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Chapter-4: l. Financing of the Public Sector Plan The resources for the Fifth Plan have been re-assessed in consultation with the Ministry of Finance, State Governments and Union Territory Administrations. For the public sector, these are estimated at Rs. 19396 crores for the first three years of the Plan and at Rs. 19907 crores for the next two years, making a total of Rs. 39303 crores for the five-year period. The estimates for 1974-75 are at current prices while those for the subsequent years are at 1975-76 prices. The total for five-years would undergo a slight change if the resources for 1974-75 were also re-computed in terms of 1975-76 prices. 4.2. The above estimates do not take into account the provision for inventories and the internal resources of public financial institutions utilised for their own investment in fixed assets, as it was decided, subsequent to the formulation of the Draft Fifth Plan, to keep outside the Plan inventory changes and investment of public financial institutions in their own fixed assets. Additions to inventories in the Public Sector during the Fifth Plan period are now estimated at around Rs. 3000 crores. Taking this into account, the total development outlay in the public sector would work out to about Rs. 42300 crores. In money terms, this shows an increase of Rs. 5050 crores over the estimate in the Draft Firth Plan. If adjustment is also made for internal resources of public financial institutions utilised for their own investment in fixed assets, the increase will be approximately Rs. 5150 crores. The estimate in the Draft Plan was, however, in terms of 1972-73 prices. If allowance is made for the rise in prices since then, the resources in real terms would be lower than anticipated earlier. 4.3. In view of the paramount need to promote growth with stability, the Plan has to be financed in a non-inflationary manner. This will call for strict fiscal descipline, further improvement in the performance of public enterprises, additional resource mobilisation and restraint on consumption, especially of the more affluent sections of the community. Monetary policy will have to be synchronised with fiscal policy in order to check undue expansion of the aggregate monetary demand. It is becoming more and more clear that alongside planning of investment outlays, there has to be concurrent planning of credit, so that it is more purposefully regulated and kept within strict limits consistent with the requirements of increasing production. At the same time, it will be necessary to realise fully the production targets indicated in the Plan; this is of crucial importance from the point of view of resource generation as well as maintaining conditions of price stability. Public distribution system will have to be enlarged and strengthened and it would be necessary to bring in a comprehensive system for stabilising the prices of essential commodities and eliminating short-term and speculative price fluctuations. With substantial food-stocks and foreign exchange reserves, the Government is now in a much better position to deal effectively with any possible adverse development in relation to the price situation, but strict vigilance and monitoring of economic trends and development would be neccessary so that prompt remedial measures are taken when necessary. 4.4. The detailed scheme of financing the Fifth Plan in the public sector is set out in the Table on next page. Seperate estimates for the Centre and the States are given in Annexures 7 and 8. 4.5. It will be seen that domestic budgetary resources are expected to provide Rs. 32,115 crores, or 81.7 per cent of the total resources required for financing the Plan. External assistance would account for Rs. 5834 crores, or 14.9 per cent of the Plan outlay. However, in view of the sharp rise in import prices of investment and intermediate goods, the effective contribution of external assistance in sustaining investment in real terms has been lower than would appear from this calculation. The balance of the Plan outlay amounting to 3.4 per cent of the total would be met through deficit financing. Brief comments on individual items of financing are given below. Balance from Current Revenues 4.6. At 1973-74 rates of taxation, the balance for the Plan from the current revenues of the Central and State Governments in the first three years is estimated at Rs. 3338 crores. This is much below the original expectation, due mainly to revision of emoluments of Government employees, school teachers and employees of local bodies following the steep rise in prices, higher cost of materials, larger food and export subsidies and increased burden of debt service. The tax and non-tax revenues of the Central and State Governments have also been more buoyant, but this could offset only part of the increase in the non-Plan expenditure. 4.7. For the next two years, the balance from current revenues at 1973-74 rates of taxation is estimated at Rs. 1563 crores. This takes into account the normal growth of tax and non-tax revenue as a result of the anticipated growth of production and incomes and allows for only minimum increases in non-Plan expenditure. Provision for food subsidy has been made at the existing rates in view of the imperative need to stabilise the prices of essential commodities. Estimates of Financial Resources for the Fifth Plan
1
Subsequent to the formulation of the Draft Fifth Plan, it was decided
to keep these resources as well as the outlays corresponding to them outside
the Plan. 4.8. On the basis indicated above, the total of the balances from current revenues for the Fifth Plan at 1 973-74 rates of taxation comes to Rs. 4901 crores as against the original estimate of Rs. 7348 crores. The Central and State Govern-meniS and their enterprises have, however, undertaken additional resource mobilisation far in excess of the target in the Draft Fifth Plan. Credit for this has been taken separately. Contribution of Railways 4.9. Based on fares and freight in 1 973-74, the contribution of railways towards the financing of the development programme in the first three years of the Fifth Plan is estimated at Rs. (-) 1005 crores. The sharp deterioration in the contribution as compared to the original anticipation is attributable in a fair measure to slow growth of traffic, increase in working expenses due to revision of emoluments of railway employees and rise in the prices of fuel, stores, etc. and higher interest payments. 4.10. Taking into account the increase in freight traffic, which is expected to rise from an estimated 230 million tonnes in 1976-77 to about 260 million tonnes in 1978-79/and allowing for further improvement in operational efficiency, the contribution of railways to the Plan in the next two years on the basis of fares and freight in 1973-74 has been taken at (-) Rs. 813 crores. On this basis, the total for the Fifth Plan works out to (-) Rs. 181 8 crores. However, the measures taken by the Railways in the first 3 years are expected to yield Rs. 2393 crores over the Fifth Plan period. Thus, at the existing fares and freight, the total contribution of railways to the Plan is estimated at Rs. 575 crores. Credit for the yield from the revision of railway fares and freight has been taken separately under additional resource mobilisation. Contribution of Posts and Telegraphs 4.11. The contribution of posts and telegraphs at 1973-74 rates of postal and telecommunication charges is estimated at Rs. 1 81 crores for the first three years. This too reflects the impact of revision of emoluments of postal employees and increased cost of materials purchased by Posts and Telegraphs. For the next two years, such contribution is estimated at Rs. 1 99 crores, so that the total for the Fifth Plan works out to Rs. 380 crores. If account is also taken of the additional revenue raised by the Posts and Telegraphes through revision of postal and telecommunication rates so far, the aggregate contribution to the Plan would work out to Rs. 1114 crores. Contribution of other Public enterprises 4.12. The contribution of non-departmental enterprises of the Central Government is estimated at Rs. 161 5 crores for the first three years. There has been a marked improvement in their performance due to better capacity utilisation and improved operational efficiency. Assuming that this trend will continue, their contibution for the next two years, on the basis of the existing pricing policies, has been taken at Rs. 1375 crores. The total for the Fifth Plan thus comes to Rs. 2990 crores. 4.13. The contribution of State Government enterprises, mainly State Electricity Boards and Road Transport Corporations, is estimated, at 1973-74 tariffs and rates, at (-) Rs. 167 crores for the first three years. Taking into account the anticipated generation and sale of power and the growth of road traffic, such contribution for the next two years has been taken at (-) Rs. 536 crores, making a total of (-) Rs. 703 crores for the Fifth Plan period as a whole. The deterioration in the contribution as compared to the estimates in the Draft Fifth Plan is due mainly to sharp increase in establishment costs and higher prices of fuels, spares and other materials. These enterprises have, however, gone in for further resource mobilisation which is expected to yield Rs. 2364 crores over the Fifth Plan period. Credit for this amount has been taken under additional resource mobilisation. Market Borrowings 4.14. Net market borrowings by the Central and State Governments, State entreprises and local bodies during the first three years of the Plan are estimated at Rs. 3030 crores. Taking into account the likely further growth of bank deposits and the investible resources of the Life Insurance Corporation and Employees Provident Fund, such borrowings for the next two years have been taken at Rs. 2849 crores. This assumes investment of a higher proportion of the net accretion to bank deposits in Government and other approved securities, since the additional requirement of bank credit for food stocks in these years is not expected to be of a large order. However, while meeting the genuine requirements of the commercial sector, it will be necessary, as already mentioned, to observe strict discipline and restraint in the matter of credit expansion. Any excess liquidity in the banking system will have to be frozen through a flexible and timely use of monetary policy. Similarly, any return flow of bank funds from the Food Corporation will have to be dealt with as part of the overall problem of monetary management. In no case, can it be allowed to lead to any expansion of bank credit for non-priority or inessential purposes. Small Savings 4.15. Net collections of small savings in the first three years of the Plan are estimated at Rs. 1 092 crores. Taking into account recent trends and other relevent factors, the estimate for the next two years has been taken at Rs. 930 crores; this will call for concerted efforts to increase small savings. State Provident Funds 4.16. Net receipts from State provident funds in the first three years of the Plan are estimated at Rs. 1050 crores. For the next two years, these have been taken at Rs. 937 crores, inclusive of the credit on account of the payment into provident funds of the first instalment of the DA being impounded in the current year under the extended scheme of compulsory savings, together with interest thereon. Term-loans from Financial Institutions 4.17. For the first three years, such loans are estimated at Rs. 340 crores. For the next two years, gross loans of the LIC to State Electricity Boards as also for water supply and sewerage schemes have been calculated by applying a growth rate of 10 per cent to the current year's allocations. The same procedure has been adopted in the case of REC loans. LIC loans to State Governments for housing have been tentatively taken at the current year's level for each of next two years. The actual allocation will be determined in consultation with the LIC as part of the Annual Plan exercise. Loans from the Reserve Bank for participation in the share capital of cooperatives are based on assessment of the States' requirements in this respect. The total gross loans for the next two years have been taken at Rs. 485 crores. After providing for repayments, the net loans come to Rs. 288 crores. On this basis, the total net loans in the Fifth Plan would amount to Rs. 628 crores. Miscellaneous Capital Receipts 4.18. These reflect the net result of receipts and disbursements under a number of budget heads. The major sources of receipts are loan recoveries from households, special deposits by the Employees' Provident Fund and other non-Government provident funds and net accretion to other deposits and funds, while the major disbursements are loans for non-Plan purposes and capital outlays outside the Plan, including outlay on State trading. The estimates for 1976-77 also take into account special borrowing of Rs, 480 crores from the Reserve Bank against compulsory deposits. 4.19. It may be noted that loans and other assistance to the Rural Electrification Corporation are being reckoned as non-Plan disbursement for the purpose of calculating net miscellaneous capital receipts. Since loans by this Corporation are treated as part of the States' Plan resources, assistance to it by the Centre has to be reckoned as non-Plan in order to avoid double counting. 4.20. For the first three years of the Plan, the miscellaneous items on capital account are expected to involve a net outgo of Rs. 556 crores, due mainly to large outlay on account of fertiliser transactions, substantial loans to public enterprises to meet their losses and budget support to the Rural Electrification Corporation and Food Corporation. 4.21. Net miscellaneous capital receipts for the next two years are estimated at Rs. 1112 crores. These take into account anticipated receipts from compulsory deposits, special deposits of the Employees' Provident Fund and other non-Government provident funds, etc. and allow for necessary budget support to the Rural Electrification Corporation. The aggregate net miscellaneous capital receipts over the Fifth Plan period work out to Rs. 556 crores. This represents the net result of an inflow of Rs. 2222 crores at the Centre and outflow of Rs. 1666 crores in the States. The net outflow in the S^tes is explained largely by loan repayments to the Centre. The same factor along with the anticipated receipts from compulsory deposits and special deposits of provident funds account for the large inflow at the Centre in spite of heavy non-Plan disbursements. Additional Resource Mobilisation 4.22. The measures adopted by the Central and State Governments and their enterprises during the first three years (inclusive of some measures which are yet to be brought into force) are expected to yield more than Rs. 13,000 crores over the Fifth Plan period, which is only a little less than twice the level of Rs. 6850 crores indicated in the draft Plan (Annexure 9). The increase is shared by the Centre and the States. 4.23. The scheme of financing envisages further resource mobilisation of Rs. 900 crores (inclusive of States' share) by the Central Government and its enterprises over the next two years. Besides, the State Governments and their enterprises are expected to raise additional resources of Rs. 701 crores, inclusive of some amount which is expected to be raised through better collection of taxes and other Government dues and economies in non-Plan expenditure. 4.24. At the Centre, some reliance may have to be placed on indirect taxes. Such taxes may have to be used selectively for achieving certain policy objectives, e. g. curbing conspicuous consumption, promoting economic use of scarce resources and mopping up windfall profits in certain lines of activity. Rationalisation of the pricing policies of public enterprises would also be necessary in order to bring prices in better alignment with costs. Selective taxation of commodities and adjustments in product prices would involve only a sectional rise in prices and given overall monetary restraint, there need be no significant impact on the general price level. In any case, the alternative to raising additional resources would be increased resort to deficit financing. This would inevitably lead to a general rise in prices and affect more seriously the vulnerable sections of the community. In a sense, therefore, there is hardly any choice in the matter of additional taxation and rationalisation of pricing policies of public enterprises. 4.25. Recently, a Committee has been set up to review the existing structure of indirect taxes—Central, State and Local, and to advise the Government on the measures to be taken in this field. The recommendations of the Committee should help in rationalising and improving this structure in conformity with the normal canons of taxation. 4.26. In the case of States, there is need as well as scope for raising further resources from the agricultural sector. Large public investments have been made for the development of agriculture, but there has been no commensurate increase in the contribution of the agriculturists towards the financing of these investments. The incidence of land revenue is very low, the average rate being about Rs. 6 per acre. Besides, the system is not progressive. Mobilisation of voluntary savings from rural areas by financial institutions is also far from adequate. In view of the increase in agricultural production and incomes and guaranteed support prices for major agricultural products, it would seem reasonable to call upon the agricultural sector, particularly the affluent section of the rural community, to make a larger contribution towards the financing of the development effort. It is, therefore, necessary to take further measures to raise additional resources through agricultural taxation. 4.27. There is also need for revision of irrigation rates and electricity tariffs. The State Governments are incurring heavy losses on irrigation works. In 1976-77, the loss on commercial irrigation is estimated at Rs. 235 crores. In certain States, receipts from irrigation are not sufficient even to cover working expenses, leave apart interest payments and depreciation provision. This, in effect, amounts to subsidising of farmers who benefit from the irrigation facilities provided by Government. It is the more affluent farmers who benefit more from the subsidy. It is, therefore, imperative to adopt suitable measures for reducing progressively the losses on irrigation works and ultimately eliminating these altogether. 4.28. A number of State Electricity Boards are also incurring substantial losses. In 1975-76, 1 5 State Electricity Boards incurred losses estimated at a total of Rs. 130 crores. In spite of further tarriff revision, 12 State Electricity Boards expect to incur an aggregate loss of Rs. 106 crores in the current year. It is, therefore, necessary to adopt appropriate measures, including revision of electricity tariffs for reducing these losses and achieving a reasonable rate of return on investment in power projects. The rates for rural electric supply also need to be reviewed in order to reduce or eliminate the subsidy wherever feasible. 4.29. In certain States, Road Transport Corporations are also incurring losses or making only a small profit. It is necessary to augment their revenues through suitable revision of fares. Besides, the other sources of revenue will have to be exploited more intensively and effectively. Borrowing Against Utilisation of Foreign Exchange Reserves 4.30. The foreign exchange position is quite comfortable and the reserves have increased substantially. It would, therefore, seem desirable to draw down these reserves by about Rs. 600 crores in the next two years in order to raise additional resources for the Plan. Accordingly, credit has been taken for an amount of Rs. 600 crores by way of borrowing from the Reserve Bank during these years against drawing down of the foreign exchange reserves. The additional imports will have to be carefully planned so as to help in increasing investment capacities in core sectors and stabilising prices of essential commodities. The precise areas in which additional imports could be effected will have to be looked into continuously. However, the main accent of the policy should be on stabilising the prices of essential commodities. Even if sales of such imported commodities do not yield profits and involve subsidy in some cases, the utilisation of foreign exchange reserves will result in a net addition to real resources to sustain the Plan. The interests of domestic producers could be effectively taken care of by ensuring that the issue prices of imported commodities tend to be at par with those of domestic materials. This would avoid any artificial depression of prices and possible consequential dis-incentive to domestic producers. 4.31. The above strategy, it must be emphasised, is intended for normal years. Should there be any year of unfavourable crops, necessitating larger imports of foodgrains and raw materials, the import policy in respect of other commodities will have to be suitably modified. External Assistance 4.32. Following the hike in oil prices and a sharp increase in the import prices of certain other important commodities like fertilisers and foodgrains, India's balance of payments came under heavy pressure during 1974-75, necessitating recourse to larger external assistance. The total net external assistance in that year, inclusive of oil credits (but excluding drawings on IMF and utilisation of the Oil Facility which are not reflected in Government budget) amounted to Rs. 758 crores. In the following year, net external assistance, inclusive of oil credits and special assistance from Iran, went up to Rs. 1389 crores. For the current year, the Budget Estimates place such assistance at Rs. 1287 crores. The total for the first three years thus comes to Rs. 3434 crores. For the next two years, it has been taken at Rs. 1200 crores a year, or a total of Rs. 2400 crores, on the basis of the balance of payments requirements. The total for the Fifth Plan period would work out to Rs. 5834 crores. 4.33. Deficit financing has been reduced significantly from the beginning of the Fifth Plan period. In 1974-75, it amounted to Rs. 654 crores. A substantial part of this was, however, on account of payments for stocks in hand ofimported food and fertilisers. As both these commodities were purchased abroad by drawing down foreign exchange reserves, the payments under reference had no impact on money supply. The remaining deficit was much lower than in the preceding years-Rs. 775 crores in 1973-74, Rs. 848 crores in 1972-73 and Rs. 710 crores in 1971-72. This helped materially in bringing the inflationary forces under control. In 1975-76, there was actually a surplus of Rs. 206 crores. This helped in further strengthening the price stability. The latest estimates for the current year indicate a deficit of Rs. 306 crores. On this basis, the total for the first three years comes to Rs. 754 crores. 4.34. The estimates for the next two years take credit for deficit financing of Rs. 300 crores a year. Given effective and efficient short-term and medium-term management of the economy along the lines indicated earlier, this order of deficit financing is not expected to generate any additional inflationary pressure . With sizeable buffer stocks of foodgrains and comfortable foreign exchange situation, the Government is now in much better position to maintain conditions of price stability, but the emerging economic situation will need to be continuously watched in order to take prompt corrective action when necessary. Central Assistance 4.35. The Central assistance allocated to the States for the first three years adds up to Rs. 3131 crores. The normal Central assistance was kept at 1973-74 level for the first two years and increased by 1 0 per cent over that level for each State, except Sikkim, for 1 976-77. Assistance to Sikkim is being given on the basis of the assessment of its requirements. Besides, advance Plan assistance has been given to certain States for meeting the gap in their resources for funding the inescapable requirements of Plan outlay in core sectors. Further, advance Plan assistance was given for accelerating the implementation of selected irrigation and power projects in 1975-76. • Following the recommendations of the Sixth Finance Commission, advance Plan assistance is also being given for development works taken up by the States in connection with relief from natural calamities. 4.36. For the Fifth Plan period as a whole, the total Central assistance has been taken at Rs. 6000 crores. Of this, Rs. 450 crores is proposed to be allocated for hill and tribal areas and the NEC. Besides, it seems reasonable to keep apart some amount for providing extra assistance to the States in respect of State Plan scnemes financed with IDA/World Bank assistance. The State Governments have been pointing out that in the case of such schemes, the IDA/World Bank insist on incurring certain order of outlay within a specified period, thereby imposing an additional burden on State Budgets in the Plan period whereas the external assistance accrues to the Central budget. Taking the various factors into consideration, it was agreed last year to provide to the States for that year extra Central assistance amounting to 25 per cent of IDA/World Bank disbursements in respect of the State Plan projects assisted by them. In the rest of the Plan period also, it would seem desirable to give extra Central assistance to the extent of 15-25 per cent of IDA/World Bank disbursements in respect of the State Plan projects assisted by them, depending on the resources position of the States concerned. On the whole, it seems sufficient to reserve an amount of Rs. 1 00 crores for this purpose during the Fifth Plan period as a whole. The remaining amount of Rs. 5450 crores is proposed to be allocated among the States on the basis of up-dated calculations in terms of the Gadgil formula. 4.37. It will be recalled that a lump sum allocation was made for Jammu and Kashmir, Assam and Nagaland under the Gadgil formula. Accordingly, it is proposed to make a lump sum allocation for the Fifth Plan period for these states and Himachal Pradesh, other North Eastern States and Sikkim which became States after the Gadgil formula was evolved. The balance of the Central assistance would be distributed among the remaining States on the basis of up-dated calculations in terms of the Gadgil formula. For this purpose, the CSO has made available comparable estimates of per capita income of the States during the three-year period 1 970-71 to 1972-73. Advance Plan assistance given to the States would be adjusted from the total entitlement worked out for them for the Plan period as a whole in order to arrive at the amount to be allocated for the next two years. 4.38. It may be recalled that 8 per cent of the Central assistance in the next two years is to be specifically earmarked against performance in Family Planning. Primarily, this will regulate the releases. There will be some saving due to some States not reaching the targets, which will get distributed amongst others. The amounts involved, however, would be small and are not expected to affect significantly the scheme of financing. 4.39. Central assistance is being given in the form of block grants and loans. It is proposed to continue the existing pattern of assistance, viz. 30 per cent grant and 70 per cent loan along with the liberalised patterns in force for hill States and hill and tribal areas.2, Saving and Investment 4.40. The revised estimates for the Fifth Five Year Plan envisage a total investment of Rs. 63751 crores. As in the case of Plan outlay and resources, the estimates for 1974-75 are at prices prevailing in that year while those for the subsequent years are at 1975-76 prices. The investment is to be financed by domestic savings of Rs. 58320 crores and a net inflow of Rs. 5431 crores from the rest of the world. Thus over 91 per cent of the total investment would be financed from domestic savings as compared to only 84 per cent estimated for the Fourth Plan. 4.41 The distribution of the investment between ti-ie public and the private sectors is as under : Public
Sector Rs. 36703* crores Private Sector Rs. 27048 crores Total Rs. 63751
crores "Includes inventories.
Domestic Savings 4.43. The broad details of the estimates of domestic savings by generating sectors are given in Annexure 10. The summary position is as under : Domestic
Savings by Generating Sectors
Of the aggregate domestic savings of Rs. 58320 crores about 27 per cent amounting to Rs. 15994 crores will be contributed by the public sector comprising government administration, departmental and non-departmental undertakings, and public financial institutions. The balance of about 73 per cent is accounted for by the private sector comprising corporate enterprises, cooperatives and households. Tha average rate of domestic saving is estimated to rise from 14.4 per cent of GNP in 1973-74 at 1973-74 prices to 1 5.9 per cent in 1 978-79 at 1975-76 prices. The marginal saving rate based on GNP and domestic savings estimates for 1973-74 converted to 1975-76 prices is estimated at 26 per cent. 4.44. The basic strategy of the Fifth Plan continues to aim at a higher rate of growth of saving in the Public Sector. Accordingly, public savings are projected to grow from 2.5 per cent of GNP in 1 973-74 to 4.6 per cent of GNP in 1978-79. Correspondingly, the private savings, though considerably higher by over 40 per cent in nominal terms than the 1973-74 level, are estimated to decline as a proportion of GNP marginally from 11.9 percent in 1973-74 to 11.3 per cent in 1978-79. The details of the estimates of public and private disposable income and saving are given in Annexures 11 and 1 2. The estimates of savings by Sectors are shown below : Domesric Savings by Sector of Origin 1973-74 and 1978-79
Government Savings 4.45. Aggregate savings of the Government Administration sector including departmental enterprises are estimated to improve from 1.4 to 3.1 per cent of GNP i.e. by 1.7 percentage points over the Fifth Plan period. In absolute terms Government disposable income is estimated to rise from Rs. 6241 crores in 1 973-74 to Rs. 1 3297 crores in 1 978-79 while Government savings are estimated to grow from Rs. 772 crores to Rs. 2704 crores during this period. Autonomous Public Enterprises 4.46. Savings of the autonomous public enterprises comprise retained profits and depreciation provision of these enterprises. There has been considerable expansion of public sector investment in such undertakings since the Second Five Year Plan. The return from these enterprises has been rising albeit gradually. It is necessary that these enterprises contribute to the domestic savings in magnitudes commensurate with the investment made. Considering all relevant factors the savings of these enterprises are projected to grow from Rs. 651 crores i.e. 1.1 per cent of GNP in 1 973-74 to Rs. 1 341 crores i.e. 1.5 per cent of the GNP in 1978-79. Investment and Saving in the Private Sector 4.47. The resources available for Private Sector investment out of the savings of this sector are estimated at Rs. 27048 crores. The details of the estimates are as under : Amount (Rs. crores)
Transfers from the Public Sector to the Private Sector for investment purposes would add to these resources. Provision for such transfers is included in the Plan outlay of the Public Sector. Private Corporate Savings 4.48. Private corporate savings are estimated to grow from Rs. 821 crores in 1973-74 to Rs. 1 268 crores in 1 978-79 i.e. at a compound rate of about 9 per cent per annum. The estimates of retained profits and depreciation have been made on the basis of anticipated increase in gross value added and growth of gross fixed investment in this sector. 4.49. About 37 per cent of the total private corporate savings would accrue through retained profits and the balance of about 63 per cent would emerge from the depreciation provision. The following table indicates the growth of private corporate savings from 1973-74 to 1978-79.
Household Savings 4.50. The savings of the household sector comprise net increase in financial assets and direct investment in the creation of physical assets. The increase in the net savings of the households in the form of financial assets during the Fifth Plan is estimated at Rs. 18835 crores as shown below : Increase in Net Financial Assets of the Households during the Fifth Plan Period.
The estimates of increase in the various constituents of gross financial assets and liabilities are based on the latest Reports, other available data and the observed trends in the past. 4.51. The direct investment of the households in physical assets has been estimated following the C.S.O. methodology of estimating gross capital formation under construction, machinery and equipment and changes in stocks, and deducting therefrom the savings of the various sectors-Public, Corporate, Cooperative, Rest of the world and households financial. The estimate of investment in construction has been made on the basis of commodity inputs and the observed relation between value added and investment in the Sector. However, due to lack of data, and conceptual difficulties, Kutcha construction requiring mainly labour inputs has not been taken into account. The estimated investment in machinery and equipment is based on the end use of the projected levels of goods. Estimates of changes in stocks have been worked out on the basis of observed relationship between fixed investment and inventory requirements and cross tested with other available indicators. The total household savings in physical assets are estimated at Rs. 17646 crores during the Fifth Plan period. Inflow from the Rest of the World 4.52. The net inflow from rhe rest of the world for financing the current account deficit in the balance of payments is estimated at Rs. 5431 crores as shown below : Amount (Rs. crores)
3. Balance of Payments Review 1974-76 4.53.
The momentum of growth in exports witnessed during the last two years
of the Fourth Plan, continued in the first two years of the Fifth Plan.
Exports rose to Rs. 3329 crores in 1974-75, registering a growth rate
of 32 per cent and further rose to Rs. 3942 crores in 1975-76 recording
a growth rate of 18 per cent. Imports aggregated to Rs. 4519 crores in
1974-75 as against Rs. 2955 crores in 1973-74. Imports further rose to
Rs. 5158 crores in 1975-76, showing an increase of 1 4 per cent over the
previous year. Annxures13 and 1 4 show the composition of exports and
imports respectively in the first two years of the Fifth Plan. (Rs. crores)
The growth in foreign
exchange reserves during 1 975-76 was to a large extent due to substantial
inflows of private remittances through official channels consequent upon
government measures against smuggling and illegal dealings in foreign
exchange.
The revised estimates for the Fifth Plan period indicate a trade deficit of Rs. 6802 crores. The invisibles transactions (including interest payments) are expected to result in a net inflow of Rs. 1371 crores. The current account deficit is thus expected to be of the order of Rs. 5431 crores. The capital transactions are anticipated to result in a net outflow of Rs. 3371 crores of which debt repayment is Rs. 2465 crores. A gross external inflow inclusive of external assistance and commercial credits of Rs. 9052 crores is assumed for the Fifth Plan period. Net Aid 4.57. As indicated above, the gross external inflow required by the economy during the Plan period is now estimated at Rs. 9052 crores. Taking into account the debt service obligation of Rs. 3645 crores (Rs. 11 80 crores of interest payments and Rs. 2465 crores of repayments of loans), the net inflow to be utilised will be Rs. 5407 crores. In the Fifth Plan projections, a provision of Rs. 494 crores has been made for net aid to foreign countries. Setting off this amount, the balance that will be available to meet the various foreign exchange requirements would be only Rs. 4913 crores. Exports 4.58. Earnings from exports during Fifth Plan period are estimated at Rs. 21722 crores. Annexure 1 5 gives the break-up of exports by major commodities. In real terms the rate of growth in exports works out to 8.5 per cent per annum for the whole Plan period. The revised projected rate is higher than that envisaged in the Draft Plan and is explained partly by the higher growth rates already achieved during the first two years of the Fifth Plan. In projecting future growth rates account has been taken of the high unit value items especially amongst non-traditional export items such as ready-made garments, engineering goods and leather manufactures. As far as export projections of iron and steel and sugar are concerned, they have been worked out after taking into account expected capacity utilisation, production and domestic demand and the emerging markets. Rice and cement are expected to contribute to higher level of export earnings mainly due to the new markets. 4.59. By the end of the Fifth Plan, engineering goods are projected to emerge as the single most important group of items of export. The markets for engineering goods are expanding rapidly and there has been diversification in these exports both in terms of commodities and markets. In textiles, expansion of exports will be sustained in the area of ready-made garments and in leather, additional exports are expected from finished leather as well as leather manufactures. In marine products with our long coastline the potential is indeed vast. Since domestic demand is not a constraint and world exports are expanding at a rapid rate and infrastructure facilities are available, exports can be stepped up considerably during the Fifth Plan period. 4.60. In traditional items of export such as tea, coffee, jute manufactures, spices, coir manufactures etc. modest increases are projected. For Indian handicrafts, there are vast markets in western countries and with better marketing and organisational effort, it should be possible to better the trend in growth rate. 4.61. During the Fifth Plan period the objective of export promotion should be to further strengthen the 'leading' sectors of growth. Exports which are capable of competing without subsidy will have to he given preference and capacity for their production increased. Imports 4.62. Imports in the Fifth Plan period are now estimated at Rs. 28524 crores. Annexure 1 6 gives break-up of imports by major commodities. Of the total imports, POL accounts for Rs. 6280 crores (22%) ; metal products, machinery and transport equipment, Rs. 6034 crores (21%) ; steel and non-ferrous metals area and scrap Rs. 2347 crores (8%) ; and fertilisers and raw materials for fertilisers, Rs. 3168 crores (11%). The rest including all government imports, foodgrains imports and imports intended to build up buffer stocks of critical wage goods as cushion against uncertainty will amount to Rs. 10738 crores (38%). During the later period of the Fifth Plan, imports of machinery are exected to increase over the existing level, in spite of increased availability from indigenous sources, particularly to meet special needs in off-shore drilling, tele-communications, space and other technology-intensive sectors. The unit value index of imported machinery and equipment is estimated to have increased by 32.7 per cent in 1975-76 over 1974-75. 4.63. One of the important aspects of import planning relates to its contribution towards creating buffer stocks of critical goods for mass consumption such as foodgrains, edible oils and cotton. Such buffer stock has to be viewed as an instrument for pursuing a path of non-inflationary growth. Recent experience has only highlighted the need for such a form of planning. 4.64. The proposed investment programme in the Fifth Plan provides the thrust to efforts at import substitution in four major sectors ; energy, metals, fertilisers and agriculture. In the case of energy, import substitiution will be pursued both by an intensified programme of oil exploration and by energy substitution through increased utilisation of domestic coal and hydro-electric potential. In the field of steel, it is projected that through increased capacity utilisation and capacity expansion under way, steel imports would be restricted to only certain special categories. In the case of non-ferrous metals, the outlook is becoming more favourable as a result of further exploitation of metal resources and higher capacity utilisation in this sector. The envisaged expansion in the capacity for production of fertilisers is expected to bring down imports of manufactured fertilisers by the terminal year of the Fifth Plan. Raw material requirements for domestic manufacture of fertilisers are fully provided for. Invisibles 4.65. The invisible transactions excluding investment income payments and transfers have been estimated to result in a net inflow of Rs. 431 crores. A receipt of this order under services is made up of the following items : Projected
Net Receipts from Services during the Fifth Plan Period
Transfers 4.66. The private transfer receipts (which comprise mainly remittances of savings, family maintenance, migrant transfers, personal gifts and receipts for religious and charitable organisations, etc.) have been assumed to increase from Rs. 142 crores in 1973-74 to Rs. 557 crores in 1978-79. Receipts on this account over the five years (1974-79) are estimated at Rs. 2630 crores. In 1975-76, the inward remittances registered a marked increase. The receipts for the entire Plan period have, however, been worked out taking into account the past trend. The payments on this account during Fifth Plan period are estimated at Rs. 215 crores. The net receipts have thus been placed at Rs. 2415 crores. Taking into account the net outflow of Rs. 38 crores assumed under official transfers (excluding grants) a credit of Rs. 2377 crores has been taken in the estimates of balance of payments for the Fifth Plan. Capital Account 4.67 Under private capital (non-banking), a credit has been taken for total receipts of Rs. 60 crores. This is, however, more than offset by the payments estimated at Rs. 270 crores. The net outgo during the Fifth Plan period would thus be Rs. 210 crores. A provision of Rs. 174 crores for net outflow on account of official capial transactions has also been made. 4.68
India has been giving assistance to neighbouring countries, A provision
for the same has been made in the Fifth Plan amouting to Rs. 494 crores
consisting of loans and grants. An outflow of Rs. 134 crores has been
projected for the lag between export shipments and the related foreign
exchange receipts. The capital account makes a provision of Rs. 2465 crores
for repayments of loans falling due during the Fifth Plan period. The
transactions with the I.M.F. would result in a net inflow of Rs. 1 55
crores over the five year period. The other inflow envisaged is under
Banking capital amounting to Rs. 45 crores. 4.69 The estimates of financial resources, savings, investment and balance of payments contained in this chapter are at 1 975-76 prices for last four years of the plan and at 1974-75 prices for the first year. Estimates based on input/output model in chapters 2 and 3 are at 1974-75 prices. While domestic prices in 1975-76 were marginally lower than in 1974-75, the increase in import prices was somewhat, higher, especially prices of imported machinery and equipment prices increased at a much faster rate than prices of domestic machinery and equipment in 1975-76 over 1974-75. Effects of these adverse movements in terms of trade have been provided for in working out the macro-economic balances underlying the plan. |
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