4.23. On the whole, the total net market borrowings of the Central and State Governments over the Fourth Plan period are estimated at Rs. 1415 crores. Besides, gross market borrowings of State enterprises are estimated at Rs. 258 crores. Credit has also been taken in the latest assessment for borrowings by financial institutions and the Food Corporation of India of the order of Rs. 250 crores; and Rs. 155 crores respectively.
Small Savings 4.24 Net receipts from small savings in 1968-69 amounted to about Rs. 114 crores. Allowing for the anticipated growth, the total for the Fourth Plan has been taken at Rs. 769 crores.
Annuity Deposits, Compulsory Deposits 4.25 Following the abolition of the Annuity Deposit Scheme a net outgo of Rs. 104 crores is expected under this head. This includes estimated repayment of Rs. 22 crores in 1969-70 under the Compulsory Deposit Scheme.
State Provident Funds 4.26. In 1968-69, the net accretions to the State Provident Funds at the Centre and in the States (including public provident fund) amounted to about Rs. 105 crores as against the Plan estimate of Rs. 81 crores. After eliminating the effect of the accrual or outgo on account of provident fund accumulations due to dearness allowance increase in this year's figure and taking into account the normal trend increases, the net collection under State Provident Funds over the Fourth Plan period has been estimated at Rs. 660 crores---Rs. 343 crores at the Centre and Rs. 317 crores in the States.
Miscellaneous Capital Receipts 4.27. During the Fourth Plan period the Central Government is expected to have a net inflow of Rs. 2090 crores under this head. A part of it will be offset by the net outgo of Rs. 405 crores estimated for the States, leaving a net receipt of Rs. 1685 crores for the Plan. The large inflow at the Centre is attributable mainly to loan repayments by the States.
4.28. In the case of States, the net outgo is arrived at after the credits taken for Rs. 850 crores of appropriations from current revenues for reduction or avoidance of debt, Rs. 45 crores to be raised by local authorities for Plan schemes of urban development as also for the special accommodation which the Centre is expected to provide to the States having overall non-Plan deficits to facilitate the release of their additional mobilisation for the Plan.
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fINANCING THE PLAN
Loans from LIC 4.29. Besides market loans. the State Governments borrow from LIC for housing and water supply schemes. Up to 1968-69, such borrowings for outlays on housing had been kept outside the public sector Plans. Since these outlays have now been included in the Plan, credit has been taken for the corresponding amounts of borrowing in the public sector resources. Inclusive of Vans for water supply schemes, the State Governments' borrowings from LIC are estimated at Rs. 100 crores. The State Government enterprises also expect to raise loans from LIC and other financial institutions to extent of Rs. 148 crores.
Budgetary Receipts Corresponding to External Assistance 4.30. The amount of gross external assistance for the Fourth Plan of the public sector has been taken at Rs. 3830 crores. Deducting Rs. 1216 crores of repayment of external loans-Rs. 1036 crores by the Central Government and Rs. 180 crores by public enterprises-external assistance available for the Plan is estimated at a net figure of Rs. 2614 crores.
Deficit Financing 4.31. The scheme of finance includes Rs. 850 crores for deficit financing. With the stipulated growth in real income during the Fourth Plan, there is a case for corresponding expansion in money supply. Deficit financing may also be necessary for further activation of the economy. The annual amount of deficit financing will have to be determined in the light of emerging trends.
Additional Resource Mobilisation 4.32. Additional resources to be mobilised for the Fourth Plan are now placed at Rs. 3198 crores. Of this, the State Governments have indicated their intention to raise about Rs. 1098 crores and the balance of Rs. 2100 crores will be mobilised by the Central Government. This letter figure is net of the States' share of additional taxation at the Centre.
4.33. The broad areas to which the specific measures could be directed are outlined below :
(1) The Committee on the Working of State Electricity Boards (Venkataraman Committee) recommended that the rate of return on capital employed in electricity undertakings should be raised to 11 per cent per annum on the basis of a phased programme. Since this recommendation has been accepted in principle, steps could be taken to raise the rate of return at least where it is lower than 11 per cent. The tariffs may also be further graduated or differentiated so as to make the better off consumers pay a higher price.
(2) The State Governments incurred in 1968-69 a loss of Rs. 79 crores in the aggregate on commercial irrigation works, including multi-purpose projects. The Committee to Suggest Ways and Means of Improving Financial Returns from Irrigation Projects (Nijalingappa Committee) recommended that irrigation rates should be fixed at 25 to 40 per cent of the additional net benefit to farmers from irrigated crops, and where this net benefit could not be worked out, at 5 to 12 per cent of the gross income from irrigated crops. The Committee had also suggested a compulsory surcharge sufficient to cover at least the maintenance and operational charges as well as a betterment or capital levy. By implementing the recommendations of the Committee it should be possible to mobilise resources from that section of the agricultural sector which benefits directly from the irrigation projects.
(3) Efforts could be directed to raise the rate of return on capital employed to 15 per cent by industrial and commercial undertakings other than public utilities. Additional resources, if thus raised, could be utilised for their development and expansion.
(4) Efforts could be made to mobilise additional resources in the rural sector by floating rural debentures or adopting similar devices for financing agro-industries, irrigation schemes, rural electrification, housing and the provision of drinking water, benefiting the rural population directly.
(5) As a result largely of public investment in the agricultural sector since the inception of planning agricultural incomes have increased substantially. But the contributions of the agricultural sector to the pub- lic exchequer have not risen commensurately. There is, therefore, need for raising more resources from the agricultural sector for financing its development by im- posing an additional burden on the well to do farmers. This can be done by developing agricultural income tax in States where it is in force, introducing the tax where it has not been imposed so far and attaining parity of rates not Only in all States but also with the Union tax on nonagricultural incomes. Alternatively, surcharge at progressive rates can be levied on land revenue, by size of land-holding or type of crops according to the circumstances prevailing in different States.
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FOURTH FIVE YEAR PLAN
(6) Taxation, in any case, has to play an important part in a developing economy not only because it yields revenue but also promotes other economic objectives. Commodity taxation could be stepped up to restrain conspicuous consumption by the affluent, sections of society, generate exportable surpluses and bring about a desirable allocation of productive resources. It can also be used as a means of mopping up. producers' surplus in certain areas and operate, in effect, as a tax on the incomes of producers. Inter-State uniformity in sales tax rates, attained by levelling up rates where they are low, can bring in more revenue.
(7) Taxation of income and wealth can, besides yielding larger revenue, be more effective in preventing the growth of disparities in income and, wealth, if (a) all taxable incomes and, wealth are forced into the tax net and fully assessed to tax (b) income and asset splitting through gift is prevented and life-time accumulations are subjected fully to estate duty and-(c) capital gains are more rigorously taxed. The rates and coverage of wealth tax could also be increased. Besides, income tax assesses in the middle and higher ranges of income could be made to bear a somewhat higher burden.
(8) A large source of unearned increment in income and wealth is the increase in land values in and around developing urban areas. Taxation of land values can provide the means to appropriate such increments and finance programmes of urban development including low- income housing, slum clearance and improvements in transport, water supply and drainage.
(9) Finally, while tax incentives have no doubt a positive role to play in planning for development, their withdrawal, when the purpose, served by them is not commensurate with the, revenue loss, can be a means of, mobilising additional resources.
Resources for, Private Investment 4.34. Firm estimates of private savings are not available. On a rough calculation, the private sector is, expected to generate savings amounting to Rs. 14160 crores during the Fourth Plan. The household and cooperatives sections will contribute Rs. 122 1 0 crores and the balance of Rs. 1950 crores will be contributed by the corporate sector. The Central and State Governments will draw on this pool of private savings as much Rs. 5210 crores for the public sector Plan. Private, savings thus available for private. investment, would amount to Rs. 8950 crores. Adding to it the net amount of foreign funds directly flowing to the private sector, the total resources available for private investment would aggregate to Rs. 8980 crores. The break-up of this total is given below :
TABLE 5 : Resources Available for Private Investment
During Fourth Plan
sl. no. item private investment
(Rs. crores)
(0) (1) (2)
1 private 14160
2 corporate savings 1950
3 household, and cooperative savings 12210
4 central and state government draft on
private savings 5210
5 private savings available for private
investment (1-4) 8950
6 gross loans and investment from abroad 300
7 repayment of foreign loans 270
8 net inflow of funds (6-7) 30*1
9 total resources available for private
investment (5+8) 8980
1*Net-of loan repayments only, Interest payments have been taken
into account under item 1.
4.35. The order of private savings estimated above will be dependent on the rate of growth of national income. This underlines the necessity of ensuring that the postulated rate of growth of national income is actually realised. It is also intimately linked with the preservation of relative stability in prices, for any upward pressure on prices would encroach upon private saving. It is not sufficient that private savings are generate. It will be necessary that the saving generated in various sectors are adequately and speedily channeled to sectors requiring investible funds. This follows from the fact that the demand and supply of savings are not evenly balanced for each of the investing sectors. The corporate sec- tor, for instance, can meet its resource requirements only if it ensures larger retention of the profits for re-investment through adequate restraint on dividend distribution while exploiting to the fullest extent the capital market for drawing on other sectors savings. Bulk of the Household savings during the period is likely to be generated in the rural sector. Financial institution's like LIC, banks, cooperatives and land development banks will have to intensify efforts to mobilise a sizeable part of rural savings for investment. This will call for a certain measure of reorientation in their policies, streamlining of their operations and a stronger net-work of branches.
External Resources 4.36. The estimate of budgetary receipts corresponding to external assistance indicated in the scheme of financing for the public sector Plan and the net inflow of foreign funds for the private sector represent only a part of the economy's requirements of foreign exchange resources. They refer only to
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FINANCING THE PLAN
public and: private investment during the Plan period. The total, requirement and availability of foreign exchange resources are, much. larger and are analysed below.
4.37. During the Fourth Plan the economy will require total imports valued at about Rs. 9730 crores. Of this, Rs. 7840 crores will be maintenance imports or imports of raw materials and components required for stepping up the rate of growth of industrials and agricultural production. These include imports of fertilisers. pesticides, crude oil, chemicals, non-ferrous metals, special varieties of steel and components and spare parts of machinery. About Rs. 1300 crores will be required to finance project imports or imports of plant and machinery for expansion or creation of additional capacity in selected lines which cannot be met from the domestic sources of supply. The balance of Rs. 590 crores would be the cost of food imports during the Plan. The estimate of project imports has been built on the assumption that the capital goods requirements for industrial expansion in the public and private sectors will be met by and large out of domestic production and only plants and machinery of more sophisticated kinds, not yet produced within the country, will be imported. With a diversified engineering capacity already built up in the country, it does not appear difficult to realise this objective. The requirement of maintenance imports likewise assumes that domestic production will grow at the scheduled rate. As the economy picks up, some increase in maintenance imports must be expected, particularly of certain essential components and raw materials. To offset this. it will be necessary to see that other imports are kept to the minimum. The import substitution programme will therefore have to be further extended so as to keep maintenance imports within the limits of available foreign exchange even when industrial production gathers momentum and the growth rates of domestic output as well exports steadily improve. Import policy will have to be so framed as to eliminate all non-essential imports while ensuring the availability of items not produced indigenously in sufficient quantity.
4.38. Excluding official grants and interest payments invisible transactions during the Fourth Plan are expected to result into a net outgo of Rs. 140 crores. Although a substantial increase has been assumed in the earnings from tourism and shipping, there will be a large outflow under remittances of dividends, commissions, consultancy charges and insurance. If invisible receipts are to grow, steps will have to be taken to ensure that earnings from shipping and tourism increase on the scale envisaged. A beginning may be made in the Fourth Plan period for export of Indian consultancy and technical ser- vices.
4.39. The total debt service payments (amortisation plus interest on foreign loans) are estimated at Rs. 2280 crores. In addition, there would be repayments due to the International Monetary Fund amounting to Rs.. 280. crores during the Fourth Plan.
4.40. Exclusive of debt servicing, the total requirement of foreign exchange during the Fourth Five Year Plan will therefore be Rs. 10,150 crores. This will have to- be met out of the net receipts from external assistance plus export earnings. In regard to foreign aid, the Approach document indicated the policy objective of reducing the foreign aid net of debt servicing (inclusive of interest payment) to half of the current level by the end of the Fourth Plan and to eliminate it altogether as speedily as possible thereafter. During the Third Plan, the net external assistance was approximately Rs. 3500 crores (at post devaluation exchange rate). The annual average during the three Annual Plans (1966-69) also corresponded more or less with the average level reached in the Third Plan. In accordance with the policy objective of the Plan, the aggregate external assistance, net of debt servicing. required during the Fourth Plan is estimated to be Rs. 1850 crores. This will be available only if gross aid utilisation in the economy is of the order of Rs. 4130 crores comprising PL 480 aid of Rs. 380 crores and project and non-project aid of Rs. 3750 crores. The requirement of aid in the first two years of the Plan will continue to be high and aid commitments will have to be obtained well in advance to enable the programmes and projects to progress in accordance with the Plan.
4.41. The balance of foreign exchange requirement amounting, to Rs. 83000 crores will have to be met out of export earnings. The will require export earnings to go up from the expected level of Rs. 1360 crores in 1968-69 to around Rs. 1900 crores in 1973-74, or at a compound rate of about 7 per cent per annum. This rate of growth will call for proper reorientation in policies and institutional arrangements for export promotion.