Foreword || A Review of the Economic Situation || The Perspective || Rate and Pattern of Growth || Financial Resources || Plan Outlays and Programmes of Development || Resolution of the National Development Council on Power and Irrigation Systems || Resolution of the National Development Council on the Fifth Five Year Plan || Annexures

Chapter-3:
RATE AND PATTERN OF GROWTH

In 1974-75, the first year of the Fifth Plan period. Gross Domestic Product grew only by 0.2 per cent over the previous year. There was a remarkable improvement in production in 1 975-76 resulting in ar estimated growth of above 6 per cent in GDP. During 1976-79 the economy is expected to grow at an annual compound rate of 5.2 per cent. With this annual growth profile, the average annual growth in GDP is estimated at 4.37 per cent in the Fifth Plan.

3.2. The realisation of the objectives of removal of poverty and self reliance in the Fifth Plan has to be viewed in the context of the sharp increase in the prices of imported products like fuel, fertilisers and food. The strategy has therefore to be directed towards accelerated pace of agricultural production, particularly foodgrains, exploitation and optimal use of available energy resources, and production and efficient distribution of critical raw materials and wage goods.

Sectoral Rates of Growth

3.3. Mutually consistent sectoral output levels have been estimated by a system of macro-economic model, 66 sector input-output model and a consumption sub-model. Commoditywise production levels have been estimated by working out their supply demand balances through a series of material balance exercises and making them consistent with the sectoral growth rates obtained through input-output model. Some independent studies at the micro-level for specific commodities have also been carried out to cross-check production levels.

3.4. The input-output matrices for the year 1973-74, the base year of the Fifth Plan, as given in the "Technical Note on the Approach to the Fifth Plan" have been updated to 1974-75 prices to conform to commoditywise production levels for 1 973-74 and estimates of macro-economic aggregates provided in the latest White Paper of the Central Statistical Organisation. The consumption proportion matrices have also been updated to 1974-75 prices taking into consideration the data on household consumer expenditure of the 25th Round (1970-71) of the National Sample Survey as well as the estimates of private final consumption expenditure on different broad groups of commodities and services as available in the recent White Paper. For the purpose of projections for 1 978-79, some of the input coefficients have been projected on technological and behavioural considerations.

3.5. Exports and government expenditure have been estimated exogenou-sly. Public consumption has been assumed to grow on an average by 10.0 per cent per annum, while exports have been assumed to grow at a rate of 8.5 per cent. Private consumption and imports in the terminal year have been estimated endogenously. The envisaged investment outlay for the remaining years of the Fifth Plan has been appropriately phased out over this period.

3.6. Sectoral rates of growth consistent with the envisaged rate of growth in the gross domestic product over the Fifth Plan have been worked out for the terminal year, 1978-79, of the Fifth Plan through the system of models m and ntioned earlier. Import substitution has been envisaged in these projections for important sectors to the extent permitted by the production possibilities and capacity utilisation in the domestic economy. The pattern of growth in terms of broad sectors is given in Table 1 and for sixty-six sectors of the economy in Annexure 5. The growth rate in the agricultural and allied sector is estimated at 3.94 per cent. The growth rate of output of the mining sectors is estimated at 12.58 per cent per annum while coal production is expected to grow at a rate of 9.38 per cent and crude oil at 14.68 per cent. The manufacturing sector is expected to grow at a rate of 6.92 per cent. In this sector, fertiliser is expected to grow at 22.26 per cent, cement at 7.1 9 per cent, and iron and steel at 11.31 per cent. Electricity generation is expected to grow at 10.12 per cent.

3.7. The composition of the gross domestic product in 1973-74 and 1978-79, giving a measure of structural change, amongst some broad groups of sectors is also given in Table 1 and for 66 sectors in Annexure 5. As expected, the share of agriculture and allied sectors in total gross value added is expected to decline from 50.8 per cent in 1973-74 to 48.15 per cent in 1978-79 and the share of mining and manufacturing as well as other secondary and tertiary sectors is expected to increase.

Table 1. Projected Sectoral Rate of Growth in Gross Value of Output and Gross Value Added at Factor Cost for the Fifth Plan and Sectoral Composition of GVA in 1973-74 and 1978-79

3.8. The projected sectoral rates of growth have been translated into physical targets using a detailed system of material balances. For items like coal, crude oil, iron ore and cement, which form independent sectors in the input-output model, the targets have been derived directly from the sectoral growth rates. The targets of some specific commodities have also been cross checked by independent micro-level studies as well as by detailed studies about the completion of projects. The estimated physical outputs of some important items in 1978-79 are presented in Table 2. More detailed estimates for 1978-79 are presented in Annexure 6. The rationale behind the estimated physical output levels for some of the important items is discussed below. In many of the sectors, output targets in 1 978-79 are below the levels postulated in the Draft Fifth Plan. This is due to two factors. The base output in 1973-74 actually achieved is in most cases below the levels postulated in the Draft Fifth Plan. Growth of output in 1 974-75 was low although there was a significant improvement in 1975-76. Thus, corrections had to be applied to provide for the changes in the base level and the experience in the first two years of the Fifth Plan taken into consideration in the setting of the revised targets.

Table 2: Projections of Physical Output Levels in 1978-79

3.9. Detailed planning exercises have been carried out for the agricultural sector. Growth of Gross Cropped Areas is forecast on the basis of the relationship between such areas and increase in irrigated area in the past and the postulated increase in area under irrigation. Project level exercises have been conducted for allocation of funds for major and medium irrigation to ensure early completion of on-going projects and for starting new projects in relation to needs in the Sixth Plan period. Funds have been provided for expansion in minor irrigation and strengthening of Ground Water Directorates in States where progress has been slow. Increase in HYV area and fertiliser demands have been carefully estimated. Production potential has been estimated on the basis of yield levels moderated for past experience in the field, in the case of HYV yields, irrigated and unirrigated yields. The production estimates have been cross-checked by the use of yardsticks.

3.10. With increased expectations from off-shore exploration, the indigenous production of crude petroleum is anticipated to be 14.18 million tonnes in 1978-79 as against the target of 12 million tonnes in the Draft Fifth Plan. Even with the restricted consumption of petroleum products the demand for crude oil is placed at 29.0 million tonnes in 1978-79 which would necessitate the imports of around 15.0 million tonnes. The production of petroleum products in 1978-79 is anticipated to be 27 million tonnes as against the target of 34.6 million tonnes in the Draft Plan. On account of the sharp rise in oil prices, deliberate steps have been taken to contain the growth in demand for oil products and to fully exploit alternative sources of energy to replace petroleum products. However, adequate provisions, both of naphtha and fuel oil, have been made for the essential needs of economy e.g. manufacture of nitrogenous fertilisers. Similarly, in view of the importance of road transport in the predominantly rural economy of the country, a substantial increase is assumed in the demand for high speed diesel oil. Reasonably high level of demand has also been assumed in the case of LDO because of its important role in the agricultural development programme. In the light of these considerations, it is estimated that consumption of petroleum products would not exceed a level of 28.5 million tonnes in 1978-79. Thus the level of imports of petroleum products in 1978-79 would be about 1.5 million tonnes.

3.11. The exercises based on demand analysis in the power sector indicate that power generation would have to be increased from 76.6 billion kwhrs in 1974-75 to 118 billion kwhrs gross in 1978-79. These estimates are based on the expected demand in that year from industries and other sectors. The present indication is that an installed capacity of about 30 million kw will be in operation by the end of 1 978-79 and the availability of energy is likely to be in the range of 116-117 billion kwhrs. This highlights the need to shorten the construction periods of projects, to transfer power from surplus regions to deficit regions, to improve the efficiency of the power systems (such as reduction of transmission and distribution losses), and to increase utilisation of available capacity to meet the expected growth in demand for power.

3.12. The target of production of coal at 124 million tonnes has been arrived at on the basis of revised estimates of demand for coal. The demand has been analysed on the basis of observed trends in consumption pattern in 1974-75 and the revised estimate of growth in major coal consuming sectors like steel plants, power plants, railways, major industries, domestic sector,etc.

3.13. Steel production in 1978-79 is estimated at 8.8 million tonnes as against a domestic demand of 7.75 million tonnes. Due to the large variety of steel products consumed in the country, it may not be possible to match indigenous product-mix with demand for all sizes and sections of steel products. This would necessitate the import of a few sizes of certain steel products. Such imports are not likely to exceed 0.4 million tonnes in 1978-79. The exportable surplus of steel in 1978-79 is accordingly estimated at about 1.5 million tonnes.

3.14. Demand estimates of non-ferrous metals have been obtained by preparing detailed material balances and cross checking them through input-output model. Supplies are based on expected capacity levels checked by project level analysis.

3.15. For projecting fertiliser demand, a careful attempt has been made to isolate the expansion that would be necessitated on account of increased emphasis on irrigation facilities and on the spread of new technology, particularly to new areas. Studies made indicate that fertiliser use is highly sensitive to the availability of irrigation facilities, as also to spread of new technology. These shift factors have been taken into account as also a moderate increase in dosages, under each category of land. Such analysis has been conducted crop by crop and total fertilizer requirements estimated. These requirements in terms of nutrients for 1978-79 work out to 4.80 million tonnes of NPK, 3.40 million tonnes of N, 0.87 million tonnes of PaO;, and 0.53 million tonnes of K^O. A plant-wise production profile indicates that about 2.9 million tonnes of nitrogen may be produced by 1978-79. The output of P^Og is estimated at 770,000 tonnes. The gap to be met by imports will be 1.1 3 million tonnes—0.50 million tonnes of N, 0.10 million tonnes of P^Og ond 0.53 million tonnes of K^O.

3.16. The domestic demand for cement in the terminal year of the Fifth Five Year Plan as worked out by the commodity balance method taking into account the gross fixed investment in the major economic sectors such as agriculture, power, industry, transport and social services comes to 19.3 million tonnes. Including the export demand as now estimated at 1.5 million tonnes, the total demand for cement goes up to 20.8 million tonnes for 1 978-79. These estimates have been cross checked by time series analysis.

3.17. Output of machinery for production of cement, paper and paper board, sugar and rubber products depends on the fresh capacities for the respective commodities to be created by 1978-79 and in the earlier part of Sixth Plan period. Provision has beeen made for the modernisation and replacement needs of the existing plants. In case of certain types of machinery significant exports are possible by 1978-79 and these have been provided for in the machinery output projections. Production levels of other machinery items take into account investment plans, growth of user industries, replacement needs and exports.

3.18. The production of cotton textiles in the organised mill sector is estimated at 4800 million metres in 1978-79 while the production in the decentralised sector is expected to reach 4700 million metres. Shares between cotton and manmade fabrics have been estimated by studies of international cross-sections of consumption of different fibres in relation to income growth. Aggregate demand for textiles has been estimated by using expenditure elasticities and estimated growth in per capita private consumption derived from the macro-economic balance. Increase in share of decentralised sector is expected during the Fifth Plan period and beyond in view of the importance attached to the hand-looms sector and also the relatively faster increase in spinning capacity provided for in the organised sector. With these assumptions, the domestic demand for cotton textiles and manmade fibre fabrics has been estimated. The export demand of cotton textiles has also been taken into consideration and the total demand thus derived for the year 1978-79 is in agreement with the estimated output levels.

3.19. Estimates of railway freight traffic in 1 978-79 comprise of the share of rail transport in the movement of coal, raw materials to and finished products from steel plants, exports of iron ore and traffic on account of movement of other major commodities such as foodgrains, fertilizers, POL, cement and railway materials. The proportion of movement of such commodities by rail is estimated on the basis of the trends observed in the past also. The Railways are expected to carry this traffic (260 mt) on the assumption that there would be improvement in operation.