| 4th Five Year Plan |
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Chapter
4: Apart from the general improvement in the economic situation, the assessment of resources for the P'an has taken into account the Award of the Fifth Finance Commission; the nationalisation of 14 major commercial banks, acceleration in their branch expansion and deposit mobilisation, paiti-culariy in rural areas; reorientation of investment policies of the Life Insurance Corporation and the Employees' Provident Fund; and the more recent trends in receipts and expenditures of public authorities. This assessment has been made in consultation with the Central and State Governments, Reserve Bank of India, Life Insurance Corporation, Provident Fund Commissioner and the undertakings of the Centra! and State Governments. The total resources are expected to amount to Rs. 24,882 crores, of which Rs. 15,902 crores would b and available for financing the public sector Plan and Rs. 8,980 crores for financing private investment. 4.2. It may be recalled that in the case of States having overall non-Plan deficits iaking both the revenue and capital accounts at 1968-69 rates of State taxation, their additional resource mobilisation was being absorbed in meeting such deficits, in a few cases almost wholly. The State Governments had represented that unless the additional resource mobilisation undertaken by them was allowed to be utilised for augmenting the size of their Plans, there would be little to enthuse the people to put up with the additional tax burden and it would be difficult for the State Governments to introduce measures of additional taxation and resource mobilisation contemplated by them. After careful consideration of the matter, the Planning Commission requested the Ministry of Finance to extend special accommodation to such States as had non-Plan gaps in their resources on the condition that the gaps in resources of the individual States would be cont'iin-ed and that ^he States concerned would make an effort to increase their Plan outlays through additional resource mobilisation. The Ministry of Finance having acceeded to this request, it has now become possible for all the States to use the entire proceeds of their additional resource mobilisation during the Plan period for expenditure on development schemes. 4.3. The details of the estimates of resources for the public sector Plan are discussed in the following paragraphs against the background of the experience of financing the Third Five Year Plan and the three' Annual Plans. Third Plan 4.4. Table 1 sets forth the scheme of financing the public sector Plan as originally envisaged and as it actually turned out during [he Thi'-d Plan period. 4.5. It will be seen that additional resources mobilised by the Central and State Governments and their undertakings were Rs. 1,182 crores larger than the Third Plan estimates. But there was a deterioration of Rs. 969 crores in the balance from current revenues of the Centre and the States at 1960-61 rates of taxation, due mainly to increases in non-Plan expenditures following the hostilities of 1962 and 1965 and the rise in prices. There was also a deterioration of Rs. 115 crores in the surpluses of public enterprises on account of higher working ex-pens's. Taking al! this together, the net increase in the resources made available by the Central and State Governments and public enterprises out of their revenues was larger by Rs. 98 crores only. This together with the increases of Rs. 173 crores in domestic borrowings, Rs. 223 crores in budgetary receipts corresponding to external assistance and Rs, 583 crores under deficit financing account for the increase of Rs. 1,077 crores over the original estimates of resources for the Plan. Annual Plans 4.6. Table 2 gives the aggregates of the original estimates of resources as well as the latest estimates for the Annual Plans of 1966-67, 1967-68 and 1968-69. 4.7. The latest estimates of balance from current revenues of the Central and the State Governments at 1965-66 rates of taxation show a shortfall of about Rs. 563 crores from the aggregate of the Annual Plan estimates for 1966-67, 1967-68 and 1968-69. Deressed farm output for two consecutive years 1965-66 and 1966-67, decline in the rate of growth of industrial production and pressure on the price line eroded resources available for the Annual Plan. Receipts from taxes were below the anticipated levels nnd non-Plan expenditures were higher because of increases in dcarness allowance to Government employees, grant of food subsidies, higher cost of Government purchases and increase in 1966-67 in the rupee cost of interest on foreign loans due to devaluation.
Table 1 : Financing
of theThird Plan
inclusive of net borrowings by public enterprises from the market and L.I.C.
Table 2 : Financing of the Annual Plans: 1966—69
'This includes
a gap of Rs. 88 crores to be met by further effort by States.
4.8. Railways' deficit at 1965-66 fares and freights was larger than the aggregate of the Annual Plan estimates by Rs. 48 crores as the anticipated increase in railway traflc did not materialise while the working expenses increased on account of higher dear-ness allowance to employees and higher cost of materials. These factors and in certain cases under-utilisation of capacity caused a substantial shortfall in the surpluses generated by other public enterprises. Additional taxation by the Central and States during the three Annual Plans was also smaller and aggregated to about Rs. 910 crores as compared to the Plan estimates of Rs. 1060 crores. 4.9. Net receipts from loans from the public during 1966—69 were higher than the Plan estimates by Rs. 148 crores. The small savings collections however, turned out to be lower by Rs. 36 crores. Net accretions to State provident funds were higher by Rs. 48 crores mainly because part of the dear-ness allowance sanctioned during 1967-68 and 1968-69 was credited into the provident fund accounts of Government employees. Net receipts under miscellaneous capital heads show an increase of Rs. 460 crores over the orginal estimates, due to larger inflow under debt and deposit heads at the Centre and substantial depletion of food stocks in the States. In the aggregate, domestic budgetary resources failed to reach the levels esjmated in the Annual Plans. The overall budgetary position worsened in many States and the Central Government had to grant ad-hoc loans to clear their overdrafts with the Reserve Bank. Such loans amounted to to Rs. 226 crores during 1966-67 and 1967-68. 4.10. During the three years of Annual Plans, budgetary receipts corresponding to external assis. tance amounted to Rs. 2426 crores. This was Rs. 341 crores lower than the original estimates adjusted for devaluation. The shorfall was entirely under non-PL 480 assistance and was accounted for mainly by the suspension of aid following Pakistani aggression. PL 480 assistance was cf about the same order as envisaged. 4.11. Actual deficit financing added up to Rs. 682 crores during the three Annual Plans-.Rs. 189 crores in 1966-67, Rs. 224 crores in 1967-68 and Rs. 269 crores in 1968-69—as compared to Rs. 300 crores in 1965-66. Fourth Plan 4.12. The scheme of financing the Fourth Five Year Plan as now envisaged marks a distinct departure from that in the Third Plan and the three Annual Plans. It has been specially designed to serve the objective of growth with stability and promote progress towards self-reliance. The share of domestic budgetary resources in fetal resource mobilisation for the public sector Plan has been raised to about 78 per cent as compared to 59 per cent in the Third Plan and 54 per cent in the three Annual Plans. External assistance (net of loan repayments but without allowing for interest payments) for the public sector Plan is to go down from 28 per cent in the Third Plan and 36 per cent in the tliree Annual Plans to nearly 17 per cent of the total resources in the Fourth Plan. As a percentage of total net investment in the economy during the Fourth Plan, foreign aid, net of debt servicing (repayment as well as interest) will be only 8.2. per cent. Deficit financing is placed at about 5 per cent of the total resources for the Fourth Plan in the public sector as against 10 per cent in the three Annual Plans and 13 per cent in the Third Five Year Plan. The comparative figures are shown in table 4. 4.13. The detailed estimates of resource mobilisation by the Centre and the States are given in table 3.
Table 3: Estimate of Resources for the Fourth Plan
'Inclusive of share
in additional resource Mobilisation by the centre in 1969-70.
Table 4 : Patterns
of Flnancing Public Sector Outlay
4.14. In the scheme of Plan financing the Central Government and their enterprises will be raising an aggregate of Rs. 12,796 crores. Of this. Rs. 3500'crores will go to the States as Central assistance leaving Rs. 9296 crores for the Central schemes. Centrally sponsored schemes and the Plan of Union Territories. All the States together will be mobilising resources amounting to Rs. 3106 crores over the Fourth Plan period. With Central assistance of Rs. 3500 crores, the total resources available for the State Plans will be Rs. 6606 crores. Statewise break-up of this aggregate and its components is given in the Annexure. Brief comments on cs'irpaf.es of resources to be mobilised by the Cen-Ual and State Governments during the [Fourth Plan period are given in the following paragraphs. Balance from Current Revenues 4.15. The Centre's balance from current revenues for the Fourth Plan at 1968-69 ratear of taxation is estimated at Rs. 1625 crores. In the States, the balance from current revenues at 1968-69 rates of State taxation, but inclusive of the share in additional mobilisation -by -the Centre in 1969-70, is estimated at Rs. 48 crores. In working out these estimates, provision has been made for only a moderate increase in non-Plan outlays ^from -year to year. This implies that a conscious effort would be made to restrain increases in non-Plan outlays and effect such economies as might be feasible. The full cost -.f the increases in emoluments of Government employees sanctioned so far has been taken into account. Unless firm commitments exist, no provision has been made for any increases in these emoluments hereafter. 4.16. Ten States are now expected to make a positive contribution to the Pten resources'- from their current revenues at 1968-69 rates of State taxation. Their positive contribution adds up to Rs. 368 crores. Seven Stales, however, are expected to incur deficits aggregating to Rs.- 320 crores. These deficits are partly attributable to the fact that the Finance Commission has not allowed devolution from the Centre for covering fully the appropriations which these States propose to make from their current revenues towards reduction or avoidance of debts '.'n ihe basis of their existing practices. In part, it is also attributable to the assumptions made by the Fi-mee Ccninwsjon fcr its assessment of revenue deficits of States, namely that State Electricity Boar Is would pay to State Governments ths full interest falling due durii»g" tire Fourth Plan period with the exceptions of Assam and Rajasth.in Ueci-ricity Boards which would pay only half, that receipts, from commercial irrigation works would cover the working expenses and interest at the rate of 2^ per cent on investment and that there vould be no net loss in other departmental commercial schemes and investments by State Governments. In addition, the Finance Commission also assumed recovery of interest on loans and advances to third parties at a rate equivalent to the average.rate of interest payable by the State Government concerned on its own borrowings while no allowance was made for interest payment on ad hoc loans from the Centre. All this implies some additional mobilisation by States, particularly by way of revision of electricity tariffs and water rates. Consequently, on the basis of the devolution finally recommended by the Fifth Finance Commission, some States are faced with the problem of substantial revenue deficits at 1968-69 rates of State taxation. Surpluses cf Enterprises 4.17. The Railway's total contribution for ..financing the Plan was originally estimated at Rs. 4.15crores. Of this, Rs. 265 crores was expected to be' come available at 1968-69 fares and freight rates while the balance of Rs. 150 crores was to be raised through a revision of fares and freight rates. Recent trends in railway 'earnings and working expenses, however, indicate that the Railways' contribution at 1968-69 fares and freight rates would fall substantially short of the original estimate of Rs. 265 crores, due primarily to slower growth of freighttraffic-and to increases in the cost of coal, diesel oil and electricity, etc. However, the original estimates of Railways' contribution have been kept unchanged. This means that the shortfall in the Railways' contribution at 1968-69 fares and freight rates will have to be made up through additional mobilisation by the Railways beyond the level of Rs. 150 crores taken credit for in the scheme of financing- under additional resource mobilisation. In the case of Posts and Telegraphs, there is no change in the earlier estimate of Rs. 225 crores in respect of the contribution at 1968-69 rates of postal charges. 4.18. Contribution of Central Government enterprises other than .Railways and P and T is, however, likely to show an improvement of Rs. 100 crores as compared to the estimates made early in 1969 on account of the expected improvement in the financial working of some of the industrial undertakings, particularly those benefiting from the revision of prices of steel and coal announced during 1969-70. Further, credit has been taken in the latest estimates for an amount of Rs. 259 crores' in respect of resources to be made available by Indian Dairy Corporation (Rs. 57 crores). Agricultural Refinance Corporation (Rs. 10 crores). Rural Electrification Corporation (Rs. 105 crores), Damodar Valley Corporation (Rs. 49 crores) and Central Power Generation (Rs. 38 crores). These had not been taken into account in the earlier estimation of resources. 4.19. On the basis of the latest estimates furnished by State Governments, the surplus of the State Government enterprises-is estimated at Rs. 495 crores—State Electricity boards contributing Rs. 482 crores and road transport and other State undertakings Rs. 13 crores. The estimated surplus of State Electricity Boards takes into account the anticipated increase in the generation and sale of power and allows for repayment of market loans by the Boards over the Fourth Plan period. Retained, pro fit Reserve Bank 4.20. The Reserve Bank credits a part of its retained earnings to the long-term operations funds amj. channels it:for -agricultural, -and industrial in-vesitmem, mainly through term-lending institutions. Up to 1968-69, all expenditure financed from these funds was kept outside the public sector Plans. For the Fourth Plan, all expenditure on identifiable schemes of a developmental nature financed from the resources provided by the Reserve Bank out of the long-term operations funds has been included in the public sector Plan. Correspondingly, credit has been taken for a sum of Rs. 202 crores likely to be made available by the Reserve Bank over the Fourth Plan period for these purposes in Plan resources. Of this amount Rs. 37 crores represents estimated loans to State Governments for participation in share capital of cooperatives and the balance of Rs. 165 crores, is for other programmes. Market Borrowings 4.21. Discussions were held with the Reserve Bank of India and the Departments of Banking and Economic Affairs in the Ministry of Finance to estimate the additional resource"- that will be available for financing the public sector Plan consequent on the nationalisation of 14 major commercial banks. As a result of these discussions, it is estimated that bank deposits would grow at a compound rate of 11 per cent per year against the earlier estimate of 7 per cent per year. This will mainly result from the more positive policy of opening additional branches and more purposeful drive by the nationalised banks to attract deposits, particularly from the un-banked and rural areas. The aggregate increase in deposits over the Fourth Plan period is now estimated at Rs. 3000 crores. In the scheme of financing for the Plan, the contribution of the banking sector to the borrowings of the Central and State Governments, borrowing by important financial institutions like Industrial Finance Corporation,. Industrial Development Bank and Agricultural Refinance Corporation, borrowings by State enterprises, particularly State Electricity Boards, and borrowings by Food Corporation of India for buffer stock operations has been taken at a total of Rs. 955 crores. In the discussions, it emerged that it may not be possible for the nationalised banks to finance a larger outlay for the public sector Plan than indicated above because of the other pressing demands on the banking sector. These, in particular refer to meeting the requirements of the sectors needing still greater attention, such as agriculture, small industry and small business. as also the requirements of industry and business consistent with the increase in industrial production estimated at 8 to 10 per cent per year during the Plan period and of exports at the rate of 7 per cent per year. The banking sector is also required to meet the requirements for inventory increases both of the public and private sectors. 4.22. The contribution of Life Insurance Corporation and Provident Funds to the borrowing programme of the Centre and the States is also expected to be larger than what was assumed earlier. This has become possible on account of a re-orientation of the investment policies of L.T.C. and Provident Funds. 4.23. On the whole, the total net market borrowings of the Central and State Governments over the Fourth Plan period are estimated at Rs. 1415 crores. Besides, gross market borrowings of State enterprises are estimated at Rs. 258 crores. Credit has also been taken in the latest assessment for borrowings by financial institutions and the Food Corporation of India of the order of Rs. 250 crores and Rs. 155 crores respectively. Small Savings 4.24 Net receipts from small savings in 1968-69 amounted to about Rs. 114 crores. Allowing for the, anticipated growth, the total for the Fourth Plan has been taken at Rs. 769 crores. Annuity Deposits, Compulsory Deposits 4.25. Following the abolition of the Annuity Deposit Scheme, a net outgo of Rs. 104 crores is expected under this head. This includes estimated repayment of Rs. 22 crores in 1969-70 under the Compulsory Deposit Scheme. State Provident Funds 4.26. In 1968-69, the net accretions to the State Provident Funds at the Centre and in the States (including public provident fund) amounted to about Rs. 105 crores as against the Plan estimate of Rs. 81 crores. After eliminating the effect of the accrual or outgo on account of provident fund accumulations due to deamess allowance increase in this year's figure and taking into account the normal trend increases, the net collection under State Provident Funds over the Fourth Plan period has been estimated at Rs. 660 crores—Rs. 343 crores at the Centre and Rs. 317 crores in the States. Miscellaneous Capital Receipts 4.27. During the Fourth Plan period the Central Government is expected to have a net inflow of Rs. 2090 crores under this head. A part of it will be offset by the net outgo of Rs. 405 crores estimated for the States, leaving a net receipt of Rs. 1685 crores for the Plan. The large inflow at the Centre is attributable mainly to loan repayments by the States. 4.28. In the case of States, the net outgo is arrived at after the credits taken for Rs. 850 crores of appropriations from current revenues for reduction or avoidance of debt, Rs. 45 crores to be raised by local authorities for Plan schemes of urban development as also for the special accommodation which the Centre is expected to provide to the States having overall non-Plan deficits to facilitate the release of their additional mobilisation for the Plan. Loans from LIC 4.29. Besides market loans, the State Governments borrow from LIC for housing and water supply schemes. Up to 1968-69, such borrowings for outlays on housing had been kept outside the public sector Plans. Since these outlays have now been included in the Plan, credit has been taken for the corresponding amounts of borrowing in the public sector resources. Inclusive of loans for water supply schemes, the State Governments' borrowings from LIC are estimated at Rs. 100 crores. The State Government enterprises also expect to raise loans from LIC and other financial institutions to the extent of Rs. 148 crores.
Budgetary Receipts Corresponding to External Assistance 4.30. The amount of gross external assistance for the Fourth Plan of the public sector has been taken at Rs. 3830 crores. Deducting Rs. 1216 crores of repayment of external loans—Rs. 1036 crores by the Central Government and Rs. 180 crores by public enterprises—external assistance available for the Plan is estimated at a net figure of Rs. 2614 crores. Deficit Financing 4.31. The scheme of finance includes Rs. 850 crores for deficit financing. With the stipulated growth in real income during the Fourth Plan, there is a case for corresponding expansion in money supply. Deficit financing may also be necessary for further activation of the economy. The annual amount of deficit financing will have to be determined in the light of emerging trends. Additional Resource Mobilisation 4.32. Additional resources to be mobilised for the Fourth Plan are now placed at Rs. 3198 crores. Of this, the State Governments have indicated their intention to raise about Rs. 1098 crores and the balance of Rs. 2100 crores will be mobilised by the Central Government. This letter figure is net of the States' share of additional taxation at the Centre. 4.33. The broad areas to which the specific measures could be directed are outlined below ;
(1) The Committee on the Working of State Electricity Boards (Venkataraman Committee) recommended that the rate of return on capital employed in electricity undertakings should be raised to 11 per cent per aanum on the basis of a phased programme. Since this recommendation has been accepted in principle, steps could be taken to raise the rate of return at least where it is lower than 11 per cent. The tariffs may also be further graduated or differentiated so as to make the better off consumers pay a higher price.
(2) The S;:ate Governments incurred in 1968-69 a loss of Rs. 79 crores in the aggregate on commercial irrigation works, including multi-purpose projects. The Committee to Sugge and t Ways and Means of Improving Financial Returns from Irrigation Projects (Nijalingappa Committee) recommended that irrigation rates should be fixed at 25 to 40 per cent of the additional net benefit to farmers from irrigated crops, and where this net benefit could not be worked out, at 5 to 12 per cent of the gross income from irrigated crops. The Committee had also suggested a compulsory surcharge sufficient to cover at least the maintnance and operational charges as well as a betterment or capital levy. By implementing the recommendations of the Committee it should be possible to mobilise resources from that section of the agricultural sector which benefits directly from the irrigation projects.
3) Efforts could be directed to raise the rate of return on capital employed to 15 per cent by industrial and commercial undertakings other than public utilities. Additional resources, if thus raised, could be utilised for their development and expansion.
(4) Efforts could be made to mobilise additional resources in the rural sector by floating rural debentures or adopting similar devices for financing agro-industries, irrigation schemes, rural electrification, housing and the provision of drinking water, benefiting the rural population directly.
(5) As a result largely of public investment in the agricultural sector since the inception of planning, arricultural incomes have increased substantially. But the contributions of tlie agricultural sector to the public exchequer have not risen commensura-tely. There is, therefore, need for raising more resources from the agricultural sector for financing its development by imposing an additional burden on the well-to-do farmers. This can be done by developing agricultural income tax in States where it is in force, introducing the tax where it has not been imposed so far and attaining parity of rates not only in all States but also with the Union tax on non-agricultural incomes. Alternatively, surcharge at progressive rates can be levied on land revenue, by size of land-holding or type of crops according to the circumstances prevailing in different States.
(6) 'Taxation,-in any case, "has-tec play an important part dn a-developing economy not only because it yields revenue but also promotes other economic objectives. Com-.modity taxation could be stepped up to restrain conspicuous consumption by the affluent sections of society, generate exportable surpluses and bring about a desirable allocation of productive resources. It can also be used as a means of mopping Tip, producers' surplus in certain areas and operate, in effect, as a tax on the incomes of producers.. Inter-State uniformity in sales 'tax rates, attained by levelling up rates where, they-are low, can bring in more" revenue.
(7) Taxation of income and wealth can, besides yielding larger revenue, be more effective in preventing the growth of disparities in income and wealth, if (a) all taxable incomes and wealth are forced into the "tax net "and tully" assessed to tax (b) income and -asset splitting through gift is prevented and life-time accumulations are subjected fully to estate duty and (c) capital gaias are more rigorously taxed. The ratss-acdcaverage of- wealth tax could also be -increased. Besides, income tax asses-,sees in. the middle and higher ranges of income could be made to bear a somewhat higher burden.
(7) Taxation of income and wealth can, besides yielding larger revenue, be more effective in preventing the growth of disparities in income and wealth, if (a) all taxable incomes and wealth are forced into the "tax net "and tully" assessed to tax (b) income and -asset splitting through gift is prevented and life-time accumulations are subjected fully to estate duty and (c) capital gaias are more rigorously taxed. The ratss-acdcaverage of- wealth tax could also be -increased. Besides, income tax asses-,sees in. the middle and higher ranges of income could be made to bear a somewhat higher burden.
(8) Alaarge source'of "unearned increment in -income and wealth is the increase in land values in and around developing urban areas. Taxation of land values can provide the means to appropriate such increments and finance-programmes of urban development including low-income housing, slum clearance and improvements in transport, water supply and drainage. W Finally, while tax incentives have no doubt a positive role to play in plaTinirsg for 'development, their withdrawal, when the purpose served by them is not commensurate with the revenue loss, can be a means of mobilising additional resources.
Resources ior Private Investment 4.34. Firm estimates prfeateigavi Bgs are not available. On a rough calculation the private sector is expected 4o generate savings amounting to Rs. 14160 creies wing the Fourth Plan. The household and coepeKa-tive sectors will contribute Rs. 12210 crores and the balance of Rs. 1950 crores will be contribHted .by. "the corporate sector. The Central and State Governments will draw on this pool of private savings as fflwh Rs. 5210 crores for the public sector Plan. Private savings thus available for private investmeat would amount to Rs. 8950 crores. Adding to it the net amount of foreign funds directly flowing to the private sector, the total resources available for private investment would aggregate to Rs. 8980 crores. The break-up of this total is given below :
Table 5 : Resources Available for Private investment During Foiith Plan
Net of load repayaasats only. Interest paymants have been taken 'stito aeeouht wider item 1. 4.35. The order of private savings estimated above will be dependent on the rate of growth of national income. This underlines the necessity of ensuring that-the postulated rate o and growth of national income is actually realised. It is-atso intimately linked with the preservation of relative stability in prices, for any upward pressure on prices would encroach upon private saving. It is not sufficient that private savings are generated. It will be necessary that the saving generated in various sectors are adequately and speedily channelled to sectors requiring investi-ble funds. This follows from the fact that the demand and supply of savings-are not evenly balanced Eor each of the investing sectors. The corporate sector, for instance, can meet its resource requirements only if it ensures larger retention of the profits for re-investment through adequate restraint on dividend distribution while exploiting to the fullest extent the capital market for drawing on other sectors' savings. Bulk of the household savings during the period is likely to Ac generated in the rural sector. Financial institutions like LIC, banks, cooperatives and land development banks will have to intensify efforts to mobilise a sizeable part of rural savings for investment. This will call for a certain measure of reorien-ta'a and i'fe aheir policies, streamlining of their operations and a stronger net-work of branches. External Resources 4.36. The estimate of budgetary receipts corresponding to external assistance indicated in the scheme of financing for the public sector Plan and the net inflow of foreign funds for the private sector represent only a part of the economy's requirements of foreign exchange resources.. They refer only to public and private investment during the Plan period. The total requirement and 'availability of foreign exchange resources are much larger and are analysed below. 4.37. During the Fourth Plan the economy will require total imports valued at about Rs. 9730 crores. Of this, Rs. 7840 crores will be maintenance imports or imports of raw materials and components required for stepping up the rate of growth of industrial and agricultural production. These include impons of fertilisers, pesticides, crude oil, chemicals, non-ferrous metals, special varieties of steel and components and spare parts of machinery. About Rs. 1300 crores will be required to finance project imports or imports of plant and machinery for expansion or creation of additional capacity in selected lines which cannot be met from the domestic sources of supply. The balance of Rs. 590 crores would be the cost of food imports during the Plan. The estimate of project imports has been built on the assumption that the capital goods requirements for industrial expansion in the public and private sectors will be met by and large out of domestic production and only plants and machinery of more sophisticated kinds, not yet produced within the country, will be imported. With a diversified engineering capacity already built up in the country, it does not appear difficult to realise this objective. The requirement of maintenance imports likewise assumes that domestic production will grow at the scheduled rate. As the economy picks up, some increase in maintenance imports must be expected, particularly of certain essential components and raw materials. To offset this, it will be necessary to see that other imports are kept to the minimum. The import substitution programme will therefore have to be further extended so as to keep maintenance imports within the limits of available foreign exchange even when industrial production gathers momentum and the growth rates of domestic output as well exports steadly improve. Import policy will have to be so framed as to eliminate all non-essential imports while ensuring the availability of items not produced indigenously in sufficient quantity. 4.38. Excluding official grants and interest payments invisible transactions during the Fourth Plan are expected to result into a net outgo of Rs. 140 crores. Although a substantial increase has been assumed in the earnings from tourism and shipping, there will be a large outflow under remittances of dividends, commissions, consultancy charges and insurance. If invisible receipts are to grow, steps will have to be taken to ensure that earnings from shipping and tourism increase on the scale envisaged. A beginning may be made in the Fourth Plan period for export of Indian consultancy and technical services. 4.39. The total debt service payments (amortisation plus interest on foreign loans) are estimated at Rs. 2280 crores. In addition, there would be repay ments due to the International Monetary Fund amounting to Rs. 280 crores during the Fourth Plan. 4.40. Exclusive of debt servicing, the total requirement of foreign exchange during the Fourth Five Year Plan will therefore be Rs. 10,150 crores. This will have to be met out of the net receipts from external assistance plus export earnings. In regard to foreign aid, the Approach document indicated the policy objective of reducing the foreign aid net of debt servicing (inclusive of interest payment) to half of the current level by the end of the Fourth Plan and to eliminate it altogether as speedily as possible thereafter. During the Third Plan, the net external assistance was approximately Rs. 3500 crores (at post develuation exchange rate). The annual average during the three Annual Plans (1966—69) also corresponded more or less with the average level reached in the Third Plan. In accordance with the policy objective of the Plan, the aggregate external assistance, net of debt servicing, required during the Fourth Plan is estimated to bs Rs. 1850 crores. This will be available only if gross aid utilisation in the economy is of the order of Rs. 4130 crores comprising PL 480 aid of Rs. 380 crores and project and non-project aid of Rs. 3750 crores. The requirement of aid in the first two years of the Plan will continue to be high and aid commitments will have to be obtained well in advance to enable the programmes and projects to progress in accordance with the Plan. 4.41. The balance of foreign exchange requirement amounting, to Rs. 83000 crores will have to be met out of export earnings. The will require export earnings to go up from the expected level of Rs. 1360 crores in 1968-69 to around Rs. 1900 crores in 1973-74, or at a compound rate of about 7 per cent per annum. This rate of growth will call for proper reorientation in policies and institutional arrangements for export promotion. Savings and Investment 4.42. On the basis of the estimates presented above, domestic savings during the Fourth Plan period would amount to nearly Rs. 20,000 crores, Rs. 14,160 crores being private savings and Rs. 5,830 crores public savings. To mobilise this order of domestic savings, the average rate of savings in the economy will have to be stepped up from the 1968-69 level of 8.8 per cent to 13.2 per cent by the end of the Fourth Plan. Such a step-up implies a marginal savings rate of 28 per cent over the Plan period. This is not out of line with past achievement. The average savings rate rose from around 8 per cent in 1960-61 to 10.5 per cent in 1965-66. It slipped down to 8 per cent by 1967-68 but has since begun to look up. Public subscriptions to Central and State Government loans have been higher than the original expectations in the budget. Small savings collections are improving. Bank deposits are growing at a faster pace Money market is relatively easy. the public sector and Rs. 8980 crores in the private The capital market shows signs of revival. These sector. This size of investment implies raising the gain': could be further consolidated, average rate of investment from the level of 11.3 per cent in 1968-69 to 14.5 per cent in the last year 4.43. With the total external assistance, net of of the Fourth Plan. This compares with the increase loan repayments only, taken at Rs. 2644 crores in the average rate of investment from 11 per cent (public sector Rs. 2614 crores and private sector to 13 per cent during the Third Plan. Planned invest-Rs. 30 crores), the investible resources would be ment during the next five years will go to correct sufficient to finance the Fourth Plan investment the loss in the tempo of development and put the outlay of Rs. 22.635 crores—Rs. 13,655 crores in economy back again on the trend line of growth.
Annexure I Estimates
of States' Resources for the Fourth Plan
ANNEXURE I - contd. (Rs. Crores)
1Subsequent
to discussions with the State, the State Transport Corporation has indicate
that its contribution would be substantially smaller than indicated in
the Table. The shortfall is, however, expected to be made up by the State
Government from its own resource |
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