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

OBJECTIVES, STRATEGIES AND PATTERN OF GROWTH IN SEVENTH PLAN

SECTORAL GROWTH PROFILES

Agriculture

3.35 During the Seventh Plan, the agricultural sector is expected to grow at an average annual rate of 4.0 per cent in terms of gross output and 2.5 per cent in terms of value added. This is significantly higher than the growth rate achieved during the Sixth Plan after correcting for the low base of 1979-80. This higher growth rate is justified on the basis of likely demand generation and for maintaining self-sufficiency in foodgrains. Correspondingly, on the supply side, increased provision of fertiliser and irrigation has been stipulated. Table 3.8 gives output projections for the principal agricultural commodities and Table 3.9 gives the assumptions about area and yield rates that underlie the output projections for the principal crops.

3.36 The growth in agricultural production, if properly directed, can reinforce the attack on poverty and unemployment. In keeping with this approach, the Seventh Plan envisages that a substantial part of the additional production will come from small and marginal farmers and from rainfed and dryland areas. It also envisages a special effort at raising agricultural productivity in rice growing tracts in Eastern and Southern India. The quantitative projections presented in this Chapter have been framed in the context of this strategy.

3.37 Effective implementation of land reforms is essential for achieving higher agricultural growth and for the successful attack on poverty and unemployment. Efforts will be intensified during the Seventh Plan for the strict enforcement of the existing legislation relating to ceiling on land holdings, especially in the newly irrigated areas. Security of tenure to informal tenants through proper recording of their rights and regulation of rents would be necessary to induce them to intensify the use of modem inputs. Consolidation of land holdings and bringing together of small and marginal holdings into contiguous blocks of land would facilitate the exploitation of ground-water and the provision of various services economically. Updating of land records is necessary to protect the interests of farmers, particularly for improving their access to credit and inputs. Efforts will, therefore, be stepped up during the Seventh Plan to accomplish all these tasks.

TABLE 3.8
Output Projections: Agricultural Commodities

TABLE 3.9
Estimates of Area and Output 1984-85 and 1989-90
Area in million hectares Yield in kgs./hectare

3.38 There is now only a limited potential for an increase in agricultural production based on an expansion in the area under cultivation. The net sown area is not expected to change much over the Plan, and will remain at around 143 million hectares. However, during the Plan, irrigation potential will increase by 13 million hectares. This will help to increase the area under short duration high yielding-varieties, facilitate multiple cropping and raise cropping intensity from 1.26 in 1984-85 to 1.33 in 1989-90. Thus the gross cropped area is expected to go up from 180 million hectares in 1984-85 to 190 million hectares in 1989-90, which implies an annual growth rate of around 1 per cent. The limited potential for area expansion means that we have to depend largely on yield improvements for meeting the output targets specified in the Plan. These yield increases have to come from the spread of better seeds and farming practices, the expansion in irrigation which has been referred to above and the growth in fertilizer consumption from 8.4 million tonnes in 1984-85 to 13.5—14.0 million tonnes in 1989-90.

3.39 In order to attain the growth pattern described above, special efforts will be made for effecting a break-through in rice output, especially in the eastern region, for enhancing the productivity and reducing the instability of production in dry land areas by laying emphasis on development of water sheds and adoption of improved practices, for intensification of research and management programmes for production of oilseeds and pulses and for raising the productivity of small and marginal farmers. Programmes for afforestation will also receive special attention during the Seventh Plan. In this context, special mention ought to be made of the role of the newly established Wasteland Development Board which has been charged with the responsibility of drawing up a plan for the development of wastelands through a massive programme of afforestation and tree planting. Other associated aspects of the agricultural strategy are a substantial increase in the area under high yielding varieties, increased consumption of chemical fertilizers (with emphasis on improvement in the efficiency of fertiliser-use), strengthening of institutional arrangements for timely delivery of key inputs intensifying pest and disease surveillance arrangements and timely control operations, and strengthening of the extension net work on the pattern of Training and Visit system (T and V) for quick and effective transfer of technology to the farmers.

3.40 A key element in the agricultural strategy is the rapid expansion of irrigation facilities. The emphasis will be on early completion of on-going schemes which are in an advanced stage of construction, and on speedy utilisation of potential created by improvement in water management. New starts will be restricted to medium irrigation schemes in drought prone, tribal and backward areas and to minor irrigation schemes. Under the minor irrigation programme, priority would be given for the development of ground water in the eastern and northeastern states, where the exploitation so far has been at very low levels. This would also enable rice production in these areas to be stepped up by better water management and conjunctive use of surface and ground waters.

3.41 Specific targets for the principal crops are dealt with in what follows:

Rice: An increase in rice production, particularly in the eastern region is a key component of the agricultural strategy for the Seventh Plan. By the end of the plan, about half the area under rice will be irrigated and this irrigated area will account for about two-third of total production. The overall yield rate is expected to improve by 16 per cent, mainly through productivity gains in the eastern region and aggregate production is likely to go up from 60.0 million tonnes in 1984-85 to 73-75 million tonnes, by the end of the plan.

Wheat: More than 80 per cent of the area under wheat is expected to be under irrigation. The increase in yields is expected to be 10 per cent since the major gains from varietal improvement, irrigation and fertiliser application have already been achieved. The total production of wheat is expected to go up from 45 million tonnes in 1984-85 to 56-57 million tonnes in 1989-90.

Coarse cereals: In keeping with past trends, the area under coarse cereals is expected to go down. However, with the emphasis on dryland farming, an increase in yields of around 10 per cent is'expected and this will raise production from 32 million tonnes in 1984-85 to 34-35 million tonnes in 1989-90.

Pulses: Pulses are a major source of protein for poor house-holds and, hence, the Seventh Plan proposes to raise production through an expansion in the area under pulses and a 9 per cent increase in yields. This will raise production from 13.0 million tonnes in 1984-85 to 15-16 million tonnes in 1989-90.

Oilseeds: Shortfalls in the availability of edible oils have posed major problems in the Sixth Plan and hence the Seventh Plan incorporates a special effort at increasing the production of oilseeds. The area under major oilseeds is expected to go up by 1.5 million hectares and yields are expected to increase by 28 per cent. As a result, the total production of major oilseeds is targeted to go up from 13 million tonnes in 1984-85 to 18 million tonnes in 1989-90.

Sugarcane: The production of sugarcane is expected to go up mainly because of a 17 per cent yield increase and will rise from 180 million tonnes in 1984-85 to 217 million tonnes in 1989-90. This increase in sugarcane production is consistent with the projected demand and production for sugar, gur and khandsari.

Cotton: The projected demand for cotton arising from the anticipated cloth demand and the availability of alternative fibres is expected to be 95 lakh bales of 170 kg each. This includes a small export demand of 3.1 lakh bales. The production of cotton is targeted to reach this level from its 1984-85 level of 75 lakh bales through some expansion in area and a 19 per cent increase in yield.

Mining and Manufacturing

3.42 The output of minerals and manufactured goods is expected to increase at the rate of 8.3 per cent per annum over the Seventh Plan period. Production targets for important industrial sectors are presented in Table 3.10. In certain sectors, the expected level of consumption differs from the production target because of planned imports, exports or stock changes. Material balances for some critical commodities where this is the case are presented in Table 3.11.

TABLE 3.10
Output Projections: Minerals, Manufactures and infrastructural Services

TABLE 3.11
Material Balances for Selected Commodities

' Estimated; ** lnclude toll smelting. @ Included in imports

3.43 The industrial strategy for the Seventh Plan lays special emphasis on: (a) improvement in infrastructural facilities particularly power; (b) greater attention to modernisation and maintenance of assets; (c) upgradation of technology; (d) improvement in productivity; (e) reduction in cost and improved competitiveness; (f) introduction of new products; and (g) a special effort at accelerated development in selected industries in which the country has comparative advantage.

3.44 Industrial production is also expected to benefit from the emphasis on productivity, improved capacity utilisation, easy availability of intermediates and the greater scope for initiative and enhanced production resulting from recent changes in industrial, trade and fiscal policies. The financial projections on which the Plan is based allow for the required flow of credit to the industrial sector.

3.45 The linkages among various sub-sectors in mining and manufacturing have been taken into account in making projections of output, imports and exports. Since most minerals and industrial products are tradeable, bottlenecks in raw material availability can be corrected through contingency imports. However, there are certain inputs like electricity where this option is not available. As stated in an earlier chapter, the availability of power has been a major constraint on industrial growth in the Sixth Plan. Hence in the Seventh Plan, power supply to industrial consumers is planned to rise at 12.6 per cent per annum, a rate which is well above the 7.8 per cent growth rate of power supply to industry observed during the Sixth Plan.

3.46 Certain specific features of the projections of mineral and industrial output are dealt with in what follows.

(a) Crude oil: Crude oil production increased nearly three-fold in the Sixth Plan mainly because of the growth in production from Bombay High. There is now no similar oilfield awaiting exploitation, and production increases in the Seventh Plan are likely to be more modest. The domestic output of crude oil is expected to go up from 29 million tonnes in 1984-85 to 34.5 million tonnes in 1989-90, the bulk of the increase coming from onshore areas in the Cambay basin and the north-east. Taking crude and petroleum products together, the ratio of net imports to total consumption will rise from 31.0 per cent in 1984-85 to about 38 per cent in 1989-90. But even at this latter level, the ratio will still be very much lower than what it was at the beginning of the Sixth Plan. With the development of the South Bassein field, natural gas will emerge as an important energy source and production is expected to increase from 7.2 billion cubic metres in 1984-85 to 14.9 billion cubic metres in 1989-90.¹

(b) Coal: To achieve the plan targets for thermal power generation based on coal, iron and steel, railway transportation and other industries, and the demand for coal in the household sector, coal production will have to be raised from 147.44 million tonnes in 1984-85 to 226 million tonnes in 1989-90. A major part of the increase in output will come from opencast mines in areas like the Singrauli field. Many of these are directly linked to power stations either existing or projected. The total demand for coal is estimated to reach 236.7 million tonnes by 1989-90. The gap between demand and production will be met by drawing on the coal stocks and through some import of coking coal. The import of coking coal is also necessary for conservation of coking coal and for improving the quality of indigenous coal fed to the steel plants. Table 3.15 gives the material balance for coal.

Outlays for the petroleum sector will be kept under contineous review and will need to be adjusted if warranted by discoveries of larger oil reserves.

(c) Sugar: Based on the projected output of sugarcane of 217 million tonnes, sugar production is expected to increase from 6.2 million tonnes in 1984-85 to 10.2 million tonnes in 1989-90, mainly through the better utilisation of existing capacities and the expansion of existing units to optimum scale. The projected level of output will eliminate the need for imports and also release an amount of 0.4 million tonnes for export in 1989-90. The realisation of the production target will require pricing policies which ensure an optimum distribution of cane between sugar mills and gur and khandsari manufacturers.

(d) Textiles: The aggregate output of cloth made from cotton, viscose and synthetic yarns is expected to go up from 11.95 billion metres in 1984-85 to 14.50 billion metres in 1989-90. The production target is intended to meet fully the domestic demand and also provide for export of 1.3 billion metres in 1989-90. The composition of planned production in terms of sectors, type of cloth and the related requirements of cotton yarn and man-made fibres is presented in Table 3.12. As far as cotton cloth is concerned, handlooms will be largest producer and account for 40 per cent of output. To enable the handloom sector to achieve the plan targets, it will be necessary to make effective arrangements for supply of yarn, credit, and assistance for marketing and design development to this sector. In the mill sector, modernisation and productivity improvement are a crucial component of the strategy for increased output. The role of man made fibres will increase and by the end of the Seventh Plan, blended, viscose and synthetic fabric will account for nearly 40 per cent of the total output of cloth (other than silk and wool).

TABLE 3.12
Production of Cloth and Requirements of Cotton Yarn and Man-made Fibres in 1989-90

* Includes exports.

(e) Man-made fibres: The changing pattern of fibre use in the textile industry is reflected in the growth of the output of man-made fibres which will increase from 261,700 tonnes in 1984-85 to 489,500 tonnes in 1989-90, which will meet the projected demand in that year so that imports will not be required. With the growing emphasis on the setting up of economic sized plants, the scope for cost reductions should also increase. By the end of the Seventh Plan polyester, nylon and viscose will meet roughly 30 per cent of the fibre requirements for cloth production (excluding silk and wool).

(f) Jute manufactures: Jute manufactures are used as packaging materials in the form of sacks and hessian. Keeping in view the output levels of different commodities where sacks and hessian are used as packing materials and taking into account the likely substitution by synthetic packaging materials and bulk handling, the domestic demand for jute manufactures is placed at 1,355,000 tonnes in 1989-90. The export demand for jute manufactures has been assessed at 270,000 tonnes in 1989-90. Given the potential to raise jute and mesta production from 75 lakh bales in 1984-85 to 95 lakh bales in 1989-90, the production of jute manufactures will rise from 1,300,000 tonnes in 1984-85 to 1,625,000 tonnes in 1989-90. This level of production will suffice to meet both domestic and export demand.

(g) Fertilisers: During the Seventh Plan, the total demand for fertilisers is expected to increase from 8.4 million tonnes to 13.5-14.0 million tonnes, which implies a growth rate of about 10 to 10.8 per cent. Based on likely commissioning schedules, domestic production is expected to increase-by 11 per cent per annum and will reach 8.75 million tonnes by 1989-90. The absolute level of imports will increase but imports as a percentage of total consumption will come down from 41.2 per cent in 1984-85 to 35.2-37.5 per cent in 1989-90. The bulk of the increase in production will come from the gas-based fertiliser units being set up along the gas pipeline from the west coast to Uttar Pradesh. Capacity utilisation in the existing nitrogenous fertiliser industry is expected to improve from 74.5 per cent in 1984-85 to 79.5 per cent in 1989-90.

(h) Petrochemicals: The Seventh Plan will see a major expansion in the petrochemical industry. .The growth in the production of man-made fibres has already been dealt with above. The production of major plastic raw materials (LDPE, HDPE, PP and PVC) is expected to go up from 257,400 tonnes in 1984-85 to 623,000 tonnes in 1989-90 which implies an annual growth rate of about 19 per cent. This large increase will come from the Indian Petrochemicals Complex at Baroda and the new gas based company in Maharashtra.

(i) Cement: The demand for cement is expected to grow at the rate of nearly 10 per cent per year during the Seventh Plan and reach a level of 49 million tonnes by 1989-90. The capacity required for this production has already been licensed. It is expected that domestic production will be fully able to meet the entire demand. The Plan envisages an improvement in capacity utilization in the cement industry from 70.8 per cent in 1984-85 to 81.7 per cent in 1989-90. This assumes adequate supplies of power and coal.

(j) Stee/; The demand for finished mild steel is expected to increase by about 5 per cent per annum and will reach 13.86 million tonnes by 1989-90. Improvements in capacity utilisation will help to raise production to 12.65 mi-llion tonnes by 1989-90 leaving a net gap of 1.21 million tonnes. However, there are imbalances between the pattern of demand and productwise capacities. Because of the delay in the comissioning of the Vishakapat-nam Plant, demand will exceed capacity for non-flat products (other than railway materials), necessitating imports of around 1.2 million tonnes. In flat products, capacities are likely to exceed demand for plates, galvanised plain/galvanised corrugated sheets and tin plates and will be short of demand in the case of hot rolled sheets/coils, skelp and electrical steel sheets requiring imports of 0.39 million tonnes.

(k) Non-ferrous metals: The principal development in the non-ferrous sector in the Seventh Plan will be a large increase in the production of aluminium with the commissioning of the Orissa smelter. By 1989-90, aluminium production, may reach 499,000 tonnes which will be a little higher than the expected level of demand of 450,000 tonnes. Copper production will increase in pace with demand and the level of import dependence will remain at around 69 per cent. In the case of zinc and lead, domestic production is expected to increase so as to reduce import dependence from 56 per cent to 45 per cent for zinc and from 77 per cent to 66 per cent for lead.

(I) Engineering industries: The gross output of nonelectrical engineering industries is expected to grow at the rate of 11,8 per cent per annum over the Seventh Plan period, of electrical engineering industries at 12.5 per cent, of transport equipment industries at 10.8 per cent per annum. Major advances in product development in machine tool industry are expected in the Seventh Plan. The automotive sector is expanding rapidly and major changes in product quality and technology will be effected during the Seventh Plan period. In other areas of machinery manufacture, the Seventh Plan proposes to expand domestic capabilities in such critical areas as oil-field equipment and process plant equipment where import dependence is presently high. The Plan also emphasises the need for product development and technology induction for the better utilisation of existing facilities in the engineering industry.

(m) Electronics: The Seventh Plan envisages a rapid expansion of the electronics industry both for the application of electronics in production processes and offices and for meeting consumer needs. The aggregate output of electronic goods is expected to go up from Rs. 2,090 crores in 1984-85 to Rs 10,860 crores in 1989-90, which implies a growth rate of 39 per cent per annum. The Plan envisages a rapid expansion in the production of computers, telecommunication equipment, process control systems and consumer items like television sets.

Infrastructure:

3.47 The attainment of the production targets set for the Seventh Plan depends critically on the functioning of crucial infrastructural services like power supply and transportation. Bottlenecks arising from short-falls in these services have lead to underutilisation of capacity and loss of output in recent years. Hence the Seventh Plan lays great stress on ensuring that the investment and production targets for critical infrastructural services are met. At the same time, given the high capital intensity of these sectors we have also to emphasise measures to economise on the demand for these services through conservation measures. In order to economise in the use of electricity, greater caution is also necessary in the clearance of new power-intensive projects. Similarly, a well conceived policy of dispersal of industrial activities can lead to economy in the use of transport services.

3.48 Output projections for certain critical items are dealt with in what follows.

Electricity: The supply-demand balance for power supply in 1984-85 and 1989-90 is presented in Table 3.13. The demand for electricity is expected to grow at 12.2 per cent per annum over the Seventh Plan and reach 223.23 billion (KWH) by 1989-90. The Plan envisages the commissioning of 22,245 MW by 1989-90 and the level of supplies available from utilities and from captive plants should be sufficient to meet demand. This assumes an improvement in the utilisation of thermal power capacity which stood art 50.1 per cent in 1984-85.

Railways: The demand for rail transportation in 1989-90 is presented in Table 3.14. In terms of originating freight traffic, the load on the railway systems is likely to be 340 million tonnes in 1989-90 as against 263 million tonnes in 1984-85. The average lead of hauls is expected to be around 680 km. The Plan envisages that the growth in passenger traffic will be restrained to 2 per cent per annum and that, within this, priority will be given to long-distance passenger traffic and high density suburban traffic. The outlays for the Railways will be kept under continuous review so as to ensure that transport bottlenecks do not hamper the growth of the national economy.

TABLE 3.13
Demand—Supply Balance for Electricity (Thousand million kwh)

TABLE 3.14
Demand for Railway Traffic 1989-90 (Million tonnes of originating traffic)

                                                          TABLE 3.14 (a)

        Import Availability Ratios of Steel, Fertilisers, Crude Oil and Petroleum Products
                                                                                               
                                                                                                      (Thousand tonnes)

(1) Net of crude exports. Figures of crude oil and petroleum products for 1984-85 are provisional.
(2) Of this, 1.5 million tonnes is assumed to be available for export.

Other transport: The traffic handled by the major ports at the end of the Seventh Plan has been assessed at 147 million tonnes, as against 106.73 million tonnes in 1984-85. Coastal shipping is expected to carry 7 million tonnes of coastal cargo. The growth in passenger traffic of Air India has been assessed at 4 per cent per annum, and that of Indian Airlines has been moderated to 8 per cent per annum.

Communications: The Seventh Plan envisages the addition of 9.5 lakh direct exchange lines (DELs). A substantial expansion is also envisaged in long-distance switching and transmission and overseas communication. A major change will be the introduction of electronic exchanges.

TABLE 3.15
Material Balance: Coal: 1989-90
(Million tonnes)

'Imported Coal
Note: Figures in brackets relate to middlings.

Social Services

3.49 The Seventh Plan lays great stress on human resources development and a major component in this is the expansion of the social infrastructure for education, health care, water supply and sanitation. Moreover, there will be special emphasis on raising the quality of education and health care service for general development.

Education: Enrolment in elementary education (Classes I—VIII) is expected to increase by 25 million and cover 92 per cent of the population in the age-group 6-14 years by 1989-90. In addition, non-formal systems will be used to bring closer the objective of universalisation of elementary education. Secondary school enrolment is expected to go up by 5 million partly through better utilization of existing schools, and with a special emphasis on vocationalisation. Special efforts will be made to improve the quality of education. As part of this drive, model schools will be set up in each district to impart quality education to promising children, particularly those coming from rural areas. Adult literacy programmes will be pursued with the objective of covering all illiterates in the age-group 15-35 by 1990. ;n higher education and technical education, the emphasis will be on consolidation and improvements in quality.

Health: By the end of the Seventh Plan, the infrastructure for primary health care as required on present population norms would be fully operational with regard to village health guides, sub-centres, primary health centres and multipurpose health workers. Programmes for the control of communicable diseases, of health services research and of health education will be strengthened. The Plan envisages universal immunisation under the expanded programme of immunisation. The family welfare programme will be implemented with greater vigour so as to achieve couple protection rate of 42 per cent, with increased emphasis on female education and maternal and child health services.

Water supply and sanitation: During the Seventh Plan, the aim, in keeping with the objectives of the International Drinking Water Supply and Sanitation Decade (1981 -91), is to provide adequate drinking water facilities for the entire population both in urban and in rural areas and sanitation facilities for 80 per cent of the urban population and 25 per .cent of the rural population.

Housing and urban development: The Seventh Plan aims at providing housing assistance to 2.71 million poor rural families. The promotion of self-help housing and rural housing for economically weaker sections will stimulate and support private housing, especially for middle and lower income groups. Around 9 million slum-dwellers will benefit from a programme for the environmental improvement of slums.

3.50 Meeting the energy requirements of rural areas: The Seventh Plan seeks to extend the benefit of electricity to 1.18 lakh villages and energise 23.9 lakh pump-sets for irrigation. In order to meet more effectively the growing demand of energy for purposes of cooking, supply of fuel wood has been included as an additional component of the Minimum Needs Programme. A large scale programme has been drawn up for the development of fuel wood plantations by distribution of seedlings. It is also proposed to expand very substantially the programme for the installation of new improved smokeless chullahs in the ural areas. The programme for the development and utilisation of bio-gas is also sought to be expanded very substantially. Research and development efforts designed to make increasing use of new and renewable sources of energy for meeting the requirement of rural areas will be intensified.

Regional Balance

3.51 The pattern of growth envisaged for the Seventh Plan is expected to contribute towards the reduction of inter-regional disparties in levels of development. The Plan lays great stress on increases in agricultural productivity particularly for rice, coarse cereals, pulses and oilseeds. At the programme level, special efforts are being mounted for rice production in the eastern region and for dryland and rainfed agriculture. This orientation of agricultural strategy along with area development programmes for drought prone, desert, hill and tribal areas will help raise agricultural productivity in the backward regions which, given the high share of agriculture in income generation, will help to reduce disparties in per capita income.

3.52 The Seventh Plan also envisages a major programme in human resource development. In primary health care, the basic infrastructure of sub-centres and primary health centres required on present norms will be fully in position. This will reduce greatly inter-regional disparities in access to health services. The universalisation of elementary education and the elimination of illiteracy amongst young adults, which are important Seventh Plan aspirations, will reduce interregional disparties in educational status. A similar reduction in interregional disparity can be expected in the other components of the Minimum Needs Programme like water supply, rural roads and rural electrification. Hence, the successful implementation of the Seventh Plan will lead to substantial improvements in the human resources potential of backward regions and in their access to basic infrastructure.

3.53 Agricultural productivity and human resource potential are the critical determinants of a region's economic status and the reduction in interregional disparities in these two elements will help greatly in the task of reducing regional imbalances. Moreover, the Seventh Plan will continue certain policy measures which seek to attack the problem of regional imbalnces more directly.

3.54 The transfer of resources from the Central Government to the State Governments for meeting Plan expenditure takes into account the relative economic backwardness of each State. The Gadgil formula for allocation of Central assistance gives first priority to meeting the needs of special category States (the five North-eastern States of Assam, Meghalaya, Nagaland, Manipur, and Tripura together with Sikkim, Jammu and Kashmir and Himachal Pradesh). Per capita Central assistance to these States is very much higher than the national average. The formula, as modified by the National Development Council for the Sixth Plan, also provides that 20 per cent of the balance of Central assistance is distributed only to the States whose per capita income is below the national average. Per capita Central assistance to States with a per capita income significantly below the national average has been higher than per capita Central assistance to other Gadgil formula States since the Fifth Plan. In the Seventh Plan, this bias in favour of economically backward States will continue. In addition, the need to step up investments in the economically backward States will be kept in view while allocating resources under various Centrally-sponsored Schemes by different Central Ministries. In the Sixth Plan the formula for the allocation of market borrowings was revised to ensure higher allocations for States whose per capita income is below the national average. A similar treatment has been accorded to these States in the Seventh Plan. It would also be necessary to take special steps for greater absorption of institutional credit in the less developed regions. The Seventh Plan also envisages the continuation of the investment subsidy, transport subsidy, concessional finance and other promotional measures for industrial units set up in backward districts. These policy measures will be modified and strengthened so as to make them more effective in the task of diversifying the occupational structure in backward areas.

Some Macro-economic Implications

3.55 The major macro-economic implications of achieving the growth and changes contemplated in the Plan are dealt with briefly below.

3.56 Savings: Public sector savings will have to increase from the realised value of around 4 per cent of GDP in the Sixth Plan to an average value of 4.5 per cent over the Seventh Plan period. For achieving this order of public savings, positive measures will be needed to increase savings of Government and the savings of public enterprises.

3.57 The ratio of financial savings to the total household savings has been projected to increase significantly from 43 per cent in the Sixth Plan to 47 per cent in the Seventh Plan. Apart from the creation of- a macro-economic environment conducive to rapid growth of financial savings, the proposed shift in the composition of household savings will require more effective measures for the mobilisation of household savings on the part of financial institutions.

3.58 Consumption: In the consumption pattern, a higher weightage has been given to food consumption mainly because of the expected improvement in income distribution. This will need to be protected by ensuring that the production potential particularly of small and marginal farms is adequately exploited arid by containing the relative prices of foodgrains through the expansion of the public distribution system, particularly in the remote areas. Research and development effort, extension support and institutional arrangements for credit and marketing will need much greater attention to meet the requirements of small and marginal farmers.

3.59 Industry The Seventh Plan envisages a significant acceleration in the rate of growth of industry. For this growth rate to materialise, an acceleration in the export growth and the growth in the domestic demand for manufactured goods have been stipulated. Necessary policy measures will be needed to promote an efficient industrial structure which lays'emphasis on cost reduction, quality improvement and upgradation of technology. Structural reforms will be needed in the management of public enterprises so that these enterprises can meet production targets and also generate adequate internal resources for their expansion.