OBJECTIVES AND STRATEGY OF THE SIXTH PLAN
The Sixth Five Year Plan has been formulated taking into account the achievements and failures of the past three decades of planning recent economic developments which have a bearing on the growth prospects of the economy in the medium term as well as the vision of the future as reflected in the long term perspective. The removal of poverty is the foremost objective of the Sixth Plan even though it is recognised that given the magnitude of the task, it cannot be accomplished in a short period of five years. Inevitably, the pace of movement towards the long-term objectives of removal of poverty and the achievement of self-reliance and the nature of priorities in the immediate period ahead, are influenced by the current economic situation and the constraints operating in the economic system. It should be recognised that the Sixth Plan is being launched under difficult conditions. These include the acute inflationary pressures which have prevailed since March 1979, a set-back in the functioning of such critical sectors as power, coal, railways and steel and the steep rise in the price of petroleum products resulting in an increasing deterioration in the nation's terms of trade and the balance of payments. A realistic blue-print of the Sixth Plan must take note of these unfavourable developments. Effective solution for the existing difficulties are a precondition of successful imple- mentation of the Sixth Plan it goes without saying that any effective solutions for these problems must be consistent with long term social and economic objectives so that the economy emerges out of these difficulties with improved growth prospects. Thus the economy is faced with many challenges and these will have to be met with courage, determination and a firm faith in India's destiny and future.
3.2 The wholesale price index has risen by nearly 17 per cent between a979 and 1980 and by nearly 16 per cent between April and November, 1980-81. With rising prices, the real resource content of the Plan is likely to erode over time with consequent adverse effects on the prospects for growth. Rational and balanced economic policies for checking inflation and measures to protect the real size of the Plan will need to be formulated.
3.3 Trends in capacity utilisation upto 1979-80 in major industries have been a sources of considerable concern because in most cases there has been a decline after 1976-77. For accelerating the tempo of industrial growth, improving the rates of return on capital and generating additional resources for the Plan, improvement in capacity utilisation must be regarded as a pre-condition for the success of the Sixth Plan (Table 3.1).
Table 3.1
Measurement of Capacity Utilisation in Major Sector, 1976-77 to 1979-80
(Per cent)
Sl.
No. Sector 1976-77 1977-78 1978-79 1979-80
(0) (1) (2) (3) (4) (5)
1 Saleable Steel (Integrated Plants) 91.9 90.3 81.5 69.1
2 Aluminium 83.5 61.3 66.4 58.2
3 Fertilizers (N) (Stabilised Plants) 83.6 82.3 83.3 76.6
4 Fertilizers (P20 5) 66.0 78.0 73.4 61.5
5 Cement 86.6 88.8 85.6 72.6
6 Newsprint 76.9 74.7 64.0 63.2
7 Paper and Paper Board 79.0 76.0 72.4 68.2
8 Power Generation Thermal 56.0 50.8 48.4 45.0
(All India Average Percent Capacity Factor)
9 Railways (Index of Net Tonne-Kilometres
Freight Traffic, 1950-51 100) 356 369 351 350
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As is evident from the table, recent trends in capacity utilisation in several industries are discouraging. This is also true for agriculture. For example, the irrigation potential which has been created is not fully utilised. Levels of yield per acre for many parts of the country are far below what can be attained with known technology. While the poor utilisation of capacity represents a waste of resources and thus adds to the resource constraint, it also provides an opportunity for a quick increase in output and productivity in the short run, thus improving the prospects for controlling inflation and creating conditions for accelerated growth in output as well as investment in coming years.
3.4 The poor utilisation of capacity in agriculture as will as in industry stems from many factors but major problem areas can be located in the basic infrastructure of power and transport. The efforts currently under way are expected to improve the short run situation with respect to power and transport; but further intensive efforts will be required over the Sixth Five Year Plan.
3.5 India's balance of trade has shown an adverse trend since 1977-78. As against a surplus of Rs. 72 crores in 1976.77, the deficit in trade balance was Rs. 621 crores in 1977-78 and is reported to have been more than Rs. 2370 crores in 1979-80. The available data regarding the balance of trade for the first six months of 1980-81 show that the deficit has already exceeded Rs. 3000 crores. The increase in trade deficit during 1977-80 was due not only to the lower export growth of 6.1 per cent compared to the growth rate of 26.8 per cent between 1974-77 at current prices, but also due to the rise in the value of imports at an average rate of 19 per cent annually.
3.6 This unfavourable picture is largely due to sharply deteriorating terms of trade since 1973-74 with some improvement temporarily in 1976-77 and 1977-78. The index of terms of trade with 1968= 100 shows a decline to 90 in 1978-79 when export prices declined somewhat and import prices rose in general by 4.4 per cent and further deteriorated very sharply in 1979-80 when import prices, particularly those of petroleum products, rose considerably resulting in a large trade deficit.
3.7 If despite this picture on the trade account, the foreign exchange reserves continued to rise upto 1978-79 it was due to the buoyancy of invisible receipts, in particular remittances from Indians working abroad. It is quite possible that these remittances have reached their peak. Also the international economy in general faces a sharp recession of demand which, together with the protectionist tendencies in the industrialised countries, poses a serious challenge to our efforts to expand export earnings. The general situation in the oil exporting countries is also such as not to hold out hopes of any substantial increase in the demand for our exports or for migrant labour. Already in 1979-80, there was a slight decline of Rs. 56 crores in foreign exchange reserves and in 1980-84 by December 26, they had fallen further by Rs. 381 crores despite recourse to the I.M.F. to the tune of Rs. 815 crores. Table 3.2 shows the main indicators of external constraints.
Table 3.2
Selected Indicators of Developments in the External Sector
Sl.
No. Item 1976-77 1977-78 1978-79 1979-80
(0) (1) (2) (3) (4) (5)
1 Exports as per cent of
Imports 101.4 89.7 84.1 73.0
2 P.O.L. bill :
(i) Rs. crores 1413 1551 1677 3200
(ii) As per cent of
exports 27.5 28.7 29.5 49.8
3 Net External Assistance
as per cent of imports 16.6 7.7 5.7 7.8
4 Foreign Exchange Reserves
(year end) 2863 4500 5220 5164
(Parenthesis show
variation) (Rs. crores). (1371) (1637) (720) (-56)
5 Debt service as per cent
of exports (i.e. Repayment
and interest) 14.7 15.2 15.4 11.1
6 Invisibles as per cent of
exports 16.0 26.2 33.3 35.2
7 Trade deficit (Rs.
crores) 72 (-)621 (-)1088 (-)2370
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3.8 Growth prospects of the economy have been adversely affected by all these three factors: inflationary situation, constraints imposed by a poor performance in the basic infrastructure and the deteri- orating balance of payments positions Since, however, the long term prospects of the economy depend significantly on the development of domestic resources, of oil, coal, power, and renewable source of energy, on the investment in the modernisation and expansion of transport and on a rapid growth in agriculture and rural development, it will be necessary to make the requisite effort to mobilise resources in the face of all these difficulties so as to put the economy back on the path of sustained and self-generating growth.
OBJECTIVES 3.9 It is in the light of these considerations that the objectives of the Sixth Plan have been formulated. These are given below. Along with the objectives are also listed major areas of effort which will be required to fulfil these objectives:
(i) a significant stop up in the rate of growth of the economy, the promotion of efficiency in the use of resources and improved productivity;
(ii) strengthening the impulses of modernisation for the achievement of economic and technological self- reliance;
(iii) a progressive reduction in the incidence Of poverty and unemployment;
(iv) a speedy development of indigenous sources of energy, with proper emphasis on conservation and efficiency in energy use;
(v) improving the quality of life of the people in general with special reference to the economically and socially handicapped population, through a minimum needs programme whose coverage is so designed as to ensure that all parts of the country attain within a prescribed period nationally accepted standards;
(vi) strengthening the redistributive bias of public policies and services in favour of the Poor contributing to a reduction in inequalities of income and wealth;
(vii) a progressive reduction in regional inequalities in the pace of development and in the diffusion of technological benefits;
(viii) promoting policies for controlling the growth of population through voluntary acceptance of the small family norm;
(ix) bringing about harmony between the short and the, long term goals of development by promoting the protection and improvement of ecological and environmental assets; and
(x) promoting the active involvement of all sections of the people in the process of development through appropriate education communication and institutional strategies.
3.10 The strategy adopted for the Sixth Plan consists essentially in moving simultaneously to strengthen the infrastructure for both agriculture and industry so as to create conditions for an accelerated growth in investments, output and exports, and to provide, through special programmes designed for the purpose, increased opportunities for employment especially in the rural areas and the unorganised sector and meet the minimum basic needs of the people. Stress is laid on dealing with inter-related problems, through a systems approach rather than in separate compartments; on greater managerial efficiency and intensive monitoring in all sectors and ,active involvement of the people in formulating specific schemes of development at the local level and in securing their speedy and effective implementation. The attack on the problem, of poverty is most effective only in the conditions of an expanding economy. Since growth by itself may not, however, suffice, other Programmes and policies will need to be adopted with the specific, aim of improving the living conditions of the masses and to bring about a reduction in inequalities of income and wealth. The scheme of the Sixth Plan outlays thus provides for specific allocations for such programmes.
MACRO-DIMENSIONS
Aggregate Saving and Investment 3.11 The Sixth Plan envisages a total investment (gross capital formation) of Rs.158710 crores over the plan period 1980-85 at 1979-80 prices. This is to be financed by domestic saving of Rs.149,647 crores estimated at 1979-80 prices during the Sixth Plan and net inflow of funds from abroad to the extent of Rs. 9063 crores. Thus, nearly 94.3 per cent of the total investment is to be financed from domestic resources.
3.12 The total investment has been projected to grow from Rs. 23,618 crores in 1979-80 to Rs. 36,797 crores in 1984-85. At the same time, the GDP at market prices has been projected to increase from Rs. 108,546 crores to Rs. 146,540 crores during the same period. Thus, investment (as per cent of GDP' at market prices) is expected to rise from 21.8 per cent in 1979-80 to 25.1 per cent in 1984-85.
3.13 Domestic saving has been projected to grow from Rs. 23,055 crores in 1979-80 to Rs. 35,870 crores in 1984-85. As per cent of GDP at market prices, the saving rate is envisaged to increase from 21.2 per cent in 1979-80 to 24.5 per cent in 1984-85, implying a marginal rate of saving of the order or 33.7 per cent over the plan period 1980-85.
3.14 The Sixth Plan aims at stepping up the rate of saving by bringing about an improvement in the ratio of saving to disposable income in the different sectors. Detailed estimates of sectoral disposable income consumption and saving in 1979-80 and 1984-85 are given in Annexures 2.1 and 2.2, and are summarised in Table 3.3.
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Table 3.3
Estimates of Disposable Income, Consumption and
Saving: 1979-80 and 1984-85
Sl. Rs. crores at Per cent of
No. Item 1979-80 prices GNP
1979- 1984- 1979- 1984-
80 85 80 85
(0) (1) (2) (3) (4) (5)
1 Public Sector
(i) Disposable Income 15772 25789 14.4 17.5
(ii) Consumption 11757 16879 10.7 11.5
(iii) Saving 4015 8910 3.7 6.0
Private Corporate and
Cooperative Sector.
(i) Disposable Income 1714 2972 1.5 2.0
(ii) Consumption .. .. .. ..
(iii) Saving 1714 2972 1.5 2.0
3 Household Sector
(i) Disposable Income 92379 118374 84.1 80.5
(ii) Consumption 75053 94386 68.3 64.1
(iii) Saving 17326 23988 15.8 16.4
4 Total
(i) Disposable Income 109865 147135 100.0 100.0
(ii) Consumption 86810 111265 79.0 75.6
(iii) Saving 23055 35870 21.0 24.4
3.15 Saving as per cent of corresponding disposable income is expected to rise from 25.5 to 34.5 per cent in the case of public sector and from 20.2 to 22.2 per cent in the case of private sector over the plan period 1980-85. Thus, saving effort in terms of sectoral disposable income is expected to show an improvement of 9 percentage points in the case of public sector and 2 percentage points in the case of private sector.
3.16 The share of public sector in aggregate domestic saving would rise from 17.4 per cent to 24.8 per cent, while that of the households would decline from 75.2 per cent to 66.9 per cent, as shown in Table 3.4.
Table 3.4
Sectoral Shares in Total Domestic Saving
Sl. Rs.crores*1 Share (per cent)
No. Sector 1979- 1984- 1979- 1984-
80 85 80 85
(0) (1) (2) (3) (4) (5)
1 Public Sector . . 4015 8910 17.4 24.8
2 Private corporate and
Cooperative sector 1714 2972 7.4 8.3
3 Household sector 17326 23988 75.2 66.9
4 Total 23055 35870 100.0 100.0
1*At 1979-80 prices.
Rate and Pattern of Growth 3.17 The choice of the rate of growth of gross domestic product of 5.2 per cent per annum has already been explained in Chapter 2. The sectoral growth rates are determined by the demand for and supply of different commodities and services either through the market mechanism or as a result of specific public policies adopted to clear specific markets. Sectoral growth rates are thus subject to technical, behavioural and institutional constraints as well as policies of the Government. A large part of the supply is determined by the investment decisions already made in the past; a large part of demand originates from the need for buildings up capacity for the future. There is also the foreign demand for our exports and the supply of imports from abroad. The pattern of growth is derived from a consistent system which is solved inter-temporally with an open economy model.
3.18 The model consists of an 89 sector input-output model integrating the Sixth Plan period with the perspective period (1985- 95) through a 14 sector investment planning model. In working out the input-output model for the Sixth Plan, technological characteristic of the economy have been taken into account. The treatment of private consumption, public consumption, investment and foreign trade used in the model for projecting the sectoral outputs in discussed below.
3.19 Public consumption expenditure and exports for the terminal year have been estimated exogenously. While the aggregate public consumption expenditure has been assumed to grow at an annual rate of 7.5 per cent, certain social services like health and medical services, education and other social services have been postulated to grow at slightly higher rates in line with the objective of increasing social consumption. Exports have been projected to grow at an average rate of 9 per cent annum at the overall level, while individual commodity exports have been projected to grow at different rates.
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1.20 The total investment outlay envisaged for the Sixth Plan period has been appropriately phased over the Plan period taking into account the gestation lags of the individual sectors and the growth profile both in the Sixth Plan and post Sixth Plan period. Sectoral investment outlay thus generated (i.e. investment by destinations) has been disaggregated into various capital goods and changes in stocks and used in the model (i.e. investment by sources).
3.21. Import projections for inter-industry use and final use for the terminal year have been endogenously derived through the use of import co-efficient matrices.
3.22 Private consumption expenditure on goods and services in the terminal year has been projected through the use of a consumption sub- model which considers demand functions for people below and above the poverty line as well as rural and urban areas separately. The projected demand pattern takes into account the consumption requirements consistent with the objective of a significant reduction in the proportion of people below the poverty line. Redistribution of consumption in favour of the poorer sections of the population has been provided for to assess the output implications of the postulate of a reduction in the percentage of population below the poverty line to 30, both in rural and urban areas by 1984-85.
3.23 The internally consistent and feasible sectoral pattern of growth satisfying the selected growth strategy, corresponding to the aggregate annual growth rate of 5.2 per cent in GDP and the envisaged reduction in poverty is given in Table 3.5.
3.24 While significant growth is projected for all the sectors, the changing pattern of demand, as is to be expected in a developing economy, indicates different growth rates at sectoral level, leading to a diversification of the production structure of the economy. The consequent structural change in the composition of gross domestic product over the Plan period is shown in Table 3.6. The share of mining and manufacturing in gross value added goes up from 19.59 per cent in 1979-80 to 21.22 per cent in 198485, of electricity from 1.71 per cent to 1.88 per cent, of transport from 4.89 per cent to 4.95 per cent and of services from 33.61 per cent to 34.00 per cent, indicating that agriculture would contribute 32.90 per cent of gross value added in 1984-85 as against 35.13 per cent in 1979-80.
Table 3.5
Projected Sectoral Growth Rates Of Value of Gross Output and Gross
Value Added at Factor Cost 1984-85/1979-80
Sl. Value of Gross
No. Sector Gross Value
Output Added
(0) (1) (2) (3)
(Per cent Per Annum Compound)
1 Agriculture . . . . . . 5.20 3.83
2 Mining and Manufacturing . . . . 7.76 6.90
(a) Mining . . . . . . 11.50 11.25
(b) Manufacturing . . . . . 7.62 6.50
(i) Food Products . . . . 6.20 4.35
(ii) Textiles . . . . . 4.40 3.61
(iii) Wood and Paper Products . . 6.80 5.30
(iv) Leather and Rubber Products . 6.50 6.33
(v) Chemical Products . . . 11.00 9.33
(vi) Coal and Petroleum Products . 7.50 7.35
(vii) Non-Metallic Mineral Products 6.50 5.15
(viii) Basic Metals . . . . 10.40 8.75
(ix) Metal Products . . . . 8.20 8.09
(x)Non-Electrical Engineering Products 11.20 9.11
(xi) Electrical Engineering Products 10.02 8.70
(xii) Transport Equipment 10.15 9.00
(xiii) Miscellaneous Industries 4.20 4.06
3 Electricity, Gas and Water Supply 11.25 7.15
4 Construction . . . . . . 7.10 5.10
5 Transport . . . . . . . 6.70 5.46
6 Services . . . . . . . 6.00 5.44
TOTAL .. 5.20
3.25 The projected rates of growth in output in the different sectors have been translated in terms of physical targets for important commodities in order to facilitate the formulation of necessary investment projects and production programmes. In addition, the physical targets for key commodities have also been cross-checked through the system of material balances.
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Table 3.6
Sectoral Composition of Gross Value Added:
1979-80 and 1984-85
(Per cent)
Sl. Sector 1979-80 1984-85
No.
(0) (1) (2) (3)
1 Agriculture . . . . 35. 13 32. 90
2 Mining and Manufacturing . . 19.59 21.22
(A) Mining . . . . 1.52 2.01
(B) Manufacturing . . . 18.07 19.21
(i) Food Products . . 1.77 1.70
(ii)Textiles . . . 3.11 2.88
(iii) Wood and Paper Products 1.02 1.03
(iv) Leather and Rubber Products 0.50 0.52
(v) Chemical Products . . 2.55 3.09
(vi) Coal and Petroleum Products 0.45 0.49
(vii) Non-Metallic Mineral Products1.05 1.05
(viii) Basic Metals . . . 1.26 1.49
(ix) Metal Products . . 0.96 1.10
(x) Non-electrical Engineering
Products 1.38 1.66
(xi) Electrical Engineering
Products 0.60 0.71
(xii) Transport Equipment 1.02 1.23
(xiii) Miscellaneous industries 2.40 2.26
3 Electricity, Gas and Water Supply 1.71 1.88
4 Construction 5.07 5.05
5 Transport 4.89 4.95
6 Services 33.61 34.00
TOTAL 100.00 100.00
Pattern of Public and Private Investment 3.26 The total Plan investment for the period 1980-85 is estimated at Rs. 158710 crores. Of this, Rs. 84000 Crores* (53 per cent) is estimated to be in the public sector and the balance of Rs.74710 crores (47 per cent) in the private sector.
3.27 Estimates of investment during the Plan period by 14 sectors of destination as derived from the investment planning model are given in Table 3.7. Incremental gross value added over the Plan period in the respective sector is also provided in the table