APPROACH AND POLICY
 

1

AIMS AND OBJECTIVES OF PLANNING

THE Constitution of India enunciates Directive Principles of State Policy, which though not enforceable by any Court, are "nevertheless" fundamental in the governance of the country and it shall be the duty of the State to apply these principles in making laws". Two of the Articles in this part, Article 38 and Article 39(a), (b) and (c) are cited in the resolution of 15th March 1950 by which the Planning Commission was set up. These are:

"The State shall strive to promote the welfare of the people by securing and protecting, as effectively as it may, a social order in which justice, social, economic and political, shall inform all the institutions of national life." (Article 38).

"The State shall, in particular, direct its policy towards securing-

(a) that the citizens, men and women, equally, have the right to an adequate means of livelihood;

(b) that the ownership and control of the material resources of the community are so distributed as best to subserve the common good;

(c) that the operation of the economic system does not result in 'the concentration of wealth and means of production to the common detriment." (Article 39).

1.2. In the context of planning it is useful to draw attention to three other Articles:

"The State shall, within the limits of its economic capacity and development, make effective provision for securing the right to work, to education and to public assistance in cases of unemployment, old age, sickness and disablement, and in other cases of undeserved want." (Article 41).

"The State shall endeavour to provide, within a period of ten years from the commencement of this Constitution, for free and compulsory education for all children until they complete the age of fourteen years." (Article 45).

"The State shall promote with special care the educational and economic interests of the weaker sections of the people, and, in particular. of the Scheduled Castes and the Scheduled Tribes, and shall protect them from social injustice and all forms of exploitation." (Article 46).

1.3. Planning in India was intended, in the words of the Government Resolution of March 1950, "to promote a rapid rise in the standard of living of the people by efficient exploitation of the resources of the country, increasing production, and offering opportunities to all for employment in the service of the community".

1.4. In December 1954, Parliament adopted a resolution which contained the following clauses:

"(1) The objective of economic policy should be a Socialistic Pattern of Society; and

(2) Towards this end the tempo of economic activity in general and industrial development in particular should be stepped up to the maximum possible extent."

1.5. The term 'Socialistic Pattern of Society' was commented upon and elaborated in the Second Five Year Plan document and a long term strategy for economic advance was formulated based on that concept. In the words of the Second Five Year Plan, as quoted in the Third Five Year Plan document:

"The task before an underdeveloped country is not merely to get better results within the existing framework of economic and social institutions, but to mould and refashion these so that they contribute effectively to the realisation of wider and deeper social values.

"These values or basic objectives have recently been summed up in the phrase 'socialist pattern of Society'. Essentially, this means that the basic criterion for determining lines of advance must not be private profit, but social gain, and that the pattern of development and the structure of socioeconomic relations should be so planned that they result not only in appreciable increases in national income and employment but also in greater equality in incomes and wealth. Major decisions regarding production. distribution, consumption and investment-and in fact all significant socioeconomic relationship-must be made by agencies informed by social purpose The benefits of economic development must accrue more and more to the relatively less privileged class of society, and there should be progressive reduction of the concentration of incomes, wealth and economic power. The problem is to create a milieu in which the small man who has so far

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had little opportunity of perceiving and participating in the immense possibilities of growth through organised effort is enabled to put in his best in the interests of a higher standard of life for himself and increased prosperity for the country. In the process, he rises in economic and social status. Vertical mobility of labour is thus no less important than horizontal mobility for nothing is more destructive of hope and more inhibitive of effort than a feeling that the accident of birth or of a poor start in life is likely to come in the way of a capable person rising in like ill terms of economic and social status ...

"The socialist pattern of society is apt to be regarded as some fixed or rigid pattern. It is not rooted in any doctrine or dogma. Each country has to develop according to its own genius and traditions. Economic and social policy has to be shaped from time to time in the light of historical circumstances. It is neither necessary nor desirable that the economic should become a monolithic type of Organisation offering little play for experimentation either as to forms or as to modes of functioning. Nor should expansion of the public sector mean centralisation of decision-making and of exercise of authority. in fact, the aim should be to secure an appropriate devolution of functions and to ensure to public enterprises the fullest freedom to operate within a framework of broad directives or rules of the game......

"..... The accent of the socialist pattern of society is on the attainment of positive goals, the raising of living standards. the enlargement of opportunities for all, the promotion of enterprise among the disadvantaged classes and the creation of a sense of partnership among all sections of the community. These positive goals provide the criteria for basic decisions. The directive principles of State policy in the Constitution have indicated the approach in broad terms: the socialist pattern of society is a more concretised expression of this approach. Economic policy and institutional changes have to be planned in a manner that would secure economic advance along democratic and egalitarian lines. Democracy it has been said, is a way of life rather than a particular set of institutional arrangements. The same could well be said of the socialist pattern."

1.6. The Third Plan stated that "economic activity must be so organised that the tests of production and growth and those of equitable distribution are equally met. A high rate of economic growth sustained over a long period is the essential condition for achieving a rising level of living for all citizens and specially for those in low income groups or lacking the opportunity to work.... A socialist economy must be efficient, progressive in its approach to science and technology and capable of growing steadily to a level at which the well being of the mass of population can be secured." It was clearly envisaged that "with the rapid expansion of the economy wider opportunities of growth arise for both the public and the private sectors and in many ways their activities are complementary..... The Five Year Plan enlarge we scope for individual initiative, as well as for cooperative and corporate effort.... In the context of the planned development the private sector has a large area in which to develop and expand. It has to function, of course, within the framework of national planning and in harmony with its overall aims, and there must be continuous stress on undertakings in the private sector acting with an understanding of obligations towards the community as a whole. At the same time it is essential to ensure that the opportunities available in the private sector do not lead to the concentration of economic power in the hands of small numbers of individuals and businesses and that disparities in income and wealth are progressively reduced.... On behalf if of the community as a whole the State has a large responsibility for assessing the wider longterm needs of the nation as against the claims of individuals, sectional or regional interests, and in setting the goals to be achieved."

1.7. Planning in India has thus to organise the efficient exploitation of the resources of the country, increase production and step up the tempo of economic activity in general and industrial development in particular to the maximum possible extent. The basic goal is a rapid increase in the standard of living of the people, through measures which also promote equality and social justice. Emphasis is placed on the common man, the weaker sections and the less privileged. It is laid down that planing should result in greater equality in income and wealth that there should be progressive reduction of concentration of incomes, wealth and economic power and that benefits of development should accrue more and more to the relatively less privileged classes of society, and, in particular, the scheduled castes and the scheduled tribes whose economic and educational interests have to be promoted with special care.

1.8. Rapid economic development which is oriented towards establishing social justice must involve refashioning of socioeconomic institutions. In part, the social objectives will be the end result of economic development, but in a large measure their realisation will depend on how the course of development is charted and to what extent an appropriate structure of socioeconomic institutions is evolved and operated. The strengthening of democracy in its social and economic aspect has to be attained

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APPROACH AND POLICY 3

through this refashioning. it means that major economic decisions and decisions regarding socio-economic relationships will be made by agencies informed With social purpose that there will be a devolution of functions and that there will be scope for experimentation. Democratic values are given effect to by encouraging the growth of a feeling of participation on the. part of the small man, the pro,motion of enterprise among the disadvantaged classes and the creation of a sense of involvement in the transformation. of society among all sections of the community. The broad objectives of planning could thus be defined as rapid economic development accompanied by continuous progress towards equality and social justice.

II

REVIEW OF ECONOMIC AND SOCIAL SITUATION

Economic Situation

1.9. It would be useful to review and analyse briefly the developments since the beginning of the Third Five Year Plan and to make an assessment of the existing situation before describing the approach to the Fourth Five Year Plan. During the Third Plan national income (revised series) at 1960-61 prices rose by 20 per cent in the first four years and registered a decline 5.6 per cent in the last year. The movement of national income, and output of agriculture and organised industry during the last eight years is shown in table 1. Per capita real income in 1965-66 was about the same as it was in 1960-61, the result of the meagre growth rate of national income having been almost completely neutralised by the 2.5 per cent rate of growth of population. In 1966-67, following a severe drought, national income registered only a nominal increase of 0.9 per cent. However, the record harvest of 1967-68, marking a significant increase in agricultural output, was instrumental in raising national income by 9 per cent that year. The estimated national income in 1968-69 has been put at 1.8 per cent higher than in the previous year.

1.10. Fluctuations in the aggregate income were a reflection of the erratic behaviour of agriculture. The performance of agriculture during the first three years of the Third Plan was not satisfactory. In 1964-65, which was a year of favourable weather conditions, a record harvest was raised., The improvement proved short-lived. Agricultural production fell sharply in the subsequent two years due to widespread drought conditions. In 1967-68, however, a sharp recovery took place as a combined result of the establishment of new varieties of cereal seeds, the incentive of higher prices, increased use of fertilisers, pesticides and water and, not the least, favourable weather conditions. On account of a less satisfactory season, the production in 1968-69 was marginally lower than in the previous year, though the availability of inputs has continued to increase. The production of food-rains in 1969-70, estimated at 100 million tonnes, is higher than the 1968-69 production by about 6 mil- lion tonnes.

1.11. The slow rate of growth in agricultural production not only depressed the rate of growth of the economy but also led to an alarming increase in the dependence on imports of foodgrains and other agricultural commodities During the Third Plan the country imported 2.5 million tonnes of foodgrains, 3.9 million bales of cotton and 1.5 million bales of jute. During the subsequent three years, the imports continued to be heavy. Despite increased imports of foodgrains, per capita availability was lower than the 1961 level, except in 1965, and there was severe pressure on prices.

1.12. Production of organised industry increased by 8 to 10 per cent during the first four years of the Third Plan. In 1965-66, with the dislocation caused by the Indo-Pakistan conflict and the conse- quent disruption in the flow of foreign aid, the growth of industrial production slowed down to 5.3 per cent. Over the Third Plan, as a whole, the annual growth rate turned out to be 8.2 per cent compared to the target of 11 per cent. The slowing down of the public investment programme led to a

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further reduction in the rate of growth of industrial production in subsequent years. The index of industrial production (base: 1960 = 100) increased by only 0.2 per cent in 1966-67 and there was hardly any growth (0.5 per cent) in 1967-68. This sharp deceleration was accompanied by an increase in unutilised capacity in a number of industries. Many factors contributed to it : decline in purchasing power because of the setback on the agricultural front; stagnation in investment shortage of foreign exchange because of the need for abnormally high imports of foodgrain and raw materials and for completion of a number of projects started earlier. Even then the stagnation was not general. It was most pronounced in certain capital goods industries. In some important industries such as fertilisers, petroleum products, nonferrous metals, electrical machinery and pumps, a satisfactory rate of growth continued to be maintained. As a result of several measures taken by Government-such as import liberalisation following devaluation, decontrol of certain commodities like steel, coal, paper. fertilisers and commercial vehicles, delicensing of a number of industries, some increase in 'the public sector's demand for domestic manufactures-and a rise in the exports of engineering goods, an all-round industrial recovery began in January 1968 and resulted in an increase of 6.2 per cent in industrial production in 1968-69.

1.13. Up to 1962-63 the rise in wholesale prices was mild. In subsequent years the rise was sharper. The general index of wholesale prices in 1965-66 was 32 per cent higher than in 1960-61, accounted for largely by the rise in the prices of food articles. During 1966- 67, which was a drought year, wholesale prices increased by 16 per cent and prices of food articles by 18 per cent. There was no respite even during the following year when wholesale prices rose further by 11 per cent and food articles by 21 per cent. Prices, however, became relatively stable during 1968-69 due to the substantial increase of foodgrains production in 1967-68 and the continued restraint on expenditure. The general index as on February 8, 1968 was 205.8 as against 208.2 on February 10, 1968. The consumer price index (1949 = 100) advanced from 124 in 1960-61 to 169 in 1965-66, 19). in 1966-67 and 213 in 1967-68. This increase in the price level necessitated increased grants of dearness allowance to Government employees and industrial workers. The resulting increase in non-Plan expenditure affected adversely Government's capacity to step up investments. At the same time, as a result of many factors, the cost of production in the economy increased and profitability of enterprises was generally reduced.

1.14. On the balance of payments side, strains had begun to develop at the very beginning of the Third Plan. In the face of rising food and other imports and insufficient increase in exports the situation worsened; the country sought larger and larger foreign assistance. Hostilities in 1965 followed by the two bad harvests further aggravated an already difficult situation. In order to meet the increase in defence expenditure and other elements of non-Plan expenditure, a bold effort at raising taxes was made during some years of the Third Plan and in particular in 1963-64. The larger commitments of non-Plan expenditure and the rising costs of investment could not, however, be fully met by domestic resource mobilisation. This again increased the dependence on foreign aid and led to larger deficit financing. In the event, inflationary pressures were, gene- rated affecting domestic savings and eroding resources for financing development.

1.15. A growing trade deficit and mounting debt obligations characterised the situation. Despite larger utilisation of foreign aid there was frequent recourse to borrowing from the International Monetary Fund. The temporary suspension of foreign aid in 1965 put further pressure on the already strained foreign exchange position. This was increased by the need to import large quantities of food that year. The rupee was devalued in June 1966. This did not immediately improve the balance of payments as in 1966-67 exports registered a decline as well as imports. However, there was some improvement in 1967-68 which has continued.