DEVELOPMENT OF THE ECONOMY : ACHIEVEMENT AND PERSPECTIVE
I
THE FIRST FIVE YEAR PLAN THE central objective of public policy and of national endeavour in India since Independence has been promotion of rapid and balanced economic development. The first five year plan was intended as a step in that direction. For formulating the plan, the Planning Commission attempted a fairly comprehensive review of resources and of needs in the light of circumstances then existing. The programme of development incorporated in the plan was calculated to strengthen the economy at the base and to initiate institutional changes which would facilitate more rapid advance in the future. It also aimed at meeting certain urgent problems that had arisen out of the war and partition. It both respects, the first plan has registered significant advance. It has evoked public cooperation and enthusiasm and has given a new dimension to current thinking and policy.
2. The second five year plan has to carry forward the process initiated in the first plan period. It must provide for a larger increase in production, in investment and in employment. Simultaneously, it must accelerate the institutional changes needed to make the economy more dynamic and more progressive in terms no less of social than of economic ends. Development is a continuous process, it touches all aspects of community life and has to be viewed comprehensively. Economic planning thus extends itself into extra- economic spheres, educational, social and cultural. Each plan for a limited period becomes the starting point for more sustained effort covering longer periods, and each step in advance opens out new vistas and brings into view new problems to be solved. While planning-or programming, as it is often called-for a particular period, it is thus necessary to keep in view a more long-range perspective and to be ready to adjust and adapt the programmes in hand as this perspective becomes clearer.
3. The first five year plan was conceived as a modest effort, and the solution of certain immediate problems had necessarily to be attended to on a priority basis. Even this modest effort, it was felt would strain the resources of the community. In the first two years, the emphasis inevitably was on correcting and controlling inflationary pressures and on restoring the economy to a position of balance. The outlay on the plan was stepped up substantially as from the third year, and the level of plan expenditure by the Central and State Governments was raised by the end of the plan period to about 21/2 times the level in 1951-52. Over the five years, the aggregate outlay in the public sector is now expected, to be somewhat below Rs. 2,000 crores. This is about the level envisaged when the plan was brought out in 1952. Subsequently, additional programmes were undertaken with a view to making up the shortfalls in the earlier years and to enlarging employment opportunities. These additions. It was recognised, were in part at least substitution for schemes in respect of which progress was slow for various reasons. The shortfall of Rs. 350 crores or so in plan expenditure in terms of the revised total of about Rs. 2,350 crores may with propriety be judged in this light In any case, it is the projects executed, the works completed and the results achieved which are of more real significance than the Financial outlays incurred.
4. The overall results of the first plan may be stated briefly here. National income over the five years has increased by some 18 per cent. Foodgrains production has gone up by 20 per cent; the output of cotton and of major oilseeds has shown an improvement of 45 and 8 per cent respectively. Over 6 million acres of land have been brought under irrigation through major works; another 10 million have benefited through smaller works. With the increased supplies of fertiliser and seed and the further expansion of the national extension movement now in view, the outlook for continued and substantial improvements in agricultural productivity can be regarded as distinctly good. Industrial production has increased steadily. The interim index (1946=100) of industrial production works out at 161 for 1955 as compared to 105 for 1950
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SECOND FIVE YEAR PLAN
and 117 for 1951. The revised index with 1951 as base shows for 1955 a level of industrial production about 22 per cent higher than in 1951. The generation of electric power has gone up from 6575 million Kwh. in 1950-51 to 11,000 million Kwh. in 1955-56. The output of cement, which is an important indicator of the volume of investment in the economy is estimated to have gone up from 2.7 million tons in 1950-51 to 4.3 million tons in 1955-56, and the demand for cement has of late risen sharply. Several important industrial projects in the public sector have been completed, and considerable new investment especially in the field of producer goods and capital goods industries has taken place in the private sector. Although construction work in respect of iron and steel and heavy electrical equipment could not be commenced in the plan period, the preliminary work in connection with the installation of three steel plants and the heavy electrical plant has been completed, and the foundation laid for the larger tasks to be taken in hand in the second plan period. On the whole, the results of the plan have been satisfactory. There is now increasing awareness of the need for development, and it is not without significance that there is demand all over the country for a plan that would secure more rapid advance in all directions.
5. Investment in the economy, it is now estimated, approximated Rs. 3,100 crores over the five years, 1951-56. It has risen from about Rs. 450 crores in 1950-51 to about Rs. 790 crores in 1955-56. The following table sets out the estimated levels of national income, investment and consumption for 1950-51 and for 1955-56:-
National Income, Investment and Consumption-1950-51 and 1955-56 (at 1952-53 prices)
( Rs. crores)
Item 1950-51 1955-56
(1) (2) (3)
1. National Income 9,110 10,800
2. Investment 450 790
3. Investment as percentage of
national income 4.9 7.3
4. National Income (Index) 100 118
5. Per capita National Income (Index) 100 111
6. Per capita Consumer Expenditure
(Index) 100 109
Annual estimates of investment in the plan years are difficult to make and only the broad magnitude of changes in the level of investment can be inferred. Investment in 1951-52 was at an exceptionally high level; it amounted probably to over 7 per cent. of national income. But, a part of it was stock-piling, and the strain on the economy was reflected in the large import surplus. Investment appears to have fallen back to a level of 5 per cent. or so in the subsequent two years. It picked up again in 1954-55 to 6 or 6.5 per cent. of national income, reaching a level of 7.3 per cent in the last year of the plan. The average rate of investment over the plan period works out at about 6 per cent. of national income, which cannot be regarded as impressive. A five year period is, in a sense, too short for a definitive appraisal of the trend or its significance for the future, especially when there have been considerable fluctuations in investment from year to year, but there is no doubt that investment now is running at a rate significantly higher than before the plan commenced.
6. This stepping up of investment it will be noted, has not been accompanied by inflationary pressures. The following table sets forth the principle monetary and price data:-
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*This in respect of the first 9 months. **This relates to the period April 1955 to January 1956
Prices at the end of the first plan were lower by 13 per cent than when the plan started; in fact, they were slightly below the level on the eve of the Korean war. The all-India cost of living index in 19S5 was at an average level of 96 as compared to 100 in 1949. Money supply in the hands of the public at the close of the fiscal year 1955-56 was about Rs. 208 crores above the level in early 1951-an increase of a little over 10 per cent as compared to the estimated increase of some 18 per cent in national income. The coun- try's balance of payments improved substantially in 1952-53 which recorded a surplus of Rs. 77 crores. In 1953-54 there was a surplus of Rs. 57 crores. External accounts were virtually in balance in 1954-55, and 1955-56 is expected to end up with a small surplus. Over the five years the foreign exchange reserves held by the Reserve Bank have gone down by Rs. 138 crores as compared to the drawing down of Rs. 290 crores envisaged in the plan. Although money supply and prices have tended to rise rather sharply in recent months, and this trend needs careful watching, the overall picture is one of stability and steady progress. Domestic inflationary pressures in several countries, it may be added, are at present probably stronger than in India. On the whole, the economic situation on the eve of the second plan is distinctly better than it was on the eve of the first plan; there is more confidence and greater readiness all round for a larger effort.
7. These gains notwithstanding, the fact remains that living standards in India are among the lowest in the world. The average intake of food in India is below accepted nutritional standards; the consumption of cloth in 1.955-56, at about 16 yards per capita is still around the pre-war level; housing is very deficient; and only a half of the children in the age group 6-11 and less than one-fifth of the children in the age group 11-14 attend school. About a half of the population of India has, on an average, Rs. 13 per month to spend in consumer goods. The per capita consumption of energy in India is 1/73 of that in the U.S.A.: and that of steel is 1/122 of the level in the U.S.A.: as compared to Japan India's per capita consumption of energy and steel is one-ninth and one-fourteenth respectively. The rate of population growth in India is not higher than in some of the advanced countries, but the annual addition of 4.5 to 5 million represents a large absolute increase in terms of the resources required to maintain even existing standards. This makes it par- ticularly difficult to increase the supply of tools and equipment per head so as to promote rapid economic development. Employment opportunities in the country have not been increasing pari passu with the increase in labour force. The increase in investment in the first plan has not been on a scale sufficient to absorb the new entrants to the labour market, and there is a backlog of unemployment and underem- ployment to be made good. In the second plan period, investment and employment have, therefore to be increased more rapidly. It was emphasized in the report on the first plan that development must be envisaged as a fairly long-period process, however much a country might try to shorten it by putting forth its best effort. In formulating the second plan, this long-period perspective has to be kept in mind, even as the emergent needs of the immediate future have to be provided for.
II
KEY FACTORS IN DEVELOPMENT 8. Development is a process of utilising more and more effectively the resources of the community in furtherance of accepted ends. These resources are, in part given by nature, but they can and have to be transformed by the application of new skills and know-how. In a sense, these skills and know-how are more important than even capital formation proper. In an underdeveloped economy the resources endowed by nature are not fully known, and new techniques of utilising them have to be developed. Exploration and prospecting are in early stages; the necessary techniques are only imperfectly known and the means of bringing them to bear on such resources as have been located and mapped out are not easy to mobilise. A continuous and progressive increase in the community's level of living presupposes not only more effective utilisation of known resources and better application of known techniques; it requires vigilant and increasing search for discovery of new resources and for adoption or development of new pro- ductive techniques.
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SECOND FIVE YEAR PLAN
9. It is no exaggeration to say that the most important single factor in promoting economic development is the community's readiness to develop and apply modem technology to processes of production. Ad- vances in this field are taking place rapidly and they are of direct significance not only to the organisation of production, transport and other economic activities but also to the wider issues relating to economic and social organisation. Underdevelopment is essentially a consequence of insufficient technological progress, and this insufficiency or lopsided development can, in turn, be traced to various political, social and psychological factors. Given the desired change in these latter, the rate of development can be related almost, directly to advances in techniques. Countries which start late on their industrial career have some advantage in that they have, in the main, to take over and apply techniques that have been worked successfully in more advanced countries. But there is need simultaneously for keeping abreast of the latest developments in science and technology, if the time lag in economic advance is to be progressively narrowed. The search for new resources and for new techniques and the readaptation of the available labour force to the new tasks which development connotes are indeed, the foundation of development.
10. In the report on the first plan, the principal determinants of development were indicated, and it was stressed that apart from the important questions relating to techniques and of psychological and sociological factors bearing on the community's will to progress and its capacity to make the necessary institutional adjustments, the rate of economic development would depend upon (a) the rate of growth of population, (b) the proportion of the current income of the community devoted to capital formation, and (c) the return by way of additional output on the investment thus undertaken. The likely rates of development in India over the next few decades were worked out in terms of certain assumptions regarding these parameters. These we may review in the light of experience in the first plan period and the data now available regarding the rates and determinants of development in other countries.
11. Regarding population growth, only a few observation seem necessary. Rates of population growth can be altered only over a period, and in planning for a limited period, one has to go by the results of trends which commenced earlier. Nevertheless, over a period, the outcome of developmental effort can be noticeably different if population trends are altered in the right direction. This is one of those fields in which traditional modes of thought and behaviour are apt to offer considerable resistance to rational approaches and not many countries can be said to have any definite population policy at government level. Yet these modes or attitudes are changeable and are probably changing faster than is sometimes realised. The logic of facts is unmistakable and there is no doubt that under the conditions prevailing in countries like India, a high rate of population growth is bound to affect adversely the rate of economic advance and living standards per capita. Given the overall shortage of land and of capital equipment relatively to population as in India the conclusion is inescapable that an effective curb on population growth is an important condition for rapid improvement in incomes and in levels of living. This is particularly so, if one bears in mind the fact that the effect of improvements in public health and in the control of diseases and epidemics is to bring about an almost immediate increase in survival rates. While there may be differences as to the likely rates of population growth over the next 20 or 25 years, indications clearly are that even with the utmost effort which can be made-and has to be made-at this stage to bring down birth-rates, population pressure is likely to become more acute in the coming years. This highlights the need for a large and active programme aimed at restraining population growth, even as it rein- forces the case for a massive developmental effort.
12. In Chapter I of the First Five Year Plan (1952 Report) a graph showing the probable trends in the growth of national income and aggregate consumption expenditure in India over a period of 25 to 30 years was given. The projections of national income, investment and aggregate consumption expenditure used for the purposes of this graph were designed to bring out the broad implications, in terms of effort and return, of a process of development extending to over a generation. With the help of these projections it was shown that given a continuity of effort in terms of the assumptions made, the country's 1950-51 national income could be doubled by 1971-72, that is, in about 21 years time. Similarly, it was shown that the 1950-51 per capita incomes could be doubled by 1977-78, that is, in a period of about 27 years. This latter, implied a raising of the average consumption standard by about 70 per cent by 1977-78 as compared with 1950-51.
13. For purposes of these calculations, the population growth rate was assumed at 12.5 per cent. per decade, for the entire period to which the projections related. It would appear more appropriate now to assume some increases in this rate. For the period 1951-60, the assumption of a 12.5 per cent rate of growth over the decade could perhaps be retained, The rates for the succeeding decades would depend upon the assumptions one makes regarding the rise in survival rates through improvements in public health, sanitation and the like and the fall in birth-rates as a result of volitional control. There is room for differences in judgment here. In the projection now attempted, the rate of growth assumed for the decade 1961-70 is 13.3 percent. For the decade 1971-80 the
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DEVELOPMENT OF THE ECONOMY: ACHIEVEMENT AND PERSPECTIVE
rate assumed is 14 per cent. On this basis population would total 408 million in 1960-61, 434 million in 196566, 465 million in 1970-71 and 499 or almost 500 million in 1975-76. These estimates are intermediate between the upper and lower estimates put forward by the Census Commissioner in the Census Report, 1951, and it can be said of them, as the Census Commissioner has said regarding his own, that they may well prove to be on the low side.
14. In the first plan report, the proportion of investment to national income was assumed to rise from 5 per cent or so in 1950-51 to about 20 per cent by 1968-69 and to remain at that level thereafter; and, the capital-output ratio was taken at 3: 1 with a time lag of two years between the increase in investment and the increase in output The increase in national income in the last quinquennium has been 18 per cent, that is, 7 per cent more than was originally expected. Allowing for certain special favourable factors which operated in this period, it would still appear that a more favourable capital-output ratio can be postulated for estimating the increases in national income for the next few years at any rate. The assumptions regarding the rate at which investment can be stepped up on the basis of domestic savings also need to be reviewed.