RESOURCES POSITION
Reforms Programme 2.1 The Eighth Five Year Plan (1992-97) was launched soon after the process of eco- nomic reforms was initiated in July, 1991. The stabilisation and structural adjustment meas- ures that constituted the economic reforms programme marked a significant watershed in the management of the country's economy. By early 1991 a serious fiscal crisis had emerged owing to the growing imbalance be- tween revenue receipts and revenue expendi- ture especially, after the middle of the 1980s, leading the Government to engage in large measures of borrowing even to meet the cur- rent expenditures Side by side, there was also a balance of payments crisis that emerged 'in early 1991. While the immediate stimulus to the process of economic reforms was to simultaneously address both these problems, it may be noted that the process of economic liberalisation in some measure had already been initiated since the early. 1980s. The ongo- ing reform process may thus as such be viewed as part of a continuum.
2.2 In order to redress the imbalance in the fiscal and foreign trade sectors a number of measures were introduced as part of the reform programme. The rupee was devalued to provide a competitive edge to our exports, and foreign trade was liberalised with import duties brought down significantly. In the fis- cal sector, while tax revenues were sought to be increased via a comprehensive process of tax reform, the need to compress government expenditure, particularly non essential reve- nue expenditure, was thought to be of para- mount importance, so as to ensure a lower fiscal deficit which had reached the unaccept- ably high annual average of 9.2% of GDPdur- ing the Seventh Plan (1985-90) years.
Focus on "human development" 2.3 The resource mobilisation exercises of the Eighth Five Year Plan were carried out keeping in view the broad objective of the Plan which recognised "human development" to be at the core of all development effort. The Plan envisages a higher growth and substantial improvement in the social sectors that have a direct bearing on the standard of living, edu- cation and health of the people. In keeping with this objective, more than one fourth (26.1%) of the overall public sector plan outlay approved for the Eighth Plan has been allo- cated to the social sector (including Rural De- velopment) as against the corresponding share of 22.5% overall approved outlay in the Sev- enth and 19.9% in the Sixth Plans. Among the other explicit objectives were generat- ing employment and alleviating poverty. Even though the key element of the economic reform process was to allow market forces to generate a higher growth potential one has to recognise that there-are large areas such as primary education, rural-health, provision of drinking water, child welfare etc. where mar- ket signals are unlikely to lead to socially optimal allocation of resources. Therefore the State has to intervene, via the planning process, to channelise resources into these vital areas. In the original formulation of the Eighth Plan nearly 82% of the total budg- etary support to the Central Ministries was earmarked for the social, infrastructure and agricultural sectors, as compared to 70% in the Seventh Plan.
Public Sector Outlay 2.4 The public sector outlay for the Eighth Plan (1992-97) has been placed at Rs,434,100 crore at 1991-92 prices, of which the invest- ment component amounts Rs.361,000 crore. with the balance being in the nature of current outlays. The public sector investment of Rs.361,000 crore accounts for 45.2 per cent of the total domestic investment of Rs.7,98,000 crore envisaged in the Eighth Plan, as against the corresponding share of 47.8 per cent tar- getted in the Seventh Plan. The relatively lower share in the Eighth Plan allows a larger role for the private sector.
2.5 The share of States in the public sector outlay in the Eighth Plan works out to 41.5%. During 1992-95 the States' share turned out to be lower at 35%. The share of States in public sector Plan outlay has gone down from about 51% during the Fifth Plan to 41% in the Sixth Plan. However, it rose to 48% in the Seventh Plan.
2.6 Of the total Plan Outlay for the Eighth Plan, the budgetary support has been projected to be about 43.4%. The budget support envis- aged for the Central Plan is 41.8% of the
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outlay while budget support (Central assis- tance) for States works out to 43.6% of the approved State Plan outlay. However, during the first three years of the Eighth Plan while the budgetary support for the Central Plan was of the order of 40.7%, the Central assistance to State Plans, was as much as 56. 1% of outlay. This implies that the States' effort towards fulfilling the targetted outlay was substantially below the level projected for the Plan.
2.7 An in depth review of financial targets and achievements is essential for a realistic appraisal of the feasibility of achieving physical targets. Shortfalls in plan expendi- ture tend to reflect shortfalls in the achieve- ment of physical targets, which are discussed in the sector-specific chapters of this docu- ment. This Chapter seeks to review the re- source position of both the Centre and States in the light of Plan expenditure during the first three years of the Eighth plan (1992- 95) vis-a-vis the approved public sector outlay for the Eighth Plan (1992-97). In order to ascertain the magnitude of the tasks in terms of overall plan outlay commensurate with approved outlay during the remaining period of' the Eighth Plan and identify the Sectors requiring significant step up in plan outlays, plan expenditure during 1992-95 is analysed both in overall terms and by Heads of Devel- opment such as Rural Development, Educa- tion, Health, etc. as per the classification in the Plan/Budget documents. This is fol- lowed by an assessment of resource sce- nario for plan financing, which forms the basis for the forecast of resource position and the likely gap between resource availability and resource requirements during the re- maining period (1995-96 and 1996-97) of the Eighth Plan.
Plan Expenditure 2.8 The figures (Annex 2.1) reveal that as against the overall approved Eighth Plan Out- lay of Rs. 4,34,100 crore (at 1991-92 prices), the overall plan expenditure in real terms during the first three years (1992-95) amounted to Rs. 2,27,955 crore or about 52.8 per cent of the approved outlay. The expected level of plan expenditure in pro-rata terms for the first three years amounts to 60 per cent of the approved outlay. This meant that there has been a shortfall of Rs. 32505 crore at 1991-92 prices, or around seven percent- age points. For the purpose of comparison, the figures of outlay and expenditure for the Sixth and Seventh Plans are also given in An- nex. 2.1. The figures reveal that in plan expen- diture during the comparable period of the Seventh Plan was 55.1% while that in the Sixth Plan was 45.3% of the total plan outlays.
2.9 At the disaggregated level the figures reveal more serious shortfall in the state sec- tor. As against the approved Eighth Plan out- lay of Rs. 1,79,985 crore, the plan expenditure (including area programmes) during 1992-95 amounted to only Rs. 80,575 crore or about 45 per cent of the approved outlay. In pro- rata terms, the shortfall was of the order of Rs. 27,416 crore, or 15 percentage points. In the case of the Central Sector, plan expen- diture during the corresponding period amounted to Rs. 143528 crore, or about 58 per cent of the approved Eighth Plan outlay of Rs- 2,47,865 crore. This meant that the short fall in the central sector at Rs. 5191 crore or less than two percentage points in pro-rata terms was much less serious than that in the state sector. This large gap in plan perform- ance between the States and Centre has brought about a reduction in the relative share of States in public sector plan outlay from 41.5 per cent envisaged in the Eighth Plan to 35.3 per cent during the first three years of the plan. As regards Union Territo- ries, the plan expenditure amounting to Rs.3,852 crore during 1992-95 accounted for about 62% of the approved outlay of Rs 6,250 crore, thereby exceeding file pro-rata share by Rs. 4 02 crore or about two percentage points.
2.10 Analysis of the trends in plan expendi- ture by heads of development has revealed serious shortfalls in infrastructure and social sectors. The figures (Annex 2.2 and 2.3) show that even in the case of the Central Sector where the overall shortfall in plan ex- penditure was marginal, there were large slip- pages in the Social Sector (including Rural Development). In the case of the central sec- tor, the approved outlay on social sector amounted to Rs. 58,615 crore (23.6 per cent of total Central Plan Outlay) whereas the corresponding amount for States was Rs. 5 1,802 crore (28.8 per cent of total State Plan Outlay). In pro-rata, terms the shortfall was of the order of Rs. 8188 crore or 14 per- centage points in the Central Sector and Rs 6,355 crore, or about 12 percentage points in the case of States.
2.11 In the case of infrastructure sector (Annex. 2.4 and 2.5) overall shortfall in plan
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expenditure was witnessed only in the State Sector. While expenditure during 1992-95 accounted for about 64 per cent of the ap- proved plan outlay of Rs. 1,32,869 crore (53.6 per cent of total Central Plan outlay) in the Central Sector,the corresponding pro- portion was only about 44 per cent of the approved outlay of Rs. 60,926 crore (33.8 per cent of total States Plan outlay) in the State Sector. However, even in the case of the Centre, there was shortfall in certain sub-sectors, notable among them being Power, Roads & Bridges and Ports.
2.12 In regard to other sectors also short- falls in Plan expenditure vis-a-vis the prorata expenditure of 60 per cent of approved outlay were noticed in the case of both the Centre and States. These sectors include Agriculture & Allied Activities and Irrigation and Flood Control. In the case Centre, expenditure dur- ing 1992-95 accounted for only 5 per cent of the Eighth Plan outlay. The corresponding shortfall in the State sector was more because the expenditure during 1992-95 accounted for only 45 per cent of the approved outlay for Eighth Plan. In the case of both Centre and States shortfalls of equal magnitude (41% as against 60%) were noticed in respect of irriga- tion and flood control also.
Resource Mobilisation 2.13 The projected financing pattern for the Eighth Plan outlay may be seen from An- nex.2.6. As per this, domestic resources comprising Balance from Current Revenues (BCR), resources of public enterprises and borrowings (including miscellaneous capital receipts) account for 88.8 per cent of the ap- proved Eighth Plan outlay of Rs. 4,34,100 crore. BCR accounts for about 8 per cent of aggregate resources for financing this outlay, while contribution of public enterprises ac- counts for 34 per cent of the same. Borrow- ings, including market borrowings, small savings, provident funds and miscellaneous capital receipts (MCR) constitute 46.6 per cent of aggregate resources for the plan. Net inflow of capital (external aid) from abroad contributes 6.6 per cent of the approved plan outlay. The resource gap accounting for the remaining 4.6 per cent of the approved outlay is projected to be filled by deficit financing. The positive BCR in the projected financing pattern for the Eighth Plan is based on fairly optimistic assumptions about growth in the revenue and control of non-plan revenue ex- penditure during 1992-97. The projected growth rates for direct and indirect taxes for this period are 9.9% and 8.5% per annum respectively. As regards non- plan revenue expenditure, the two important components, viz. interest payments and subsidies have been projected to increase at 12.2% and 2.0% per annum.
Balance from Current Revenues 2.14 The emerging resource scenario indi- cates serious deviations from the projected financing pattern. As against an average posi- tive BCR of Rs. 4,404 crore per annum pro- jected for the Eighth Plan in respect of the Centre including Union Territories, the ob- served BCR as per the revised estimates had been negative in all the three years of the Plan. The deviation in BCR from projections brought about by the combined impact of decline in current revenues and increase in non-plan revenue expenditure necessitated greater dependence on borrowings for fi- nancing the plan. Similar deviations from projections for similar reasons were noticed in respect of the BCR of states also. The dete- rioration in BCR and the consequent increase in the dependence on borrowings during the first three years of the Eighth Plan can be seen from Annex.2.7.
2.15 For the Eighth Plan, the BCR was expected to contribute 6.6 per cent of the ag- gregatere sources and 11.5 per cent of the Plan outlay of the Central sector including Union Territories. During the Fifth Five Year Plan, the contribution of BCR was 41.6 per cent of aggregate plan outlay of the Centre. After that it has been declining steadily and during, the Sixth and Seventh Plans the share of BCR went down to 19.9 per cent and 0.7 per cent respectively. This has come about essen- tially because during the period covering these plans, non-plan revenue expenditure has progressively outstepped current tax and non-tax revenues leading to the BCR turning negative. Whereas the comibed BCR of Cen- tre and States was supposed to raise nearly, 8 per cent of aggregate resources over the Eighth Plan period amounting to Rs 35,005 crore at 1991-92 prices, actual show- ing on BCR during 1992-95 was of the order of - Rs. 33,876 crore. If the target of BCR is to be met during the plan period a sum of Rs. 63,744 crore has to be collected under this head from the Centre and the States put to- gether during 1995-97 comprising 31.5 per cent of resource effort during the remaining two years of the Eighth Plan. A BCR figure
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of this magnitude would appear to be daunt- ing.
Resources of Public Sector Enterprises 2.16 Plan outlay of the Central Public Sec- tor Enterprises (CPSEs) accounts for 70 to 75 per cent of the total central plan outlay. In pursuance of the policy intitiated in the 1980s, the dependence of CPSEs on budgetary sup- port has registered significant reduction from around 50 per cent of their plan outlay at the commencement of the Seventh Plan (1985-86) to around 15 per cent in the third year (1994- 95) of die Eighth Plan. This has been made possible through greater dependence by CP- SEs on Internal and Extra Budgetary Re- sources (IEBR). In pro-rata terms, generation of internal resources comprising retained prof- its and depreciation provision contributed 85 per cent and 92 per cent of the Eighth Plan protections for 1992-93 and 1993-94 respec- tively. The corresponding proportion for 1994-95 exceeded the pro-rata level. Mobili- sation of funds from the market through bonds constituted only about 15 per cent of the pro- rata amount in 1992-93 but improved to ac- count for around 70 per cent and 73 per cent in 1993-94 and 1994-95 respectively. Resource mobilisation through external commercial borrowing and the category, 'others' compris- ing intercorporate transfers, public deposits. etc. exceeded the pro-rata levels during each of the first three years of the Eighth Plan.
2.17 However, the growing dependence of CPSEs on borrowings to finance plan outlays has not been matched by higher levels of pro- ductivity and profits in all cases. As per the survey of public enterprises released by the Deptt. of Public Enterprises (1993-94), 106 out of 240 operating enterprises could not earn enough revenues to meet the provisions for depreciation and deferred revenue expenditure during 1993-94. The cash losses suffered by them amounted to Rs.4038 crores in 1993-94 as against Rs.2608 crore in 1992-93. The units suffering from major cash losses belonged to fertilisers (Rs.714 crorcs), consumer-goods (Rs.613 crores), textiles (Rs.606 crores) and heavy engineering (Rs.473 crores). The grow- ing dependence on borrowings also eroded the profits of the relatively better off enterprises. During 1993-94, they had to set apart about 65 per cent of their profits for the purpose of interest payments. As a result, their pre-tax profits constituted only around 35 per cent of their gross profits in the same year. It is also significant to note that the Petroleum sector contributed nearly, 90 per cent of the total net profits generated in 1993-94. A number of enterprises have accummulated huge losses thereby making their networth negative. As per the amendment to the Sick Industrial Com- panies (Special Provision) Act, 1985 effected in 1991, sick public sector enterprises are re- ferred to the Board for Industrial and Financial Reconstruction (BIFR).
2.18 As part of the industrial policy an- nounced in 1991 Government have initiated partial disinvestment of the Government eq- uity holding in public enterprises with effect from 1991-92. the disinvestment effected ill 1991-92 constituted 8 percent of Government holding in 30 public enterprises at a total value of Rs.3038 crores. The proceeds from disin- vestment to the extent of 5 per cent of equity holding in 16 enterprises effected in 1992-93 amounted to Rs,1912 crores. In this context the recommendations made by the Rangarajan Committee on disinvestment of shares in pub- lic enterprises assume relevance. The Com- mittee recommended the target level of ownership at 51 per cent in the case of all units reserved for the public sector, 26 per cent in the case of enterprises having a dominant mar- ket share or otherwise important for strategic reasons, and zero level in other cases. The main difficulty facing PSUs in raising re- sources from the market either through asle of equity of borrowing through bonds/debentures is their inherent inability to compere with the private sector on equal terms. In order to fur- ther reduce and if possible, eliminate depend- ence on budgetary support, it is necessary for CPSEs to operate on commercial basis and raise resources form the market through a sound combination of equity to legal, pro- cedural and accounting requirements of the capital market. They should also be able to pay dividends to share holders. During 1993- 94 only 67 out of 240 operating enterprises surveyed by DOP paid dividends, which amounted to Rs. 1014 crores or 1.82 per cent of the share capital.