PLAN ALLOCATION AND RESOURCE POSITION (REVISED FINAL DRAFT)
2.1 The Eighth Five Year Plan (1992-97) was launched soon after the process of economic reforms was initiated in July, 1991. The stabi- lisation and structural adjustment measures that constituted the economic reforms pro- gramme 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 between reve- nue receipts and revenue expenditure espe- cially after the middle of the 1980s, leading the Government to engage in large measures or borrowing even to meet the current expendi- ture. Side by side, there was also a balance of payments crisis that emerged in early, 1991. The immediate stimulus to the process of eco- nomic reforms was to simultaneously address both these problems, although it may be noted that the process of economic liberalisation in some measure had already been initiated since the early 1980s, and the results were reflected in the improved factor productivity and in- creasing growth rates of national and sectoral products.
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
Table 1
Plan Outlays in Social and Infrastructure Sectors during the
Seventh and Eighth Plans
(Rs. crore at 1991-92 prices)
Seventh Plan Eighth Plan %age increase
(1985-90) (1992-97)
Social Sector 71547 113437 58.6
Infrastructure 154644 196597 27.1
Sector
Total Plan 335142 434100 29.5
Note : Details of outlay and expenditure for different sub-heads in the social and infrastructure sectors in the Eighth Plan may be seen at Annexure 2.2 to 2.5.
programme. The rupee was devalued to pro- vide a competitive edge to our exports, and foreign trade was liberalised with import du- ties brought down significantly. In the fiscal sector, while tax revenues were sought to be increased via a comprehensive process of tax reform, the need to compress government ex- penditure, particularly non - essential revenue expenditure, was thought to be of paramount importance, so as to ensure a lower fiscal defi- cit which had reached the unacceptably high annual average of 8.2% of GDP during the Seventh Plan (1985-90) years.
2.3 The resource mobilisation exercises of the Eighth Five Year Plan were carried out keep- ing 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 im- provement in the social sectors that have a direct bearing on the standard of living, educa- tion and health of the people. In keeping with this objective, more than one fourth (26. 1%) of the overall public sector plan outlay ap- proved for the Eighth Plan has been allocated to the social sector (including Rural Develop- merit) as against the corresponding share of' 22.5% of overall approved outlay in the Sev- enth and 19.9% in the Sixth Plans. The greater emphasis laid particularly on the social sector in the Eighth Plan is discernible from Table 1.
Among the other explicit objectives were gen- erating 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
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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 proc- ess, to channelise resources into these vital areas. Nearly 82% of the total budgetary sup- port to the Central Ministries in the Eighth Plan 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 investment component amounts Rs.361,000 crore, with the balance being in the nature of current out- lays. 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 was expected to be 41.5%. During 1992-95 the States' share actu- ally turned out to be lower at 3 5%. The share of States in public sector Plan outlay has gone down from about 5 1% 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 pojected to be about 43.4%. The budget support envisaged for the Central Plan is 41.8% of the outlay while budget support (Central assistance) 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 budg- etary 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 an achievements is essential for a realistic ap- praisal of the feasibility of achieving physic targets. Shortfalls in plan expenditure tend to reflect shortfalls in the achievement of physi- cal targets, which are discussed in the sector- specific chapters of this document. This chapter seeks to review the resource 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 commen- surate with approved outlay during the rem ain- ing 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 Development such as. Rural Development. Education, Health, etc. as per the classification in the Plan/Budget documents. This Is fol- lowed by an assessment of resource scenario 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 remaining period (1995-96 and 1996-97) of the Eighth Plan.
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 dur- ing the first three years (1992-95) amounted to Rs. 2,27,955 crore or about 52.5 percent of the five year outlay. If the expected level of plan expenditure for the first three years is taken as 60 per cent in pro-rata terms of the approved outlay, there has been a shortfall of Rs. 32505 crore at 1991-92 prices, or around seven per- centage points. The approved Plan outlay for 1995-96 amounted to 20.4 per cent of the five year outlay at 1991-92 prices. Even if this Annual Plan were fully implemented, it would be necessary to provide for 27.1 per cent of the Eighth Plan outlay in 1996-97 to avoid any shortfall in real terms in the final outlay. For the purpose of comparison, the figures of out- lay and expenditure for the Sixth and Seventh Plans are also given in Annex. 2.1. The figures reveal that plan expenditure during the compa- rable 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 re- veal more serious shortfall in the State Plans than at the Centre. As against the approved Eighth Plan outlay 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 five year outlay. In pro-rata terms, the shortfall was of the order of Rs. 27,416 crore, or 15 percent- age points. In the case of the Central Sector,
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plan expenditure during the corresponding pe- riod amounted to Rs. 1,43,528 crore, or about 58 per cent of the approved Eighth Plan outlay of Rs. 2,47,865 crore. This meant that the shortfall in the central sector at Rs. 5,191 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 Territories, the plan expen- diture amounting to Rs.3,852 crore during 1992-95 accounted for about 62% of the ap- proved outlay of Rs. 6,250 crore, thereby ex- ceeding the pro-rata share by Rs. 102 crore or about two percentage points. These figures have to be seen in the context of the deteriorat- ing fiscal deficit of the Centre which Jumped from an average of 6.3% during the Sixth Plan to an average of 8.2 per cent during the Seventh Plan which clearly called for a reduction in the fiscal deficit. To add to the fiscal problems during the initial years of the Eighth Plan the country also faced the balance of payments crisis.
2.10 Analysis of the trends in plan expenditure 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 expenditure was marginal, there were large slippages in the Social, Sector (including Rural Development). In the case of the central sector, the approved outlay on social sector amounted to Rs. 58,615 crore (23.6 per cent of total Central Plan Out- lay) whereas the corresponding amount for States was Rs. 51,802 crore (28.8 per cent of total State Plan Outlay). In pro-rata terms the shortfall was of the order of Rs. 8,188 crore or 14 percentage points in the Central Sector and Rs. 6,355 crore, or about 12 percentage points in the case of States.
2.11 In case of infrastructure sector (An- nex. 2.4 and 2.5) overall shortfall in plan ex- penditure was witnessed only in the State Sector. While expenditure during 1992-95 ac- counted for about 64 per cent of the approved plan outlay of Rs. 1,32,869 crore (53.6 per cent of total central plan outlay) in the Central Sector, the corresponding proportion 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 shortfalls in Plan expenditure vis-a-vis the prorata ex- penditure of 60 percent of approved outlay for the Eighth Plan 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 of Agriculture and Allied Activities. In respect of Centre ex- penditure during 1992-95 accounted for around 50 per cent of the Eighth Plan outlay The corresponding proportion in the State sec- tor was more at 58 per cent of the approved outlay for Eighth Plan. In the case of both Centre and States shortfalls of equal magni- tude (41% as against 60%) were noticed in respect of irrigation 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 com- prising Balance form Current Revenues (BCR), resources of public enterprises and borrowings (including miscellancous 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 public enterprises ac- counts for 34 per cent of the same. Borrowings, including market borrowings, small savings, provident funds and miscellaneous capital re- ceipts (MCR) Constitute 46.6 per cent of aggre- gate 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.
Balance from Current Revenues 2.14 The emerging resources scenario indicates serious deviations from the projected financ- ing pattern. As against an average positive BCR of Rs. 4,404 crore per annum projected for the Eighth Plan in respect of the centre including Union Territories, the observed BCR as per the revised estimates had been negative in all the three years of the plan. The deviation in BCR form projections brought about by the combined impact of decline in current revenues and increase in non-plan revenue expenditure necessitated greater de-
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pendence on borrowings for financing the plan. Similar deviations from projections for similar reasons were noticed in respect of the BCR of states also. The deterioration 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. 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 real growth rates for direct and indirect taxes for this period are 9.9% and 8.5% per annum respectively. In contrast to this, corresponding rate of growth in respect of direct taxes during 1992-95 was 15.1 per cent. In the case of indirect taxes there was a marginal decline in real terms during the same period.
2.15 For the Eighth Plan, the BCR was ex- pected to contribute 6.6 per cent of the aggre- gate resources 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 respec- tively. This has come about essentially be- cause during the period covering these plans, non-plan revenue expenditure has progres- sively outstepped current tax and non-taxreve- nues leading to the BCR turning negative. Whereas the comibed BCR of Centre 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 showing 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 together during 1995-97 comprising 31.5 per cent of resource effort during the remaining two years of the Eighth Plan. A BCR figure of this magnitude would appear to be daunting.
Resources of Public Sector Enterprises 2.16 Plan outlay of the Central Public Sector Enterprises (CPSEs) accounts for 70 to 75 per cent of the total central plan outlay. In pursu- ance of the policy intitiated in the 1980s, the dependence of CPSEs on budgetary support has registered significant reduction from around 50 per cent of their plan outlay at the commencement of the Seventh Plan(1995-86) to around 15 per cent in the third year (1994- 95) of the 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 projections 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 CP- SEs on borrowings to finance plan outlays has not been matched by higher levels of produc- tivity 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 deprecia- tion 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 crores), 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).
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2.18 As part of the industrial policy announced in 1991 Government have initiated partial dis- investment of the Government equity holding in public enterprises with effect from 1991-92. The disinvestment effected in 1991-92 consti- tuted 8 per cent of Government holding in 30 public enterprises at a total value of Rs.3038 crores. The proceeds from disinvestment 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, it may be noted that the Rangarajan Committee on disinvest- ment of shares in public enterprises recom- mended 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 enter- prises having a dominant market share or oth- erwise important for strategic reasons, and zero level in other cases. The main difficulty facing PSUs in raising resources from the mar- ket either through sale of equity or borrowing through bonds/debentures is their inherent in- ability to compete with the private sector on equal terms. In order to further reduce and, if possible, eliminate dependence on budgetary support, it is necessary for CPSEs to operate on commercial basis and raise resources from the market through a sound combination of equity and debt. Since PSUs have to compete with private sector, they should be able to adapt quickly to legal, procedural and account- ing 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 around 2 per cent of the total equity held by the Central Government in CPSEs as on 31.3.94.
2.19 As for the State Level Public Sector En- terprises which made negative contribution to- wards plan financing the root cause of the problem continues to lie in the poor perform- ance of the State Transport Corporations and the State Electricity Boards. The problem is more acute in the case of SEBs which incurred commercial losses to the tune of Rs. 6,332 crore in 1994-95 against Rs. 4,995 crore and Rs. 4,358 crore in 1993-94 and 1992-93 re- spectively. The inability of SEBs to raise tariff commensurate with the economic cost of elec- tricity generation and distribution also ad- versely affect financing of plan projects.
Borrowings and Miscellaneous Capital
Receipts 2.20 The projected financing pattern envisages 35.4 per cent of Centre's aggregate resources from domestic borrowings (including MCR) The corresponding proportion in respect of States is 83.3 per cent. The period 1992-95. however, witnessed much higher dependence on borrowings by both Centre and States. While borrowings during this period ac- counted for around 60 per cent of aggregate resources in respect of Centre, the correspond- ing proportion in the case of States worked out to more than 100 per cent. The combined de- pendence of Centre and States on borrowings during 1992-95 accounted for around 68 pet cent as against the projected level of 46.6 per cent of aggregate resources. It should be pointed out here that an increased reliance on borrowings for financing the Plan would Hi- crease the debt service burden which would M turn result in a squeeze on resources for the Plan in subsequent years.
Net Capital Inflow from Abroad to Public
Sector 2.21 As per the projected financing pattern the net capital inflow from abroad to public sector (excluding CPSUs) comprises only external aid and accounts for 8.6 per cent of the aggre- gate resources in respect of the Centre. As against that, net inflow of capital from abroad, including external commerical borrowing by the CPSUs. accounted for 12.0 per cent of Centre's aggregate resources during 1992-95
Deficit Financing 2.22 The budgetary deficit projected for the Eighth Plan amounts to Rs.20,000 crores at 1991-92 prices. The projected financing pat- tern for the Eighth Plan does not indicate the estimated fiscal deficit during the plan period (1992-97). However, the estimated borrowing requirements of the Central Government, In- cluding the borrowings by the Central Public Sector Enterprises (CPSEs) but excluding ex- ternal aid received as loans, amount to Rs.1,60,055 crores. When this is added to the projected budgetary deficit, the total amount rises to Rs.1,80,055 crores which accounts for 72.6 per cent of the approved Eighth Plan oultay in respect of the Centre. The borrowing requirement in respect of the States projected for the Eighth Plan amounts to Rs. 84,500 crores. These figures however cannot be con- sidered as equivalent to Gross Fiscal Deficit
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(GFD) which represents the difference be- tween total Government expenditure and the sum of revenue receipts and non-debt capital receipts.
2.23 GFD, however, can be viewed as the difference between the sum of revenue deficit, capital outlay and net lending on the one hand and disinvestment of equity holdings of the Government in Public Sector Enterprises on the other. The trends in the composition of GFD for Centre as well as States during the first three years of the Eighth Plan may be seen from table 2:
2.24 The figures given above reveal that there
Table 2
Composition of Gross Fiscal Deficit
(Rs. in crores)
Amount
---------------------
1992-93 1993-94 1994-95
(Actuals) (RE) (BE)
Centre
1. Revenue Deficit 18,574 34,058 32,727
2. Capital outlay 13,619 13,229 14,123
3. Net lending 9,941 13,764 12,065
4. Disinvestment 1,961 2,500 4,000
GFD (1+2+3-4) 40,173 58,551 54,915
States
1. Revenue Deficit 5,114 6,055 7.948
2. Capital outlay 10,655 12,187 14,781
3. Net lending 5,123 5,070 6,592
4. Disinvestment 0 0 0
GFD (1+2+3-4) 20,892 23,312 29,321