, there is need as well as scope for raising further resources from the agricultural sector. Large public investments have been made for the development of agriculture, but there has been no commensurate increase in the contribution of the agriculturists towards the financing of these investments. The incidence of land revenue is very low, the average rate being about Rs. 6 per acre. Besides, the system is not progressive. Mobilisation of voluntary savings from rural areas by financial institutions is also far from adequate. In view of the increase in agricultural production and incomes and guaranteed support prices for major agricultural products, it would seem reasonable to call upon the agricultural sector, particularly the affluent section of the rural community, to make a larger contribution towards the financing of the development effort. It is, therefore, necessary to take further measures to raise additional resources through agricultural taxation.
4.27. There is also need for revision of irrigation rates and electricity tariffs. The State Governments are incurring heavy losses on irrigation works. In 197677, the loss on commercial irrigation is estimated at Rs. 235 crores. In certain States, receipts from irrigation are not sufficient even to cover working expenses, leave apart interest payments and depreciation provision. This, in effect, amounts to subsidising of farmers who benefit from the irrigation facilities provided by Government. It is the more affluent farmers who benefit more from the subsidy. It is, therefore, imperative to adopt suitable measures for reducing progressively the losses on irrigation works and ultimately eliminating these altogether.
4.28. A number of State Electricity Boards are also incurring substantial losses. In 1975-76, 15 State Electricity Boards incurred losses estimated at a total of Rs. 130 crores. In spite of further tariff revision, 12 State Electricity Boards expect to incur an aggregate loss of Rs. 106 crores in the current year. It is, therefore, necessary to adopt appropriate measures, including revision of electricity, tariffs for reducing these losses and achieving a reasonable rate of return on investment in power projects. The rates for rural electric supply also need to be reviewed in order to reduce or eliminate the subsidy wherever feasible.