4.29. In certain States, Road Transport Corporations are also incurring losses or making only a small profit. It is necessary to augment their revenues through suitable revision of fares. Besides, the other sources of revenue will have to be exploited more intensively and effectively.
Borrowing Against Utilisation of Foreign Exchange Reserves 4.30. The foreign exchange position is quite comfortable and the reserves have increased substantially. It would, therefore, seem desirable to draw down
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these reserves by about Rs. 600 crores in the next two years in order to raise additional resources for the Plan. Accordingly, credit has been taken for an amount of Rs. 600 crores by way of borrowing from Reserve Bank during these years against drawing down of the foreign exchange reserves. The additional imports will have to be carefully planned so as to help in increasing investment capacities in core sectors and stabilising prices of essential commodities. The precise areas in which additional imports could be effected will have to be looked into continuously. However, the main accent of the policy should be on stabilising the prices of essential commodities. Even if sales of such imported commodities do not yield profits and involve subsidy in some cases, the utilisation of foreign exchange reserves will result in a net addition to real resources to sustain the Plan. The interests of domestic producers could be effectively taken care of by ensuring that the issue prices of imported commodities tend to be at par with those of domestic materials. This would avoid any artificial depression of prices and possible consequential disincentive to domestic producers.
4.31. The above strategy, it must be emphasised, is intended for normal years. Should there be any year of unfavourable crops, necessitating larger imports of foodgrains and raw materials, the import policy in respect of other commodities will have to be suitably modified.
External Assistance 4.32. Following the hike in oil prices and a sharp increase in the import prices of certain other important commodities like fertilisers and foodgrains, India's balance of payments came under heavy pressure during 1974-75, necessitating recoursoe to larger external assistance. The total net external assistance in that year, inclusive of oil credits (but excluding drawings on IMF and utilisation of the Oil Facility which are not reflected in Government budget) amounted to Rs. 758 crores. In the following year, net external assistance, inclusive of oil credits and special assistance from Iran, went up to Rs. 1389 crores. For the current year, the Budget Estimates place such assistance at Rs. 1287 crores. The total for the first three years thus comes to Rs. 3434 crores. For the next two years, it has been taken at Rs. 1200 crores a year, or a total of Rs. 2400 crores, on the basis of the balance of payments requirements. The total for the Fifth Plan period would work out to Rs. 5834 crores.
Deficit Financing* 4.33. Deficit financing has been reduced significantly from the beginning of the Fifth Plan period. In 1974-75, it amounted to Rs. 654 crores. A substantial part of this was, however, on account of payments for stocks in hand of
Figures of deficit financing indicated here relate to changes in Government indebtedness (both long-term and short-term) to the Reserve Bank of India.
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imported tood and fertilisers. As both these commodities were purchased abroad by drawing down foreign exchange reserves, the payments under reference had no impact on money supply. The remaining deficit was much lower than in the preceding years- Rs. 775 crores in 1973-74, Rs. 848 crores in 1972-73 and Rs. 710 crores in 1971-72. This helped materially in bringing the inflationary forces under control. In 1975-76, there was actually a surplus of Rs. 206 crores. This helped in further strengthening the price stability. The latest estimates for the current year indicate a deficit of Rs. 306 crores. On this basis, the total for the first three years comes to Rs. 754 crores.
4.34. The estimates for the next two years take credit for deficit financing of Rs. 300 crores a year. Given effective and efficient short-term and mediumterm management of the economy along the lines indicated earlier, this order of deficit financing is not expected to generate any additional inflationary pressures. With sizeable buffer stocks of foodgrains and comfortable foreign exchange situation, the Government is now in much better position to maintain conditions of price stability, but the emerging economic situation will need to be continuously watched in order to take prompt corrective action when necessary.
Central Assistance 4.35. The Central assistance allocated to the States for the first three years adds up to Rs. 3131 crores. The normal Central assistance was kept at 1973-74 level for the first two years and increased by 10 per cent over that level for each State, except Sikkim, for 1976-77. Assistance to Sikkim is being given on the basis of the assessment of its requirements. Besides, advance Plan assistance has been given to certain States for meeting the gap in their resources for funding the inescapable requirements of Plan outlay in core sectors. Further, advance Plan assistance was given for accelerating the implementation of selected irrigation and power projects in 1975-76. Following the recommendations of the Sixth Finance Commission, advance Plan assistance is also being given for development works taken up by the States in connection with relief from natural calamities.
4.36. For the Fifth Plan period as a whole, the total Central assistance has been taken at Rs. 6000 crores. Of this, Rs. 450 crores is proposed to be allocated for hill and tribal areas and the NEC. Besides, it seems reasonable to keep apart some amount for providing extra assistance to the States in respect of State Plan schemes financed with IDA/World Bank assistance. The State Governments have been pointing out that in the case of such schemes, the IDA/World Bank insist on incurring certain order of outlay within a specified period, thereby imposing an additional burden on State Budgets in the Plan period whereas the external assistance accrues to the Central budget. Taking the various factors into consideration, it was agreed last year to provide to the States for that year extra Central assistance amounting to 25 per cent of IDA/World Bank disbursements in respect of the State Plan projects assisted by them. In the rest of the
39
Plan period also, it would seem desirable to give extra Central assistance to the extent of 15-25 per cent of IDA/World Bank disbursements in respect of the State Plan projects assisted by them, depending on the resources position of the States concerned. On the whole, it seems sufficient to reserve an amount of Rs. 100 crores for this purpose during the Fifth Plan period as a whole. The remaining amount of Rs. 5450 crores is proposed to be allocated among the States on the basis of up-dated calculations in terms of the Gadgil formula.
4.37. It will be recalled that a lump sum allocation was made for Jammu and Kashmir, Assam and Nagaland under the Gadgil formula. Accordingly, it is proposed to make a lump sum allocation for the Fifth Plan period for these states and Himachal Pradesh, other North Eastern States and Sikkim which became States after the Gadgil formula was evolved. The balance of the Central assistance would be distributed among the remaining States on the basis of up-dated calculations in terms of the Gadgil formula. For this purpose, the CSO has made available comparable estimates of per capita income of the States during the three-year period 1970-71 to 1972-73. Advance Plan assistance given to the States would be adjusted from the total entitlement worked out for them for the Plan period as a whole in order to arrive at the amount to be allocated for the next two years.
4.38. It may be recalled that 8 per cent of the Central assistance in the next two years is to be specifically earmarked against performance in Family Planning. Primarily, this will regulate the releases. There will be some saving due to some States not reaching the targets, which will get distributed amongst others. The amounts involved, however, would be small and are not expected to affect significantly the scheme of financing.
4.39. Central assistance is being given in the form of block grants and loans. It is proposed to continue the existing pattern of assistance, viz. 30 percent grant and 70 per cent loan along with the liberalised patterns in force for hill States and hill and tribal areas.
2. Saving and Investment 4.40. The revised estimates for the Fifth Five Year Plan envisage a total investment of Rs. 63751 crores. As in the case of Plan outlay and resources, the estimates for 1974-75 are at prices prevailing in that year while those for the subsequent years are at 1975-76 prices. The investment is to be financed by domestic savings of Rs. 58320 crores and a net inflow of Rs. 5431 crores from the rest of the world. Thus over 91 per cent of the total investment would be financed from domestic savings as compared to only 84 per cent estimated for the Fourth Plan.
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4.41 The distribution of the investment between the public and the private sectors is as under :
Public Sector Rs. 36703* crores
Private Sector Rs.27048 crores
Total Rs.63751 crores
*Includes inventories.
4.42. As stated earlier, the total provision for Plan outlay in the Public Sector is Rs. 39303 crores. Of this Rs.5700 crores represent current development outlay while the balance of Rs. 33603 crores is for investment. Adding to this investment an estimated amount of Rs. 3000 crores for inventories, and Rs. 100 crores for investment of public financial institutions in their own fixed assets, the total Public Sector investment works out to Rs. 36703 crores. Thus, of the aggregate investment under the Fifth Plan about 58 per cent will be in the Public Sector and the rest of 42 per cent will be in the Private Sector.
Domestic Savings 4.43. The broad details of the estimates of domestic savings by generating sectors are given in Annexure 10. The summary position is as under :
Domestic Savings by Generating Sectors
(Rs. crores)
sector savings
(0) (1)
1. public sector 15028
(a) central and state budgets 8536
(b) central and state non-deptt enterprises 6492
2. financial institutions 1263
(a) Reserve Bank of India 841
(b) others 422
3. Private sector 42029
(a) private corporate non-fin.sector 5373
(b) cooperative non-credit instt. 175
(c) household sector 36481
4. total domestic savings 58320
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Of the aggregate domestic savings of Rs. 58320 crores about 27 per cent amounting to Rs. 15994 crores will be contributed by the public sector comprising government administration, departmental and non-departmental undertakings, and public financial institutions. The balance of about 73 per cent is accounted for by the private sector comprising corporate enterprises, cooperatives and households. The average rate of domestic saving is estimated to rise from 14.4 per cent of GNP in 1973-74 at 1973-74 prices to 15.9 per cent in 1978-79 at 197576 prices. The marginal saving rate based on GNP and domestic savings estimates for 1973-74 converted to 1975-76 prices is estimated at 26 per cent.
4.44. The basic strategy of the Fifth Plan continues to aim at a higher rate of growth of saving in the Public Sector. Accordingly, public savings are projected to grow from 2.5 per cent of GNP in 1973-74 to 4.6 per cent of GNP in 1978-79. Correspondingly, the private savings, though considerably higher by over 40 per cent in nominal terms than the 1973-74 level, are estimated to decline as a proportion of GNP marginally from 11.9 per cent in 1973-74 to 11.3 per cent in 1978-79. The details of the estimates of public and private disposable income and saving are given in Annexures 11 and 12. The estimates of savings by Sectors are shown below :
Domestic Savings by Sector of Origin 1973-74 and 1978-79
savings (rupees crores) per cent of GNP
sector at 1973-74 at 1975-76 1973-74 1978-79
prices
1973-74 1978-79
(0) (1) (2) (3) (4)
1. public sector 1423 4045 2.5 4.6
(i) government 772 2704 1.4 3.1
(ii) autonomous
public enterprises 651 1341 1.1 1.5
2. private sector 6824 9868 11.9 11.3
(i) corporate 821 1268 1.4 1.4
(ii) cooperative 65 95 0.1 0.1
(iii) household 5938 8505 10.4 9.8
3. total 8247 13913 14.4 15.9
Government Savings 4.45. Aggregate savings of the Government Administration sector including departmental enterprises are estimated to improve from 1.4 to 3.1 per cent of GNP i.e. by 1.7 percentage points over the Fifth Plan period. In absolute terms
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Government disposable income is estimated to rise from Rs. 6241 crores in 1973-74 to Rs. 13297 crores in 1978-79 while Government savings are estimated to grow from Rs. 772 crores to Rs. 2704 crores during this period.
Autonomous Public Enterprises 4.46. Savings of the autonomous public enterprises comprise retained profits and depreciation provision of these enterprises. There has been considerable expansion of public sector investment in such undertakings since the Second Five Year Plan. The return from these enterprises has been rising albeit gradually. It is necessary that these enterprises contribute to the domestic savings in magni- tudes commensurate with the investment made. Considering all relevant factors the savings of these enterprises are projected to grow from Rs. 651 crores i.e. 1.1 per cent of GNP in 1973-74 to Rs. 1341 crores i.e. 1.5 per cent of the GNP in 1978-79.
Investment and Saving in the Private Sector 4.47. The resources available for Private Sector investment out of the savings of this sector are estimated at Rs. 27048 crores.The details of the estimates are as under :
amount
(Rs. crores)
(0) (1)
1. own savings 42326
(i) corporate 5373
(ii) cooperative (non-credit) 175
(iii) households 36481
(iv) financial institutions 297
2. net transfers to other sectors 15278
(i) domestic sector 15086
(ii) rest of the world 192
3. total resource
available (1-2) 27048
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Transfers from the Public Sector to the Private Sector for investment purposes would add to these resources. Provision for such transfers is included in the Plan outlay of the Public Sector.
Private Corporate Savings 4.48. Private corporate savings are estimated to grow from Rs. 821 crores in 1973-74 to Rs. 1268 crores in 1978-79 i.e. at a compound rate of about 9 per cent per annum. The estimates of retained profits and depreciation have been made on the basis of anticipated increase in gross value added and growth of gross fixed investment in this sector.
4.49. About 37 per cent of the total private corporate savings would accrue through retained profits and the balance of about 63 per cent would emerge from the depreciation provision, The following table indicates the growth of private corporate savings from 1973-74 to 1978-79.
Saving (Rs. crores) Percent of GNP
1973-74 1978-79 1973-74 1978-79
(0) (1) (2) (3) (4)
retained profits 337 467 0.6 0.5
depreciation 484 801 0.8 0.9
total 821 1268 1.4 7.4
Household Savings 4.50. The savings of the household sector comprise net increase in financial assets and direct investment in the creation of physical assets. The increase in the net savings of the households in the form of financial assets during the Fifth Plan is estimated at Rs. 18835 crores as shown below :
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Increase in Net Financial Assets of the Households,
during the Fifth Plan Period.
amount
(Rs. crores)
(0) (1)
1. deposits 12213
(i) commercial banks 10438
(ii) cooperatives 1045
(iii) non-banking companies 680
(iv) term financing institutions 30
(v) private corporate financial companies 20
2. currency 1216
3. life insurance corporation-life fund 2186
4. provident funds 5062
(i) employees provident fund 2522
(ii) state provident funds 1987
(iii) others 553
5. private corporate and coop. shares and
debentures including units. 657
6. govt. obligations- small saving, debts, deposits
and misc.items 3746
7. total increase in gross financial assets 25080
8. less increase in financial liabilities (-)6245
9. net increase in financial assets 18835
The estimates of increase in the various constituents of gross financial assets and liabilities are based on the latest Reports, other available data and the observed trends in the past.
4.51. The direct investment of the households in physical assets has been estimated following the C.S.O. methodology of estimating gross capital formation under construction, machinery and equipment and changes in stocks, and deducting therefrom the savings of the various sectors-Public, Corporate, Cooperative, Rest of the world and. households financial. The estimate of investment in construction has been made on the basis of commodity inputs and the observed relation between value added and investment in the Sector. However, due to Jack
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of data, and conceptual difficulties, Kutcha construction requiring mainly labour inputs has not been taken into account. The estimated investment in machinery and equipment is based on the end use of the projected levels of goods. Estimates of changes in stocks have been worked out on the basis of observed relationship between fixed investment and inventory requirements and cross tested with other available indicators. The total household savings in physical assets are estimated at Rs. 17646 crores during the Fifth Plan period.
Inflow from the Rest of the World 4.52. The net inflow from the rest of the world for financing the current account deficit in the balance of payments is estimated at Rs. 5431 crores as shown below :
amount (Rs. crores)
(0) (1)
inflow
1. gross external assistance 9052
2. commercial credits
outflow
1. IMF (net) (+) 115
2. repayments of debt services (-) 2465
3. aid to foreign countries (-) 494
4. others (-) 473
5. changes in reserves-increase (-) (-) 304
net inflow 5431
3 Balance of Payments
Review 1974-76 4.53. The momentum of growth in exports witnessed during the last two years of the Fourth Plan, continued in the first two years of the Fifth Plan. Exports rose to Rs. 3329 crores in 1974-75, registering a growth rate of 32 per cent and further rose to Rs. 3942 crores in 1975-76 recording a growth rate of 18 per cent. Imports aggregated to Rs. 4519 crores in 1974-75 as against Rs. 2955 crores in 1973-74. Imports further rose to Rs. 5158 crores in 197576, showing an increase of 14 per cent over the previous year Annxures 13
46
and 14 show the composition of exports and imports respectively in the first two years of the Fifth Plan.
4.54. India's terms of trade have deteriorated sharply since 1973-74, mostly due to the hike in prices of food, fertilisers and POL. With 1968-69 as base, the unit value indices of imports of these three items shot up from 182, 91 and 334 in 1973-74 to 229, 173 and 736 in 1974-75, and to 276, 167 and 829 in 1975-76, respectively. The terms of trade index which showed improvement in the first four years of the Fourth Plan, fell steeply from 124 in 1972-73 to 106, 77 and 70 in the next three years respectively.
4.55. Data on foreign exchange reserves are reproduced below
(Rs. crores)
Year total reserves movements
(0) (1) (2)
1973-74 947
1974-75 969 +22
1975-76 1885 +916