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Chapter 2:
THE LONG TERM PERSPECTIVE

The projection ol real income in 1973-74 in the Fourth Five Year Plan (1969—74) is appreciably below that implied in the long-term projections outlined in the Third Plan. Both ihe Second and the l hird Plan envisaged a doubling of per capita le-il income in the course of nearly twenty years. The expectation of population growth at the time of the formulaion of the Third Plan was 1 per cent higher than assumed in the Second Plan. The higher growth rate of 6 per cent envisaged in the long-term perspective of the Third Plan was meant to offset the elfect of the observed faster rate of growth of pv)pu-ladon. Howsver, for a variety of reasons, ihc progress of the economy has suffered a set back in recent years. Despite a remarkable spun in agriculture alter the abnormal decline of 1965-66 and 1966-67 »'nd the recent revival of industrial growth, net national product (ai constant prices of 1960-61) in 1968-69, though 11 per cent higher liian in 1966-67. is estimated to be only 6 per cent more than in 1964-65. The aggregate real income in 1968-69 was less than what it should have been in 1965-66 on the basis of growth rate envisaged in the Third Plan.

2.2. Recent technological advances and the eagerness of farmers to adopt them on a large scale have materially improved the outlook for agriculture. The existence of unutilised capacity in industry and the buoyancy in exports, taken with the proposed programme of investment, make for confidence that the performance of the economy in the Fourth Plan will be markedly better. On the basis of production targets for various sectors, judged feasible after careful examination, the economy is expected to achieve an average annual increase of about 5.5 per cent in total production during the Fourth Plan.

2.3. The growth of output in the Fifth Plan will, to a considerable degree, bs determined by investments and the preparation undertaken during the Fourth Plan for larger investment in the future. A steady acceleration of the growth rate must be aimed at. But it would be unrealistic to postulate a growth rate far in excess of what is realised in the Fourth Plan. Furthermore, the goal set for the period beyond 1973-74 must be of a magnitude which can be sustained with reasonable price stability and on the basis of progressive self-reliance. The long-term projections have to be based on a careful assessment of the demographic prospects, feasible growth in agricultural production, mobilisation of internal savings, efiiciency of investment, growth of exports and import substitution. Taking these considerations into account—-these are discussed later in the chapter --a target of growth of around 6.2 per cent per annum tor the Fifth Plan and up to 1980-8 P is considered feasible.

2.4. On this basis, net domestic product (valued ai 1968-69 prices) would reach Rs. 58,200 crores by 1980-81, that is, double the level attained in 1968-69. Since population would, in the meantime, have risen by about a third, per capita output of Rs. 844 in 1980-81 would be 53 per cent higher than the per capita output of Rs. 552 in 1968-69. With the revised perspective of long-term growth, the target of real income tor 1975-76 envisaged in the Third Plan will be reached only three to four years later.

Population Growtth

2.5. Population growth is an important variable determining the rate of improvement in per capita income. The assumptions relating to population growth call for some explanation. According to the Registrar General's recommended projections (medium variant) which form the basis of the calculations, the population would increase at the rate of around 2.5 per cent during the Fourth Plan. This rate would fall thereafter, reaching 1.7 per cent a year by 1980-81. Implicit in these projections is the assumption that there will be a decrease in birth rate from 39 per thousand of population in 1968 to 25 in 1980-81 on the basis of an active family, planning programme and a decline in the death rate from 14 per thousand of population to less than 9 over the same period. The current programme of family planning seeks to achieve a somewhat faster rate of reduction of birth rate than implied in these projections. Without a successful effort at limiting population growth, it would be difficult to achieve the degree of acceleration in improvement of living standards implied in our projections for the period. Its significance for the more distant future is even greater. If population growth is brought down to 1.7 per cent by 1980-81 and further to 1.0 per cent by the end of the century, the population in 2000 (estimated at 890 million) will be 260 million less than what it would be if the present rate of growth continues unchecked. 'The projections are presented up to 1980-81 so that the detailed investment planning in the Fifth Plan (1974-75) to (1978-89) will take roily into account the need for advance preparation in respect of additional output in long gestation sectors to be realised in the early years of the Sixth Plan.

2.6. Population growth on this scale can be a crippling handicap since our population in relation to resources is already large, incomes arc low and economic development is a desperate r";ed. The speed at which a country develops depends largely upon its ability to direct a larger part of its growing resources to investment rather than current consumption. A growing population with a high proportion pf dependent children will find it increasingly difficult to do so. If population keeps growing rapidly. the major part of investment and national energy and effort may be used up for merely maintaining the existing low living standards. Population growth thus presents a very serious challenge. It calls for a nation-wide appreciation of the urgency and gravity of the situation. A strong, purposeful Government policy, supported by effective programme and ade quate resources of finance, ineh and materials is art essential condition of success.

Forest Labour Cooperatives

2.7. The projected evolution of the economy over the next 12 years viewed in terms of broad aggregates can bs seen from table 1. In older to reach the target level of income in 1980-81 and sustain a growth rate of at least 6.5 per cent per annum beyond that year, it is essential to raise the ratio of ret investment to net naional product from the current level of ! 1.2 per cent and the planned 14.5 per cent in 1973-74 to J7-1S per cent by 1980-81. Since growth involves steady expansion of productive capacity the need for an adequate level of saving and investment is self-evident.

Table 1: Projection of Net Domestic Product and Expenditure : 1968-69 to 1980-81
(Rs. l00 crores at 1968-69 prices)

2.8. The targets of income and investment are sought to be achieved without calling for any significant increase in foreign debt beyond the Fifth Plan This implies that the internal saving of the economy after 1978-79 should be sufficient to finance not only investment but also the payment liabilities on foreign debt, and that the growh of imports and exports is so managed in the context of the requirements of the growing economy that after 1978-79 the economy has a foreign trade surplus (inclusive of invisibles) equivalent to at least the interest payment to foreign creditors. If 28 per cent of the postulated increase of income each year were saved, the internal saving needed to support the Plan could be assured. The foreign exchange aspect of the problem could be taken care of by exports growing at 7 per cent a year, and non-food imports at 5.5 per cent a year (with food imports being progressively eliminated during

2.9. Public Consumption Expenditure—With savings rising considerably faster than income. aggregate consumption necessarily has to increase aF a relatively slow rate. Aggregate consumption in 1980-81 is estimated to be 87 per cent higher than in i 968-69, implying a rate of growth of 5.3 per cent per year compared to a 6 per cent growth rate of aggregate income. The public consumption expenditure is estimated to rise somewhat faster than private consumption. A rapid growth of public expenditure on education health and social services is one of the most effective instruments open for improving the productivity and earning capacity of the less privileged sections of the population. Allowing for population growth and in pursuit of our objectives of promoting greater equality of opportunity and paying special attention to the poor, an 8-9' per cent rate of expansion in public expenditure on these services should be provided for. Other elements in public consumption. namely defence and non-development outlays, are projected to grow at 4 to 5 per cent a year.

2.10. Private Consumption Expenditure—In the course of the next twelve years private consumption can thus be raised by 86 per cent in the aggregate and abfcut 42 per cent in per capita terms. The average per capita private consumption, valued at 1968-69 prices, would reach Rs. 693 by 1980-81 (compared to Rs. 488 in 1968-69). The consumption levels of the poor segment of the population would naturally be much lower than the average. Table 2 gives the pattern of inequality in per capita consul; iption by fractile groups for rural and urban population. It suggests that in the rural areas the ner capita consumption of the poorest decile of .e population is roughly 35 per cent of the average in rural areas and about 28 per cent in the case of urban areas. This segment of the population consists mostly of destitutes, disabled persons, pensioners and others who are not fully in the stream of economic activity. Their income and living standards cannot be expected to rise with the growth of the economy in the absence of special assistance. The remaining 90 per cent of the popu-lati and n could be expected to benefit directly from the growth in production and employment. If ths pattern of inequality in consumption were the same as observed in 1967-68, the second poarest (.iecile of the population would have a per capita c^nsumoti'ln level (valued at 1968-69 prices) of ab:.ut Rs. 320 per annum or about Rs. 27 per month by the end of the period. This would be equivalent to the consumption level of Rs. 15 per month in terms of 1960-61 prices, which is appreciably below Rs. 20 per capita per month, which was deemed a minimum desirable consumption standard.

Table 2 : Estimates of the Share of Different Fractile Groups in Total Consumption : 1967-68

source : National Sample Survey (22nd Round), July 1967— June ;96S, based on a sample of 15800 rural and 8600 urban house-holds.

Structure of Production

2.11. An essential condition for steady expansion ^f output is the continuing close correspondence between the supply of goods and services (resulting from domestic production and imports) and the demand for such goods and services in their final and intermediate use, to meet domestic and export requirements. International trade facilitates this process. The pattern of final demand changes with the growth cf income and calls for a continuing diversification of output. Thi.; in turn requires sufficient supply of capital for investment and a proper allocation of investment among various activities. It is th e task of planning t.o comprehend arid ;rtalyse these complex inter-relationships and suggest action necessary for the achievement of the specified long-term objectives.

Crucial Role of Agriculture

2.12. Growth with stability should remain the objective of the Perspective Plan, as it is of the Fourth Plan. It essentially means that the supply of consumer goods should increase commensura-lely with the expansion of demand tor these goods after allowing for the specified level of investment. What is sought to be ensured is stability in the price level of essential consumer goods taken as a whole—the criterion of "essentiality" being the imponance of the particular good or class of goods in the consumption of the mass of the people. Reasonable changes in relative prices should be permitted to provide for flexibility in the economy and for imbalances beiween the pattern of supply and of demand to adjust themselves.

2.13. Nearly 60 per cent of total household consumption and 85 per cent of the commodity consumption of households is comprised of agricultural products or manufactures based principally on agricultural raw materials. The prospect of achieving the projected growth in incomes under conditions of price stability is almost entirely a function of the prospect of growth of agricultural production. Data fr and m the National Sample Survey suggest that the overall elasticity of demand for food products is of the order of 0.8. Using this elasticity and the projected growth of population and per capita private consumption, the demand for farm products is estimated to rise at the rate of 4.7 per cent a year. Agricultural production will have to increase a little faster than demand during the Fourth Plan so that the dependence on imported foodgrains may be eliminated. Thereafter, the requirements of price stability would be largely met if the gross value of agricultural production were to increase at the same rate as demand. Over the period as a whole agricultural production will have to increase by 5 per'cent a year. The corresponding growth of value added in agriculture will be somewhat slower because of the rising proportion of material inputs in total production.

2.14. Agricultural output over the next decade needs to grow appreciably faster than has been achieved in the past. As in the Fourth Plan, the strategy for achieving this goal will consist of expansion of cultivated area, intensification of cropping, extension of irrigation facilities and measures to accelerate yield improvement. Provisional projections of the area, yield and production of major crops in 1980-81 and comparative figures for 1968-69 are presented in table 3.

Table 3: Projection of Area and Production for Selected Crops : 1968-69 and 1980-81

2.15. G'ross cropped area is projected to reach 188 million hectares by 1980-81 compared to 156.6 million hectares in 1966-67. The implied rate of increase of 1.3 per cent per annum is roughly the same as for the first three Plan periods. Some new land can be brought under cultivation with the spread of irrigation in arid areas like the Rajasthan canal tract reclamation of saline or water-logged lands and culturable waste. The introduction of improved soil and moisture conservation practices, the spread of irrigation and the increased use of chemical fertilisers can be expected to augmsnt net sown area through a reduction of fallows. The major part of additions to cropped area will, however, liave to come from multiple cropping. The increase in cropping intensity is largely a function of the expansion and improvement of irrigation combined with development of crop varieties which can be fitted into tight rotations. It is visualised that gross irrigated area would reach 58 million hectares by 19'80-81 and that cropping intensities in irrigated areas would reach 1.5. In unirrig and ted tracts a slight increase in cropping intensities is projected largely in continuation of observed trends over the first three Plans.

Table 4 : Projected GrovitVpf Crop Area: 1966-67 and 1980-81 (million hactares)

2.16. The fulfilment of the targets for major crops would require some shift in the cropping pattern in favour of pulses, oilseeds and cotton. Changes in relative prices would be one of the elements which will help to bring about this change. The technical conditions necessary for such a shift have also to be created. In the context of more assured irrigation and the promise of current research on multiple cropping, there are good prospects for expanding area under pulses, oilseeds and, in some areas, cotton, as part of the multiple cropping regime in irrigated tracts. In unirrjgatsd tracQ the physical factors which would contribute to clanging cropping pattern include soil and moisture conservation, evolution of drought and disease resistant crop varieties and improved techniques of dry-farming.

2.17. With gross cropped area increasing only at 1.2 per cent per annum, the fulfilment of agricultural production targets calls for a sharp increase in tae rate of improvement in yields per hectare. There is reason to believe that the recent technological developments and the rapid growth in fertiliser use would permit substantial acceleration in yield increases of cereals. The unresolved technical problems, especially in the case of rice, will hopefully be solved by intensive research efforts nc-w under way. Some of the minor crops like fruits and vegetables require relatively small area;the xesponsiveness of supply to growth of market opportunities is also high. It should, therefore, be possible to raise their production to keep pace with demand.

2.18. The major problem area is in respect of pulses, oilseeds, and jute. The yields of these crops have increased slowly. Research on their improvement has not received as much attention as cereals. Since much of the area under these crops falls in regions with relatively low rainfall, it is far more difficult to bring about increases in yields on the scale achieved in the case of cereals. Nevertheless there is considerable scope for improvement. The intensification of research effort designed to increase the yield capability of these crops needs to be taken up as a matter of greatest urgency. At the same time, serious thought needs to be given to evolving a rational relative price policy for commercial crops vis-a-vis cereals. The recent technological developments in cereals cultivation have greatly increased their relative profitability. Since the prospects, of comparable technological improvements in the case of other crops will take some time to materialise, a shift in due course in relative prices may be expected.

GROWTH OF CROP AREA

(MILLION HECTARES)

2.19. The prospects for the animal husbandry sector, the demand for whose products will grow much faster than for other farm products, hinge primarily on the rate at which the supply of fodder and of grains and other concentrate feed will increase. Measures for bringing about significant improvements in breed will take time to give results. The prospects for increasing grain production and ensuring increasing supplies for feed purposes appear reasonably good. Even so ihere is room for apprehension regarding possible imbalances between supply and demand of animal products.

2.20. On balance an average rate of growth of 5 per cent in agricultural production over the next decade seems a fairly realistic objective. The task of planning is to ensure the requisite supplies of inputs and create conditions in which they will in fact be utilised efficiently. Of particular importance in this context is long-term planning for irrigation, fertilisers and research. At the same time purposive action will be necessary to mitigate the disabilities, (such as insecurity of tenure, high rents, and difficulties of getting supplies and credit) suffered by tenants and small farmers if they are to derive benefits from the new technology.

2.21. While the projected over-all rate of growth seems attainable, two types of contigencies should be provided for: (a) the inevitable year to year fluctuations of output due to the uncertain element of weather and (b) the possibility of a shortfall in the availability of pulses, oilseeds, fibre and animal husbandry products. The former requires essentially a policy of Government intervention to stabilise foodgrains prices through buffer stock operations. The second type of eventuality can be met by allowing adjustment in relative prices, by imports to meet marginal shortfalls or by substituting, where possible, agricultural material with synthetics.

2.22. The increase of agricultural output as projected, and in particular the production of food-grains, is an essential condition for attaining self-reliance as much as it is for price stability. The balance of payment projections are based on the assumption that food imports will be progressively eliminated during the course of the Fourth Plan. Obviously, if there is any appreciable shortfall in production, the additional imports needed to maintain price stability would seriously jeopardise the fulfilment of balance of payments objectives.

Industrial Development

2.23.. Important as agricultural growth is to self-reliance, the rate and pattern of industrial development are no less crucial. On a rough estimate an overall rate of expansion of around 9 per cent in the net output of mining and manufacturing industries and construction would appear to be consistent with the projected growth in aggregate income and agricultural production.

Table 5 Sectoral Composition of Net Domestic Product : 1968-69 to 1980-81
(Rs. 100 crores at 1968-69 prices)

2.24. The pattern of industrial expansion over the next decade or so should continue to be guided by the necessity of meeting the requirements from domestic production of a wide range of manufactures which admit of economic production. Quantitatively the most significant branches of industry which need attention from this viewpoint are fertilisers and fertiliser raw materials, metals, petroleum products and machinery. In all these areas a sizeable proportion of our total requirements is met by imports. It is estimated that 1968-69, 60 per cent of finished fertiliser requiremencs, 64 per cent of crude oil, 65 per cent of alloy and special steel and 7 per cent of mild steel, and 74 per cent of copper, and 79 per cent of newsprint were met by imports. Imports of machinery and components amounted to Rs. 516 crores and represented about 30 per cent of the machinery requirements. Over the next decade, the projected growth of income and investment will increase the requirements of mild and alloy steel at the rate of 10 p and r cent per annum, machinery and equipment more than 10 per cent, nitrogenous fertilisers 15 per cent, phcsphatic fertiliser 19 per cent and petro eum products 9 per cent. The dominance of these products in import trade and the fact that the demand is growing rapidly underscores the imp and nance of reducing dependence on import in these areas if the balance of payments objectives were to be met. Domestic production in all these Branches will have to increase faster than the expected growth of internal demand with a view both to reducing the imports and taking advantage of prospective export opportunities. The requisite level of production of selected agricultural, mineral and manufacturing products is given in table 6.

Table 6: Requisite Level of Production of Selected Important Commodities : 1968-69 to 1980-81

Likely production in 1969-70 to estimated at 100 million tonnes.

2.25. Most of the areas where import substitution is quantitatively important are also areas where India is well-placed, by virtue both of the size of the market and of resource endowment, to ensure efficient production. H and wever, these also happen to be areas where it takes several years to expand capacity and to bring it to full production. The facts that existing capacity is not fully utilised and that a number of schemes for increasing capacity are under construction give room for confiden:e that production could be increased in the measure required during the Fourth Plan. In some important items of machinery, the installed capacity is adequate to meet requirements in the Fifth Plan as well. Substantial additions to capacity will, however, be needed in many branches of machine building, including chemical equipment, transport equipment, machine tools and agricultural machinery. In metallurgical and fertiliser industries as well as electricity and coal, provision has been made for advance planning. An important feature of ths Fourth Plan is the initiation of new projects on a scale sufficient to ensure the necessary expansion in capacity for production in the period beyond 1973-74.

IMPORTS

2.26. The capacity for mild steel has to reach about 20 million tonnes of ingots by the end of 1978-79 compared to 12 million tonnes expe.'ted 10 be in position by 1973-74. The additional 8 million tonnes of capacity will be obtained from the expansion of the Bokaro and Bhilai steel plants and from new steel plants, including the thre" at Hospet, Visakhapatnam and Salem, work on w^ich will be started during the Fourth Plan,

2.27. The capacity of aluminium industry will need to be further increased by 220,000 tonnes during the Fifth Plan. Nearly two-thirds of This will be from two public sector projects (Keyna and Korba) with a total rated capacity of 150,000 tonnes. The major part of construction work on these projects will be completed during the Fourth Plan. The balance of 70,000 tonnes will be obtained from the expansion programmes of various private sector plants in progress

2.28. The fertiliser programme is being planned in relation to anticipated long-term requirements. Plants already on ground or in the process of construction have a rated capacity of 2.5 million tonnes of nitrogen. Preparatory work has been nearly completed for six new projects in the public se:tor with an aggregate capacity of 1 million tonnes and approval has been given for 1,3 million tonnes of capacity in the private sector. The aggregate capacity covered by these programmes (4.8 million tonnes) is considerably in excess of the production target for 1973-74 and this is necessary to sustain the required expansion of capacity in the Fifth Plan.

2.29. In the case of electricity, the completion of projects included in the current Plan will add an estimated 5.5 million kw. of generating capacity in the initial years of the Fifth Plan. Careful preparatory work will be undertaken during the Fourth Plan to investigate new projects and make adequate analysis of alternative ways of meeting the demand for power, taking costs and benefits into account.

Imports

2.30. The projected expansion of metals, ch; mi-cals and machinery would make an important contribution to import substitution. However, there will still be a number of products for which increased imports will have to be provided. Principal amc-ig these are fertiliser materials (rock phos-phare and sulphur), non-ferrous metals other than aluminium and crude oil, for which India has neither adequate indigenous resources nor economical indigenous substitutes. Much of the increased reqrirements will have to be imported. Essentially the same considerations apply to specialised items of industrial raw materials and machinery which cannot yet be produced economically within the country. Some allowance will have to be made for the possibility that production and demand may not move in accordance with the profile as projected. Taking these considerations into account, non-food imports over the next decade or so are estinated to grow at around 5.5 per cent per annum. A broad picture of the projected composition of imports and the comparative adjusted figures for 1968-69 (the latest year for which complete data are available) are given in table 7. It cannot be emphasised too strongly that the projected growth rate of the economy with a 5.5 per cent growth in non-food imports depends crucially on the success in achieving the key industrial targets.

Table 7: Projected Valued/Imports : 1967-68 to 1980-81 (Rs. crores)

Exports

2.31. It is equally important to stress that specific imports are essential for the growth process and the country's ability to import its essential requirements determines its capacity for growth. Expanding exports provide one of the important measures for raising import capacity and have a crucial rols in a developmental strategy aiming at self-reliant growth. India's share in world export is less than one per cent. Even with the growth of exports as envisaged, India's share will not be significantly different in 1980-81. The implied rate of growth of export earnings is 7 per cent per year over the entire period of 10-12 years. This rate cannot be considered as too high. To sustain it over a long period would require a bold approach, a considerable diversification of our exports and a concern for quality and price competitiveness. The projected pattern of export growth is shown in table 8.

2.32. The growth of our major traditional exports and, in particular, tea, jute and cotton textiles is likely to be slow. The major direction of future diversification will lie in metals and metal manufactures (including machinery, equipment and engineering goods), iron ore, chemicals and allied products. The world demand has been growing and will continue to grow at a much faster rate than for most other items. With its wide and expanding industrial base. India should be in a position to take advantage of the growing trade opportunities in this range of products on a competitive basis. Of the projected increase in commodity experts, nearly two-thirds would be obtained by the expansion of trade in minerals and manufactures. The share of tea and jute manufactures, two of the major traditional export items, is expected to be reduced from about 28 per cent of the total exports in 1968-69 to about 15 per cent in 1980-81. The relatively rapid growth of demand for marine products, leather and leather products, fresh and processed fruit and oil cakes in the world market, however, offers a promising avenue for expansion. As the supply of foodgrains improves and self-sufficiency is attained, an increasing amount of superior qualities of rice could be diverted for export.

Table 8 Estimates of Exports by Mafor Groups: 1968-69 to 1980-81 (Rs. crores)

Balance of Payments

2.33. The scheme of long-term development seeks to eliminate dependence on foreign aid by 1980-81. Commodity imports in 1968-69, according to balance cf payments data, were Rs. 1740 crores. Foreign exchange payment on account of interest and amortisation on account of foreign debt was Rs. 277 crores. There was a substantial net outflow on account of invisibles, net private capital transactions and other miscellaneous items of Rs. 202 crores, making a total foreign exchange outgo of Rs. 2219 crores. As against this, the commodity export earnings were only Rs. 1367 crores leaving a deficit of Rs. 852 crores. This was covered by external assistance (including Rs. 118 crores of PL 480 assistance). By 1980-81, commodity imports are expected to increase to Rs. 2950 crores and debt service charges to Rs. 650 crores. The balance on account of invisibles, private capital transactions and other miscellaneous items is expected to show a modest surplus by 1980-81. This together with the estimated export earnings of Rs. 3020 crores would be adequate to meet the commodity import requirements as well as interest obligations on foreign debt.

EXPORTS

RATE OF NET DOMESTIC SAVINGS AND ITS COMPOSITION

Domestic Resource Mobilisation

2.34. The objective of self-reliant growth requires that the supply of domestic savings be increased to a level adequate to finance projected investment and to pay at least interest on foreign debt. In order to reach the projected level of income in 1980-81 and to sustain at least a 6 per cent rate of development thereafter, the net investment in the econ:imy will, on a provisional estimate, be required to reach Rs. 8600 crores by 1978-79 and Rs. 10,250 crores by 1980-81. Implicit in these estimates is a steady growth in net investment at the rate of about 10 per cent per year. The incremental capital output ratio wcrks out to 2.0 for the period of the Fourth Plan and about 2.4¹ for the subsequent period. This compares with an average ratio of 2.4 for the three Plan periods'.

2.35. The relatively favourable capital to output relationship during the Fourth Plan reflects (a) the possibility of securing relatively large increases in agricultural output based mainly on high-yiel-Jing varieties of seeds and the expansion of fertiliser use;, (b) the existence of considerable idle capacity over a wide segment of manufacturing industries; and (c) the sizeable pipe-line of investment on projects initiated during the last few years which are expected to bear fruit in the near future. As the potentiality of growth from these sources gets exhausted, incremental capital output ratio will rise : for achieving a given increase of output, larger investments will be required than have been found essential du: ing [he Fourth Plan. Underlying these projections is the assumption that much greater care and attertion will be given to the efficient use of available investment resources by minimising the construction lags and the lags in bringing capacity created to full utilisation. If the efficiency of investment proves to be lower than implied in these assumptions, a larger volume and f savings will be needed to achieve the growth targets. In that event, the problem of resource mobilisation will become more difficult to manage.

2.36. Given the objective of dispensing with net aid after 1980-81 the volume of domestic savings will have to increase from Rs. 2530 crores in 1968-69 to approximately Rs. 8800 crores in 1978-79 and Rs. 10,450 crores by 1980-81. This means diver-tins; approximately 28 per cent of the increase in national income for savings throughout the next twelve years. The average rate of savings will rise from about 8.8 per centum 1968-69 to nearly 13.2 per cent in 1973-74 and to 18 per cent by 1980-81.

Savings

2.37. Estimates of the increase in savings likely to be generated on the basis of the postulated growth in national income are summarised in cable 9. The estimate for 1973-74 takes into account the impact of additional resources mobilisation contemplated in the Fourth Plan. Two estimates are presented for 1980-81. One gives a measure of domestic savings which can be expected on the basis of the targetted income growth and the level of taxation prevailing in 1973-74. The second estimate tak?s info account the further addition to taxation accruing as a result of measures taken beyond the Fourth Plan.

Table 9 : Ratio of Net Domestic Savings to National Income by Sectors: 1968-69 to 1980-81

'These ratios are based on the increase in net domestic product and the cumulated investment over the relevant period both valued at 1967-68 market prices. The calculations assume a one-year lag between investment and the generation of output. The ratio for the first three Plan periods is calculated on the basis of the increase in the trend value of net domestic product at Market prices in 1950-51 to 1964-65 and the cumulative additions to capital stock from 1950-51 through 1963-64. Both the output and investment series, have been converted to 1967-68 constant price base.

2.38. The estimates of the household savings are based on a marginal savings rate on disposable income of 12 per cent—the rate observed in the past and assumed in the projections for the Fourth Plan period. The retained earnings of the corporate sector are related to the projected growth of the manufacturing sector, and the marginal savings rate observed in the past. The savings of this sector rise faster than total savings and their share in national income will rise during the next decade. But even by 1980-81, they will contribute no more than 1.4 per cent of national income. The projected surpluses of public enterprises are related to the growth of public investment in mining, manufacturing, electricity and transport undertakings. The will estimates allow for a modest improvement in the profitability of these enterprises , partly on account of price adjustments visualised in the Fourth Plan and partly from more efficient operation.

2.39. Government savings are estimated on the basis of ths likely increases in revenue (making due allowance for the proposed additional taxation in 'the Fourth Plan) and providing adequately for the requirements of current expenditure, for both developmental and non developn-'eiifal activities. A £ig-nificant increase .in public savings over the next decade is anticipated. From 1.4 per cent of the national income in 1968-69, they are estimated to rise to 4.5 per cent by 19.73-74 and 6.3 per cent by 1980-81.

2.40. Aggregate savings on the above calculations would rise from 8 per cent of the national income in 1968-69 and the planned 13.2 per cent for 1973-74 to 16.6 per cent by 1980-81. The savings likely to be generated in the normal course will, however, fall short of ths requirements for that period. The gap represents the additional effort of resource mobilisation needed to reach the projected levels of development. In the current stage of cur development only a judicious exercise of Government's fiscal authority -can ensure that the necessary extra savings will be generated, regardless of whether ;these savings are to be utilised for investment in the public or the private sector. In order to raise total savings to 18 per cent of the national income and taking into account the possibility that taxes might cur into private savings, it would be necessary to raise additional taxation amounting to 2 per cent of the projected national income by 1980-81. The aim should be to introduce appropriate measures early enough in the Fifth Plan to generate the extra resources of the necessary magnitude. This effort would mean raising'the proportion of taxes to the national income to around 18.5 per cent by 1980-81 compared to less than 13 per cent in 1968-69 and 14 per cent already reached in 1965-66.

2.41. Manpower Planning.—Some of the important decisions which need to be taken in the immediate future for fulfilling the physical targets of agriculture and industry have been outlined earlier. Manpower planning is another critical area where long-term requirements will have to determine current decisions. The decisions on the intake capacity in engineering and medical education are cases in point. The expansion of training facilities during the Third Plan has been on a scale which has eliminated the risk cf quantitative shortages of engineering and medical personne! during the Fourth Plan. With marginal adjustments in the intake capacity of the institutions, the requirements during the Fifth P^an are ejected to b" met. The emergence of terapQ^ar|fe.imb?la,nces o^ supply and demand should*wt ^ allowed, fo influence admissions to long deration courses : these judsmenis, based as they are on current market conditions, are net relevant to evaluating the supply and demand position several years ahead when the trainees will be seeking jobs. A long-term view of development of the economy can alone provide guidance for such calculations. Even then the task of analysis is by no means simple. There is need for sharpening the tools and techniques relevant to manpower planning and making a periodic review of demand for specialised personnel and their training requirement both in numbers as well as quality.

2.42. Fresh thought needs to be given to the effective training of large numbers of middle level personnel oriented to the changing requirement of dynamic development and modernisation of the economy. Such training should aim at developing the creative ability of individuals, equipping them for effectively performing their tasks in life and motivating them to serve the best interests- of society. '

2.43. Design Organisation—Self-reliance in the technological sense implies the existence and effective functioning of indigenous organisations for design, construction and engineering of projects as well as capability for design and development of machinery, equipment and instruments indi-genously manufactured. At present there is unwholesome dependence on foreign agencies for these services. As long as this deficiency remains, local talent will not have the scope to develop, and dependence on foreign help will be prolonged. It will expose development to uncertainties, besides involving an avoidable and large drain of forei"n exchange resources. The capa ity cf the ccnifcy to undertake large development projects on the basis of indigenous talent will not be developed despite very large expenditure on complex projects;and precious time will be lost by not fully availing of the learning opportunities offered by these projects. It is only by participating actively and in positions of responsibility that skills and confidence are generated and scarce, high talent human resource is developed. It is, therefore, of importance for the future that urgent attention is given to promoting and encouraging healthy development of adequate design and engineering organisations, staffed by qualified personnel and working under proper technical leadership. Wherever competent organisations exist, they should be ensured adequate work.

2.44. Survey of Natural Resources— Greater knowledge about natural resources and the capacity to make economic use of them are essential elements in a long-term development strategy. A growing economy has increasing requirements of land and water, forest and fishery resources and minerals. Purposive explorations, coordinated surveys and investigations have to be undertaken and intensified years ahead of the actual requirements. Advances in technology have led to development of tools and techniques to facilitate location of undiscovered mineral deposits. Improvements in technology have also led to development of lower grade materials as well as substitutes. The development of natural resources has thus to be planned in relation to the long-term needs of the economy and keeping in view the technological and economic factors relevant to their optimum utilisation.

2.45. Scientific Research—As scierce and technology offer the best hope for solving the problem of poverty, creation of conditions favourable t^ the application of science and technology to development assumes special significance. The improvement of science education, active and adequate Government support for developing sicence ard technology and the planning of research in harmony with development needs have vital implications for long-term growth.

Quality of Environment

2.46. Most countries fa;'e in varying degrees problems of pollution of air and water erosion cf soil, waste of natural resources, derelict lauds, loss of wild life. ugly landscape, urban sprawl and city slums—generally a progressive deterioration in the quality of environment. There is growing concern about the matter in India also. A healthy environment is vital for gcod life. It is an obligation cf each generation to maintain the productive capacity of land, air, water and wild life in a manner which leaves its successors some choke in the creation of a healthy environment. The physical environment is a dynamic, complex and inter-connected system in which .sny action in one part affects others. There is also the inter-dependence of living things and their relationships with land, air, and water. Planning for harmonious development recognises this unity and t" nature and man. Such planning is possible only on the basis of a comprehensive appraisal of environmental issues, particularly economic and ecological. There arg instances in which timely specialised advice on environmental aspects could have helped in project design and in averting subsequent adverse effects on the environment, leading to loss cf invested resources. It is necessary, therefore. to introduce the environmental aspect into our planning and development. Along with effective conservation and rational use of natural resources, protection and improvement cf human environment is vital for national well-being. It is particularly important that long-term basic considerations should prevail over short-term commercial consider'Vtions, the social costs and benefits be used as the yardstick rather than private gains and Icsses. At present there is nc' point in the structure of Goverrment where the environmental ;'srects receiver (.1:s-attention in an integrated manner. Nor are there suiiicient numbers of experts who can analyse environmental problems and examine developmental projects from this angle so as to be able to give balanced advise. These deficiencies have to be overcame before any advance can be made. Meanwhile, ii is proposed to make arrangements to provide for environmental expertise in teams constituted for planning major projects so that environmental aspects are net left out or mis-judged.

Long-term Perspective—a Quantitative Framework

2.47. One of the major purposes of having a Iong-term view of the economy's development is to quantify the nature and magnitude of the tasks implied in the specified overall objectives. Such a quantification if of particular value and relevance for guiding current decisions in respect of areas where long years of preparation are needed before desired results can be achieved. These are prone g be neglected as the pressure of the future needs, which they are meant to cater for, is not acutely leli in the present. Another purpose is to evaluate the potential of development and the nature of challenges to be faced in realising it. Excessive optimism regarding the possibilities of speedy transformation of the economy and the elimination of poverty and inequality needs to be moderated in view cf the constraints operating on the economy, as much as a dismal prognosis of stagnation based on an inadequate analysis of facts.

2.48. A rate of growth of 6 per cent per annum sustained over a number of years can produce tangible impact on the life and living standards of the people. This will be more noticeable if there is, at the same time, a marked reduction in population growth as contemplated in the long-term strategy. But a faster rate of growth would be better still. It will help in assuring minimum living standards to the poor earlier. It would provide a convincing demonstration of the possibility of achieving speedy, social and economic transformation in a peaceful way operating within the framework of representative democratic institutions. The basic strategy as outlined can be extended and guidelires for action identified in relation to acceleration of the rate of growth to 7.2 per cent instead cf 6 per cent per year through the twelve year period if the income and production targets of 1980-81 are advanced, by a mere two years, to 1978-79. Such a-i acceleration will give rise to problems necessarily implied in achieving a higher tempo- -firm long-term vew, better planning and preparedness, consistent and adequate policies, greater efficiency, shorter construction time, more stringent economic discipline, greater savings, larger investment ind larger foreign exchange resources. It will also re-aws greater cohesion and purposiveness internally and a more equitable sharing of the.burders and benefits of development so that there is a proper climate of public understanding and participation.