Planned Development: Retrospect and Prospect || Development Perspective: Towards the year 2000 || Objectives, Strategies and Pattern of Growth in Seventh Plan || Financing the Plan || Balance of Payments || Framework of Economic Policy

PLANNED DEVELOPMENT: RETROSPECT AND PROSPECT

1.1 There is now fairly convincing evidence that since 1974-75 (which coincided with the launching of the Fifth Five Year Plan), the Indian economy has moved to a higher growth path. The successful implementation of the Sixth Five Year Plan has been a major contributory factor to this welcome shift in the growth curve. On the whole, the Sixth Plan has been fairly successful in sustaining and further strengthening the impulses for growth, modernisation and social justice. The satisfactory implementation of the Plan has enhanced our ability to deal with chronic problems of poverty and under-development. The progress made by the country in the recent years suggests that, given clarity of objectives and disciplined management of development programmes, poverty eradication is an attainable goal.

1.2 The Sixth Plan began at a time when the economy was severely disrupted by the drought of 1979 and a sharp deterioration in our terms of trade brought about by a further steep increase in the price of imported oil in 1979 and 1980. The deterioration in the balance of payments and the high rate of inflation threatened the stability of the economic system and the possibility of sustained growth. However, during the Sixth Plan period, successful efforts were made to restore economic stability and to sustain the process of growth and development. The Plan was based on a set of objectives, and the actual performance of the economy in terms of growth, modernisation, self-reliance and social justice is assessed in what follows.

Growth

1.3 The Sixth Plan had set an aggregate growth target of 5.2 per cent. This target has been achieved. The achievement of the aggregate growth target has to be seen in the context of performance at the sectoral level which is summarised in the table below:

TABLE 1.1

Sixth Plan Growth Rates: Targets and Actuals (Value Added)
(Percent per annum)

1.4 The aggregate growth target set for the Sixth Plan could be achieved mainly because of good agricultural performance and a rapid growth in the services sector. The rate of growth of income generated in mining and manufacturing was well below target, and this is one of the weak points in the growth record in the Sixth Plan.

1.5 Agricultural growth during the Sixth Plan was broadly as anticipated and production targets were by and large achieved for foodgrains and oilseeds. Sugarcane output in the terminal year was well short of the target, though it was much higher in the middle years of the Plan. A notable feature of agricultural production during the Sixth Plan was the limited impact of adverse weather in 1982-83 which, if it presages a longer term trend, implies a substantial improvement in food security. However, the imbalance in production between rice and wheat and between cereals and pulses continues. There is a serious regional imbalance in the impact of the green revolution in that less than 15 per cent of the area under foodgrains accounts for 50 per cent of the increase in foodgrains production in the post-green revolution period. Greater efforts are required for improving rice yields, particularly in the eastern region, and for enhancing the productivity of rainfed and dryland agriculture.

1.6 In Industry, Sixth Plan performance fell short of target in basic industries like steel, fertiliser and cement, and in textiles. The overall growth rate of industrial production was also below target and was unstable from year to year. The economy is not yet on an industrial growth path in which production increases steadily from year to year. One hopeful sign is the sustained increase of 16 per cent per year in the real investment in fixed assets by the private corporate sector during the first four years of the Sixth Plan, a buoyancy which is also evident in the rapid growth of the private capital market. One major problem for basic industries in the Sixth Plan was the shortage of power. There are some industries, mostly involved in the manufacture of simple consumes goods, where expansion has been constrained by an inadequate growth in domestic demand, a deficiency which could not be made good through export sales since most of these industries are not internationally competitive. Scarcity and high prices of inputs, the type of technology in use, the small scale of operations, obsolescence of product designs and high costs have constrained growth in some machine-building and chemical industries. These problems must be tackled and public sector performance improved; other conditions are propitious for sustained growth in industrial production and employment.

1.7 The output of commercial energy, measured in terms of coal replacement, increased at an annual rate of 12 per cent over the Sixth Plan. An outstanding feature of this growth was the increase in crude oil production from 11.8 million tonnes in 1979-80 to 29 million tonnes in 1984-85. The pattern of commercial energy consumption moved away from coal towards oil and electricity. Commercial energy is a virtually universal intermediate and any shortage could restrict growth in all sectors. The production of commercial energy is almost entirely in the public sector and investments in this sector absorb about 30 per cent of plan outlays. A stage has now been reached where this share cannot be increased without jeopardising the prospects for growth in the energy-using sectors. Hence greater attention has to be paid to efficiency and productivity in the energy sector and conservation in energy-using activities.

1.8 The level of investment is a major determinant of growth and, in this, Sixth Plan expectations were by and large fulfilled. Gross investment during this period amounted to about Rs. 143,000 crores (in 1979-80 prices) against the Sixth Plan expectation of Rs. 159,000 crores. As for domestic savings, the Sixth Plan had anticipated a gross savings rate of 24.5 per cent in 1984-85, against which the actual rate is likely to be 23.3 per cent.

1.9 The shortfall in aggregate savings during the Sixth Plan is largely because the public sector's savings rate has been well below target. In fact the mobilisation of resources of public investment has run into serious difficulties in the Sixth Plan and the actual' level of Plan expenditure in real terms has been 21 per cent below target. These difficulties arose mainly due to the rapid growth in non-development expenditures, which rose more rapidly than current revenues over the Plan period, and the low level of profitability or losses in public enterprises, power boards, railways and road transport corporations. Public investment in infrastructure and basic industries is an important catalyst of wide-ranging developments in the whole economy. Any shortfall in the public investment programme affects its long-term growth potential. A reversal of the downward trend in revenue surpluses and greater discipline in the financial system should receive high priority.

Modernisation

1.10 Technological advances and creation of needed infrastructural facilities are necessary features of the development process; these have been included as important elements in the development strategy. The Sixth Plan marked some important advances on this front.

1.11 In agriculture, the area under high-yielding varieties of foodgrains increased from 35.2 million hectares in 1979-80 to about 56.0 million hectares in 1984-85, which was the Sixth Plan target. Chemical fertiliser consumption rose from 5.3 million tonnes in 1979-80 to 8.4 million tonnes in 1984-85 which however, fell short of the Sixth Plan target of 9.6 million tonnes. The rapid growth in fertiliser consumption in some of the States which were considered agriculturally backward, the spread of soyabean cultivation in Madhya Pradesh and wheat in eastern U.P., and several other signs suggest that the green revolution is spreading to new areas. In the sphere of irrigation and water management, there were important gains in the Sixth Plan period: irrigation potential went up by 11 million hectares. However, in the major tasks of modernisation of canal systems, provision of drainage and improvements in water management, much remains to be done. In animal husbandry, the number of crossbred cows increased from 3 million in 1979-80 to nearly 4.5 million in 1984-85. A major programme for the modernisation of inland fisheries through the supply of tingerlings and improvements in feeding practices was implemented during the Plan period.

1.12 An important component of modernisation in rural areas is the change in the pattern of energy use. By the end of the Plan, 64 per cent of villages were electrified and the consumption of electricity in agriculture rose by 8.9 per cent per annum. The number of tractors in use at present is of the order of 500,000 which, in terms of draught power, is roughly the equivalent of 3.5 million animals. A major change is under way in the energy base of our agriculture. The Sixth Plan also saw the beginning of an effort to enlarge and modernise the traditional energy base of rural society through the spread of bio-gas, social forestry and other renewable forms of energy.

1.13 In industry and infrastructure, several major technological advances were made during the Sixth Plan e.g., the production of Computer Numerically Controlled (CNC) machine tools, the commissioning of 3000 tonnes per day cement plants, the first 500 MW thermal generating unit, the manufacture of LSI chips, the use of powered support faces in coal mining, the introduction of a new generation of fuel-efficient motor vehicles, a rapid expansion in the use of computers, the commissioning of the first electronic telecom exchange and the running of trains with trailing loads of 3000 tonnes. Important improvements were made in petroleum refineries and petrochemical plants to reduce energy consumption and improve yields.

1.14 The technological achievements of the Sixth Plan period are undoubtedly significant. But their impact on productivity was mainly in new projects and in a few existing establishments. The actual record of productivity improvement at the sectoral level is not as encouraging. Capacity utilisation in basic industries like steel, cement, and aluminium remaind at a low level. Continuous technological upgradation, which is a necessary condition for rapid and efficient industrialisation, did not, by and large, take place. The plant load factor in thermal power plants did improve over the Plan period but was still below the levels reached in the mid-seventies. In the railways, the productivity of wagon use rose by 20.9 per cent. With regard to energy efficiency, the unrealised potential for conservation of commercial energy is around 20 per cent in transport, 25 per cent in industry and 30 per cent in agriculture.

1.15 Major changes in industrial technology are taking place in the world today, of which the more important flow from three sources: (a) the application of computers and electronics to production processes; (b) improvements in fuel efficiency of prime movers and other industrial equipment; and (c) the use of new materials. The Sixth Plan saw the beginning of an effort to introduce these changes in the economy. However, there is still a substantial technological gap which needs to be closed. There also remain major tasks in modernisation and productivity improvement in industries like textiles and steel, and product development in the capital goods industry.

1.16 With the significant emphasis given to science and technology since independence, a wide-based infrastructure covering a broad spectrum of disciplines and capabilities has been built up. When clear-cut objectives and tasks have been defined, and necessary support provided, Indian scientists and technologists have been able to fulfil national expectations, e.g., in the areas of agriculture, atomic energy and space technology, and certain areas of defence and industrial research. The principal achievements in science and technology during the Sixth Plan period have been consolidation and strengthening of the existing infrastructure, and the growth of new thrust areas. A conscious and largely successful effort was made to implement the various recommendations made in the Sixth Plan document with regard to the science and technology sector. Major new areas given emphasis have been the environment, oceanography, new and renewable sources of energy and biotechnology.

1.17 The Sixth Plan also saw the formulation of a Technology Policy Statement, which has as its major objective the use of science and technology for development tasks. The public sector has to play a major role in this task, since it employs a very substantial portion of the technical talent in the country. At least two-thirds of the engineers working in India are in the public sector. As for R and D personnel, the share of the public sector is closer to four-fifths. This vast pool of talent must be used more productively, e.g., in specific technology missions oriented towards developmental objectives, as has been done so successfully in the space programme and in atomic energy.

Self Reliance

1.18 The Sixth Plan was formulated at a time when the balance of payments was under severe strain due to the sharp increase in oil prices. During the Sixth Plan, both exports and imports grew more slowly than anticipated and the overall trade deficit (at constant prices) was about 18 per cent larger than anticipated. However, the net earnings from invisibles were much higher, and the current account deficit (at constant prices) was nearly a third less than anticipated. These developments, along with the inflow of borrowings from the International Monetary Fund, halted the decline in exchange reserves which started in 1979-80. In the last three years of the Plan, foreign exchange reserves rose steadily, and covered nearly 5 months' imports by the end of 1984-85.

1.19 A crucial component in the strategy for self-reliance was the accelerated oil production programme. A rapid increase in the production of domestic crude oil decreased the import: consumption ratio of oil and petroleum products from about 66 per cent in 1979-80 to 31 percent in 1984-85. Had the import ratio for these two commodities remained at the 1979-80 levels, the financing of these imports would have posed a virtually insurmountable problem for the balance of payments in the Sixth Plan period. Restriction on consumption would have been inevitable with consequential disruptions in agriculture, industry, transportation and other sectors.

1.20 The strategy adopted for managing the balance of payments helped avert a cut-back in investment programmes. Fixed investment continue to rise steadily throughout the Sixth Plan, in the aggregate as also in the public sector. This was also facilitated by the fact that a substantial proportion of our machinery requirements is met from domestic production. Hence, maintaining the tempo of the investment programme does not pose a major balance of payments problem.

1.21 The slow growth in exports emerged as one 6f the principal weaknesses in the balance of payments during the Sixth Plan period. In terms of volume, exports grew at a rate well below target. Part of the reason for the slow growth is to be found in the recession in the developed economies, which restricted the rate of growth of world trade for most of the Plan period. However, this must also be attributed to inadequate progress in building up a viable long-term export base. The pursuit of self-reliance with growth now requires a faster growth in export earnings.

1.22 An important component of the strategy for self-reliance is the containment of the external debt service ratio within a manageable level. In 1979-80, external debt service was 12.5 per cent of exports, and in 1984-85 this ratio declined to 11.2 per cent. However, the Sixth Plan also saw a major change in the pattern of foreign borrowings. At the end of the seventies, the bulk of external borrowings was by way of concessional assistance received by the Government. During the Sixth Plan this has changed in two important ways: (a) non-concessional flows account for a growing proportion of official borrowings, and (b) direct borrowings by financial institutions and the private sector have grown to a substantial figure. These two factors together with the outstanding borrowings from the International Monetary Fund (IMF) and the Non-Resident Indian (NRI) deposits will mean a substantial increase in the average cost of foreign debt. This has to be taken into account in our strategy for the management of the balance of payments in the Seventh Plan.

1.23 In the Indian development strategy, self-reliance has been conceptualised not merely in terms of reduced dependence on aid, but also in terms of building up domestic capabilities and reducing import dependence in strategic commodities, where the country's requirements are large and hence import demand could affect world prices, or where insecurity of supplies could have wide-ranging repercussions on the economy. In three such commodities, viz., foodgrains, petroleum products and fertilisers, the Sixth Plan saw a substantial reduction in import dependence.

1.24 The case for self-reliance in science and technology rests on the critical role of technological competence in determining the long-term growth prospects for the economy. In this field, our interaction with the world economy has increased both as a supplier and as a buyer. India has emerged as a leading Third World exporter of industrial know-how, technical consultancy and turn-key industrial projects. Imports of technology have also increased quite rapidly in recent years, as is evidenced by the growth in approvals for foreign collaboration.

1.25 There has been significant increase in self-reliance in various areas of science and technology, particularly relating to strategic sectors. In the atomic energy programme, a high degree of self-reliance has been attained in terms of design, fabrication and commissioning of nuclear power reactors and all associated elements, including production of heavy water. In the space programme, capabilities relating to design and fabrication of satellites, and of satellite launch vehicles, have been developed which should lead in a few years to the possibility of launching and utilising operational satellite systems on an indigenous basis. Agricultural research has continued to be of vital importance for increasing food production, and is now well set for contributing to a wider and more diversified base of agricultural production. Medical research has been given a significant emphasis in the Sixth Plan, particularly with thrusts relating to leprosy eradication, fertility control and new approaches to communicable diseases, and is now poised for a major impact in the Seventh Plan.

Social Justice

1.26 Removal of poverty and unemployment are the crucial components of the strategy for growth with equity and they were explicitly stated objectives of the Sixth Plan. Information on the incidence of poverty is available from quinquennial surveys conducted by the National Sample Survey Organisation and the relevant estimates based on the last two surveys are summarised below:

TABLE 1.2

Trends in Percentage of People Below Poverty Line

1.27 Thus, there has been a decline in the incidence of poverty in this period. The main reasons for this welcome trend are the higher rate of economic growth and the increases in agricultural production. The Sixth Plan also witnessed a massive expansion in the Integrated Rural Development Programme which was extended to cover all development blocks in the country, and a substantial effort at providing employment on rural works through the National Rural Employment Programme (NREP) and, in the last two years of the Plan, the Rural Landless Labour Employment Guarantee Programme (RLEGP). The targets set for the coverage of poor families under IRDP and for employment generation under NREP and RLEGP were met. Various evaluation studies of the IRDP programme including the one undertaken by the Programme Evaluation Organisation (PEO) of the Planning Commission have analysed the process of implementation of the programme, identified several weaknesses and suggested corrective measures which would help reduce leakages, enhance the impact of the programme and improve the viability of the individual schemes.

1.28 The objective of social justice is also served by the minimum needs programme which aims at an improvement in living conditions of the poor and their access to education and health. During the Sixth Plan, targets for elementary education enrolment and for the provision of primary and subsidiary health centres were exceeded. Family planning measures were extended to raise the percentage of couples protected from 22.5 per cent in 1979-80 to 32.0 per cent in 1984-85. Living conditions of the poor in rural areas were improved through the provision of protected and assured water supply to 192,000 out of the 231,000 villages with a drinking water problem, house sites to 5.4 million poor rural families and assistance for house construction to 1.9 million of them. Environmental conditions in urban slums were improved to benefit 9.1 million slum dwellers.

1.29 One major problem in education and health is that of improving the quality. Enrolment targets have been exceeded, but a high rate of drop-outs means that the actual rate of attendance is very much lower. Thus, according to certain preliminary results from the 1981 census, the number of children in the relevant age group attending school was significantly below the enrolment figure for Classes I-VIII for 1980-81. In health, morbidity data are not available, but the very slow decline in the overall death rate and in the infant mortality rate suggests that the extension of health services, has not, as yet, had an adequate impact on health status. In family welfare, the couples protected tend to be those who have already had three or more children and a substantial decline in the crude birth rate is not as yet in sight. At present, the total annual expenditure of the Central and State Governments on education and health is estimated to exceed Rs. 9,000 crores, and this large amount must be used effectively. An improvement in the educational and health status of the poor will have a wide-ranging impact on the whole development process. Therefore, systematic attention to the quality and usefulness of the service provided at so large a cost to the public exchequer is necessary.

1.30 Environmental protection is also an important component of the pursuit of social justice. The cost of environmental degradation are generally borne by those who do not benefit from the activities which cause the degradation. In this process it is the poor, who are least able to protect themselves, who suffer most. In rural areas deforestation, soil erosion, flooding and waterlogging affect farmers more severely. Even in urban areas, it is the poor who tends to live in the most vulnerable localities, as the Bhopal gas tragedy demonstrated. In the Sixth Plan, environmental protection was emphasised in all areas of development activity. A Department of Environment was set up and the Constitution was amended to introduce environmental protection and improvement in the Directive Principles of State Policy and the list of Fundamental Duties. Monitoring arrangements were strengthened, new legislation on forests and water pollution was enacted, and environmental impact assessment undertaken for all major projects.

The Tasks Ahead

1.31 The most striking feature of the Sixth Plan is the fact that the tempo of economic growth was maintained despite adverse weather conditions in 1982-83, the balance of payments problems arising from the oil crisis of 1979 and an unfavourable international economic environment. Agricultural growth and the rapid expansion of anti-poverty programmes could make a significant dent on the problem of poverty and unemployment. In this broad sense, the Sixth Plan has helped the country make further progress towards the objectives of growth, self-reliance and social justice. There are, however, certain crucial weaknesses in the development effort which need to be corrected.

1.32 The Government has to play a major role in the development process in order to promote the interests of the poor, reduce disparities in income and wealth, curb regional inequalities in the level of development, protect the environment, strengthen the scientific-technological base for long-term growth and safeguard the interests of future generations. These are matters which cannot be left to the free play of market forces. Purposive Government intervention in these crucial areas is central to our growth strategy.

1.33 It is clear that mobilisation of adequate resources for public investment is a major problem in the Seventh Plan. Without such mobilisation, balanced growth of agriculture and industry will be seriously hampered. Hence a more determined effort has to be made to raise additional resources for development in the public sector. A major component of this effort has to be promotion of efficiency in the administration of public sector enterprises and better resource generation by these enterprises. The savings performance of Central Government must also show a substantial improvement.

1.34 The public sector has initiated and sustained the industrial transformation of India. It shall continue to play its pivotal role in modernising Indian industry and in reducing the concentration of economic power. To perform its historic task, the public sector has to undergo basic structural changes to conform to the Plan priorities of efficiency and productivity. Only in the measure that the public sector generates investible surpluses can it play its indispensable social role of providing an adequate infras-tructural base for the economy, being a vehicle for the introduction and absorption of new technology in critical sectors of the economy, and for achieving balanced regional growth.

1.35 A narrow view of resource mobilisation, limiting it to the financial sphere, fails to do justice to the complexity of the development process in which the human factor plays the most significant part. Without adequate development of human resources in its widest sense, we cannot avoid set-backs to the process of development itself. The productive forces of the economy can be strengthened only by releasing, the creative energies of all strata of society. Education, in all its aspects, and people's participation in development programmes through their own organisations hokl the key to rapid and sustained social and economic advance. These should receive special attention in the Seventh Plan.

1.36 Another important weakness in the development effort is the poor performance in productivity growth. As much attention should be paid to productivity and efficiency as to capacity expansion and production increases. The replacement of overaged assets and maintenance must be given priority. Improved utilisation of capital assets, reduction in energy and raw material use and cost reduction are required in all sectors. Without these improvements it will be difficult to sustain the tempo of development since a substantial increase in the rate of savings, which is already high, is difficult to attain. Cost reduction is also vital for improving the international competitiveness of Indian products and for expanding the scale of domestic market.

1.37 The balance of payments prospect now confronting the country is very different from the situation in the past. The climate for concessional assistance is none too favourable. Recourse to large-scale commercial borrowings may lead the country into a debt burden that cannot be sustained. Thus a significant improvement in the trade balance is essential for maintaining the viability of external payments. Increased domestic production of vegetable oils, fertilisers, steel and petroleum products will no doubt help to moderate the growth of imports. However, it has to be recognised that the scope for managing our international payments through large scale import substitution is considerably reduced. Thus in addition to sustained emphasis on efficient import substitution, pursuit of self-reliance demands a much more vigorous export promotion effort than has been forthcoming in the past. A rapid growth of exports will require changes not merely in trade policy but also in fiscal, monetary and industrial policies.

1.38 In agriculture and rural development, a large number of new programmes have been started. Along with these programmes, a diversity of organisational and administrative structures has been established, but often the organisational arrangements and the staff for a new programme are put in place with little attention to existing structures and personnel. There is now an elaborate "development bureaucracy" operating at field level and at higher levels in the administration. There are also local self-government bodies and cooperatives. There is need to re-examine this whole structure, simplify and rationalise it, to reduce duplication and to ensure adequate horizontal coordination at local levels. This is necessary not merely to reduce the burden of expenditure but to improve performance, ensure accountability and make the system more comprehensible to the common man.

1.39 In education, health care and family welfare, past efforts have been concentrated on target-oriented expansion in facilities or on enrolment and coverage. The stage has come where special attention must be paid to the quality of service provided in these sectors, and the performance measured in terms of ultimate effects on literacy, educational status, incidence of diseases, mortality rates, nutritional status and fertility rates.

1.40 For achieving self-reliant growth and for making the economy immune to external shocks, domestic technological capabilities are of strategic importance. To strengthen the country's scientific and technological base, a two-pronged strategy has to be pursued, namely, (i) to enhance domestic technological capabilities in the strategic sectors of the economy, such as energy, space, communications, agriculture, population planning and national security; and (ii) to initiate research and development effort in frontier areas of science and technology to enable the country to play a significant role in the world technology market. This strategy is imperative to improve productivity and to build an internationally competitive industrial structure. In short, the Seventh Plan marks a systematic beginning for raising the scientific and technological infrastructure to a qualitatively higher level as a major component of our strategy for self-reliance.

1.41 The Seventh Plan must build on the strengths inherited from the past—the high rate of savings, the large pool of scientific, technical and managerial manpower, the resilience against drought and international disturbances and the orientation of development efforts to benefit the poor. It is now possible to move faster towards the objective of self-sustaining growth with social justice. In order to succeed, it is necessary to bring about important changes in policies and performance; there must be significant changes and improvement in the pattern of resource mobilisation for the public sector; the requisite policy-changes in the fields of industry, agriculture and technology should be brought about to raise productivity and efficiency and for promoting exports; basic structural reforms should be effected in rural administration; and there must be shift in emphasis towards improvement in quality and greater effectiveness in education, health care and family welfare programmes.