Introduction || Planning Commission
Chapter-1 || 2 || 3 || 4 || 5 || 6 || 7 || 8 || 9 || 10 || 11 || 12 || 13 || 14 || 15 || 16 || 17 || 18 || 19 || 20 || 21 || 22 || 23 || 24 || 25 || 26 || 27 || 28 || 29 || 30 || 31 || 32 || 33 || 34 || 35 || Conclusion || Appendix A || Appendix B || Appendix C || Glossary

Chapter 2:
LONG-TERM ECONOMIC DEVELOPMENT

NEED FOR A PERSPECTIVE

Low levels of consumption, saving, productivity and employment, are different aspects of the central problem which India faces in common with other underdeveloped countries. Basically, the task is one of developing the natural and human resources of the country through the widest possible use of knowledge and technology, and improved organisation within the framework of a well-conceived long-term plan. A high and sustained rate of economic growth must be achieved in order to bring about a marked improvement in the level of living for the bulk of the population and to solve the problem of unemployment.

2. For several decades, the Indian economy was almost stagnant, developing at a rate barely exceeding the growth of population. Over the past decade it has advanced at an average rate of about 4 per cent per annum, the increase in aggregate national income being about 42 per cent. This modest increase in national income does not give a full indication of the growth potential of the economy built up specially during the Second Plan. While the income from agriculture and allied sectors, which accounts for almost one-half of the national income, has increased by a little over a third, the total income from the organised manufacturing sector has nearly doubled. Even within the sector of organised industry, the growth of the investment goods industries has been considerably faster than the average. However, as the increase in population has been greater than had been anticipated, income per head has increased only by about 16 per cent. Over the same period, due to the rapid progress of science and technology and the rates of growth secured in the advanced countries, the disparities between them and the less developed countries have widened. Experience of the past decade in India clearly shows that to make a significant impact on the level of living of the bulk of the people, the rate of economic development should be substantially stepped up, and special efforts should be made to reduce the rate at which population is increasing.

3. Against this background, it is useful to consider briefly the perspective of India's development, to attempt to identity the essential elements of the problem and to outline the approach to economic development over the next fifteen years or so. The process of development is a continuous one in which the priorities and objectives for each period are linked with a larger perspective. The real significance of the long-term perspective lies in its value for current decisions which, in the absence of such a view, might be wrong and costly and might call for extensive corrections subsequently. A long-term plan when worked out in sufficient detail seeks to bring out the interdependence between the different sectors of the economy and assists in a clearer understanding of possible obstacles to the growth of the economy. By analysing problems of demand and supply arising from the growth of national output and the realisation of stated social objectives, it helps in taking consistent and timely decisions regarding the optimum uses of resources, the economies of scale and location, and regional distribution of economic activities. This last is particularly important because certain problems involving conflicts of a regional character in a large and diverse country like India can only be resolved in terms of a long-term plan which fits different regions into a larger design of national development. In particular, there is need for advance planning in specific terms for the industrial sector; including power, transport, scientific research and technical education. At each stage, the programmes of development in these fields have to be conceived of and accepted as a whole and extending beyond the given period. In these sectors there is constant need for coordinated effort, and the results are achieved over several years. While a long-term view of development is a useful guide in framing policies and programmes and assessing progress, it has itself to be reassessed from time to time in the light of actual achievement and experience.

4. Both the First and the Second Plans were described as phases in the long-term social and economic development of the country. The First Plan gave a simple projection of economic growth over a period of 30 years from 1951 to 1981. Certain assumptions were made concerning the rate of growth of population, the proportion of the increase in national income which might be ploughed back into investment at each stage of development, and the return by way of additional output on the investment undertaken. In this model of growth it was envisaged that the level of national income in 1950-51 could be doubled by 1970-71 and that of per capita income by 1977-7'8. The projections and assumptions of the First Plan were reviewed in the report on the Second Plan in relation to the performance of the economy, which went beyond the original expectations for the first five-year period, and it was suggested that, compared to 1950-51 the national income might be doubled by 1967-68 and per capita income by 1973-74. In view of the growth of population and the increase in national income actually realised during the ten years of the First and tho Second Plans, it is essential that the expansion of the economy should be accelerated to the utmost extent feasible. Having regard to the increase in population and the likely trends, even with a sustained rate of growth in national income of around 6 per cent per annum, it would be difficult to fulfil the intention expressed in the Second Plan of doubling tho 1950-51 level of income per head by the middle of the Fifth Plan.

5. In an underdeveloped economy with very little capital per person, a high rate of population growth makes it even more difficult to step up the rate of saving which, in turn, largely determines the possibility of achieving higher productivity and incomes. Moreover, for a given investment, a large proportion will need to be devoted to the production of essential consumer goods at the expense of investment goods industries, thereby still further slowing down the potential rate of growth.

The significance of population in relation to economic development may be judged from the results of the 1961 census. The increase in India's population between 1951 and 1961 (about 77 million) has been nearly as large as the increase (about 82 million) in the two preceding decades.

Early in 1959, on certain assumptions of birth rates and death rates, the Central Statistical Organisation (C.S.O.) had worked out a series of estimates of population growth which were accepted, pending tho census, as a working basis for the preparation of the Third Plan. The following Table sets out these estimates of population growth along with a fresh set of projections provisionally worked out on tho basis of the 1961 census results which may be used for purposes of planning until fuller studies can be undertaken on the basis of the detailed data obtained in the 1961 census.

(in millions)

On the basis of the present tentative estimates for 1971 and 1976, over the period 1961—76. the total increase in population may be of the order of 187 million. Corresponding to the growth of population, it is estimated that the increase in the labour force over this period may be about 70 million, of which about 17 million will be during the Third Plan. Out of this addition to the labour force, some two-thirds would need to be absorbed outside agriculture. This will obviously be a formidable task calling for a fresh assessment of the scale and pace of development required over the next 15 years.

II. APPROACH TO LONG-TERM DEVELOPMENT

6. On account of the various factors to which attention has been drawn above, it is imperative that over the next three plan periods all the possibilities of economic growth should be fully and effectively mobilised. For this purpose it is essential to proceed on the basis of a broad strategy of economic development which will ensure that the economy expands rapidly and becomes self-reliant and self-generating within the shortest possible period. The strategy visualised for the Third and later Plans emphasises specially the interdependence of agriculture and industry, of economic and social development, of national and regional development, and of the mobilisation of domestic and external resources. It also places great stress on measures for scientific and technological advance and for raising the general level of productivity, as well as on policies relating to population, employment and social change.

7. Agricultural and the rural economy.— Development of agriculture, based on the utilisation of manpower resources of the countryside and the maximum use of local resources, holds a key to the rapid development of the country. Crop yields are at present so low that given adequate irrigation, supplies of fertilisers, unproved seeds and implements, education of the farmers in using better methods, and reform of land tenures and development of the agricultural economy along cooperative lines, large increases in levels of production can be achieved over relatively short periods. In agriculture, as in the other sectors in which a large measure of progress can be realised through the fuller exploitation of resources available within the economy, the maximum increase in production physically possible should be secured. In the present stage of development, production of sufficient foodgrains as well as of cotton, oil-seeds and other commercial crops has equal urgency. Once the capacity to produce has been created, within a comparatively short period, it can be adapted to meet the changing needs of the community. Over the period, the aims to be achieved are the development of a diversified and efficient system of agriculture, including animal husbandry, dairying, production of meat, fish, poultry, etc., provision of a balanced and adequate diet for the entire population, and the development of commercial crops to meet the increasing requirements of industry and for exports.

8. Development of agriculture calls for extension of irrigation on a large scale. It is estimated that at present the technological possibilities of irrigation in terms of gross area irrigated extend to about 175 million acres, about 100 million acres being irrigated by large and medium irrigation schemes and the rest by minor irrigation schemes. The eventual requirements of chemical fertilisers needed for realising the benefits of irrigation and assured rainfall have been recently estimated at 4 million tons of nitrogen, 2 million tons of phosphatic fertilisers and a million ton of potassic fertilisers. Even after the possibilities of irrigation have been fully secured, at least one-half of India's cultivated land will depend upon rainfall, so that soil and moisture conservation must continue to receive very high priority in the scheme of development.

9. In any long-term view, the prospects of agricultural development are closely connected with the success achieved in:

1. bringing about technological changes, specially the adoption of scientific agricultural practices and improved implements and other equipment;
2. fuller utilisation of manpower resources in rural areas and the organisation of the maximum local effort;
3. reorganisation of the rural economy along cooperativie lines, including the provision of services credit, marketing, processing and distribution, and cooperative farming;
4. improved utilisation of available land resources through systematic land-use planning, extension of multiple cropping and introduction of improved cropping patterns; and
5. expansion of non-agricultural activities in rural areas so as to diversify the occupational structure and reduce dependence on agriculture.

These are already accepted goals and arc being pursued, but in each direction, the effort must be intensified and speeded up.

10. Basic and heavy industries.—While agriculture and industry must be regarded as closely linked parts of the same process of development, there is no doubt that industry has a leading role in securing rapid economic advance. Because of her natural resources, India has considerable potential for industrial growth. She has extensive known reserves of iron ore, manganese, bauxite, coal, mica and atomic materials such as thorium ores. Surveys and exploration have already indicated the prospects of oil reserves. There is a large potential for hydro-electric power. With high grade iron ore available in considerable quantities, India is able to produce her own steel at reasonable cost. Her potential capacity to produce steel and other basic materials relatively cheaply and the large and growing domestic market, place her in a favourable position to produce machinery and a large range of engineering, chemical and electrical goods needed for development. In turn, these will stimulate the growth of medium and small industries and expand employment both in urban and in rural areas. Thus, on foundations which have been already laid, it should be possible to build up an integrated industrial structure and expand industrial production efficiently along the lines of real comparative advantage. However, until recently, the industrial sector had a narrow base with little development of basic and heavy industries. In view of the small size of the capital and intermediate goods industry, special emphasis has to be placed on industries such as steel, coal, oil, electric power, machine building and chemicals. These must grow speedily if the requirements of further industrialisation are to be met in adequate measure from the country's own resources. In other words, development of these industries is an essential condition of self-reliant and self-sustained growth.

11. Industrial development, and specially the development of basic and heavy industries, must be regarded as part of a comprehensive design of development which ultimately links the industrial and the rural economy, the economy of large-scale and of small-scale units, and the economy of the major industrial centres as well as of the smaller towns and villages, bringing them into a close relationship with one another, thus assuring a high degree of mobility and economic integration within the economy as a whole.

12. Human resources and productivity.—An essential aspect of long-term planning is that effective and speedy means should be devised for lifting the level of productivity for the nation as a whole. Through this alone can the general level of well-being be effectively raised. At the. base of this entire effort are the various programmes of development for building up the country's human resources, specially education and health, measures for the development of backward classes, and programmes for raising the levels of skills and technical know-how and for scientific and technological research. It may take twenty years or more to secure the required outturn of scientific and technical personnel and build up the foundations of scientific research. The programme of expansion of trained personnel in its widest sense has necessarily to be undertaken long in advance of requirements. It is equally important that the available man-power should be used as fully and effectively as possible. The importance of the expansion of facilities for general education can be scarcely exaggerated. While free and compulsory education is being introduced for children in the age group 6—11 years, and there has been marked progress already, the next step. is equally vital, namely, the provision of universal education up-to the age of 14 years as envisaged in the Constitution. This goal should be fulfilled in the course of the Fourth and Fifth Plans.

13. Population.—A large part of the increase in output is absorbed by the growth of population. Improvement in conditions of health and sanitation will further lower the death rate, specially the rate of infant mortality, and may for a time even tend to raise the birth rate. The objective of stabilising the growth of population over a reasonable period must therefore be at the very centre ot planned development. The programme of family planning, involving intensive education, provision of facilities and advice on the largest scale possible and widespread popular effort in every rural and urban community has therefore the greatest significance.

14. Employment.—Lags in development in a country with a large population and heavy pressure of population on land are reflected most acutely in the problem of unemployment. Until the economic structure is strengthened and the economy is able to meet its growing requirements of equipment and raw materials largely from its own resources, it is difficult to absorb even the entire addition to the labour force into increasingly productive work at a reasonable level of wages. In the period of transition rural public works have an essential place in the scheme of development. It is hoped, however, that if development over the next three plan periods can be undertaken on the scale foreseen in this Chapter, it should be possible to expand opportunities of productive employment outside agriculture on an adequate scale.

15. Social policy.—In a country with a large rural population, extremely low living standards and widespread regional and cultural d;ff--rences, the social aspects of development are not less important than the economic. A rapidly expanding economy is a necessary condition for resolving deep-rooted social problems. However, as it proceeds, economic development may widen disparities between rural and urban areas, increase differences in levels of development in different parts of the country, and accentuate the problems of'economic inequality. The question of developing patterns of consumption appropriate to the social objectives has special significance in this connection. In any scheme of long-term development, these aspects must receive special attention, so that the social objectives outlined earlier are speedily realised.

16. Resources for development.—Among the principal conditions for building up a self-reliant economy, which can sustain a high rate of growth, are an adequate level of domestic capital formation, the maximum effort possible in developing exports, and availability of external assistance during the critical period of transition.

Progress in mobilising savings and in developing exports depends largely on the burdens which the community is willing to bear. As a result of development during the past decade the period of economic stagnation has been ended. For the bulk of the population, the existing levels of consumption are so low that a considerable proportion of the additional output of the economy must be devoted to the improvement of living standards. However, for many years to come, if the stock of capital and the economic and social service on which the growth of the economy depends are to be developed, only a limited rise in consumption standards will be possible, specially in commodities or services which are considered to be non-essential in the early stages of India's economic development. This is a choice which a democracy has to make with general consent in the larger interest of the community and, in turn, calls for appropriate social policies.

A basic objective in the strategy of development is to create the conditions in which dependence on external assistance will disappear as early as possible. A very large expansion in exports is essential for this purpose. The programme for the development of exports in the Third Plan aims at laying a strong foundation for a much larger export effort in the Fourth and the Fifth Plans. It involves restrains on consumption, measures to make available the surpluses required for exports and policies designed to raise productivity and reduce costs of production and distribution.

17. External assistance.—In the transitional period, the effort to develop the basic and heavy industries and machine-building capacity, without which the growth of the national economy would itself be retarded, accentuates the balance of payments problems. Replacement of imports is essentially a question of developing the necessary capacity for production within the country. A developing economy, which for its part endeavours to mobilise its own resources to the utmost extent possible, faces the difficulty that its developmental effort may entail a large increase in import requirements for specialised capital equipment and for raw materials and components, for which, for a period, it is unable to pay from its own export earnings. The need for external assistance is implicit in this situation. Such assistance has already done a great deal to hasten India's economic growth and its value can scarcely be overestimated. Assistance from international agencies and from one country to another has a significance no less for the economic progress of the less developed countries than for the building up of a world community in which each country contributes to the development of others according to its capacity. This is an obligation which India fully accepts and, as her own economy develops, within the limits of her resources, _she will endeavour to share her experience with other developing nations.

Ill. OUTLOOK FOR 1961-76

18. At an earlier stage in the work on the Third Plan, following the suggestion in the Second Plan, a sustained rate of growth of 5 per cent per annum was visualised. With the rate of growth of population, which was assumed five years ago, this implied an increase in per capita income of a little less than 4 per cent per annum. It is now. anticipated that over the next 15 years, population is likely to increase at more than 2 per cent per annum. Over this period the economy will be required to meet large and expanding demands in many fields—foodgrains and raw materials, cloth, steel, coal, power, transport, employment, education and other social services, and trained manpower. In the circumstances, it is considered that development over the next 15 years should be conceived in terms of a cumulative rate of growth as close as possible to 6 per cent per annum. This consideration has been generally kept in view in formulating physical programmes and targets for the Third Plan. If these were achieved fully and within the five year period as planned, the increase in the aggregate national income would be of the order of 34 per cent or about 6 per cent per annum. Among the important conditions to be met are the maintenance of conditions of economic stability and keeping down of the costs of living for the bulk of the population, adequacy and timely availability of external resources, mobilisation of domestic savings of the order of over 12 per cent of the national income, fully co-ordinated execution of connected programmes under industry, transport and power, efficient implementation, at all levels, of agricultural and other programmes and, finally, improved techniques for planning and for the evaluation of performance. While it is vital to the success of the Third Plan that efforts in these directions should be intensified, the actual rate of growth will depend upon the measure in which the various conditions are fulfilled.*

19. Taking a broad view of the development of the Indian economy, it is reckoned that,| at 1960-61 prices, the national income should rise from about Rs. 14,500 crores at the end of the Second Plan to about Rs. 19,000 crores at the end of the Third Plan, about Rs. 25,000 crores at the end of the Fourth and about Rs. 33,000 to 34,000 crores at the end of the Fifth Plan. Allowing for the increase in population, on these estimates income per head should go up from around Rs. 330 at the end of 1960-61 to about Rs. 385, Rs. 450 and Rs. 530 in 1966, 1971 and 1976. Increase in the volume and rate of investment implied in these estimates of national and per capita incomes will not be easy to achieve. However, against the background of resources and knowledge which science and modern technology provide and the greater understanding of social and economic processes now available, it is considered that the objectives set forth above are well within the range of practical fulfilment.

20. Development on the scale described above, which must indeed be improved upon in actual achievement, has several important implications. It calls for intensive and continuous effort to utilise fully the manpower resources of the country, to make the most efficient use possible of resources available for investment to mobilise domestic savings and channel them into appropriate directions, and to secure adequate surpluses from internal production for expanding export. Net investments as a proportion of national income would have to rise from about 11 per cent at present to 14-15, 17-18, and 19-20 per cent per annum by the end of the Third, Fourth and Fifth Plans. In other words, as compared to about Rs. 10,500 crores postulated for the Third Plan, net investment over the Fourth and the Fifth Plan periods should be of the order of Rs. 17,000 crores and Rs. 25,000 crores. Domestic savings would have to rise in corresponding measure from about 8.5 per cent at present to about 11.5, 15.16, and 18.19 per cent of the national income at the end of the Third, Fourth and Fifth Plans. It is also implied that progressively external aid will form a diminishing proportion of the total investment, and by the end of the Fifth Plan the economy will be strong enough to develop at a satisfactory pace wihout being dependent on external assistance outside of the normal in flow of foreign capital.

21. As stated earlier, a considerable part of the practical interest of long-term plans lies in the guidance they provide for current action and decisions and in the forward planning which they facilitate. These considerations are of special importance in the basic industries. In these technical and other problems involved in co-ordinated development, implications in terms of physical resources and foreign exchange, and questions relating to the location of economic activities call for prolonged study and preparation. In the course of preliminary studies on the Third Plan the following tentative targets of capacity have been suggested for some important items for 1970-71 :

These targets indicate the order of effort called for and could form a useful basis for further studies at the technical level.
*The suggestion in Chapters IV and V that the Third Plan should aim at securing an increase in national income of over 5 percent' per annum is in the nature of an overall judgement based on the consideration of these conditions.

IV. PREPARATION OF A LONG-TERM DEVELOPMENT PLAN

22. In recent years considerable progress has been made in developing new techniques and concepts for the formulation of long-term plans of development. Their use for purposes of economic planning depends largely on the quality of the statistical and technical information available. Accordingly, in the Third Plan special steps are being taken to improve the available statistical and technical data. These will be particularly required for analysing the complex relationships, and correct proportions between different branches of the developing economy. In each stage of development the whole programme has to be viewed as a continuous physical process. The right quantities of raw materials, intermediate products, machinery and essential services such as power and transport as well as the requisite trained personnel have to be available at the right time; the outputs of all sectors of the economy have to be utilised either for investment or for consumption at the right time; the availability of domestic savings and of foreign exchange have to satisfy the requirements of production and consumption at the right time. A considerable amount of economic, technical and statistical analysis has to be undertaken. This would include estimation of the demand for goods and services by consumers at the end of each given period, studies of inter-industry relations with a view to ascertaining the demand for intermediate goods, raw materials, and technical personnel and determination^ ot investment requirements as well as possibilities of import saving and the development of exports.

23. A long-term plan of development embodying specific programmes and policies is an essential condition of successful planning for a country with deep-rooted social and economic problems, a large and growing population and widely varying conditions. Such a plan should be conceived not merely in broad national terms but should take into account the possibilities of development of resources in different regions of the country so as to spread the benefits of development as widely as possible without slowing down growth itself. The long-term plan should therefore supply a general pattern of economic and social development which would take into consideration the needs and possibilities of different areas and harmonise these into an integrated endeavour for national advancement. For working out a long-term plan on these lines, there is need for close and continuous collaboration between various Government agencies at the Centre and in the States and leading institutions engaged in scientific, economic and social research. The outline of the long-term plan will be filled in as more data and knowledge become available, and the Plan itself will be adjusted from time to time, in keeping with technological developments, greater knowledge of resources and the progress achieved in different branches of the economy. Work along these lines has already been initiated in the Planning Commission as well as by indepodent research institutions, and in the course of the next three years it is proposed to devote substantial resources to the preparation of an overall plan of development covering the period upto the end of the Fifth Plan.