RESOURCES FOR THE PLAN
Planning involves generation, distribution and utilisation of productive assets. The generation of physical assets takes place through private or public institutions. So does the generation of financial resources which are a counterpart, so to say, of the process of creation of physical assets. In this Chapter, an analysis has been made of the financial resources likely to be generated and the funds needed for investment in different sectors of the economy. These resources are derived from domestic and foreign sources. The uses of financial resources may deviate from their sources by transfers between the public and private sectors and also by the activities of financial intermediaries. In the planning exercise, a matching bet- ween the needs of the different agencies for investment and the financial resources which can be made available through financial intermediaries and fiscal measures is carefully examined with the help of an appropriate accounting model.
5.2 The estimates of resources of the public sector and the underlying policy assumptions are described in this Chapter. A broad indication is also given of the resources required by the private sector and the availability of such resources. The estimates of financial resources as well as of outlays have been made at 1979-80 prices. However, due account has been taken of the rise in prices that has occurred in 198081 in assessing the purchasing power of resources and the growth potential of the economy. Some adjustments in outlays and the target of additional resource mobilisation have been made so as to protect, to the extent possible, the real volume of investment, in face of rise in project costs in 1980-81.
5.3 The aggregate resources for the Sixth Five Year Plan 1980-85, are placed at Rs. 172210 crores, consisting of an investment outlay of Rs. 158710 crores and current development outlay in the public sector of Rs. 13500 crores. The investment outlay is to be financed through domestic saving of Rs. 149647 crores and net inflow of funds from abroad to the extent of Rs. 9063 crores, as shown in Table 5.1.
Table 5.1
Estimates of Gross Domestic Saving, Investment and Aggregate Resources
1980-85
(Rs. crores at 1979-80 prices)
Sl. No. Item Amount
(0) (1) (2)
1 Public saving 34200
2 Private, saving 115447
3 Aggregate Domestic Saving 149647
4 Net inflow from abroad 9063
5 Total saving available for gross investment 158710
6 Current Development outlay in the public
sector 13500
7 Aggregate Resources 172210
DOMESTIC SAVING 5.4 Of the total domestic saving of Rs. 149,647 crores, public saving, Comprising savings of Government, public sector non-financial enterprises (including departmental enterprises) and public sector financial enterprises has been estimated at Rs. 34200 crores. The balance of Rs. 115447 crores is accounted for by private saving comprising corporate, cooperative and household saving. The composition of the total domestic saving is shown in Table 5.2.
5.5 Public saving accounts for 22.9 per cent of the total domestic saving estimated for the Plan period, while the balance of 77.1 per cent represents saving generated in the private sector. Within the private sector, household saving dominates with a share of as much as 70.1 per cent of the total domestic saving. The details of estimates of private saving are given in Table 5.3.
59
60
Table 5.2
Gross Domestic Saving by Sector of Origin 1980-85
Sl. No. Sector Amount Percent-
(Rs. crores) age to
total
(0) (1) (2) (3)
1 Public Saving . . . . 34200 22.9
(i) Government . . . . 13430 9.0
(ii) Public enterprises non-
financial . . . . . 18245 12.2
(iii) Public enterprises financial 2525 1.7
2 Private Saving . . . 115447 77.1
(i) household sector . . . 104859 70.1
(ii) corporate sector. . . 9053 6.0
(iii) cooperative sector . . 1535 1.0
3 Total Domestic Saving . . 149647 100.0
Table 5.3
Estimates of Private Saving.: 1980-85
Sl. No. Sector Amount
(Rs. crores)
(0) (1) (2)
1 Household sector . . . . . 104859
(i) Financial Assets (Net) . . . 49731
(ii) Physical Assets . . . . 55128
2 Private Corporate sector . . . . 9053
(i) Financial enterprises . . . 183
(ii) Non-financial enterprises . . 8870
3 Cooperative sector . . . . . 1535
(i) Financial institutions . . . 910
(ii) Non-financial institutions . . 625
4 Total Private Saving . . . . 115447
HOUSEHOLD SAVING 5.6 The item-wise estimates of household saving for the Plan period are given in Annexure 5.1. The gross household saving has been estimated at Rs. 104859 crores comprising Rs. 55128 crores of physical assets and Rs. 49731 crores of financial assets. Thus, nearly 53 per cent of the household saving is accounted for by physical asset formation in this sector.
Physical Assets 5.7 The saving of the households in the form of physical assets covers acquisition of productive assets and construction activities like residential and non-residential buildings as well as creation of physical assets through own-account labour input. The saving of the household in the shape of physical assets is thus a form of direct capital formation in the household sector. Projections of physical assets in the household sector for the Plan period have been made by studying its relationship with personal disposable income observed in the past years; projections of personal disposable income, in turn have-been obtained by analysing its relationship with the GDP. Thus, gross physical assets in the household sector have been estimated at Rs. 55128 crores for the Plan period.
Financial Assets 5.8 The gross increase in financial assets of the household sector has been estimated at Rs. 61034 crores over the Plan period. Allowing for the increase in financial liabilities of the order of Rs. 11303 crores the net acquisition of financial assets by the households have been estimated at Rs. 49731 crores. The details of the different com- ponents of financial assets are discussed in the following paragraphs.
5.9 (i) Deposits: Out of the gross increase in financial assets of Rs. 61034 crores of the household sector, the increase in deposits has been estimated at Rs. 32430 crores, thus accounting for about 53 per cent of the total increase in gross financial assets. The increase in deposits comprises deposits with scheduled commercial banks, cooperatives and non-banking companies. The growth of demand deposits has been estimated at 12.48 per cent per annum over the Plan period, while that of time deposits has been estimated at 18.71 per cent per annum. The share of the household sector in the estimated increase of aggregate bank deposits has been taken at 79 per cent, based on the recent analysis of the Reserve Bank of India. On this basis the increase in household deposits with scheduled commercial banks has been estimated at Rs. 29164 crores over the Plan period. The increase in deposits of the households with cooperative banks/societies and non-banking companies has been projected at Rs. 2116 crores and Rs. 1150 crores respectively.
(ii) Currency: The expansion of currency over the Plan period has been estimated on the basis of its relationship with respect to growth in real national income, wholesale price index and the weighted ave- rage of interest rates on time deposits. The share of the household sector in total currency expansion has been assumed at 94 per cent as observed in the recent past. The increase in currency with the house- holds over the Plan period is estimated at Rs. 4734 crores.
(iii) Life Insurance Fund: Net increase in the Life Fund of Life Insurance Corporation has been esti-
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mated at Rs. 5577 crores on the basis of the observed annual trend growth rate of 14 per cent in recent years.
(iv) Provident Funds: The net accretion to State Provident Funds has been estimated at Rs. 3702 crores taking into account the observed growth in the past, expected increase in employment, and existing rates of contribution to provident funds by the Central and State Government employees. On the other hand, Employees' Provident Funds (EPF) and "Other Provident Funds" have been projected to increase by Rs. 8646 crores and Rs. 3300 crores respectively, on the basis of past trends. The implicit annual growth rate is 14 per cent in the case of EPF and 12 per cent in the case of "Other Providend Funds".
(v) Shares, Debentures and Units: The net increase of household investment in corporate/cooperative shares, debentures and units of the Unit Trust of India has been estimated at Rs. 1400 crores over the Plan period 1980-85. This is based on recent trends in their growth and on the assumption that the household sector would account for 85 per cent of the net increase of such financial assets.
(vi) Net Claims on Government: Net claims of the households on Government consist of small saving and Compulsory Deposit collections of the Government and the loans advanced by the Government to the public. On the basis of the projections of Small Savings and compulsory deposit collections as well as the outstanding debts of the households, net claims of the households on Government are projected to increase by Rs. 1245 crores over the Sixth Plan period.
Financial Liabilities 5.10 The financial liabilities of the house-hold sector have been estimated on the basis of the observed ratio of such liabilities to gross financial assets of the households. The increase in financial liabilities is estimated at Rs. 11303 crores.
PRIVATE CORPORATE SAVING 5.11 The private corporate sector consists of non-financial and financial enterprises. Non-financial enterprises cover public and private limited companies while financial enterprises comprise non- nationalised commercial banks and private financial and investment companies. Gross saving of nonfinancial enterprises has been estimated it Rs. 8870 crores while that of financial enterprises has been placed at Rs. 183 crores.
5.12 The saving of private non-financial enterprises, estimated at Rs. 8870 crores, comprises Rs. 5710 crores of retained profits and Rs. 3160 crores of depreciation provision. These estimates have been worked out on the basis of detailed studies of sales, profits, depreciation, investment etc. of such enterprises.
5.13 The saving of private financial enterprises has been estimated at Rs. 183 crores, of which private commercial banks account for Rs. 108 crores, while the balance of Rs. 75 crores represents the cross saving of private financial and investment companies.
COOPERATIVE SAVING 5.14 The gross saving of the cooperative sector has been estimated at Rs. 1535 crores. This consists of Rs. 625 crores, in respect of cooperative noncredit institutions and Rs. 910 crores in respect of cooperative banks and societies. Past performance of cooperative non- credit institutions indicates that they are not making any profit. The saving estimated for the cooperative non-credit institutions represents, therefore, mainly the depreciation provision made in respect of fixed assets held by them.
5.15 The gross saving of the cooperative banks and societies has been estimated at Rs. 910 crores comprising Rs. 685 crores of retained profits and Rs. 225 crores of depreciation.
PUBLIC SECTOR SAVING 5.16 The saving of the public sector over the Plan period 1980-85, has been estimated at Rs. 34200 crores. The saving of the public sector includes Rs. 2525 crores of gross saving (after payment of dividend to Government) of the public sector financial institutions, including the Reserve Bank. However, this amount is not available for direct investment in the public sector because a major part of it flows to private sector through investment in Long Term Operations Funds of the Reserve Bank of India and the balance is invested by the public financial institutions in their own fixed assets. The details of the saving of public sector financial institutions are given in Table 5.4.
Table 5.4
Estimates of Saving of Public Sector Financial Institutions: 1980-85
Sl. No. Institution Amount
(Rs. crores)
(0) (1) (2)
1 Reserve Bank of India . . . . . 2200
2 Nationalised Banks . . . . . . 175
3 Other Financial Institutions . . . . . 150
4 Total . . . . . . . . . 2525
5.17 The retained profits of the Reserve Bank of India after the payment of dividend to the Central Government, represent its contributions to Long Term Operations Funds like the National Agricul- tural Credit Fund and the National Industries Credit Fund. Such contributions amounted to Rs. 390
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crores in 1978-79 and Rs. 455 crores in 1979-80. On this basis, the retained profits of the Reserve Bank of India have been estimated at Rs. 2200 crores over the period 1980-85. The gross saving of the nationalised banks has been placed at Rs. 175 crores, while that of the remaining public sector financial institutions like the Industrial Financial Corporation of India, Industrial Development Bank of India, State Financial Corporations, etc. has been estimated at Rs. 150 crores.
5.18 The public sector saving, excluding that of public sector financial institutions, works out to Rs. 31675 crores, comprising budgetary saving of the order of Rs. 13430 crores and gross saving of the non-financial public enterprises of Rs. 18245 crores.
Budgetary Saving 5.19 The budgetary saving of the Government represents the balance from current revenues of the Central and State Governments at the existing (viz. 1979-80) rates of taxes, rates of tariffs and the additional resources mobilisation effort envisaged during the Plan period, after making allowance for the current development outlay proposed in the public sector plan. Government saving during the Plan period has been estimated at Rs. 13430 crores as shown in Table 5.5.
Table 5.5
Budgetary Saving 1980-85
Sl. No. Item Amount
(Rs. Crores)
(0) (1) (2)
1 Balance from current revenues at 1979-80 rates 14478
2 Additional Resource Mobilisation* . . 12452
3 Less current development outlay . . . 13500
4 Budgetary saving . . . . . . 13430
*Refers to Budgetary measures.
Public Enterprises 5.20 The gross surplus of public enterprises represents their retained profits, depreciation provision and additional resource mobilisation through revision of tariffs, prices, etc. On the basis of the existing pricing policies of public enterprises, this surplus for the Plan period is estimated at Rs. 9395 crores, while the same is estimated at Rs. 18245 crores after taking into account measures for the revision of pricing policies envisaged in the Plan. The details of the gross surplus of public enterprises are given in Table 5.6.
Table 5.6
Estimates of Gross Surplus of Central and State Enterprises at 1979-80
rates, fares and tariffs 1980-85
Sl. No. Enterprises Amount
(Rs. crores)
(0) (1) (2)
1 Railways . . . . . . . . 1698
2 Posts and Telegraphs . . . . . . 2365
3 Other Central enterprises . . . . . 5848
4 State Electricity Boards . . . . (-) 22
5 State Roads Transport Corporations . . (-) 506
6 Other State enterprises . . . . . 12
7 Total . . . . . . .. . 9395
5.21 The gross surplus of public enterprises indicated above is not identical with the contribution of public enterprises as calculated on the basis of the concept adopted in the Fifth Plan. The contribution of public enterprises for the Fifth Plan had been worked out without deducting repayment of loans to the Central/State Governments. However, for the Sixth Plan, the loan repayments have been deducted to arrive at the gross surplus of public enterprises, following commercial principles. Correspondingly, credit for such repayments by public enterprises has been taken in estimating the capital receipts of the Central and State Governments. The estimates of gross surplus or important public enterprises are discussed below.
5.22 The gross surplus of Railways during the Plan period has been estimated at Rs. 1698 crores. This comprises mainly depreciation provision. The gross surplus of Posts and Telegraphs has been estimated at Rs. 2365 crores in the light of the anticipated expansion of postal, telegraph and telecommunication services.
5.23 The estimate of gross surplus of other Central enterprises has been placed at Rs. 5848 crores. Compared to the heavy investment that has been made in these enterprises in the past, the rate of return is very low. The operational efficiency of these enterprises has to be substantially improved in order to obtain a fair rate of return on public investment.
5.24 State Electricity Boards and State Road Transport Corporations are expected to incur huge losses at the existing levels of tariffs and fares. This is mainly on account of the steep escalation in their working expenses. These enterprises would need to undertake tariff/fare revision at the earliest in order to avoid losses and step up their contribution to the Plan.
63
5.25 Almost all the Central and State enterprises would need to adopt appropriate pricing policies in order to achieve an adequate rate of return on capital employed. Although, substantial revision of tariffs, freight rates and prices had been undertaken in the past, the additional receipts have largely been absorbed by escalation of working expenses due to the revision of emoluments of their employees, rise in input costs, etc. It is, therefore, essential to ensure that the additional resources generated by these enterprises during the Sixth Plan period by way of revision of prices, tariffs, etc. are not eroded by cost increases and that efforts are mad,, simultaneously to secure the maximum feasible improvement in the functioning and efficiency of these enterprises.
DISTRIBUTION BETWEEN PUBLIC AND PRIVATE SECTORS 5.26. An aggregate outlay of Rs. 172210 crores is envisaged for the Sixth Five Year Plan. Of this the public sector outlay has been estimated at Rs. 97500 crores while the balance of Rs. 74710 crores would be in the private sector. The public sector outlay of Rs. 97500 crores provides for an investment outlay of Rs. 84000 crores and current development outlay of Rs. 13500 crores over the Plan period. However, the public sector's own saving available for investment (excluding the saving of public sector financial institutions) has been estimated at only Rs. 316715 crores. In order to finance an investment outlay of Rs. 84000 crores, it will be necessary for the public sector to draw upon domestic saving of other sectors to the extent of Rs. 41396 crores and foreign saving (including a drawal on foreign exchange resources) of the order of Rs. 10929 crores.
5.27 Private saving, including the saving of the public financial institutions, has been estimated at Rs. 117972 crores. After transferring Rs. 41396 crores to the public sector, the resources available with the private sector for investment would be Rs. 76576 crores. Further, the net outgo of the private sector to the, rest of the world is estimated at Rs. 1866 crores. Thus, the investment of the private sector over the Plan period is estimated at Rs. 74710 crores. The estimates of saving and investment along with the inter- sectoral transfers are given in Table 5.7.
5.28 The above estimates of investment imply that the share of public sector investment in total investment would be nearly 53 per cent over the Sixth Plan period 1980-85, as compared to the estimated share of around 45 per cent during the Fifth Plan period 1974-79. However, these ratios do not reflect the real shares of the two sectors since several of the Plan schemes in the public sector envisage capital transfers by way of loans/grants to the private sector to finance capital formation in the private sector, especially the household sector.
RESOURCES FOR THE PUBLIC SECTOR PLAN 5.29 The estimates of financial resources for the Plan in the public sector are given in Table 5.8.
Table 5.8
Estimate Of Financial Resources for the Public Sector Plan 1980-85
(Rs. crores at 1979-80 prices)
Sl. No. Item Amount
(0) (1) (2)
1 Balance from current revenues at 1979-80 rates
of taxes . . . . . . . . 14478
2 Contribution of Public Enterprises . . . 9395
3 Market Borrowings of Government, public
enterprises and local bodies . . . 19500
4 Small Savings . . . . . . . 6463
5 State Provident Funds . . . . . 3702
6 Term loins from financial institutions (Gross) 2722
7 Miscellaneous capital receipts (Net) . . 4009
8 External assistance and borrowings- from rest
of the . . . . . . . . 9929
9 Drawing down of Foreign Exchange Reserves . 1000
10 Additional Resource Mobilisation . . . 21302
11 Uncovered gap/deficit financing . . . 5000
12 Aggregate Resources . . . . . . 97500
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5.30 The various components of resources of the Centre and the States are briefly explained in the following paragraphs:-
Balance from Current Revenues 5.31 The balance from the current revenues (BCR) of the Central and State Governments represents their saving out of their revenue receipts after meeting their current non-Plan expenditure. It has been assumed that the Seventh Finance Commission's recommendations relating to the statutory transfer of the resources to the States valid upto 1983-84 will continue to operate for 1984-85, the last year of the Plan. Any adjustment necessary in the resources of the Centre and the States as a result of the Eighth Finance Commission's award will be made as and when it becomes available and the Government has taken a decision thereon. On the expenditure side, while allowance has been made for normal growth from year to year, specific provision has been made for better maintenance of the existing assets like buildings, roads, public works, etc.
Central Government 5.32 The total revenue receipts of the Centre over the Plan period have been estimated at Rs. 68583 crores while the non-Plan revenue expenditure during this period has been estimated at Rs. 67405 crores. The BCR of the Centre thus works out to Rs. 1178 crores as shown in Table 5.9.
Table 5.9
Balance from Current Revenues-Centre 1980-85
(Rs. crores at 1979-80 prices)
Sl. No. Item Amount
(0) (1) (2)
I. Revenue Receipts
1 Tax Revenue-gross 72192
2 Less States' share of Central Taxes 20705
3 Tax Revenues-Net 51487
4 Non-Tax Revenues 17096
5 Total Revenue Receipts 68583
II. Non-Plan Revenue Expenditure
1 Interest Payments 17783
2 Other non-development non-Plan expenditure 34939
3 Subsidies 10124
4 Grants to States and Union Territories 3718
5 Grants to local bodies and Foreign Governments 841
6 Total Non-Plan Revenue Expenditure 67405
III. Balance from Current Revenues (I-II) 1178
The major assumptions underlying the calculation of Centre's resources are as follows:-
(i) The estimates of revenue from income tax and corporation tax have been worked out on the basis of elasticities of tax revenue with respect to the relevant income base and allowing for the effects of price changes, separately for income tax and corporation tax.
(ii) Estimates of interest payments as part of non-Plan revenue expenditure of the Centre are at the existing rates of interest.
(iii) The estimates of non-developmental expenditure for the Plan period have been made on the basis of past trends and taking into account the normal growth in employment, proper maintenance of existing developmental facilities etc.
(iv) Instalments of dearness allowance to the employees on the price rise in 1979-80 have been allowed for.
(v) Grants to States for compensating them for the loss of revenue on account of prohibition have been estimated at the existing level; any likely change in policy will be reflected in additional resource mobilisation.
(vi) A provision of Rs. 500 crores has been made as non-Plan assistance to States on account of natural calamities.
State Governments 5.33 The total revenue receipts of the States have been estimated at Rs. 73752 crores For the Plan period, inclusive of their share in Central taxes. On the other hand, their non-Plan revenue expenditure during the Plan period has been estimated at Rs. 60452 crores, thereby leaving a balance from current revenue of Rs. 13300 crores, as shown in Table 5.10.
Table 5.10
Balance from Current Revenues-States 1980--85
(Rs. crores at 1979-80 prices)
Sl. No. Item Amount
(0) (1) (2)
I. Revenue Receipts
1 Tax Revenue 39646
2 Share of Central Taxes 20705
3 Non-Tax revenue 10146
4 Grants from Centre 3255
5 Total Revenue Receipts 73752
II. Non-Plan Revenue Expenditure
1 Debt Services 7972
2 Other non-development and non-Plan development
expenditure 52480
3 Total Revenue Expenditure 60452
III. Balance from Current Revenues (I-II) 13300
65
Estimates of State resources which have been worked in the light of detailed discussions with the State Governments, involve the following major assumptions:-
(i) Estimates of the five major taxes, namely sales tax, stamp duty and registration, taxes on transport, State excise duties and entertainment tax were worked out by applying relevant tax elasticities to 1979-80 revised budget estimates; in the case of electricity duty the effective tax rate has been applied to the projected electricity generation to obtain the estimates of revenue yield. The estimates have been suitably revised in the light of preliminary actuals for 1979-80 and observed trends in respect of individual States.
(ii) In the non-tax revenue category, revenue from forests has been worked out broadly on the lines adopted by the Seventh Finance Commission, and also taking into consideration the renewed emphasis in the Plan on the need to maintain ecological balance.
(iii) Adequate provision has been made in estimating non-Plan revenue expenditure for proper maintenance of existing capital assets, like irrigation works, roads, bridges and buildings as also for the efficient func- tioning of the existing social service facilities.
Market Borrowings 5.34 The details of the contribution of the different agencies to the net market borrowings over the Plan period are given in Table 5.11.
Table 5.11
Market Borrowings: 1980-85
(At 1979-80 prices)
Estima- Statutory Estima-
Sl. Item ted provision ted con-
No. increase tribution
(Rs. (%) to
crores) market
Borrowing
(Rs. crores)
(0) (1) (2) (3) (4)
1 Aggregate deposits of
scheduled commercial
banks . . . . 36917 34 12550
2 Aggregate deposits of
co-operative banks . 2800 32 896
3 Life Fund of Life In-
surance Corporation 5577 50 2790
4 Employees" Provident
Fund . . . 8650 40 3450
5 Other Provident Funds' . 3300 40 1320
6 Others (General Insurance
Corporation etc.) . . 500
7 Total . . . . 21506
5.35. An additional market borrowing of Rs. 1000 crores has been envisaged in the Plan as a result of new policy measures proposed to be undertaken during the Plan period like measures for accelerating the growth in bank deposits, changes in the statutory liquidity ratio, etc. Thus, the aggregate market borrowing over the Plan period has been estimated at Rs. 22500 crores out of which Rs. 19500 crores would be utilised for financing the public sector Plan. Of this, Rs. 15000 crores will be for financing the Central Plan while the States and their enterprises are expected to raise Rs. 4500 crores from the open market for financing their Plans. The distribution of market borrowing among the different States seeks to ensure a step up of 10 per cent over the level of market borrowing undertaken by each State in 197980. Additional market borrowing of Rs. 1000 crores has been allocated to a few States having per capita income below the national average. The balance of Rs. 3000 crores represent market borrowings to be undertaken by financial institutions like the Industrial Development Bank of India, Industrial Finance Corporation of India, etc. However, the market borrowings, of these financial institutions could be higher than this during the course of the Plan depending upon the growth in the resources of commercial banks, cooperative banks, Life Insurance Corporation etc.
Small Savings 5.36. The contribution to small savings collections flows from the households as well as other agencies like the Employees' Provident Funds and other provident funds in the private sector. There has been a phenomenal rise in small savings collections in recent years, rising from Rs. 393 crores in 1975-76 to Rs. 925 crores in 1979-80. Allowing for a modest growth over the Plan period, the small savings col- lections have been estimated at Rs. 6463 crores which would be shared between the Centre and the States in terms of the existing formula of one-third going to the Centre and two thirds being made available to the States.
State Provident Funds 5.37 The estimates of net accrual to State Provident Funds have been placed at Rs. 3702 crores during the Sixth Plan period-Rs. 1660 crores at the Centre and Rs. 2042 crores in the States. These estimates have been made in the light of past trends of such accruals, the anticipated rise in employment in the Central and State Governments and the existing rate of contributions.
Term Loans from Financial Institutions 5.38 The State Plans envisage loans from Life Insurance Corporation to State Governments, local bodies and State enterprises for financing the housing, water supply and power development programmes. The Reserve Bank of India is also expected to provide loans to the States for particiation in the share capital of cooperatives while the Rural Electrification Corpo-
66
tation is expected to provide funds for expansion of rural electrification facilities. These negotiated loans under the State Plans have been estimated taking into account the financial position of these institutions (luring the Plan period to provide such loans. The States are expected to raise term loans to the extent of Rs. 2722 crores over the Plan period as shown in Table 5.12.
Table 5.12
Term Loans from Financial Institutions to States
Sl. Amount
No. Institution (Rs. crores at
1979-80 prices)
(0) (1) (2)
1 Life Insurance Corporation 1908
2 Reserve Bank of India 185
3 Rural Electrification Corporation 602
4 Others 27
5 Total 2722
5.39 The negotiated loans indicated above are in gross terms, since repayments to these institutions on account of outstanding loans have been provided for separately under other heads.
Miscellaneous Capital Receipts 5.40 This item represents the net result of a number of transactions on the receipts and disbursement sides of the capital accounts of the Central and State Governments.
5.41 The major sources of capital receipts are recoveries of loans and advances from public enterprises and households sector. The repayment liabilities of the public enterprises to the Centre have now been included in the estimates of recoveries of loans from them whereas earlier these were treated as a part of their own contribution. Special deposits, non-Government provident funds as well as borrowings from the Reserve Bank of India against Compulsory Deposit (Income-tax payers) Scheme have also been taken credit for under capital receipts. It has been assumed that the Compulsory Deposit (Income tax payers) Scheme Would continue during the Sixth Plan period.
Net inflow from the Rest of the World 5.42 The estimate of net inflow from rest of the world is derived on the basis of the projections of balance of payments. Detailed estimates of imports, exports current invisibles and capital transactions are given in the Chapter on Balance of Payments.
5.43 The net inflow of external resources to the public sector plan has been taken at Rs. 9929 crores as under:-
(Rs. crores)
Net Aid . . 5889
Other inflows from abroad 4040
Total 9929
The assumed order of net inflow of foreign resources of Rs. 9929 crores constitutes about 10.2 per cent of the total public sector plan outlay.
Drawing Down of Foreign Exchange Reserves 5.44. Foreign Exchange reserves at the end of 1979-80 stood at Rs. 5164 crores, excluding gold and SDRs. It is, proposed to draw down these reserves to the extent of Rs. 1000 crores during the Plan period.
Additional Resource Mobilisation 5.45 In the Framework of the Sixth Plan considered by the NDC in August, 1980, it was indicated that of the additional resource mobilisation target of Rs. 19150 crores, the Centre would raise Rs. 13150 crores and States Rs. 6000 crores. In the detailed discussions with the States, a number of States agreed to mobilise larger resources to the extent of over Rs. 3000 crores to finance their development plans. Thus additional resource mobilisation of Rs. 21302 crores has been envisaged during the Sixth Plan period-Rs. 12290 crores at the Centre and Rs. 9012 crores by the States. The enormity of task involved in raising the resources of this order cannot be underrated and a number of hard decisions would be necessary for this purpose. Utmost emphasis will have to be laid on the maintenance of firm fiscal discipline. However, considering both past trends and the potential that still exists, it is by no means an unrealistic target. The broad lines along which the additional resources could be mobilised are discussed below.
5.46 The traditional mechanism for mobilising additional resources has been to rely on additional taxation. As a result of progressive increase in the tax rates in the past, the ratio of tax revenues to the country's national income has now reached the level of 20 per cent. The scope for raising additional revenues, therefore, through mere changes in tax rates is rather limited. On the other hand, there is considerable scope for reducing tax evasion, rationalising tax laws, streamlining tax administration and widening the tax base in the urban sector and trapping the surpluses of the affluent section of the farming community. Even then, greater reliance will have to be placed on the reduction in subsidies and substantial improvement in the financial
67
return on investment in the public sector undertakings, both of the Centre and the States, through appropriate measures.
5.47 Of additional resource mobilisation target of Rs. 12290 crores by Centre, Rs. 5140 crores are expected to be contributed by taxation, Rs. 3250 crores by reduction in subsidies and Rs. 3900 crores from internal resources of public sector enterprises. The additional tax measures announced in the Central budget 1980-81 are estimated to yield additional revenue to the extent of about Rs. 2030 crores over the Plan period, leaving a balance of Rs. 3110 crores to be raised during the rest of the Plan period.
5.48 There has been a very steep rise in Central subsidies in recent years. The burden on the Central exchequer on account of subsidies on food, fertiliser, export and other items has risen from Rs. 470 crores in 1975-76 to about Rs. 1860 crores in 1979-80. It is estimated that at 1979-80 rates, these subsidies would account for Rs. 1.2400 crores over the Sixth Plan period. It is essential to ensure that these sub- sidies are kept within reasonable limits in order to release resources for development. In respect of food subsidies, while increase in procurement prices may have to be allowed in future in order to provide incentives to the farmers as well as to offset the rise in the cost of inputs, measures would have to be taken simultaneously for the appropriate revision of issue prices of foodgrains and for the reduction in the operational costs of the Food Corporation of India and other agencies. Similarly, if the cost of imported fertilisers goes up, the fertiliser prices may have to be raised- so that fertiliser subsidy is maintained at the 1980-81 level. It is also not possible to expand the scope of export subsidies and other measures need to be employed to promote exports.
5.49 The Coal India is incurring losses and such losses are estimated at Rs. 500 crores during the Plan period. It will be necessary to eliminate these losses completely through suitable adjustment in prices and other measures. The Railways, Posts & Telegraphs and other public enterprises will have to adopt suitable policy measures in order to achieve a reasonable rate of return on their investment. The estimates of financial resources for the Plain take credit of additional internal resources to be raised by Railways and P & T to the extent of Rs. 1200 crores and Rs. 200 crores respectively during the Plan period. The resource mobilisation effort made by Railways and P & T in 1980-81 will generate additional resources to the tune of Rs. 562 crores in the Plan period leaving a balance of Rs. 838 crores for 1981-85 period. At present a number of Central enterprises are either incurring losses or are not yielding adequate return on the investments made. The estimates of contribution of public sector enterprises of the Centre indicated earlier are based on a rate of return of about 8 per cent during the Plan period, It would be necessary, however, to improve the rate of return of -investment of these enterprises so as to earn at least IO per cent by the end of Plan period through suitable measures, e.g. improved operational efficiency, better inventory management control, improvement in managerial capability and appropriate changes in price Policy, wherever necessary. On this basis, credit has been taken for additional contribution of these enterprises other than Railways and P & T during the Plan period at Rs. 1000 crores. At present the domestic crude oil is under-priced and a moderate adjustment could yield a substantial revenue over the Plan period.
5.50 The States have agreed to the additional resource mobilisation target of Rs. 9012 crores during the Plan period. A part of this will, no doubt, have to be contributed through appropriate adjustments in tax rates and better collection. Innovative methods, including decentralisation of powers and involvement of local community in mobilising additional resources, will have to be adopted to tap a part of the surpluses generated in agriculture.
5.51 The commercial losses of the State Electricity Boards, which amounted to Rs. 103 crores in 1973-74 increased to Rs. 440 crores in 1979-80. The cumulative losses of State Electricity Boards during the 1980-85 period are estimated at Rs. 4400 crores. In view of the massive investment envisaged in the power sector during the Sixth Plan period, it will be necessary to take effective steps; to reduce substantially the losses of the State Electricity Boards. In a number of States, action has already been initiated on these lines. If 80 per cent of these losses are wiped out, additional resources to the extent of Rs. 3500 crores would become available for financing the State Plans.
5.52 The performance of State Road Transport Corporations in most of the States is far from satisfactory. The aggregate losses during 1979-80 were Rs. 62.35 crores and have been estimated at Rs. 1340 crores during 1980-85 period at 1979-80 rates. The poor performance of these Corporations is partly due to a rise in the cost of fuel and other materials in recent years. Effective measures including appropriate adjustments in the fares are called for to improve the return on investment made by the Slate Road Transport Corporation. Bus fares have already been raised in a number of States which is estimated to yield Rs. 825 crores over the Plan period and other States have agreed to take similar action to wipe out these losses so as to bring additional revenues to the extent of Rs. 1379 crores over the Plan period.
5.53 The State Governments are incurring huge losses on irrigation works. This, in effect, amounts to a subsidy to the farmers who benefit from irrigation facilities created by the Government. It is necessary to reduce progressively, and over a period of time, eliminate these losses through suitable revision of the existing rates. The minimum objective should be to set rates at levels such as to cover the working expenses on the existing irrigation works during the Plain period. This would bring additional resources to the tune of Rs. 325 crores over the Plan period.
Uncovered Gap/Deficit Financing 5.54 The estimates of financial resources indicated above aggregate to Rs. 92,500 crores leaving a gap of Rs. 5000 crores for financing the public sector Plan
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outlay of Rs. 97,500 crores. This is proposed to be covered through Deficit financing.
CENTRAL ASSISTANCE TO STATES 5.55 The financial resources of the Centre are estimated at Rs. 64,250 crores (Annexure 5.2). The Sixth Plan outlay for the Centre including the, Union Territories has been fixed at Rs. 48,900 crores after transferring, Rs. 15,350 crores to the States as Central Assistance. Of this, Rs. 2,805 crores is proposed to be allocated as follows:-
(Rs. crores)
Hill areas . . . . . . 560
Tribal areas . . . . . . 470
North-Eastern Council . . . . 325
Externally-aided projects . . . 1450
2805