Foreword || Preface || Planning Commission
Chapter 1 || 2 || 3 || 4 || 5 || 6 || 7 || 8 || 9 || 10 || 11 || 12 || 13 || 14 || 15 || 16 || 17 || 18 || 19 || 20 || 21 || 22 || 23 || 24 || 25 || 26 ||
27 || 28 || Appendix

Chapter 1:
DEVELOPMENT PERFORMANCE

India began the process of planned development nearly thirty years ago with the start of the First Five Year Plan in April, 1951. The central purpose of planning was identified as that of initiating "a process of development which will raise living standards and open out to the people new opportunities for a richer and more varied tire" (First Five Year Plan). The manner in which this purpose has been translated into specific objectives has varied from Plan to P!an. However, in a broad sense, the basic objectives of planning in India can be grouped under four heads: growth, modernisation, self-reliance and social justice. In one form or another but possibly with varying emphasis these objectives reflect the views of all sections of the population and represent a national consensus on the aims of planning.

GROWTH

1.2 Betwen 1950-51 and 1978-79 the underlying trend rate of growth of national income was 3.5 per cent, of agricultural production 2.7 per cent and of industrial production 6.1 per cent. In per capita terms, income has grown at a trend rate of 1.3 per cent, which, after allowing for the rising share of investment in national income, has meant a modest 1.1 per cent per annum rise in per capita consumption.

1.3 The growth of the economy during the planning era has to be judged in the context, of the prolonged period of stagnation that preceded Independence. Judging by expert estimates of the national income of undivided India, the trend growth rate between 1900-01 and 1945-46 was 1.2 per cent for national income, about 0.3 per cent for agricultural production and 2.0 per cent for industrial production. One of the most significant achievements of our development' policy after Independence has been the fact that this handicap of stagnation was overcome and the process of growth initiated.

1.4 The grov/th performance of the economy in different plan periods is presented in Annexure 1.1. These data show that except for the Third Plan where, in the last year of the Plan, the economy was badly hit by a severe drought, the rate of growth of national income has ranged between 3 and 5 per cent which is a significant achievement. However, except in theFirst and Fifth Plan, the actual growth rates have been less than the higher targets specified in the Plans:—

Table 1.1 Targetted and Actual Growth Rates (Percentages)

Note: Targets were generally specified in terms of net national income/product upto the Fifth Plan in which for the first time, targets were specified in terms of gross domestic product.

The shortfall in the growth in national income has of course meant a corresponding shortfall in targetted levels of per capita income.

1.5 The growth of national income depends on a complex interaction of large number of variables, not all of which are amenable to government control. However, it is well known that the quantum of investment and the productivity of this investment, as measured in a simplified model by the capital output ratio, exercise an important influence on the overall growth rate. An approximate and first-order explanation for the gap between target and actual levels of income growth can be found in a comparison of the trends in income and investment. The main conclusion siiesested by such a comparison is that shortfalls for excesses) in income growth are larger than what would follow from the shortfalls (or excesses) in investment. The main reason for this is that realised capital output ratios, particularly during the Third and Fourth Plan periods, have been much higher than anticipated. One further point in the comparison that is worth noting is that total investment targets have, by and Ipree. he^n me¹' or exceeded m recent plans. However. in the Fifth Plan peno'd, the excess was due largely to hirher levels of private sector investment and stock accumulation in the public sector. The with the Industrial Policy Resolution of 1956, articulated explicitly the objective of rapid industrialisation. Apart from rapid growth, this strategy involved certain other key components viz.. a shift in the industrial structure towards industries producing basic materials and capital goods and the growth of the public sector in industry.

With the Industrial Policy Resolution of 1956, articulated explicitly the objective of rapid industrialisation. Apart from rapid growth, this strategy involved certain other key components viz.. a shift in the industrial structure towards industries producing basic materials and capital goods and the growth of the public sector in industry.

1.21 At Independence we inherited an industrial structure that was restricted to a few industries like textiles and sugar. The first steel plant had been set up and there was some limited development of engineering in railway workshops and assembly plants. the drive to diversify this structure, a drive linked to the search for self-reliance, has been the keynote of the industrial strategy of our plans. The extent of change brought about by this drive is indicated in Annexure 1.6. As these data show the relative share in industrial production of the traditional manufacturing sectors like food and textiles has declined and that of new sectors like chemicals and engineering has increased very substantially. In terms of sophistication of technology and the range of goods manufactured an extensive degree of industrial diversification has been achieved.

1.22 The organisation of industry has also undergone a major change with the development of the public sector. Between 1960-61 and 1977-78, the share of the public sector in the value added in mining and organised manufacturing grew from 8.1 per cent to 28.9 per cent. The development of the public secior has been the principal element in our drive for industrial diversification and in industries like steel, non-ferrous metals, petroleum, fertilisers, petrochemicals and heavy engineering, public sector units play a dominant role-

1.23 The industrial policy of the Government accepted the important role of the private sector and an elaborate network of institution has been established to support it and to regulate its activities. A major component of the support system is the network of development banking institutions which have been established to finance private investment in industry. The cumulative disbursements of these institutions amounted to over Rs. 5,000 crores by March, 1979 of which over 80 per cent was disbursed in the last ten years. Apart from these development banks, the government has set up a variety of institutions to assist in the provision of infrastructure, raw material supply, marketing and technology development. Small scale industries and artisans have also been protected through product reservations and fiscal concessions. The regulatory framework for controlling the pattern of private industrial investment was set up in the early years of the planning era with the Industries (Development and Regulation) Act and elaborated later through the Monopolies and Restrictive Trade Practices Act and other measures. The manner in which these regulatory functions have been exercised has been reviewed from time to time and appropriate changes made. The institutional framework for supporting and regulating private industry is by no means perfect. The essential point, however, is that a variety of institutions and agencies have been established and have succeeded in stimulating the development of new industrial activities, new centres of industry and new entrepreneurs. But their success in these matters is less than what we sought and hence there is a need for adapting and elaborating both the support system and the regulatory framework to suit the fast changing needs of a diversified industrial economy.

1.24 The tasks of modernisation and structural change in agriculture were even more daunting at the start of the planning era. The outmoded land tenure system, the primitive technology of cultivation and lack of an infrastructure for raising productivity proved formidable barriers to agricultural advance. The fact that these barriers have been overcome to an extent is one of the major successes of our planning effort. Zamindari and other intermediary tenures have been almost eliminated. The technology of cultivation has changed substantially with the spread of high-yielding varieties and the extension of irrigation, a change which was facilitated by the elaborate network of agricultural research and extension set up during the planning era. One further change of consequence is the establishment of a system of support prices, procurement and public distribution. Significant progress has been made no't only in the production of major foodgrains but also in horticultural crops like apples and animal products like eggs, milk and fish.

1.25 Some data on the indicators of modernisation in agriculture are presented in Annexure 1.7. The growth in irrigation is a common feature which runs through the plans though the pace of expansion in recent years is far higher than before. The use of the new technology based on high yieldina varieties and fertilisers spread rapidly only after 1965. This difference is reflected in the larger contribution of productivity "ain to production growth in the period after 1964-65, the relevant annual growth rates being as follows:

Table 1.3 Growth Rate of Area, Production and Yield

The process of technological modernisation in a culture has, however, just begun. Average yield le in most regions and farming systems are below v can be attained with known technology. We need to extend modern technology to new areas, develop a technology for ecologically handicapped regions and utilise fully our irrigation potential as well as the potential of rainfed areas.

1.26 Several changes have taken place in agricultural credit and marketing. The system or cooperative credit has spread, lessening the dependence of the cultivator on exploitative moneylending and trading practices. Institutional term finance lor agriculture has grown with the reorientation of the banking system and the establishment 01 Land Development Banks, Regional Rural Banks and apex in'siitirtions like the Agriculture Refinance and Development Corporation. In agricultural marketing, the dominant role of the Food Corporation of India in foodgrain trade and the growth of marketing and processing cooperatives have helped both farmers and consumers. In the case of milk, cooperatives and urban milk supply schemes have captured, a substantial part of the market. These and other change's in the field of credit and marketing have altered the very unequal relationship between the farmer and the trader and, by doing so, have stimulated agricultural progress.

1.27 The foundations of industrial and agricultural advance lie ultimately in the availability and effective use of human skills. All our plans have emphasised the need to develop these skills at all levels from those required at the shop floor or the farm to those required in fundamental research. In agriculture, an integrated system involving research institutes, agricultural universities and an extension machinery has been set up. In Industry, there is a network of industrial research laboratories, R and D divisions in major enterprises and consultancy firms for project consultancy and design engineering. At the shop floor level there is no major shortage of industrial skills. The basis for this major advance lies in the rapid expansion of technical education. Thus, between (1950-51 and 1975-76), the number of students in engineering, technological colleges increased from 13 thousand to 286 thousand and in Industrial Training Institutes from 10 thousand to 138 thousand. The same picture holds true for other categories like scientists, doctors and agricultural graduates. In fact, India now has the third largest scientific and technical work force in the world. However, the capacity of the system to absorb fully these skills in productive employment has been less ''•'•in adequate. Also in pure and applied research advances have been limited except in a few areas like agricultural research, atomic energy and space. At the farm or shop floor level, average productivity levels are below what can be attained with known technology. Human skills are a formidable asset since they last not merely during one working life but because they are transmitted, for generations. If these assets are used effectively, they may w-!l turn out to be one of the most fruitful results of pi'inning.

1.28 The mobilisation of savings and their use in preferred directions is a crucial element in any development effort. Our success in this regard his been dealt with earlier. A significant feature of the savin"-; mechanism has been the growing fungibility of savings as the share of savings accumulated by households in the form of deposits, shares, debentures, life insurance and pension funds has increased from 10.0 per cent of net savings in 1950-51 to 33.0 per cent in 1978-79. Thus, primitive processes of accumulation in which households and small enterprises invest ineir savings directly in their own activities or in currency hoards have given way to more complex forms in which, through financial intermediaries and capital markets, households savings can be channelled into a much wider variety of activities.

1.29 There is one quaiification, however, to this picture of a deepening of financial structure. The market for corporate issues continues to remain very narrow. .Net household savings in the form of coi-porate shares and debentures which amounted to 8.0 per cent of savings in 1950-51 have tended to stagnate even in nominal terms and, in 1977-78, when they were well above the trend, they amounted tc only 2.1 per cent of net savings. Since the share of corporate savings in total savings has also tended to decline, it has become increasingly difficult to maintain the tempo of development in the private corporate sector though the deficiency has been covered to a considerable degree by the growth of developmeni banking which was mentioned earlier.

1.30 The pattern of utilisation of savings has beer influenced by several innovations like the development banks for industry and agriculture and the system of cooperative credit. A major change in the functioning of capital markets was effected through the nationalisation of banks in 1969 after which there has been a substantial increase in bank lending to agriculturists, artisans, small industrialists and transport operators and others whose access to bank credit was hitherto severely limited.

1.31 Planning implies state intervention in economic matters which involves not just a few big projects but also a large number of small works and programme directed at individuals. At Independence we inherited a patchy administrative structure oriented toward; maintenance of law and order and revenue adminis tration. Over the planning period an elaborate development administration has been built up from th village, through the block and district to the secretariat level. Though there are deficiencies in this structure in terms of motivation, probity and efficiency it at least provides a point of contact between th government and the household or the enterprise. A further change has been introduced by the establishment of panchayati raj which, in many states, play an important role in development administration.

1.32 Over thirty years of planning the structure of the Indian economy, the technology of production in agriculture and industry and the institution framework within which economic activities are conducted have changed substantially. The bedrock on which these changes are based lies in the tremendous growth in human skills and, because of this firm base, the force of modernisation and technological advance are firm Iv entrenched in all sectors of the economy even though the pace of diffusion varies from one sector to anothe and from one region to another. The major problem

the extension of scholarships for weaker sections and better geographical spread of institutions. Yet the illiteracy rate remains large (65.5 per cent in 1971 ex-cirding the 0-4 age group) and the quality of the schooling provided needs substantial improvement. Besides these two major social services, public expenditure has provided water supply and other municipal services in urban slums and in villages, house sites for the poor in rural areas and supplementary nutrition for vulnerable mothers and children, all of which benefit the poor but do not necessarily show up in the data on consumption expenditure.

1.48 An individual obtains an income from the ownership of assets and from employment. The limited impact of the Plans on the well being of the poor sections of the population is a consequence of our inability to restructure the distribution of assets and to provide a sufficiency of employment for a growing work force.

1.49 Accord^e to the all India debt and investment survey tb° distribution of assets in rural areas, where the bulk of the population lives, was as follows:

Table 1.5 Distribution of Assets in Rural Areas (Percentage)

These figures bring out the very low level of asset hakims'; o" the poorest 30 per cent in rural areas. They also show that there has not been any major change in the structure of asset ownership in rural areas during the sixties. In fact if 'poor' householders ai'3 defined as those with less than Rs. 1000 of assets in 1961 or, to allow for inflation, Rs. 2500 in 1971, the percentage of such households increased from 30 per cent in 1961 to 35 per cent in 1971. The bulk of the assets of these poor housaeholds consist only of their huts, some household goods and some livestock.

1.50 The principal productive asset in rural areas is land which in 1976-77 was distributed as follows:

Table 1.6 Distribution of land
(percentage)

Small and marginal farmers who constitute over 70 per cent of the landholders operate barely 24 per cent of the land. The very substantial improvement in agricultural productivity brought about by irrigation and the new seed-fertilizers technology improve directly the earning power of agricultural land and only indirectly that of agricultural labour. Hence agricultural growth by itself may not solve the problem of poverty. It is, therefore, necessary to adopt positive measures combining a mix of employment generation, diversification of occupations, land reforms, reorientation of the credit systems and massive public investment in rural infrastructure so as to ensure that the fruits of economic progress are more equitably distributed in rural areas.

1.51 The programme of land reforms instituted right at the beginning of the planning period was meant to redistribute this primary resource. The first phase of this programme which involved the abolition of zamindari and intermediary tenures has been, to a large extent, successfully implemented. The later phases of land reform involved elements like tenancy reforms, protection of share-croppers, land ceiling and land consolidation. The pace of implementation of these measures particularly of ceiling legislation has been slow and full of loopholes so that their impact on the structure of land holdings has been minimal. The land reform programme is by no means complete and has to be pursued further if we are to tackle effectively the problems of poverty and inequality.

1.52 Trends in the ownership of assets in urban areas are less fully known. The principal instruments used to influence the distribution of assets other than land are essentially fiscal in character e.g. progressive taxation of income and wealth and the preferential treatment of poorer sections in the provision of credit. The extent to which progressive taxation has helped to check inequalities his been limited by tax evasion which creates the further problem of black money and ostentatious consumption. The one direct measure to control the distribution of assets in urban areas viz. (he Urban Land Ceiling Act has faced major difficulties in implementation. In an indirect way the growth of the public sector in industry and the nationalisation of almost the entire financial system have probably helped to restrict the number of people at the very top of the income distribution.

1.53 The limited success m redistributing assets may not have mattered as much for poverty reduction had employment increased at a faster rate. Such a growth m employment would have increased incomes both by reducing idle time and by exerting an upward pressure on wages. However, the pace 01 generation a employment opportumtit-s seems to have lagged behind me growth in the labour force.

Thus the Rural Labour Enquiry has shown that between 1964-65 and 1974-75, the number of days for which employment was available for rural labourers declined by 10 per cent for men, 7.5 per cent for women and 5 per cent for children. The data on average earnings from these enquiries when corrected for inflation also show a decline, in urban areas the figures for the number of persons en tile live register provide some indication of the trend. These figures show an increase from 1.6 million in 1960 to 12.7 million in 1978, an increase that is attributable partly to changes in coverage but which nevertheless reflects a substantial deterioration in the availability of employment. Direct data on unemployment from the National Sample Survey are unfortunately not comparable over time. However, the latest available data for 1977-78 show the following person-day unemployment:

Table 1.7 Rates of unemployment by Daily Status
(Percentage of labour force)

The average over all categories is 8.2 per cent which in terms of absolute numbers means that on a typical day about 21 million persons are seeking and available for work but unable to find it. A major challenge of the decade that lies ahead is the speedy expansion and diversification of opportunities for productive employment.

1.54 Problems of poverty and unemployment have been greatly aggravated by the rapid expansion in population and labour force. Poor households are often above average in size. This, at least partly, accounts for the low level of consumption and the incidence of unemployment. A lower family size in these households and the consequential reduction in the growth rate of population would have made it easier to move closer to the plan objectives of removing poverty and unemployment.

1.55 The search for social justice has one further dimension that has been articulated in our plans; The desire to reduce regional imbalances. At Independence we inherited an economy where industry and modem agriculture had developed only in a few pockets. the deliberate policy 01 industrial dispersal mat we have followed has led to the development of some new industrial centres situated away from the older centres situated like Bombay, Calcutta and Ahmedabad, but the degree of success achieved is limited since even in 1971 around 27.5 per cent of the employment m manufacturing was concentrated in 9 towns. In agriculture the lack of diffusion of the new seed-fertiliser technology has probably accentuated regional imbalances and in 1977-78 the value of agricultural output per head of rural population ranged between Rs. 866 in Rajasthan and Rs. 3361 in Punjab. These imbalances in the pace of agricultural and industrial advance are reflected in the large differences between states in the percentage of population below the national poverty line. The data for 1977-78 given m Annexure 1.12 show a range from 15 per cent 1.11 Punjab to 66 per cent in Orissa. The geographical spread of industry and modern agriculture is undoubtedly better now than at the start of the planning era but it is clear that we have a long way to go in this task of reducing regional imbalances.

1.56 A simple summary assessment is not possible about the extent to which plan objectives with regard to social justice have been attained. There are no specific quantified targets against which performance can be compared since what the plans indicate is a direction of movement, not a specific goal. The evidence presented above suggests that the most that can be claimed is that there has been no perverse movement, no worsening of inequalities or in the incidence of poverty. In fact, in some respects a degree of progress has been achieved. But, on balance, the pace of movement is much slower than what is acceptable or possible within the framework of the plans air-a greater degree of redistributive bias has to be built into our development effort.

CONCLUSION

1.57 In the eighties, the economy is faced with a formidable task of maintaining and accelerating the tempo of economic growth in face of a sharp deterioration in the international environment. The ever rising prices and highly uncertain supply of imported energy can disrupt the implementation of development plans. Nevertheless, the fact that the economy now enjoys the advantages of a high savings rate, a developed skill base and a substantial degree of self-reliance provides a valuable cushion to absorb external shocks. If these advantages are to be turned to good account, we need to learn certain important lessons from our past experience.

1.58 With regard to growth and modernisation the first lesson is that we must mobilise resources to maintain and increase the tempo of investment and protect the size of the Plan both against inflation and external disturbances. The second is the paramount need to improve efficiency in key infrastructural and industrial sectors. The third is that we must reduce the variability of the growth rate and ensure that weather abnormalities and inflation do not lead to undue cutbacks in public or private investment. The fourth is the need to extend the agricultural revolution to all areas and farming systems and in particular to ensure that the incomes of the poor are raised in the process of agricultural development. The fifth is the need to ensure a vigorous expansion in exports and a rapid increase in domestic production of oil, steel, fertilisers and vegetable oils so as to restrain growth of imports in order to maintain viability of our external payments. Sixth, we must develop effective domestic substitutes for imported energy so that our dependence on imported oil is contained within reasonable limits. Finally, there is urgent need to revitalise the family planning programme so as to bring about a substantial decline in me birth rate through the voluntary adoption of the small family norm. Success on all these points is essential if the overall rate of growth is to be raised, as it must be, well above the levels reached in the past.

1.59 As far as self-reliance is concerned the economy today is in a stronger position than at the start of the planning era. Dependence on external finance has been substantially reduced and in many areas of production, a high degree of import substitution achieved. But there are many unfinished tasks in this area, particularly in the field of energy and technology. The world economy is in a much more disturbed state since the mid seventies than at any time in the past three decades and there is an atmosphere of confrontation rather than cooperation in international economic relations. In this situation the objective of self-reliance needs to be pursued with continuous vigour. However, self-reliance can no longer take the form of indiscriminate import substitution. There is a continuous need to replace imports in critical areas where there are sudden and sharp changes in prices and availability. But, as the complexity of the economy grows, import requirements will also increase and in order to finance these, export earnings will have to be stepped up substantially. In the eighties, export promotion is as much a part of the drive for sell-reliance as efficient import substitution.

1.60 With regard to social justice, what we have achieved is far short of what we aimed at. After three decades of planned development large segments of the population have yet to share in the benefits of progress or participate in the process ot development. From the Fourth Plan, several programmes for assisting backward areas and weaker sections have been in force. Yet, judging by the statistics on asset distribution, employment and consumption the impact seems to be limited. What is needed is a more effective implementation of asset transfer measures such as land reforms, more equitable distribution of credit and a coordinated effort that enables the poor to join the mainstream of economic activity and provides them with an opportunity for advancement. This will require firstly, an improvement in their productivity and earning power in their existing activity, secondly, supplementary employment in new activities to use up any spare labour time and thirdly, training, credit and support systems to assist them in both their existing and new activities.

1.61 Growth, modernisation, self reliance and social justice are not independent objectives. They are linked in that success with respect to any one makes it easier to achieve the others. The sustained growth of the past thirty years and the very considerable diversification of our economic structure that has taken place during this period constitute positive national assets for launching a more direct attack on poverty and under-development in the Sixth Plan, However, the enormity of the task should not be underestimated, particularly in view of a sharp deterioration in the external environment. The nation will have to mobilise all its latent energies for a more vigorous pursuit of cherished national objectives of accelerated growth, greater social justice and a modern self reliant economy.

Annexure 1.1
Growth Performance in the Plans

Note:— Col. 8 gives the trend rate calculated from a semilog regression. All other columns give compound growth rates between the base year before the Plan and the last year of the Plan.
*For the time period orginally envisaged for the Fifth Plan.
** This. is the growth rate for net national product (national income). The growth rate of gross domestic product over this period was 5'2 per cent as referred to in Table 1.1.

Annexure 1.2 Resource Mobilisation

•The figures given are for the originally envisaged terminal year of the Fifth Plan.

Annexure 1-3 Distribution of Rainfall Divisions According; to Scanty or Deficient
Rainfall—1951 to 1976

Annexure 1.4 Frequency Distribution of Annual Growth Bates 1951-52 to 1978-7 and

•For Calendar years from 1952 to 1978.

Annexure 1.5: Composition of Gross Domestic Product (at 1970-71 prices)
(Percentages)

Figures in brackets are for 1964-65 which may present a more correct picture since agricultural output in 1965-66 was badly affected by the drought.
**The figures given are for the originally envisaged terminal year of the Fifth Plan.

Annexure 1.6 Industrial Structure

*Excluding mining and quarrying and electricity.

Annexure 1.7 Technological Change in Agriculture

*The figures given are for the originally envisaged terminal year of the Fifth Plan.

Annexure 1.8 Gross and net aid by Plan Periods
(Rs. crores)

*0n actual expenditure for the first four years, anticipated expenditure for 1978-79.

Annexure 1.9 Import Substitution (Percentage share of imports in indigenous supplies)

*Imports as a percentage of machinery component of gross investment. @ On calendar year basis. +For 1951-52.

Annexure 1.10: Growth in Exports (Annual growth rate in values at current dollars)

(Percentage)

Note:—These compound growth rates are based on an end-to-end comparison of calendar year data reportedin 'Handbook on International Trade and Development Statistics, UNCTAD, 1979'. * For the time period originally envisaged for the Fifth Plan.

Annexure 1.11: Distribution of Household Consumer Expenditure
(Percentages)

Annexure 1.12
Percentage of population below the poverty line by States separately for rural and urban areas, in 1977-78

Note: 1. The above estimates are derived by using the al 1-India poverty line of Rs. 65 per capita per month in 1977-78 prices corresponding minimum daily calorie requirement of 2400 per person in rural areas and the poverty line ofRs.75 per month corresponding to daily calorie requirement of 2100 in urban areas.

2. These results are based on the provisional and quick tabulation of the National Sample Survey (NSSO) on household consumer expenditure of 32nd round (July, 1977 to June, 1978).

3. The difference between the aggregate all India private consumption expenditure estimated by the Central Statistical Organisation in their National Accounts Statistics and that derived from the NSSO data has been adjusted prorata among the different States and Union Territories in the absence of any other information which could be used to allocate this difference among the States and Union Territories.