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 3:
OBJECTIVES AND STRATEGY OF THE SIXTH FIVE YEAR PLAN

The Sixth Five Year Plan has been formulated taking into account the achievements and failures of the past three decades of planning, recent economic developments which have a bearing on the growth prospects of the economy in the medium term as well as the vision of the future as reflected in the long term perspective. The removal of poverty is the foremost objective of the Sixth Plan even though it is recognised that given the magnitude of the task, it cannot be accomplished in a short period of five years. Inevitably, the pace of movement towards the long-term objectives of removal of poverty and the achievement of self-reliance and the nature of priorities in the immediate period ahead, are influenced by the current economic situation and the constraints operating in the economic system. It should be recognised that the Sixth Plan is being launched under difficult conditions. These include the acute inflationary pressures which have prevailed since March 1979, a set-back in the functioning of such critical sectors as power, coal, railways and steel and the steep rise in the price of petroleum products resulting in an increasing deterioration in the nation's terms of trade and the balance of payments. A realistic blue-print of the Sixth Plan must take note of these unfavourable developments. Effective solution for the existing difficulties are a precondition of successful implementation of the Sixth Plan. It goes without saying that any effective solutions for these problems must be consistent with long term social and economic objectives so that the economy emerges out of these difficulties with improved growth prospects. Thus the economy is faced wl.th many challenges and these will have to be met with courage, determination and a firm faith in India's destiny and future.

3.2 The v/holesale price index has risen by nearly 17 per cent between 1979 and 1980 and by nearly 16 per cent between April and November, 1980-81. With rising prices, the real resource content of the Plan is likeiy to erode over time with consequent adverse effects on the prospects for growth. Rational and balanced economic policies for checking inflation and measures to protect the real size of the Plan will need to be formulated.

3.3 Trends in capacity utilisation upto 1979-80 in major industries have been a source of considerable concern because in most cases there has been a decline after 1976-77. For accelerating the tempo of industrial growth, improving the rates of return on capital and generating .additional resources for the Plan, improvement in capacity utilisation must be regarded as a pro-condition for the success of the Sixth Plan (Table 3.1).

Table 3.1 Measuremeat of Capacity Utilisation la Major Sectors, 1976 to 1979-80
(Per cent)

As is evident from the table, recent trends in capacity utilisation in several industries are discouraging. This is also true for agriculture. For example, the irrigation po:ential which has been created is not fully utilised. Levels of yield per acre for many parts of the country are far 'below what can be attained with known technology. While the poor utilisation of capacity represents a waste of resources and thus adds to the resource oonstriaint, it also provides an opportunity for a quick increase in output and productivity in the short run, thus improving the prospects for controlling inflation and creating conditions for accelerated growth in output as well as investment in coming years.

3.4 The poor utilisation of capacity in agriculture as well as in industry stems from many factors but the major problem areas cam be located in the basic infrastructure of power .and transport. The efforts currently under way are expected to improve the;short run situation with respect to power and transport;but further intensive efforts will be required over the Sixth Five Year Plan.

3.5 India's balance of trade has shown an adverse trend since 1977-78. As against ;a surplus of Rs. 72 crores in 1976-77, the deficit in trade balance was Rs. 621 crores in 1977-78 and is reported to have been more than Rs. 2370 crores in 1979-80. The available data regarding the balance of tr,ade for the first six months of 1980-81 show that the defici.t has already exceeded Rs. 3000 crores. The increase in trade deficit du'rina: 1977-80 was due not only to tha lower export growth of 6.1 pe,r cent compared to the growth rate of 26.8 per cent between 1974-7 at current prices, but also due to the rise in the vail of imports at an average rate of 19 per cant annual!

3.6 This unfavourable picture is largely due 1 sharply deteriorating terms of trade since 1973-7 with some improvement temporarily in 1976-77 an 1977-78. The index of terms of trade with 1968: 100 shows a decline to 90 in 1978-79 when expo prices declined somewhat and import prices rose i general by 4.4 per cent and further deteriorated ver sharply in 1979-80 when import prices, particularl those of petroleum products, rose consideraK resulting in a large trade deficit.

3.7 If despite this picture on the trade account, th foreign exchange reserves continued to rise up1 1978-79 it was due to the buoyancy of invisib;receipts, in particular remittances from Indial working abroad. It is quite possible that these n mittances have reached their peak. Also the inte:national economy in general faces a sharp recessic 'of demand which, together with the protectioni tendencies in the industrialised countries, poses serious challenge to our efforts to expand expo earnings. The general situation in the oil exportir countries is also such as not to hold out hopes of an substantial increase in the demand for our expor or for migrant labour. Already in 1979-80, the] was a slight decline of Rs. 56 crores in forei^ exchange reserves and in 1980-81 by December 2' they had fallen further by Rs. 381 crores despi' recourse to the I.M.F. to the tune of Rs. 815 crore Table 3.2 shows the main indicators of external coi straints.

Table 3.2 Selected Indicators of Developments in the External Sector

3.8 Growth prospects of the economy have been adversely affected by all these three factors: infla-lionary situation, constraints imposed by a poor performance in the basic infrastructure and the deteriorating balance of payments position. Since, however, the long term prospects of the economy depend, significantly on the development of domestic resources of oil, coal, power, and renewable source of energy, on the investment in the modernisation and expansion of transport and on a rapid growth in agriculture and tliral development, it will be necessary to make the requisite effort to mobilise resources in the face of all these difficulties so as to put the economy back on the path of sustained and self-generating growth.

OBJECTIVES

3.9 It is in the lisht of these considerations that the obiectives of the Sixth Plan have been formulated. These are given below. Along with the objectives are also listed major areas of effort which will be required to fulfil these objectives:

1. a significant step up in the rate of growth of the economy, the promotion of effifiencv in the use of resources and improved productivity;
2. strengthening the impulses of modernisation for the achievement of economic and '. technological self-reliance;
3. a progressive reduction in the incidence of poverty and unemployment
4. a speedy development of indigenous sources of energy, with proper emphasis on conservation and efficiency in energy use;
5. improving the Quality of life of the people in general with special reference^ to the economically and socially handicapped population, through a minimum needs programme whose coverage is so designed as to ensure that all parts of the country attain within a prescribed period nationally accepted standards;
6. strengthening tho redistributive bias of public policies and services in favour of the ' poor contributing to a reduction, in inequalities of income and wealth;
7. a progressive reduction in regional inequalities in the pwe o^ development and in the diffusion of technological benefits;
8. promotino policies for controlling the growth of population throueh voluntary acceptance of the small family norm;
9. bringing about harmony between the short and the Iong term goals of development by protection and improvement of ecological and environmental assets; and
10. promoting the active involvement of all sections of the people in the process of development through appropriate educatinn communication and institutional strategies.
    

3.10 The strategy adopted for the Sixth Plan consists essentially in moving simultaneously to strengthen the infrastructure for both agriculture and industry so as to create conditions for jan accelerated growth in investments, output and exports, and to provide, through special programmes designed for the purpose, increased opportunities for employment especially in the rural areas and the unorganised sector and meet the minimum basic needs of lh and people. Stress is laid on dealing with inter-related problems, through a systems approach rather than In separate compartments; on greater managerial efficiency and intensive monitoring in all sectors and .active involvement of the people in formulating specific schemes of development at the local level and in securing their speedy and effective implementation. The attack on the problem of poverty is most effective only in the conditions of an expanding economy. Since growth by itself may not, however, suffice, other programmes and policies will need to be adopted with the specific aim of improving the living conditions of the masses and to bring about a reduction in inequalities of income and wealth. The scheme of the Sixth Plan outlays thus provides for specific allocations for such programmes.

MACRO-DIMENSIONS
Aggregate Saving and Investment

3.11 The Sixth Plan envisages a total investment (gross capital formation) of Rs. 158710 crores over the plan period 1980-85 at 1979-80 prices. This is to be financed by domestic saving of Rs. 149,647 crores estimated at 1979-80 prices during the Sixth Plan and met inflow of funds from abroad to the extent of Rs. 9063 crores. Thus, nearly 94.3 per cent of the total investment is to be financed from domestic resources.

3.12 The total investment has been projected to grow from Rs. 23,618 crores in 1979-80 to Rs. 36,797 crores in 1984-85. At the same time, the GDP at market prices has been projected to increase from Rs. 108,546 crores to Rs. 146,540 crores during the same period. Thus, investment (as per cent of GDP at market prices) is expected to rise from 21.8 per cent in 1979-80 to 25.1 per cent in 1984-85.

3.13 Domestic saving has been projected to grow from Rs. 23,055 crores in 1979-80 to Rs. 35,870 crores in 1984-85. . As per cent of GDP at market prices, the saving rate is envisaged to increase from 21.2 per cent in 1979-80 to 24.5 per cent in 1984-85, implying a marginal rate of sav'.n" of the order or 33.7 per cent over the plan period 1980-S5.

3.14 The Sixth Plan aims at stepping up the rate of saving by bringing about an improvement in the ratio of saving to disposable income in the different sectors. Detailed estimates of sectoral disposable income, consumption and saving in 1979-80 and 1984-85 are given in Annexures 2.1 and 2.2, and are summarised in Table 3.3.

Table 3.3 Estimates of Disposable Income, Consumption and Saving: 1979-80 and 1984-85

3.15 Saving as per cent of corresponding disposable income is expected to rise from 25.5 to 34.5 per cent in the case of public sector and from 20.2 to 22.2 per cent in the case of private sector over the plan period 1980-85. Thus, saving effort in terms of sectoral disposable income is expected to show an improvement of 9 percentage points in the case of public sector and 2 percentage points in the case of private sector.

3.16 The _share of public sector in aggregate domestic saving would rise from 17.4 per cent to 24.8 per cent, while that of the households would decline from 75.2 per cent to 66.9 per cent, as shown in Table 3.4.

Table 3.4 Sectoral Shares in Total Domestic Saving

1. At 1979-80 prices.

Rate and Pattern of Growth

3.17 The choice of the rate of growth of gross domestic product of 5.2 per cent per annum has already been explained in Chapter 2. The sectoral growth rates are determined by the demand for and supply of different commodities and services either through the market mechanism or as a result of specific public policies adopted to clear specific markets. Sectoral growth rates are thus subject to technical, behavioural and institutional constraints as well as policies of the Government. A large part of the supply is determined by the investment decisions already made in the past; a large part of demand originates from the need for building up capacity for the future. There is also the foreign demand for our exports and the supply of imports from abroad. The pattern of growth is derived from a consistent system which is solved inter-temporally with an open economy model.

3.18 The model consists of an 89 sector input-output model integrating the Sixth Plan period with the perspective period (1985—95) through a 14 sector investment planning model. In working out the input-output model for the Sixth Plan, technological characteristics of the economy have been taken into account. The treatment of private consumption, public consumption, investment and foreign trade used in the model for projecting the sectoral outputs is discussed below-

3.19 Public consumption expenditure and exports for the terminal year have been estimated exogen-ously. While the aggregate public consumption expenditure has been assumed to grow at an annual rate of 7.5 per cent, certain social services like health and medical services, education and other social services have been postulated to grow at slightly higher rates in li.ne with the objective of increasing social consumption. Exports have been projected to grow at an average rate of 9 per cent per annum at the overall level, while individual commodity exports have been projected to grow at different rates.

3.20 The total investment outlay envisaged for the Sixth Plan period has been appropriately phased over the Plan period taking into account the gestation lags of the individual sectors and the growth profile both in the Sixth Plan and post Sixth Plan period. Sectoral investment outlay thus generated (i.e. investment by destinations) has been disaggregated into various capital goods and changes in stocks and used in the model (i.e. investment by sources).

3.21. Import projections for inter-industry use and final use for the terminal year have been endogen-ously derived through the use of import co-efficient matrices.

3.22. Private consumption expenditure on goods and services in the terminal year has been projected through the use of a consumption sub-model which considers demand functions for people below and above the poverty line as well as rural and urban areas separately. The projected demand pattern takes into account the consumption requirements consistent with the objective of a significant reduction in the proportion of people below the poverty line. Redistribution of consumption in favour of the poorer sections of the population has been provided for to assess the output implication's of the postulate of a reduction in the percentage of population below the poverty line to 30, both in rural and urban areas by 1984-85.

3.23 The internally consistent and feasible sectoral pattern of growth satisfying the selected growth strategy, corresponding to the aggregate annual growth rate of 5.2 per cent in GDP and the envisaged reduction in poverty is given in Table 3.5.

3.24 While significant growth is projected for all the sectors, the changing pattern of demand, as is to be expected in a developing economy, indicates different growth rates at sectoral level, leading to a idiversification of the production structure of the economy. The consequent structural change in the composition of gross domestic product over the Pl,an period is shown in Table 3.6. The share of mining and manufacturing in gross value added goes up from 19.59 per cent in 1979-80 to 21.22 per cent in 1984-85, of electricity from 1.71 per cent to 1.88 per cent, •of transport from 4.89 per cent to 4.95 per cent and bf services from 33.61 per cent to 34.00 per cent, x and dioating that agriculture would contribute 32.90 per cent of gross value added in 1984-85 as against 35.13 per cent in 1979-80.

Table 3.5 Projected Sectoral Growth Rates of Value of Gross Output and
Gross Value Added at Factor Cost 1984-85/1979-80

3.25 The projected rates of growth in output in the different sectors have been translated sn terms of physical targets for important commodities in order to facilitate the formulation of necessary investment projects and production programmes. In addition, the physical targets for key commodities have also been cross-checked through the system of material balances.

Table- 3.6 Sectoral Composition of Gross Value Added: 1979-80 and 1984-85
(Per cent)

Pattern of Public and Private Investment

3.26 The total Plan investment for the period 1980-85 is estimated at Rs. 158710 erores. Of this, Rs. 84000 erores* (53 per cent) is estimated to be m the public sector and the balance of Rs. 74710 crores (47 per cent) in the private sector.

3.27 Estimates of investment during the Plan period by 14 sectors of destination as derived from the investment planning model are given in Table 3.7. Incremental gross value added over the Plan period ill the respective sectors is also provided in the table. In addition the public sector plan includes current outlays amounting to Rs. 13,500 crores.

Table 3.7 Gross Investment by Destination Sectors and Ineremen) in
Gross Domestic Product (GDP) at Factor Cost (198ft—85)
(Rs. crores at 1979-80 prices)

3.28 The distribution of private investment i the major sectors is shown in Table 3.8.

Table 3.8 Distribution of Private Sector Investment 1980-85
(Rs. crores at 1979-80 prices)

the estimates of investment requirement for the different activities in the private sector have been derived on the basis of the targeted growth rates, the contribution of the public sector and the investment requirements for the generation of new capacity estimated from incremental capital-output ratio derived from past time-series data.

3.29 Investment in mining and manufacturing (including small and village industries) in the past has been nearly one-third of the total private investment. In the present Plan this ratio is likely to go up to nearly 41 per cent of the total. The organised private corporate and cooperative sectors in mining, manufacturing and non-financial services have shown an investment requirement of Rs. 19582 crores. Of this, cooperative sector is estimated to require an investment of Rs. 2000 crores.

3.30 The broad pattern of allocation of corporate mining and manufacturing investment by major industry groups is given in Table 3.9.

3.31 The inter-soctoral capital flows for the period 1980—85 are presented in Table 3.10.

Table 3.10 Inter-sectoral Capital Flows: 1980—85
(Rs. crores at 1979-80 prices)

*Details are given in Annexure 5.1.

Table 3.9 Distribution of Private Corporate Investment in Mining and Manufacturing
(Rs. crores at 1979-80 prices)

@ Excluding captive mining which is included under respective industries.
Note : pigures include about Rs. 2000 crores in cooperative anufacturing sector.

3.32 Table 3.10 shows household savings of Rs. 104859 crores. These are used partly to finance the sector's investment in physical assets of Rs. 55128 crores; the rest are transferred to the public sector and the corporate and cooperative sectors. The latter sectors will have a total investment of Rs. 19582 crores financed by own savings and transfers from other domestic sectors, including the household sector.

SECTORAL GROWTH PROFILE

3.33 The experience of the recent past shows that a lack of coordination among critical sectors acts as a general drag on economic growth. Production capacities created after a massive investment effort remain under-utilised due to shortfalls in performance of a few sectors. It is, therefore, essential that the projected production profile should be internally consistent not only at the sectoral level, but also at the level of specific commodities/services. Commodity^wise demand-supply (material) balances presented below project the consistency of production targets of principal commodities/services with the targets of user-sectors. These balances are for the country as a whole. In taking operational decisions regarding production of the respective commodities and also for creation of additional capacities, inter-sector,al balances will need to be supplemented by inter-regional balances.

3.34 Physical targets of production for the principal commodities and services are presented in Table 3.11. Sectoral priorities have 'been built into the projected targets of demand and output of the principal commodities. These are discussed under the respective sectors.

Table 3.11 Commodity Output Projections : 1984-85

Agriculture

3.35 The gross cropped area in 1979-80 has been estimated at 168 million hectares with net sown area of 140 million hectares and 28 million hectares area sown more than once. Thus the cropping intensity in 1979-80 is estimated at 1.20. Based on land utilisation concept of irrigated areas, the gross irrigated area in 1979-80 has been estimated as 50.00 million hectares. During the Sixth Plan another 14 million hectares would be brought under irrigation. Thus the gross irrigated area in 1984-85 is likely to attain a level of 64.00 million hectares. The additional irrigation is likely to increase the area under short duration high yielding varieties and thus promote cropping intensity which is projected to go up from 1.20 in 1979-80 to 1.25 in 1984-85.

3.36 It has been assumed that the increase in gross cropped area in future 'years could be achieved through the creation of additional irrigation facilities. Several functional relationships between gross cropped area and gross irrigated area, as also between gross irrigated are,a and incremental area sown more than once, with and without time lags, were studied, based on'data for the period 1960-61 to 1978-79. On the basis of these studies, gross cropped area has been projected to increase to 179.74 million hectares in 1984-85. A substantial step-up in the creation of irrigation potential and its optimum utilisation is thus crucial for achieving the output targets for various crops in the Sixth Plan period.

3.37 In Ithe allocation of gross cropped area estimated for the terminal year of the Sixth Plan between different crops, lagging crop sectors, like pulses- and oilseeds^ havg been given greater importance. As a first approximation, gross cropped area has been allocated between different crops on the basis of trend growth r,ates of the percentage share of each crop in the gross cropped area. The area projected for each crop has again been allocated between different categories of land (HYV/Irrigated/ Unirrigated) on the basis of respective estimated trend growth rates. In view of the existing imbalances in the crop composition, trend projections of area for lagging crop sectors have been revised upwards. Policy instruments particularly with reference to land and water use, coupled with promotion of appropriate research on high yielding varieties and intensification of lab-to-field movement, are likely to help in inducing the acreage as well as yield shifts in favour of lagging crops sectors.

3.38 Per hectare yield rates as available from the reports of the crop cutting experiments of the National Sample Survey Organisation have been used in the case of foodgrains and cotton. For sugarcane, marginal improvement in all India yield rates over the peak-levels achieved so far is visualised in the estimation of output in 1984-85. In the case of jute .and mesta, improvement in yield rates as. warranted by past experience have been assumed. While selecting the estimates of average yields for food-grains, account was taken of the experience of early seventies when the average yields were relatively on the high side compared to their levels in the later years.

3.39 The projected output of m,ajor crops for the year 1984-85, estimated on the basis of above assumptions, are indicated in Table 3.12.

Table 3.12 Area Yield Level and Output of Principal Crops in 1984-85

The foodgrains output is projected to grow by 6.5 per cent per annum using a base level figure of 109 million tonnes in 1979-80. However, using trend estimate for 1979-80 the growth rate works out to 3.2 iper cent as against a growth rate of 2.74 per cent observed during 1969-70 to 1978-79.

3.40 With the launching of the project 'Operation Flood II', the output of milk is to be substantially increased and is estimated at 38 million tonnes in 1984-85 as against an estimated level of 30.27 million tonnes in 1979-80. The increase implies an annual growth rate of 4.65 per cent. The growth rate for milk and milk products during the Plan period works out to 5.51 .per cent. In respect of other animal husbandry products, the Sixth Plan envisages a growth rate of 5.71 per cent.

3.41 The Sixth Plan provides for a growth rate of 4.50 per cent for the forestry sector and 6.60 per cent for the fisheries sector.

3.42 Taking the various components of the agricultural sector together, the overall rate of growth of gross value added in agriculture during the;

Sixth Plan is estimated to be 3.83 per cent per annum. Any projection of output in agriculture is •beset with uncertainty, largely due to fluctuations in weather. The output targets given above are based on the average yield levels already realised and may thus be regarded in the sense that the effects of possible further technological change have not been taken into account.

Sugar

Table 3.13 Supply-Demand Balance for Sugar : 1979-80 and 1984-85
(Million Tonnes)

Off take from the maills

Table 3.14 Supply-Demand Balance for Cotton Cloth and Yarn:1984-85

3.43 Domestic demand for sugar would reach a level of 6.8 million tonnes by 1984-85. Given the potential of raising sugarcane output, it should be possible to raise sugar production from 3.9 million topnes in 1979-80 to 7.6 million tonnes by 1984-85. This projected level of production v/ould not only meet the demand of the domestic market, but may also enable our sugar exports to reach a level of 0.8 million tonnes by 1984-85. For this purpose, it will be necessary to mount a drive for better management of ratoon crops and an integrated pricing policy so as to promote the use of cane for sugar, gur and khandsari production in a balanced manner.

Cotton Cloth and Yarn

3.44 Demand for cotton textiles as given by the consumption sub-model together with the cloth requirements for the projected exports of cotton fabrics indicates that the demand for cotton cloth, including pure art silk, blended and mixed fabrics, will rise to 13030 million metres by the end of the Plan period. With the indigenous availability of raw cotton at 92 lakh bales in 1984-85 and considering the relative consumer preferences, the share of pure cotton cloth in total textiles output v/ill be 8640 million metres the balance of 2490 million metres being blended .and Mixed fabrics .and 19,00 million metres of art silk fabrics. , The production of decentralised sector will increase to 5340 million metres 'in 1984-85. Cotton yarn requirements for this pattern of output will be 1156 million Kgs. Raw cotton requirements in 1984-85 have been estimated at 92 lakh bales.