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

Objectives

3.1 The guiding principles of Indian planning are provided by the basic objectives of growth, modernisation, self-reliance and social justice. Within this framework, each five-year plan involves some directional changes to take into account new constraints and new possibilities. The Seventh Plan, as stated in the Approach Paper approved by the National Development Council, seeks to emphasise policies and programmes which will accelerate the growth in foodgrains production, increase employment opportunities and raise productivity. At the present stage of development, these three more immediate objectives are central to the achievement of the long-term goals put forward in the development perspective outlined in the previous chapter.

Strategy

3.2 The central element in the development strategy of the Seventh Plan is the generation of productive employment. This will be achieved through increase in cropping intensity made possible by increased availability of irrigation facilities, extension of new agricultural technologies to low productivity regions and to small farmers, through measures to make the rural development programmes more effective in the creation of productive assets, through the expansion of labour intensive construction activities for providing housing, urban amenities, roads and rural infrastructure, through the expansion of primary education and basic health facilities and through changes in the pattern of industrial growth. With this emphasis on the generation of productive employment, the Seventh Plan aims at a significant reduction in the incidence of poverty and an improvement in the quality of life for the poor in the villages and towns. There is also a need to generate employment opportunities for educated youth in rural areas. The expansion of education and health facilities will open up job opportunities and the spread of credit institutions and other developmental activities will create opportunities for self-employment.

3.3 The increase in the spending power of poor households will lead to a more rapid expansion in the demand for mass consumption goods, most particularly foodgrains, clothing and shelter. The availability of these goods has to increase commensurately if inflation is to be avoided. Hence the Seventh Plan strategy requires that special attention be paid to increasing the production of foodgrains, edible oils, sugar, textiles, cooking fuel and other articles of mass consumption and rapid expansion in housing. In fact, a more rapid increase in the production of these goods would also reinforce the efforts to generate productive employment for the poor.

3.4 An increase in foodgrains production plays a particularly important role in the Seventh Plan. Any shortfall in foodgrains production will tend to reduce rural incomes and generate inflationary pressures that will hurt the poor and erode public resources. These risks are greater with an employment-oriented development strategy. Hence an expanded food security system, based on rapid increases in foodgrains production, especially in the undeveloped regions, public procurement, buffer stocking, and public distribution is a key component of the Seventh Plan.

3.5 One of the major weaknesses that has emerged in the Indian economy is low productivity resulting from several factors which are interrelated. One major cause of low productivity is the inefficiency in the use of capital: the increases in output in several sectors have not been commensurate with the scale of investment undertaken. The Seventh Plan places particular-emphasis on obtaining more output out of assets that have been built up over the years. This emphasis on efficiency in the use of capital is doubly necessary at the present stage when the resources available for public investment are well short of requirements. It would obviously be an unsound policy to undertake investments in new capacity in order to cover shortfalls arising from the poor utilisation of existing investments. The cost of creating assets has often been raised in the past because of delays in implementation and insufficent attention paid to efficient management and to the adoption of cost effective methods. Improvements in capacity utilisation and efficient project implementation in all areas, especially in irrigation, power, transport and industry, are essential for achieving the basic objectives of the Seventh Plan and for putting the Indian economy on a high growth path.

3.6 Improvements in productivity and efficiency will help reduce the costs of capital intensive and resource intensive goods and services, most of which are intermediates used widely in all sectors of the economy. This reduction is essential for expanding the scale of the domestic market and for improving the international competitiveness of the Indian economy. Hence the Seventh Plan shifts the focus of planning for industry away from massive investments in new facilities to capacity and productivity enhancing improvements in existing facilities.

3.7 The emphasis on productivity and efficency is also linked to the balance of payments prospects confronting the country at present. The inflow of concessional assistance is shrinking and is already limited in relation to our requirements. Hence, the management of balance of payments in the Seventh Plan is critically dependent on a sizeable improvement in our earnings from exports and from invisibles. If export earnings are increased to a significantly higher level on a sustainable basis, not only will the management of the balance of payments be made easier but the scale of operations in the concerned sectors could be increased, thereby reaping economies of scale and reducing costs and prices which would, in turn, expand the domestic market. But a breakthrough in exports cannot be realised if the exports 'sector' is treated as a separate enclave distinct from the rest of the economic structure. Hence, the Seventh Plan postulates the integration of export policy with all policies and programmes that affect productivity and costs. In this context, special attention needs to be paid to the scale of operations and to the reform of the system of taxation of inputs with a view to reducing costs.

3.8 Efficiency and employment generation are closely linked with measures for human resource development. The attention paid to education and manpower development in the past plans has ensured the availability of a substantial infrastructure for education and technical training. Skill formation has also been provided for in various beneficiary-oriented programmes. The primary task now is qualitative improvements in curricula and teaching methods to ensure relevance and impart to students, workers and artisans the values, knowledge and the skills required for emerging developmental tasks. Besides this, human resource development also includes measures to improve health status and steps to improve the participation of vulnerable groups like scheduled castes, scheduled tribes, women and disabled persons in the development process. The development strategy for the Seveneth Plan involves an accelerated effort at human resource development in this wide sense.

3.9 Given the twin emphasis on employment and productivity in the Seventh Plan, the objective is to expand employment opportunities consistent with increases in productivity. The potential of direct employment generation in large scale industries and in much of the infras-tructural sectors is not high because these industries are fairly capital-intensive. However, expansion of industries creates a large volume of down stream employment through forward linkages. In particular, the expansion of small scale and medium industries would add significantly to the growth of productive employment opportunities. Promotional measures designed to improve the access of this sector to modem technology, supply of inputs, credit and risk capital would help to enhance its productivity and competitiveness. Taking all these factors into account, the Seventh Plan provides for a faster industrial growth than during the Sixth Plan.

3.10 The implementation of the Seventh Plan will necessarily require the development and introduction of new technologies in several sectors of the economy. The plan envisages the implementation of a set of science and technology missions in which domestic technological capabilities would be fully developed to achieve well-defined goals. At the same time, in other areas, access to relevant foreign technologies will be improved alongwith emphasis on adequate absorption and development.

3.11 The Seventh Plan aims at extending the green revolution to new areas through its emphasis on raising the productivity of rice in the eastern region and in rainfed and dryland agriculture. This should lead to faster growth in agricultural output in areas which, in the national context, are economically backward. The special role of human resource development in the Seventh Plan strategy will also help correct regional imbalances in social development. These elements in the Seventh Plan strategy aiongwith existing programmes and policies on resource transfers, location of industries, area development and provision of minimum needs would reduce regional imbalances in economic and social development.

3.12 The induction of new technologies and the pursuit of economic growth should not be at the expense of the environment. In the long run, environmentally sound policies are also developmentally sound ones. Hence, environmental protection is an important component of the development strategy of the Seventh Plan. This Plan includes several new initiatives in pursuit of this objective. In this context, a special mention ought to be made of a major new inter-disciplinary programme for the control and prevention of pollution of the river Ganga.

3.13 The Seventh Plan can be implemented successfully only with the involvement of the people. The Plan proposes to do this through effective steps for the decentralisation of planning and development administration as well as by increasing the involvement of voluntary agencies in the implementation of plan programmes, particularly in the rural areas.

3.14 The supplementary contribution which voluntary agencies could make to the overall development of rural areas and the role they can play in the implementation of various anti-poverty and Minimum Needs Programme have not been fully appreciated. By virtue of the type and scope of work they do, voluntary agencies, as a rule, are unorganised. That is their basic strength as well as weakness. It has been generally accepted that Government by itself cannot reach all the families living below the poverty line. Besides, alternative methods and approaches to the problems of rural and urban development and of poverty alleviation as tested in the voluntary sector contain lessons which can be usefully learnt. Voluntary agencies have been traditionally working in the areas of relief and rehabilitation, education, health and social welfare. But they can also play a useful role in supplementing Government's efforts in other areas such as the provision of drinking water, release and rehabilitation of bonded labour, ground water surveys, development of alternative sources of energy and many other activities relating to rural development and poverty alleviation. Several voluntary agencies have acquired, over the years, professionalism and expertise to provide competent technical services and yet the services of voluntary agencies have not been fully exploited by governmental agencies for the implementation of programmes of welfare and poverty alleviation. This is partly because there is no institutional forum where voluntary agencies and Government can come together. Such forums need to be established. They will provide lines of communication between the official sector and the voluntary sector; also they will enable smaller village-based groups to receive funds from the Government and the Government, in its turn, would be able to obtain valuable information on the progress and problems of different development programmes.

3.15 To sum up, the development strategy of the Seventh Plan aims at a direct attack on the problems of poverty, unemployment and regional imbalances. It requires for its success substantial improvements and economy in resource use. These improvements will be achieved through the accelerated development of human resources, greater selectivity in the development and use of domestic technological capabilities, the widespread induction of new technologies in our farms, factories and offices, stronger emphasis on capacity utilisation and better project implementation and the pursuit of policies that would cut down costs of production particularly in the industrial sector.

Macro Dimensions

3.16 The development strategy outlined in the previous section has been spelt out in quantitative terms, taking into account demographic factors, the constraints imposed by the availability of domestic and foreign resources, linkages between different sectors of the economy, the impact of redistributive policies, and the effects of improvements in efficiency and changes in technology.

3.17 The growth rate of gross domestic product (at factor cost) is expected to be 5 per cent over the Seventh Plan period. This rate is in line with the growth rate achieved in the Sixth Plan and a little higher than the average for the past decade. It may also be noted that the Seventh Plan is aiming at 5 per cent growth rate on a base year, 1984-85, which by an large, was normal, unlike the Sixth Plan, for which national income in the base year, 1979-80, was well below normal.

3.18 The sectoral growth pattern expected over the Seventh Plan is presented in Table 3.1 which gives growth rates of the value of output (which includes material input costs) and of value added. The growth rate of agricultural output is expected to be around 4 per cent. This is consistent with the growth in consumption brought about by income growth and by emphasis on the removal of poverty and unemployment. The output of minerals and industrial goods is expected to increase at an annual rate of nearly 8.3 per cent, of electricity, gas and water supply at 12 per cent and of transport services at 8 per cent. Thus the Seventh Plan envisages a significant acceleration in the growth of industry and infrastructure.

TABLE 3.1
Projected Sectoral Growth Rates of Value of Gross Output and Gross
Value Added at Factor Cost 1989-90/1984-85
(Per cent per annum)

3.19 The pattern of sectoral growth envisaged will help maintain the pace of structural transformation. The composition of national income in 1984-85 and 1989-90 is given in Table 3.2. Agriculture and related sectors are expected to contribute 33 per cent of GDP in 1989-90 while the shares of mining, manufacturing, construction, electricity and transport will be 34.4 per cent. Thus, by the end of the Seventh Plan, the contributions of the agricultural sector, the industrial sector and the services sector will, in terms of income generated, be of roughly equal proportions, i.e., about one third each.

TABLE 3.2

Sectoral Composition of Gross Value Added 1984-85 and 1989-90
(Per cent)

3.20 The rate and pattern of growth envisaged for the Seventh Plan will require a total investment of Rs. 322,366 crores of which 94 per cent will be financed from domestic resources. Macro economic aggregates for the base and terminal years of the Plan are given in Table 3.3. The rate of domestic savings is expected to go up from 23.3 per cent of GDP in 1984-85 to 24.5 per cent in 1989-90 which implies a marginal savings rate of 28.4 per cent. A more detailed analysis of the assumptions underlying the projection is given in the Chapter on Financing the Plan.

TABLE 3.3: Macro-Economic Aggregates
(Rs. crores at 1984-85 prices)

3.21 The rate of gross investment would rise from 24.5 per cent of GDP in 1984-85 to 25.9 per cent in 1989-90. The incremental capital output ratio (ICOR), which relates the increase in GDP at market prices to trie total investment over the Plan period, is expected to be around 5 in the Seventh Plan. This is a little higher than the ICOR realised in the Sixth Plan but lower than the trend value of 5.5. The lower value is expected to be realised because of the emphasis on efficiency which is a crucial part of the Seventh Plan Strategy.

3.22 The Plan outlay in the public sector will be Rs. 180,000 crores which includes current development outlays of Rs. 25,782 crores and gross investment of Rs. 154,218 crores. The figures show a marked increase in the allocations for infrastructure and human resource development since these are crucial for the growth in productivity. The share of the public sector in total investment over the Plan period will be 48 per cent. The private corporate sector will account for 17 per cent and unincorporated enterprises and households for 35 per cent of the total investment.

Sectoral Allocation of Public Sector Outlay

3.23 Tables 3.4(a), 3.4(b) and 3.4.(c) give the sectoral allocation of public sector outlays during the Seventh Plan. It will be seen that the largest shares in allocation go to the energy sector (30.45 per cent), agriculture including rural development, special area programmes and irrigation (22.09 per cent) and social services (16.31 per cent), which together account for over two-thirds (68.85 per cent) of total public sector outlay. Thus the plan is heavily oriented towards power, agricultural and rural development, and social services and human resource development.

TABLE 3.4(a)
Public Sector Outlays—Seventh Plan

(Figures in brackets are percentages of column totals).

TABLE 3.4(b)
Sector-wise Allocations for the Seventh Plan 1985-90
(Rs. crores)

1. Includes Rs. 9.59 crores for weights and measures.
   
2. Includes Rs. 1.51 crores for weights and measures.
   
3. For Konkan Railway.
   
4. Includes Rs. 0.15 crore for ropeway.
   
5. Includes Rs. 0.75 crore for inter-model transport studies and Rs. 1.50 crores for City Bus Terminals and Parking.
   
6. Includes Rs. 0.80 crore for inter-model transport study and Rs. 0.35 crore for motor vehicle wing.
   
7. For modernisation of wireless equipments in Gujarat.
   
8. For Radio-telephone link in Lakshadweep.
   
9. Includes Rs. 231.08 crores for State Capital Projects.
   
10. Includes Rs. 63.50 crores for State Capital Projects.
    
11. For rehabilitation in A and N Islands.
    
12. Includes Rs. 0.80 crore for National Small Savings and Rs. 0.20 crore for Parliamentary Affairs.
    
13. Includes Rs. 0.05 crore for Small Savings Schemes and Rs. 0.07 crore for strengthening of Accounts and Goa Gazetteers.

TABLE 3.4 (C) State- wise/Sector-wise allocations for the Seventh Plan 1985-90.
(Rs. crores)

(1) Includes provision for Central funding of Special Area Development Programmes for:

(Rs. crores)

* Includes LIC loan of Rs. 100 crores State-wise/Sector-wise break-up of schemes under these programmes will be firmed up on receipt of specific proposals from the States.

3.24 The pattern of public investment taken together with private investment is designed to sustain the rate of growth of 5 per cent per annum. In allocating investible funds in the public sector, in view of the resource constraint, areas where the rates of return are higher or the needs of additional capacity are more immediate have been given preference over new projects which will yield output only after the Seventh Plan. Another major consideration has been to lay stress on increases in productivity of the existing capital stock through investment in replacements, balancing equipment and modernisation. Finally, an attempt has been made to ensure balance among the infrastructure sectors, the rest of the production sectors and the sector of human resources development including poverty alleviation programmes. It is, however, recognised that in order to sustain the growth momentum in the Eighth Plan, it may be necessary to make additional allocations for new projects in sectors such as power, coal and railways. It may also be necessary to make some additional allocations for roads of national importance, civil aviation, agricultural research and storage facilities. Depending on the progess of the economy, decisions in these matters could be taken at the time of annual plan reviews and the mid-term appraisal of the Seventh Plan.

3.25 The distribution of investments by broad sector of economic activity is given in Table 3.4(d). The share of agriculture, irrigation and allied sectors in total investment will be 19.1 per cent, of mining and manufacturing 32.5 per cent, of electricity, transport and communication 24.2 per cent and of services 24.2 per cent. Almost the entire investment in electricity, railways and communication, 45 per cent of the investment in agriculture, irrigation and allied sectors and 41 per cent of the investment in mining and manufacturing will be in the public sector. This investment allocation has been computed by using sectoral capital output ratios estimated on the basis of past data and information on recent trends.

3.26 The balance of payments prospects for the Seventh Plan are discussed in greater detail in a later chapter. A summary of the broad parameters is given in Table 3.5. At 1984-85 prices, imports are expected to grow at 5.8 per cent and exports at 6.8 per cent. Allowing for net earnings from invisibles, the current account deficit is expected to be Rs. 20,000 crores which will have to be financed by the inflow of aid and other borrowings. These projections include a provision for contingency imports and allow for a small increase in reserves.

TABLE 3.5
Balance of Payments
(Rs. thousands crores)

TABLE 3.4 (d)

Gross Investment and Incremental Gross Domestic Product by Public Sector,
Private Sector and total Economy (1985-90)
(Rs. crores at 1984-85 prices)

Impact on Poverty and Unemployment

3.27 There is now evidence to suggest that the process of economic growth and the anti-poverty programmes have made a significant dent in the problem of poverty. Estimates of the incidence of poverty based on the provisional results of the latest National Sample Survey have been presented in the first Chapter. In the light of this information one can conclude that around 36 million people crossed the poverty line between 1977-78 and 1983-84.

The concepts and methods used will be explained in the Technical Note to the Seventh Five Year Plan.

3.28 The development strategy of the Seventh Plan and the pattern of growth emerging from it are expected to lead to a reduction of poverty at an even faster rate. The impact of economic growth and plan programmes on the incidence of poverty is presented in Table 3.6. The percentage of population with a consumption standard below the poverty line is expected to come down from an estimated 36.9 per cent in 1984-85 to 25.8 per cent in 1989-90. In absolute terms, the number of poor persons is expected to fall from 273 million in 1984-85 to 211 million in 1989-90, the bulk of this improvement being in the rural areas. The expected decline in the poverty ratio is the combined result of the contemplated growth pattern and more effective implementation of various poverty alleviation programmes. At present the National Rural Employment Programme (NREP), the Integrated Rural Development Programme (IRDP) and Rural Landless Employment Guarantee Programme (RLEGP) constitute the major elements of the anti-poverty programmes. It is, however, necessary to emphasise that these anti-poverty programmes cannot by themselves be expected to remove poverty on a sustainable basis. It is only in the framework of an expanding economy and dynamic agricultural sector that we can hope to make a lasting impact on the problems of poverty and under-development. The various anti-poverty programmes are designed to supplement and strengthen the favourable impact of faster agricultural growth on the level of living of the rural poor. A major task ahead is to integrate various beneficiaryoriented programmes, sectoral programmes and area development schemes into a consistent design of comprehensive development of each district/block taking into account its specific resource endowment needs and development potential.

3.29 The impact of the proposed pattern of growth on employment is given in Table 3.7. The employment potential generated by the targeted levels of economic activity is calculated in terms of man-days of work and then expressed in terms of standard person years, each of which is equal to 273 man days of work at the rate of 8 hours a day. Over the Seventh Plan, employment potential is expected to increase by 40 million standard person years against an increase in labour force of around 39 million persons. Employment potential will grow at 4 per cent per year, as compared to the expected growth rate of 2.6 per cent per year in the labour force.

TABLE 3.7
Employment Profile of the Seventh Plan
(Million standard person years)

Table 3.6
Impact on Poverty

Estimated on the basis of NSS 32nd Round Consumer Expenditure Distribution (1977-78). On the basis of NSS Consumer Expenditure Distribution 38th Round (Provisional) 1983.

3.30 The bulk of the growth in employment potential is in the agricultural sector, and within the sector, in subsidiary activities other than crop production. The annual growth rate of employment potential in this sector is 3.5 per cent which is significantly higher than the growth rate of the rural labour force which is expected to be around 2 per cent. Thus the Seventh Plan would provide fuller employment in rural areas. In the non-agricultural sector employment potential is expected to increase at nearly 4.5 per cent per year which should lead to some shift in labour force out of agriculture into non-agricultural activities.

3.31 The employment strategy underlying these projections is described in a later chapter. In essence the strategy is based on the premise that even with a high rate of industrial growth, the excess rural population cannot be fully absorbed in the organised industrial sector and additional employment has to be generated in rural areas through intensification of agriculture and village and rural industries, diversification of rural economic activity and a large programme of construction and capital formation. The employment projections of the Seventh Plan reflect this orientation of development strategy.

3.32 The Seventh Plan also envisages the continuance and expansion of the National Rural Employment Programme (NREP) and Rural Landless Employment Guarantee Programme (RLEGP) which were started in the Sixth Plan. These Programmes are expected to generate 2,458 million mandays of additional employment (9.04 million standard person years) in rural areas. They are particularly important in providing additional incomes to landless labour households who lack a resource base in the form of land. Depending on the food situation in the country and the position of food stocks with the public sector agencies, the employment promotion programmes could be expanded at a faster rate than is indicated by the current provision of outlays in the Seventh Plan.

3.33 While the great majority of the poor people are to be found in rural areas, one has also to take note of the growing incidence of poverty in urban areas. The persistent migration from the rural hinterlands has led to rapid growth of slums in many of our cities and towns. It has also led to considerable amount of overcrowding in relatively unskilled and low paid jobs in the informal sector. The programmes of urban development included in the Seventh Plan lay considerable emphasis on improvement in the living conditions of slum dwellers. However, to be effective, the problem of urban poverty requires a multi-pronged strategy designed, among others to:

1. provide gainful employment to the unemployed, particularly women and youth,
2. raise the earnings of those already employed in low paid jobs,
3. step up the productivity and earnings of those who are self-employed workers, and
4. improve the access of the urban poor to basic amenities like education, health care, sanitation and safe drinking water.

To this end, it is proposed to take up a few pilot projects in selected urban areas. These pilot projects will help identify the type of programmes and support mechanisms (training, extension, credit, marketing and infrastructure) which could make a significant dent on the problem of urban poverty. Wherever possible, the assistance of voluntary agencies will be enlisted for the implementation of these projects.

3.34 The impact of the Seventh Plan on poverty and unemployment will bring about an important qualitative change in the economy. At present the top 30 per cent of the population accounts for over half of the consumer expenditure both in rural and urban areas and for the bulk of the demand for manufactured consumer goods. By the end of the Seventh Plan, with the expected decline in the proportion of the population below the poverty line and with the reduction in the backlog of unemployment, there will be a significant increase in the demand for food articles and for many manufactured consumer goods and services. This increase in the size of the domestic market can provide a base for rapid industrial advance, which in turn will further accelerate the growth in employment. Hence the Seventh Plan strategy which focuses attention on employment generation and poverty reduction will also help strengthen growth impulses in the economy.