FINANCING THE PLAN
APART from the general improvement in the economic situation, the assessment of resources for the Plan has taken into account the Award of the Fifth Finance Commission; the nationalisation of 14 major commercial banks, acceleration in their branch expansion and deposit mobilisation particularly in rural areas; reorientation of investment policies of the Life Insurance Corporation and the Employees' Provident Fund; and the more recent trends in receipts and expenditures of public authorities. This assessment has been made in consultation with the Central and State Governments, Reserve Bank of India, Life Insurance Corporation, Provident Fund Commissioner and the undertakings of the Central and State Governments. The total resources are expected to amount to Rs. 24,882 crores, of which Rs. 15,902 crores would be available for financing the public sector Plan and Rs. 8.980 crores for financing private investment.
4.2. It may be recalled that in the case of States having overall non-Plan deficits taking both the revenue and capital accounts, at 1968-69 rates of State taxation. their additional resource mobilisa- tion was being absorbed in meeting such deficits, in a few cases almost wholly. The State Governments had represented that unless the additional resource mobilisation undertaken by them was allowed to be utilised for augmenting the size of their Plans. there would be little to enthuse the People to put up with the additional tax burden and it would be difficult for the State Governments to introduce measures of additional taxation and resource mobilisation contemplated by them. After careful consideration of the matter, the Planning Commission requested the Ministry of Finance to extend special accommodation to such States as had non-Plan gaps in their resources on the condition that the gaps in resources of the individual States would be contained and that the States concerned would make an effort to increase their Plan outlays through additional resource mobilisation. The Ministry of Finance having acceded to this request, it has now become possible for all the States to use the entire proceeds of their additional resource mobilisation during the Plan period for expenditure on development schemes.
4.3. The details of the estimates of resources for the public sector Plan are discussed in the following paragraphs against the background of the experience of financing the Third Five Year Plan and the three Annual Plans.
Third Plan 4.4. Table 1 sets forth the scheme of financing the public sector Plan as originally envisaged and as it actually turned out during the Third Plan period.
4.5. It will be seen that additional resources mobilised by the Central and State Governments and their undertakings were Rs. 1,182 crores larger than the Third Plan estimates. But there was a deterio- ration of Rs. 969 crores in the balance from current revenues of the Centre and the States at 1960-61 rates of taxation, due mainly to increases in non-Plan expenditures following the hostilities of 1962 and 1965 and the rise in prices. There was also a deterioration of Rs. 115 crores in the surpluses of public enterprises on account of higher working expenses. Taking all this together the net increase in the resources made available by the Central and State Governments and public enterprises out of their revenues was larger by Rs. 98 crores only This together with the increases of Rs. 173 crores in domestic borrowings, Rs. 223 crores in budgetary receipts corresponding to external assistance and Rs. 583 crores under deficit financing account for the increase of Rs. 1,077 crores ever the original estimates of resources for the Plan.
Annual Plans 4.6. Table 2 gives the aggregates of the original estimates of resources as well as the latest estimates for the Annual Plans of 1966-67, 1967-68 and 1968-69.
4.7. The latest estimates of balance from current revenues of the Central and the State Governments at 1965-66 rates of taxation show a shortfall of about Rs. 563 crores from the aggregate of the Annual Plan estimates for 1966-67, 1967-68 and 1968-69. Deressed farm output for two consecutive years 1965-66 and 1966-67, decline in the rate of growth of industrial production and pressure on the price line eroded resources available for the Annual Plan. Receipts from taxes were below the anticipated levels and non-Plan expenditures were higher because of increases in dearness allowance to Government em- ployees, grant of food subsidies, higher cost of Government purchases and increase in 1966-67 in the rupee cost of interest on foreign loans due to devaluation.
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40
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4.8. Railways' deficit at 1965-66 fares and freights was larger than the aggregate of the Annual Plan estimates by Rs. 48 crores as the anticipated increase in railway trafic did not materialise while the working expenses increased on account of higher dearness allowance to employees and higher cost of materials. These factors and in certain cases underutilisation of capacity caused a substantial shortfall in the surpluses generated by other public enterprises. Additional taxation by the Central and States during the three Annual Plans was also smaller and aggregated to about Rs. 910 crores as compared to the Plan estimates of Rs. 1060 crores.
4.9. Net receipts from loans from the public during 1966-69 were higher than the Plan estimates, by Rs. 148 crores. The small savings collections however, turned out to be lower by Rs. 36 crores. Net accretions to State provident funds were higher by Rs. 48 crores mainly because part of the dearness allowance sanctioned during 1967- 68 and 1968-69 was credited into the provident fund accounts of Government employees. Net receipts under miscellaneous capital heads show an increase of Rs. 460 crores over the original estimates, due to larger inflow under debt and deposit heads at the Centre and substantial depletion of food stocks in the States. In the aggregate, domestic budgetary resources failed to reach the levels esimated in the Annual Plans. The overall budgetary position worsened in many States and the Central Government had to grant ad-hoc loans to clear their overdrafts with the Reserve Bank. Such loans amounted to Rs. 226 crores during 1966-67 and 1967-68.
4.10 During the three years of Annual Plans, budgetary receipts corresponding to external assistance amounted to Rs. 2426 crores. This was Rs.341 crores lower than the original estimates adjusted for devaluation. The shortfall was entirely under non-PL 480 assistance and was accounted for mainly by the suspension of aid following Pakistani aggression. PL 480 assistance was of about the same order as envisaged.
4.11 Actual deficit financing added up to Rs. 682 crores during the three Annual Plans--Rs. 189 crores in 1966-67, Rs. 224 crores in 1967-68 and Rs. 269 crores in 1968-69 as compared to Rs. 300 crores in 1965-66.
Fourth Plan 4.12. The scheme of financing the Fourth Five Year Plan as now envisaged marks a distinct departure from that in the Third Plan and the three Annual Plans. It has been specially designed to serve the objective of growth with stability and promote progress towards self-reliance. The share of domestic budgetary resources in total resource mobilisation for the public sector Plan has been raised to about 78 per cent as compared to 59 per cent in the Third Plan and 54 per cent in the three Annual Plans. External assistance (net of loan repayments but without allowing for interest payments) for the public sector Plan is to go down from 28 per cent in the Third Plan and 36 per cent in the three Annual Plans to nearly 17 per cent of the total resources in the Fourth Plan. As a percentage of total net investment in the economy during the Fourth Plan, foreign aid, net of debt servicing (repayment as well as interest) will be only 8.2. per cent. Deficit financing is placed at about 5 per cent of the total resources for the Fourth Plan in the public sector as against 10 per cent in the three Annual Plans and 13 per cent in the Third Five Year Plan. The comparative figures are shown in table 4.
4.13. The detailed estimates of resource mobilisation by the Centre and the States are given in table 3.
TABLE 3: Estimate of Resources for the Fourth Plan
(Rs. crores)
Sl. no. item centre states Total
(0) (1) (2) (3) (4)
1 domestic budgetary resources
other than negotiated loans
from LIC, etc. and state
enterprises market borrowings 723*2 150*2 873
2 balance from current revenues
at 1968-69 rates of taxation 1625 48*1 1673
3 contribution of public enter-
prises at 1968-69 fares, fre-
ights and tariffs 1534 495 2029
4 railways 265 - 265
5 post and telegraphs 225 - 225
6 IDC, ARC, REC, DVC, and central
power generation. 259 - 259
7 others 785 495 1280
8 retained profits of Reserve
Bank 165 37*2 202
9 market borrowings of central
and state governments (net) 900 515 1415
10 borrowings by financial ins-
titutions including FCI 405 - 405
11 food corporation of India 155 - 155
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4.14. In the scheme of Plan financing the Central Government and their enterprises will be raising an aggregate of Rs. 12,796 crores. Of this, Rs. 3500 crores will go to the States as Central assistance leaving Rs, 9296 crores for the Central schemes, Centrally sponsored schemes and the Plan of Union Territories. All the States together will be mobilising resources amounting to Rs. 3106 crores over the Fourth Plan period. With Central assistance of Rs. 3500 crores the total resources available for the State Plans will be Rs 6606 crores. Statewise break-up of this aggregate and its components is given in the Annexure. Brief comments on estimates of resources to be mobilised by the Central and State Governments during the Fourth Plan period are given in the following paragraphs.
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FINANCING THE PLAN
Balance from Current Revenues 4.15. The Centre's balance from current revenues for the Fourth Plan at 1968-69 rates of taxation is estimated at Rs. 1625 crores. In the States, the balance from current revenues at 1968-69 rates of' State taxation, but inclusive of the share in additional mobilisation by the Centre in 1969-70, is estimated at Rs. 48 crores. In working out these estimates, provision has been made for only a moderate increase in non-Plan outlays from year to year. This implies that a conscious effort would be made to restrain increases in non-Plan outlays and effect such economies as might be feasible. The full cost of the increases in emoluments of Government employees sanctioned so far has been taken into account. Unless firm commitments exist, no provision has been made for any increases in these emoluments hereafter.
4.16. Ten States are now expected to make a positive contribution to the Plan resources from their current revenues at 1968-69 rates of State taxation. Their positive contribution adds-up to Rs. 368 crores. Seven States, however are expected to incur deficits aggregating to Rs. 320 crores. These deficits are partly attributable to the fact that the Finance Commission has not allowed devolution from the Centre for covering fully the appropriations which these States propose to make from their current revenues towards reduction or avoidance of debts on the basis of their existing prac- tices. In part, it is also attributable to the assumptions made by the Finance Commission for its assessment of revenue deficits of States, namely that State Electricity Boards would pay to State Governments the full interest falling due during the Fourth Plan period with the exceptions of Assam and Rajasthan Electricity Boards which would pay only half, that receipts, from commercial irrigation works would cover, the working expenses and interest at the rate of 21 per cent on investment and that there would be no net loss in other departmental commercial schemes and investments by State Governments. In addition, the Finance Commission also assumed recovery of interest on loans and advances to third parties at a rate equivalent to the average rate of interest payable by the State Government concerned on its own borrowings while no allowance was made for interest payment on ad hoc loans from the Centre. All this implies some additional mobilisation by States, particularly by way of revision, of electricity tariffs and water rates. Consequently, on the basis of the devolution finally recommended by the Fifth Finance Commission, some States are faced with the problem of substantial revenue deficits at 1968-69 rates of State taxation.
Surpluses of Enterprises 4.17. The Railway's total contribution for financing the Plan was originally estimated at Rs. 4.15 crores. Of this, Rs. 265 crores was expected to be come available at 1968-69 fares and freight rates While the balance of Rs. 150 crores was to be raised through a revision of fares and freight rates. Recent trends in railway earnings and working expenses, however, indicate that the Railways' contribution at 1968-69 fares and freight rates would fall substantially short of the original estimate of Rs. 265 crores, due primarily to slower growth of freight traffic and to increases in the cost of coal, diesel oil and electricity, etc. However, the original estimates of Railways contribution have been kept unchanged. This means that the shortfall in the Railways contribution at 1968-69 fares and freight rates, will have to be made up through additional mobilisation by the Railways beyond the level of Rs. 150 crores taken credit for in the scheme of financing under additional resource mobilisation. In the case of Posts and Telegraphs, there is no change in the earlier estimate of Rs. 225 crores in respect of the contribution at 1968-69 rates of postal charges.
4.18. Contribution of Central Government enterprises other than Railways and P&T is however, likely to show an improvement of Rs. 100 crores as compared to the estimates made early in 1969 on account of the expected improvement in the financial working of some of the industrial undertakings, particularly those benefiting from the re- vision of prices of steel and coal announced during 1969-70. Further, credit has been taken in the latest estimates for an amount of Rs. 259 crores in respect of resources to be made available by Indian Dairy Corporation (Rs. 57 crores), Agricultural Refinance Corporation (Rs. 10 crores), Rural Electrification Corporation (Rs. 105 crores), Damodar Valley Corporation (Rs. 49 crores) and Central Power Generation (Rs. 38 crores). These had not been taken into account in the earlier estimation of resources.
4.19. On the basis of the latest estimates furnished by State Governments, the surplus of the State Government enterprises is estimated at Rs. 495 crores-State Electricity boards contributing Rs. 482 crores and road transport and other State undertakings Rs. 13 crores. The estimated surplus of State Electricity, Boards takes into account the anticipated increase in the generation and sale of power and allows for repayment of market loans by the Boards over the Fourth Plan-period.
Retained profit Reserve Bank 4.20. The Reserve Bank credits a part of its retained earnings to the long-term operations funds and channels it for agricultural and industrial investment, mainly, through term-lending institutions. Up to 1968-69, all expenditure financed from these funds was kept outside the public sector Plans. For the Fourth Plan, all expenditure on identifiable schemes of a developmental nature financed from
44
FOURTH FIVE YEAR PLAN
the resources provided by the Reserve Bank out of the long-term operations funds has been included in the public sector Plan. Correspondingly, credit has been taken for a sum of Rs. 202 crores likely to be made available by the Reserve Bank over the Fourth Plan period for these purpose in Plan resource. Of this amount Rs. 37 crores represents estimated loans to State Governments for participation in share capital of cooperatives and the balance of Rs. 165 crores is for other programmes.
Market Borrowings 4.21 Discussions were held with the Reserve Bank of India and the Departments of Banking and Economic Affairs in the Ministry of Finance to estimate the additional resource that will be available for financing the public sector Plan consequent on the nationalisation of 14 major commercial banks. As a result of these discussion, it is estimated that bank deposits would grow at a compound rate of 11 per cent per year against the earlier estimate of 7 per cent per year. This will mainly result from the more positive policy of opening additional branches and more purposeful drive by the nationalised banks to attract deposits particularly from the un-banked and rural areas. The aggregate increase in deposits over the Fourth Plan period is now estimated at Rs. 3000 crores. In the scheme of financing for the Plan the contribution of the banking sector to the borrowings of the Central and State Governments borrowings by important financial institution like Industrial Finance Corporation Industrial Development Bank and Agricultural Refinance Corporation borrowings by State enterprises particularly State Electricity Boards and borrowings by Food Corporation of India for buffer stock operation has been taken at a total of Rs.955 crores. In the discussions it emerged that it may not be possible for the nationalised banks to finance a larger outlay for the public sector Plan than indicated above because of the other pressing demands 9n the banking sector. These in particular refer to meeting the requirements of the sectors needing still greater attention such as agriculture small industry and small business as also the requirements of industry and business consistent with the increase in industrial production estimated at 8 to 10 per cent per year during the Plan period and of exports at the rate of 7 per cent per year. The banking sector is also required to meet the requirements for inventory increases both of the public and private sectors.
4.22. The contribution of Life Insurance Corporation and Provident Funds to the borrowing programme of the Centre and the States is also expected to be larger than what was assumed earlier. This has become possible on account of a re-orientation of the investment policies of L.I.C. and Provident Funds.