1st Five Year Plan
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Introduction || APPENDIX (CH-4) || APPENDIX (CH-9) || ANNEXURE (CH-12) || APPENDIX (CH-14) || APPENDIX (CH-24) || APPENDIX (CH-29) || Conclusion
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Chapter 3:

The Five Year Plan outlined in the next chapter relates directly to the public sector but has in view a programme of development for the entire economy. In the public sector are included the development programmes of the Central and State Governments and also of the commercial enterprises owned by them*. The private sector covers the rest of the economy including corporate and cooperative institutions as well as small enterprises throughout the country in agriculture, industry, transport and finance. While the initiative for development in defined fields as well as the responsibility for coordinating the development programmes in the entire economy will lie with the State, private initiative and effort have also a significant part to play in the process of development. The development expenditure in the Plan referred to as such in this Report has to be related to the resources available to the public sector, but these have also to be linked up with the needs and resources of the private sector. There is, in other words, a single pool of investible resources on which the private and the public sectors have to draw. The problem is not merely to find resources for the public sector but to enlarge progressively the size of the common pool and to see that the total thus available is allocated between the two sectors in terms of agreed priorities.

2. The Five Year Plan as it is now being presented, involves an outlay of about Rs. 2069 crores by the Central and State Governments over the period 1951-56. On present calculations the normal revenue and capital receipts of public authorities, including loans and grants received upto now from abroad, are expected to finance about Rs. 1414 crores of this expenditure. Deficit financing in the public sector—of which more will be said later—cannot at this stage be visualised in excess of about Rs. 290 crores. There is thus still left a gap ofRs. 365 crores which can be met only from external sources or, in the absence of it, by additional measures of internal taxation and borrowing or by further deficit financing.

3. It is clear that external resources are necessary in the early stages of development and that they could be a significant factor in eliminating bottlenecks and in helping to avoid dislocations which may have far-reaching consequences. In the conditions in which the country is placed today, however, a programme with relatively modest targets cannot be made inflexibly conditional on the availability of external resources. Development is a process in which once certain main lines of work have been commenced, supplementary investments have also to be undertaken. Thus there develops in stages a rate of expansion which cannot be slowed down without serious repercussions.

4. The outlay on development by the Central and State Governments in 1950-51, the base year for our calculations, was about Rs. 232 crores. The development expenditure in 1951-52 has been tentatively estimated at Rs. 285 crores. The budgeted outlay for the second year of the Plan is Rs. 346 crores. In 1953-54, by when the expenditure on many of the projects in hand will have reached their peak levels, the total will exceed Rs. 400 crores. If external assistance is not forthcoming to the extent necessary there will undoubtedly be scope for marginal adjustments, but a planned outlay of the order of Rs. 2069 crores over the five-year period is necessary for maintaining the rate of growth of development expenditure visualised by us. The need for attaining a rate of investment in this period which could form the basis of more rapid advances in the following years and lay the foundation for balanced regional development in the next planning period has been an important consideration in determining the development programme in this Plan.

5. The problem of resources is basic to the whole question of planning. It is, therefore, necessary to be clear not only as to the basis on which the Plan is built, but also about the implications of the different methods and techniques which are visualised for meeting the requirements of development in this period. The various aspects of this problem are discussed in some detail under the following heads :—

  1. Taxation and public savings as a source of development finance;
  2. Budgetary resources of the Central and State Governments;
  3. Deficit financing ;
  4. External resources and the problem of foreign exchange; and
  5. The problem of mobilising financial and physical resources.

I. taxation and public savings as a source of development finance

Magnitute Of Savings In The Economy

6. Though the outlay in the Plan itself relates directly to developmental expenditure by public authorities, the problem of resources for meeting this outlay has to be viewed, as already mentioned, in a wider setting. For the country as a whole, the resources that can be applied to development depend on the level of aggregate output that can be attained and on the consumption requirements of the community. The larger the output and the lower the consumption requirements, the greater would be the productive resources available for building up the human and material resources of the country for the future. The precise division of responsibility for development, between the public and the private sectors is mainly a question of internal arrangement depending on the objectives in view and what seems to the community the most effective and acceptable means of achieving them ; once this is agreed upon for the period of the Plan, appropriate measures could and have to be devised for the necessary division of resources. But an assessment of the total resources available to the country as a whole for development is necessary for analysing the full implications of the arrangements proposed for financing the Plan in the public sector.

7. The data available in India for an analysis of output and consumption requirements by different sectors are altogether inadequate. There is only scattered information which might be pieced together for forming an idea of the nature of the problem and of the orders of magnitude involved. Some rough estimates have been attempted for this purpose in the Appendix on 'National Budgeting and the Plan'. These estimates place India's national income in 1950-51 at around Rs. 9000 crores. Of this, the savings available for net investment were probably not much more than Rs. 450 crores. The Five Year Plan is roughly estimated to raise the national product by about Rs. 1000 crores by the end of the five years. Over one half of this increase will be absorbed by the needs of the increase in the population in the meanwhile. It is clear, therefore, that if capital formation from out of domestic resources is raised by 50 per cent in the course of this period i.e., from about Rs. 450 crores in 1950-51 to Rs. 675 crores by 1955-56, it "would in effect be taking away about half of what is left over from the increase in the national product for raising standards of living. But raising capital formation from domestic resources by 50 per cent is not an excessively high target in view of the considerations we have set out in Chapter I. As a proportion of the total increase in national output by 1955-56 the increase in resources devoted to investment would be only about 20 per cent. It should be emphasised that this proportion of reinvestment from the additional output, which is involved in reaching the target, will be necessary to sustain the rate of development we visualise in this five year period.

8. In comparing the total domestic resources that might thus be available—say about Rs. 2700 to 2800 crores over the five year period—with the development expenditure in the public sector proposed in the Plan, it must be borne in mind that net investment is a restricted concept which covers, in the main, only net additions to capital equipment and building construction. The outlay ofRs. 2069 crores by public authorities in the five year period will include not only such additions but also expenditures of a recurring nature on agricultural extension services, health, education, community projects, etc., which may amount to about Rs. 400 crores over the period of the Plan. The net investment in the programme, comparable to the estimate of savings referred to above, will therefore be of the order ofRs. 1600— 1700 crores, which means that the Plan would require channelling through the public sector about 60 per cent of the savings of the community in this period.

9. The releases from India's sterling balances together with other external resources that may become available in this period, will reduce the share of savings to be channelled through the public sector to about 50 per cent. Normally, even half of the investible resources of a country being diverted in this way would be considered a high proportion. But this we regard as inevitable in India at this stage considering the urgent need for investment in spheres like irrigation, power and transport which do not normally attract private agencies but which are pre-requisites to the further expansion of the economy. Moreover, the State is not as it were drawing from a given capital fund ; it is in a position, through fiscal and other measures, to regulate consumption standards within limits and thus release for investment resources which might not otherwise have been forthcoming. As mentioned in an earlier chapter, enlargement of public savings through taxation and through the earnings of public enterprises is one of the major means open in the present state of our organisation to raise significantly the level of net savings in the country.

Narrow Coverage Of Tax Revenues

10. India's total tax revenue in 1950-51 (including the tax revenues of both the Central and the State Governments) amounted to a little over Rs. 625 crores, nearly Rs. 50 crores of which was on account of export duties. As a proportion of national income i.e., about 7 per cent, this level of revenue represents one of the lowest in the world. Taking the revenues of the central governments alone (that is, excluding revenues of local authorities in all cases and of State governments in the case of federations), the proportion of tax revenue to national income is as high as 35 per cent in the United Kingdom, 22 per cent in Australia, 23 per cent in the United States and in Japan, 27 per cent in New Zealand, 19 per cent in Canada, and 20 per cent even in Ceylon. Too much should not be read into this comparison as yields from taxation depend not only on the facilities for collection afforded by particular structural factors (as when corporate incomes are a large proportion of the national income or foreign trade accounts for a considerable part of the transactions) but also on the absolute levels of per capita income. Much also depends on the importance of monetary transactions in the economy ;when a large part of the production is raised by the labour of peasant families and directly consumed by them, the scope for organising taxation would be obviously smaller than if the operations were being conducted through markets and result in monetary transactions. Yet the comparison has its significance, for if the proportion of the national income covered by taxation is as small as it is in India today the public sector cannot, in the immediate future, increase its savings to any significant extent and thus either raise the level of investment in the economy as a whole or provide social services on an adequate scale.

11. A striking feature of the present structure of taxation in India is the relatively narrow range of population affected by it to any appreciable extent. About 28 per cent of the total tax revenue comes from direct taxation* which directly affects only about half of i per cent of the working force in the country estimated at 133 million in 1948-49. Another 17 per cent is accounted for by import duties, a considerable part of which is derived from taxation of commodities like motor vehicles, motor spirit and oils, high-quality tobacco, silk and silk manufactures, liquors and wines, etc., which affect but a relatively small section of the population. A large proportion of the excise duties on tobacco and cloth, which yield about 8 per cent of the total tax revenue, is also probably paid by the limited number of consumers who use the better varieties. Given the structure of incomes in the country it is of course inevitable that the coverage of direct taxation should be narrow ; it is also right that an element of progression should be introduced through higher taxes on commodities which, relatively to the general pattern of consumption of the community, may be regarded as luxuries. In fact, ways and means for raising the revenue from these sources must be constantly explored. But if as much as one-third or more of total tax revenue is derived from certain limited strata of society it implies that the burden of taxation spread over the rest of the community is correspondingly lighter and that relatively small increases in the rates of taxation on the latter will help to add significantly to total tax revenue.

12. In this connection it may be recalled that, in countries which are largely agricultural, and in which transactions involving money are a smaller proportion than in more industrialised systems, land has been traditionally an important basis for taxation. In Japan, when its programmed industrialisation was being initiated in the 1870's, taxation of land yielded as much as 13 per cent of the value of gross agricultural produce ; even thirty years later, when other forms of taxation had developed, land tax accounted for nearly half of the total tax revenue of the government. Thus, in a sense, it was taxation of land which in Japan provided the initial resources required for development. In India also land taxation was high before the last War and, in the depression years, it weighed heavily on the farmer. In the last decade prices have moved in favour of primary commodities and, since in most parts of the country land revenue has not been raised upwards, the burden of this tax has been considerably lightened. It is reflected partly in the fact that land revenue contributes at present only about 8 per cent of the total tax revenue as compared to about 25 per cent in 1939. The rise in agricultural prices has however benefited significantly only producers with sufficiently large marketable surpluses ; it is also true that costs of production have gone up in many cases. The improvement in prices cannot therefore by itself be made the basis for a substantial upward revision of the tax on land. But within the context of a development programme designed as much to raise agricultural prosperity as to promote all-round economic development, a programme towards which all sections of the community have 10 contribute to the maximum extent possible, there is a case for moderate upward revision of land revenue. At the moment the capacity of the agricultural sector to bear further additions is limited, but this will no doubt improve as the programme of development gets into swing and, with additional irrigation and other facilities, agricultural productivity is stepped up. Betterment levies designed to draw into the public exchequer a proportion of the capital gains that accrue to private parties as a result of development are a recognised device for strengthening public savings. It is the essence of rapid development that, consistently with the need to the standards of living of the poorer sections of the community, as much of the additional incomes generated .should be ploughed back into the system by way of investment for still more rapid increases in output.

13. Apart from the question of legal coverage, there is the question of actual coverage is a function of the administrative arrangements for securing that those liable to tax do in fact pay. In India it would appear that there are considerable leakages on this account. The following table shows estimates of income assessed to income and super taxes as well as the amounts paid by way of these taxes in the various income ranges in 1950-51.

Income range (rupees) No. of Assessees (thousands) Total income assessed to tax* (Rs. crores) Yield of income and super taxes (Rs. crores)
0-5,000 236-8 8-0 2-3
5,000-10,000 134-4 93 -2 5-1
10,000-40,000 86-9 152-9 24-9
40,000-100,000 10-1 59-9 23-3
100,000 and over 4-2 187-7 99-4
  472-4 574-7 155-0

"Income assessed to tax is after allowing for depreciation allowances of business enterprises, earned income relief, etc.
+The number of assessees on the register at present is about 850,000. Part of this increase is accounted for by the inclusion of assessees in Part B States, but there has also been considerable improvement in the reporting of assessable incomes in the lower ranges.

It will be seen from this that, though there is undoubtedly a strong case on grounds of equity for making the higher income groups bear a larger share of the burden of development, fairly large proportions of the incomes in the higher ranges, in so far as they are covered by the administrative machinery, are absorbed by direct taxation even at existing rates. Over a wide range, there is, however, evasion of taxation. The reports of the Income Tax Investigation Commission show that such evasion takes place in the middle as well as higher income ranges. The fact that the corporate form of organisation is confined to a limited sector of business rpndt-rs the problem of checking evasion difficult, particularly in regard to trading operations. Even wrcre the corporate form exists, the close inter-locking of managerial and oi-her cf.-itnUuY interests in industry, trade and finance offers to the unscrupulous opportunities for evasion. If such evasions could be stopped, it might make a considerable addition to the receipts under direct taxation.

14. Where the scope for direct taxation is limited, the incomes of the greater part of the population can be reached only through taxation of commodities. As mentioned earlier, an element of progression can be introduced through higher taxes on commodities which, relatively to the general pattern of consumption in the community, may be regarded as luxuries. In the United Kingdom direct taxes on incomes cover a large sector and the need to rely on indirect taxation is correspondingly less ; import and excise duties, however, are still heavy enough to account for a sixth of the total personal consumption expenditure in the country.* In India, apart from these two sources, it is clear that increasing reliance will have to be placed on sales taxes. Through sales taxes can be reached commodities not covered by either import or excise duties :' hey have also the advantage that they can be adjusted to particular regional conditions. The -r.-ublem here is again one of administration ; it has to be ensured that those liable to tax do i.i fact pay so that progressively the legal coverage of sales taxes could also be extended to cover a larger range of trading activity.

The narrow coverage of taxation is responsible to a great extent for the relatively small prop i'raon of the national income absorbed by the government in the form of tax revenues. It also accounts partly for the existing level of taxation appearing to be heavy. Both ways it restricts the extent of public savings. The narrow coverage of existing taxation has the further indirect effect of increasing the dangers of deficit financing. For the smaller the proportion of the additional incomes mopped up by taxation, the greater would tend to be the pressure of demand on output arising from a given measure of deficit financing.

Scope For Higher Taxation

16. These are matters which cannot be overlooked in framing a programme of development, especially when it is clear that with net savings of about 5 per cent of the national income the rate of progress that can be attained will be extremely limited. In the initial stages of planning, however, the size of the programme as well as the sources of finance will have to be fixed keeping in view what can be achieved through existing institutions and the available administrative and fiscal machinery. Taxation has also its limitations within a given political and economic structure. Turnover taxes on the scale in evidence, for instance, in the Soviet Union involve a degree of organisational control over production and internal trade which again cannot be realised in India in the near future. While, therefore, taxation policy in India must be designed to raise the level of tax revenues to meet the needs of development, it will have to be adjusted also to the economic and social framework within which development has to start.

17. According to present estimates, by the end of the Five Year Plan, the tax revenues of the Central and State Governments are likely to be about Rs. 70—8o crores higher than in 1950-51 ; if there are unexpected receipts on account of items like export duties the increase may be of the order of Rs. 100 crores. This estimate covers the normal increases that might be expected at the existing rates of taxation as well as the estimated yields from a variety of measures like increases in the taxes on land, higher irrigation rates, death duties, betterment levies, better administration and wider coverage of sales tax, higher taxes on luxuries, etc. Some of these, it will be noticed, are taxes on capital transfers and capital gains and not strictly taxes on current income. But assuming normal conditions', the increased rates of taxation, together with these levies on capital transfers and capital gains, will only enable the level of tax revenues to be maintained at about 7 per cent of the national income even at the end of the Plan. If conditions abroad are favourable for raising larger revenue from export duties than has been assumed in our estimates, and if it is also found possible to raise direct taxation, total tax revenues could be raised by about Rs. 30 crores per annum, but the difference it would make to the above percentage would be small. Apart from this, we should emphasize that unless fiscal policy and the machinery of taxation are re-orientated so as to obtain a significantly wider coverage the tendency will be not only for tax revenues to fall as a proportion of further additions to national income but to make the sharing of the burden of development increasingly iniquitous.

II. Budgetary Resources Of The Central And State Governments

Classification Of Sources

18. The financial resources available to a government for development can be broadly distinguished as of two kinds : (a) the savings it can make from current revenues and from the earnings of State enterprises after meeting its non-developmental expenditures, and (b) the private savings it can draw upon through loans, small savings, deposits and funds, and other miscellaneous channels. A grouping of the resources of the Central and State Governments, which follows strictly the distinction between these two categories of savings and also adheres to a definition of ' net savings ' corresponding to that of net investment referred to earlier, would require considerable reclassification of budgetary accounts. From the operational point of view also, such a rigid analysis has its limitations. For the purposes of our analysis here, a some-what looser grouping has therefore to be attempted.

19. The Five Year Plan treats as development expenditure not only additions to fixed capital equipment and building constructions figuring in the revenue and capital accounts of the Central and State Governments but also initial recurring expenditures on social services, agricultural extension services, etc., which are almost invariably financed from current revenues. On the other hand, capital expenditure on items like defence is non-developmental from the point of view of the Plan. The savings of the public sector, corresponding to this definition of development, are therefore the surpluses of revenue over suchconsumption expenditures of the government as have been treated as non-developmental in the Plan*. As for estimates of private savings which the Government might draw upon, the net receipts from loans, small savings and other unfunded debt, deposits and funds, etc., would obviously come under this category. But there are a number of transfers within the Government budgets, from the revenue to capital accounts as well as between the capital accounts of the various federal units, some of which may represent additions to public saving and should really be included under that. head. These items cannot be traced without detailed scrutiny. They are therefore apt to come under our estimate of private savings channelled into the public sector through ' deposits, funds, and other miscellaneo-is sources.

Growth Of Public Savings And Capital Receipts

20. Classifying in this way the budgetary resources likely to be available to the Central and State Governments over the period 1951—56, public savings, it is estimated, will finance about Rs. 738 crores of the expenditure visualised in the Five Year Plan. Capital receipts are expected to contribute another Rs. 520 crores. The two sources will together meet about Rs. 1,258 crores of the planned outlay of Rs, 2,069 crores.

21. What these estimates imply can be seen with advantage in the light of the actuals for a past year. If we take 1950-51 as the base, public savings estimated on a comparable basis work out to about Rs. 145 crores. The estimate for public savings for the five-year period thus only about maintains on an average the level reached in the base year. The fact that no significant increase? over this level are visualised in the estimates in spite of the anticipated increase in tax revenues over the period of the Plan is explained mainly by two factors. In the first place, windfall revenues from export duties and from arrears of income tax had helped the Central Government to develop a substantial revenue surplus in 1950-51. . In 1951-52 there was an even larger surplus, but the subsequent recession abroad makes the recurrence of such surpluses problematic. The maintenance of the level of public savings on an average at the level reached in 1950-51 therefore itself presumes additional revenues from other sources. Secondly, the outlay on defence has risen substantially since the base year, the budgeted provision for 1952~53 being about Rs. 215 crores as compared to the expenditure of Rs. 168 crores in 1950-51. The growth in defence expenditure is accounted for by the needs of the infant while expenditure on defence and administration, whether on revenue or capital account, would thus be deducted from current revenues, development expenditures in the Plan met from revenue would be excluded. In other words public savings would be equal to total current revenues minus expenditure of a non-developmental nature on revenue account and also minus any non-developmental expenditures on capital account other than capital transfers which as explained below, are deducted appropriately in calculating the net capital receipts of the government from the private sector.

Net receipts under these heads are calculated after deducting capital transfers from the Government to the private sector on account of refunds of excess profits tax and income-tax deposits, loans by Government of a non-developmental nature, etc. Receipts under these heads by way of withdrawals from reserves are also deducted. services {i.e., the Navy and the Air Force) and by the large scale replacement of equipment throughout the defence services which has been found necessary. Under these heads it is at this stage difficult to visualise any substantial economies in the Plan period. There is also urgent need for establishing defence industries of key importance, though the sums that can be provided for these are at present only a small proportion of the investment needed.

22. The main improvement expected in the resources position of the Central and State Governments from the point of view of development is in rcsp^c '• of capital receipts. In 1950-51, the net yield from loans, small savings, deposits and funds, and other miscellaneous sources amounted to about Rs. 77 crores; of this Rs. 16 crores was however in the nature of extraordinary receipts under state trading. Over rhc period of the plan the -nme sources are estimated to yield Rs. 520 crores, showing an imp'-'i i ;ment on an average of the order ofRs. 43 crores per annum. In 1950-51 the Central Government had no net receipts from deposits, funds, and other miscellaneous sources mainly becnse of large refunds of excess profits tax and income tax ,-leposits and certain extraordinary items of payment which fell due. The revised estimates for 1951-52 and ihe budget estimates for 1952-53 show that the net receipts of the Centre under tlie same heads would amount to about Rs. 31 crores in these two years. The estimate for the Plan period also takes credit for receipts of the order ofRs. n crores from certain capital accretions on account of the Plan*. In addition to the above the subscriptions to government loans are expected to register substantial increases. Investment in Government securities from out of the proceeds of the newly constituted provident fund for industrial workers is estimated to yield Rs. 36 crores. As will be explained later, the absorption of securities by the market was exceptionally low in 1950-51 for much the same reasons that account for the high level of public savings in that year.

23. The financial programme as outlined here does not presume any radical changes in the machinery of taxation or in the techniques of borrowing. There is no doubt that there is considerable scope for improvement in both. Techniques of borrowing, in particular, have to be adapted so as to convey to the people the larger purposes for which the loans are being raised and to facilitate their participation in the development programme on the largest possible scale. Ways and means of checking the growth of non-developmental expenditures have also to be continuously and unremittingly pursued. To these we shall come back at a later stage.

24. The above assessment of resources available for the Plan, in so far as it concerns the Central Government, has been made in the light of the revised estimates for 1951-52 and the budget estimates for 1952-53. In the case of the States we have retained for the present the estimates made over a year ago and have also provisionally assumed that, corresponding to certain increases in net outlay proposed by some of the State Governments, the additional this chapter. Part C States have been included under the Centre, and' States' refer only to Parts A and B States and Kashmir.resources necessary would also be found by them from current revenues. Some part of these increases is of an accounting nature since they arise from inclusion of development schemes which were being implemented out of the resources of the States but had not been previously treated as such. It is clear however that a reappraisal of State finances will be necessary in the near future, particularly in the light of the recommendations of the Finance Commission. The following table, which gives the breakdown of the estimates, for 1950-51 as well as for the Plan period, shows the division of responsibility between the Centre and the States for raising resources as it is now visualised.

  Base year 1950-51 Plan Period 1951-5'5

including Part C States)

Parts A and B

States and Kashmir

Total Centre (including PartC States) Parts A and B States and Kashmir Total
Public Saving from
(a) current revenues 7 5 122 160 408* 508
(b) railways     23     170
Private savings absorbed through
(a) loans from the public   8 -3 3+ 79 "5
(6) small savings and other unfunded debt 42   42 270   270
(c) deposits, funds and other miscellaneous sources (net)   38 38t 90 45 135
total 125 97 222 726 532 1258

25. According to the financial programme drawn up last year in support of the State Plans, the State Governments were in all to raise about Rs. 213 crores of additional revenue over the five years. This would now have to go up to Rs. 232 crores on account of the further addition Represents estimatedinvestmentin government securities from out of the provident funds ofindustrial workers;taking this into account provision is made in the Plan for loans and grants for industrial housing of the order of Rs. 38" 5 crores.Of this Rs. 16 crores was on account of state trading through reduction in stocks. Some of the accumulaties in theSontatesis also perhaps due to delaysin transfer of amounts due to the Centre.of Rs. 19 crores by some of the States to the outlay in their Plans. Measures to be adopted in respect of about three-fourths of this amount were settled in consultation with the State Governments concerned ; the nature of the measures contemplated will be evident from the following table :

(Rs. crores)

Revenue from taxation on land (covering land revenue and agricultural income tax) 34.0
Revenue from irrigation (covering irrigation rates and betterment levies) 29.5
Revenue from other commercial ventures of the State {i.e., forests, electricity and minerals) 4.8
Revenue from capital transfers {i.e., from Estate Duties) 21.3
Revenue from taxation of general commercial activity (i.e.. Sales Tax) 25.5
Revenue from other miscellaneous sources (including taxes on luxuries) 37.5
Revenue from economies in non-development expenditure 12.4

26. The estimate of the total additional resources to be raised by State Governments for the implementation of the development programme was based on preliminary estimates made early in 1951 which indicated an overall deficit in the State budgets of the order of over Rs. 30 crores in the base year 1950-51. The final accounts for the year show that the budgetary deficits of State Governments were in fact much smaller. Compared to the revenues realised in 1950-51, therefore, the States would not have to raise additional resources of the order estimated earlier if expenditure not covered by the Plan under administrative as well as developmental heads like education, health, etc., were not allowed to exceed the original estimates. In practice, as will be mentioned later, the revenues of State Governments have continued to rise even above the 1950-51 level—without the measures contemplated for raising additional resources being taken on any significant scale—but non-Plan expenditures have been rising even faster with the result that the original target in regard to additional resources has to be still more or less maintained.

The Borrowing Programme

27. The borrowing programme of the Centre and the States involves in all raising an amount of Rs. 385 crores over five years. This includes loans, as well as small savings and other unfunded debt, but excludes possible net receipts from treasury bills and other floating debt. In 1950-51 loans, small savings and other unfunded debt yielded a net sum of only about Rs. 39 crores ; in respect of loans there was in fact a net outflow. Over the period of the Plan, investment in government securities from out of the provident funds of industrial workers is*The need for raising the remaining Rs. 67 crores has arisen mainly out of the proposals made by some of the State Governments, subsequent to the consultations with the Commission, for raising the size of their State Plans. The upward revision in' the targets of expenditure have been accepted provisionally on the condition that the resources corresponding to these would be raised by the governments concerned. 57 expected to yield about Rs. 36 crores. The scope for government borrowing has also to be judged in the light of several other factors. During the war, when money was plentiful and the general level of liquidity high, the market was naturally more receptive to long and medium term loans. But to the extent that the holdings of long and medium terms securities at the end of the war were higher than what the community would normally have held, they were (along with the large holdings of money) part of the latent inflationary potential in the country left by the war. Since the end of the war there has been a marked shift in favour of more liquid assets. The large scale liquidation of securities in the post-war period may therefore be regarded in a sense as part of the adjustments involved in the return to a more normal pattern of asset holdings. It is difficult to say to what extent this process has been completed or in which direction the preferences of the community might move in future, but it would appear that at least the market for short term and medium term loans is more favourable than it has been for some time.

28. In 1950-51 there were exceptional factors, following the outbreak of the Korean War, which encouraged sections of the community to move away from holdings of money to holdings of commodities. The large scale liquidation of government securities by the commercial banking system, which was a major factor in depressing the market for these securities, was a feature resulting from this movement. In that year the Central and State Governments also sold fairly large amounts from their own holdings of securities. The net absorptive capacity of the market in regard to Government loans cannot therefore be assessed with reference to 1950-51, though it is noteworthy that, even in that year, the non-banking sector of the economy did probably absorb a considerable part of the securities thrown on the market.*

29. In estimating the resources of the Central and State Governments, it may be emphasised, we have not taken credit for the possible receipts from sale of government securities held in the Cash Balance Investment Accounts. It follows that the entire savings of the community likely to go into Government securities could be taken credit for as available for fresh issues. The new links that are being established between the Reserve Bank and the commercial banking system will also furnish the latter with the means of preserving liquidity in times of heavy demand without having to unload securities on a large scale. Two factors which affected adversely the absorptive capacity of the market in regard to fresh issues in 1950-51 are thus likely to be less prominent in the future.

('Rs. crores)

  June 1950 June 1951
Total current rupee loans M47 1,447
Of which held by :
(i) Reserve Bank of India :—
(a) on its own account 247 330
(b) on account of others 217 203
(2) Commercial and Cooperative Banks 358 299
(3) Insurance Companies 3 113
(4) Part A and B States 209 148
(5) Non-residents 61 60
(6)Others 242 294

30. The outlook in regard to small savings is also distinctly better over the Plan period than it was in 1950-51. From Rs. 33 . 5 crores in that year the budgeted figure for 1952-53 has gone up already to Rs. 44-5 crores. Together with other unfunded debt the average annual rate of Rs. 54 crores visualised as part of the financial programme should be therefore relatively easy of achievement. The objective must in fact be to surpass this target. It has been agreed recently that proceeds from small savings collected by the States in excess of the present level of Rs. 44.5 crores will be retained by the States responsible for raising them, the amounts thus retained being treated as loans from the Centre. This arrangement is designed to promote the small savings campaign more effectively by helping the State Governments to link up small saving with schemes of local development in which the people are directly interested.

Sharing Of Resources Between The Centre And The States

31. Over the period of the Plan, there will be a flow of assistance from the Centre to the States under a variety of heads. Apart from grants-in-aid of a statutory nature, the States will receive assistance in the form of loans for river valley schemes, minor irrigation, rehabilitation of displaced persons, community projects, cottage and small scale industries, and other schemes of development included in the Plan as well as grants from the Central Road Fund for construction of roads, grants for relief of displaced persons, grants for raising food production, etc. For operational reasons, many of the schemes of development for which the assistance mentioned above will be given are included in the Plan as part of the development schemes of the Central Government, and so the estimated assistance for the State Plans as such works out to only about Rs. 193 crores.* But this, we must emphasise, is only a matter of presentation and the share of the States in the development programme of the public sector, as well as the magnitude of the transfers which will be necessary from the Centre to the States,-are both very much larger than would appear at first sight.

32. In the " Central assistance " as estimated for operational purposes, referred to above, has been included assistance only under the following heads : bonuses on food procurement (now discontinued), grants and loans for the Grow More Food Campaign, special grants to Part B States for development, and loans for ' miscellaneous development 'f. The contribution which these would make to the financing of the State Plans will be evident from the following statement which compares the position in 1950-51 with the estimates in the Plan :

(Rs. in crores)

  1950-51 1951-5'S
Resources of Part A and B States and Kashmir 97 532
" Central Assistance " 31 193
Total Resources available for Development Expenditure 128 729
Development Expenditure as in the State Plans 8 796
Surplus (+) or Deficit (—) +10 -67

*0ff his Rs. 10 crores will be for Kashmir.

Loans for' miscellaneous development' isabudgetary head which includes loans for irrigation and power projects, industries, etc.

Includes assistance of Rs. 10 crores for me Kashmir State Plan ; in addition Rs. 4 crores is to be given by way of statutory grants for scheduled tribes which will be available for part of the development expenditure on scheduled tribes in the Assam State Plan,33. From a preliminary review of the working of the State Plans in 1951-52 and the budgets of the State Governments for 1952-53, it would appear that the task of organising finances to the pattern outlined in the above paragraphs has by and large yet to begin. In 1951-52 the developmental expenditure of the States was about Rs. 135 crores, which is about Rs. 24 crores lower than the average annual rate contemplated over the period of the Plan; the " Central Assistance " in 1951-52 amounted to a little over Rs. 34 crores, and the States were also able to raise nearly Rs. n crores by way of loans from the public. The short-fall in resources was still as high as Rs. 68 crores, and this had to be met by drawing down reserves. The reserves of the State Governments are limited and this process cannot go on for long. There were of course special factors in 1951-52 to account for the pressure on State finances, like famine and flood;, in several States and a marked accumulation of food stocks. It is also true that larger deficits were anticipated in the State budgets in the initial years of the Plan than in the later years. The magnitude of the short-fall in resources in 1951-52 is however still too large to be explained by these considerations alone.

34. As mentioned earlier, the revenues of State Governments have been rising over the last two years, but expenditures outside the State Plans have been more than absorbing these increases. The increase in expenditures is not only under administrative but also under other heads like agriculture, education, health, etc., where any major expansions should be normally on items included in the State Plans. It would appear that there has been a tendency for schemes outside the Plan to be taken up in addition to those already in it. To the extent that this is done and a close check is not kept on non-developmental expenditures of all kinds, the implementation of the State Plans is bound to suffer. It is probable, that, in the case of certain States, the need to bring up the level of administration, as well as the increased demands that are being made on the administrative machinery even for preparing the foundation for development planning, will require some expansion in ' non-developmental' expenditure. These considerations, as well as the relative merits of the schemes which are now being added on as compared to the schemes which were originally in the State Plans, are matters which deserve close examination. But we must emphasise that the capacity of the Centre to give additional assistance is limited. As will have been evident from the earlier paragraphs, there is a short fall in resources even for the commitments which it would have to undertake under the Plan as now visualised. The whole scheme of Central assistance, as now worked out, may have also to be readjusted in the light of the recommendations of the Finance Commission. All these would have to form part of the re-assessment of State finances referred to already in paragraph 24 of this chapter. It seems inescapable in any case that the measures contemplated for raising additional resources at the initiative of the States must be regarded as an integral part of the programme of development set out by us.

III. Deficit Financing

35. The above assessment of the resources of the Central and State Governments brings us to the question of the scope for deficit financing for development. The term ' deficit financing ' is used to denote the direct addition to gross national expenditure through budget deficits, whether the deficits are on revenue or on capital account. The essence of such a policy lies therefore in Government spending in excess of the revenue it receives in the shape of taxes, earnings of State enterprises, loans from the public, deposits and funds and other miscellaneous sources. The Government may cover the deficit either by running down its accumulated balances or by borrowing from the banking system (mainly from the Central bank of the country and thus " creating " money)*.

36. In 1950-51, the base year, budgetary deficits were of a relatively small order as will be seen from the estimates below :

(Rs. in crores)

Centre   States  
Resources available for development 125 Resources available for developmentand for assistance to States. 97
Development expenditure at theCentre on schemes included in the Plan and on schemes comparable to them completed in the year. 114 " Central Assistance " 31
" Central assistance " to States 31 Development expenditure 8
deficit (—)Covered by— 23 surplus (+)Reflected in— +10
(a) withdrawals from cash andsecurity reserves 11 (a) increase in reserves 5
(b) short-term borrowing (i.e., byincrease in floating debt). 9

(6) reduction of short term indebtedness. 5

But the country as a whole had a surplus in its external account on account of the extraordinary international conditions which developed during the year. This meant that, instead of having domestic resources supplemented by external resources, India was, in effect, investing part of its current savings abroad. In 1951-52, the first year of the Plan, this trend was reversed and there was a substantial deficit in India's balance of payments financed from the sterling releases carried over from the earlier years as well as from the fresh releases for the year. The development expenditure in the public sector was larger—and so also the budgetary deficits—but the supplementing of domestic by external resources made it possible to meet these increases without excessive strain on the economy. Imports of food in 1951-52 were also the highest for any post-war year, which carried with it the assurance that inflationary pressures could be checked at the most vital points. It is in the light of these special factors in 1951-52 that the disinflationary forces which began to develop in the economy towards the later part of the year have to be assessed.the scope for using these as a source of finance by sale of treasury bills to agencies other than the central bank have to be explored from time to time for reducing budgetary deficits.

37. The experience of 1951-52, contrasted with that of 1950-51 indicates the importance of external resources in relation to the financing of development. The greater the availability of external resources the less will be tlie strain on the internal economy. The precise role which external resources could play in relation to the Plan is dealt with in some detail in subsequent paragraphs.

38. At the present stage, the external resources that can be firmly counted upon for the Plan—apart from loans and grants from abroad already received which we take credit for elsewhere in our estimate of resources—are the releases from India's sterling balances,* estimated at Rs. 290 crores over the five-year period. This, so far as it is possible to visualise now, may be regarded as the safe upper limit to deficit financing. The position will of course have to be reviewed from time to time in the light of prevailing conditions.

39. It is true that stability of prices cannot be an end in itself, particularly if this can be attained only by restricting the incomes of the large mass of the people. It is also true that some increases in purchasing power at chosen points may be necessary and even desirable for the smooth functioning of the economy. The point we would however like to emphasise is that deficit financing can be countenanced only if and to the extent that there is assurance of steady supplies of the essential commodities of consumption. Deficit financing should not also be expected to provide the elasticity in money supply which must really come through the credit system. The scope for deficit financing at any particular time must be judged not so much in terms of movements in wholesale prices or in money supply but rather in the light of the trends in the cost of living indices. When costs of living are high, increased purchasing power injected into the system is apt to lead to increased demand for the basic commodities of consumption and push up costs of living still further.

40. From this point of view it is important to stress that the scope for deficit financing is intimately bound up with the policy regarding physical controls. If the supply and distribution of foodgrains, and other essential commodities such as cloth and gur or sugar, could be so organised as to meet the minimum requirements of the population, the dangers of deficit financing would to that extent be minimised. The impact of larger money incomes would then fall on other commodities and services which matter less from the point of view of the cost of living of the large majority of the people. Without a firm and clear policy regarding controls, and without also assurance of continuity in that policy over a period of time, not only does the scope for deficit financing become limited but there is a perpetual danger of even relatively small budgetary deficits generating inflationary pressures. In this sense, therefore, it is not finance as such which limits the scale of investment effort but ahers the limitations of policy and administration regarding the supply and distribution of foodg ins and other essential commodities.

IV. External Resources And The Problem Of Foreign Exchange

The Gap In Internal Resources

41. The low levels of consumption prevailing in the country and the shortages of essential commodities even at these low levels—which are ultimately the factors that limit the scope for deficit financing—raise in a concrete form the problem of external assistance in relation to development. It was indicated earlier in this chapter that a development programme of the order of Rs. 2,069 crores would absorb over 60 per cent of the savings of the community in this period. Part of the pressure this throws on the economy will be met by resources which withdrawals from the sterling balances will make available. There would still be need, however, for further external resources.

42. To date, the loans and grants received by India from abroad in the planning period, which could be used for its development programme, amounts to Rs. 156 crores. The breakdown of this is as follows :

(Rs. crores)

United States Food Loan 90
Common wealth Assistance under the Colombo Plan 12
Assistance under the Technical Co-operation Agreement, 1952 25
Assistance under the First Supplement to the Technical Co-operation Agreement, 1952. 18
Proceeds of Loans from International Bank 1950 9
Other aid 2

The budgetary resources of the Central and State Governments, together with external assistance already received, thus add up to Rs. 1414 crores. If deficit financing is to be avoided altogether, and the additional imports which can be financed from the sterling balances are to be allowed to increase the availabilities in the private sector, the furthei resources necessary may be placed at Rs. 655 crores. If resources of this order are forthcoming, this, together with the sterling balances and the current domestic savings which are estimated to go up meanwhile by nearly 50 per cent will ensure the implementation of a total investment programme of the order of about Rs. 3500—3600 crores (of which about a half will be the net investment visualised in the public sector) without excessive strain on the community. Whatever austerity the country is capable of has to be exercised in any case, but to the extent that the availability of external resources falls short of the target the strain imposed on the community will have to be correspondingly larger.

Foreign Exchange Requirements And Foreign Exchange Savings

43. The internal pressures to which we have been referring are apt to manifest themselves to a great extent in balance of payments difficulties and shortages of foreign exchange. External assistance, if available, would thus serve two functions simultaneously ; it would make available adequate supplies of foreign exchange and also supplement the investible resources in the country. In the schemes included in the Five Year Plan itself, the direct foreign exchange expenditure involved is comparatively small, being only about Rs. 400 crores over the five year period. But this does not represent the real foreign exchange requirements of the development programme for the economy taken as a whole. The relatively small proportion of direct foreign exchange expenditure in the Plan is attributable to the pattern of development proposed to be initiated by the public sector in this period. If industrialisation were more prominent in the public development programme the proportion of direct foreign exchange expenditure would have been considerably higher. The emphasis on agriculture, together with the general bias in favour of labour intensive methods in order to utilise the manpower in the country to the maximum, accounts for the greater reliance on domestically available resources as far as the Plan itself is concerned. But the fact that most of the expenditure is internal and would expand domestic incomes which would, in turn, generate additional demand for raw materials and basic commodities of consumption, makes it essential to make available these commodities by importation from abroad in so far as additional supplies are not forthcoming domestically. To the extent that the prices of imported commodities are higher than the prices at which the cost of the Plan is estimated, the external resources necessary for meeting the deficit in the Plan will of course be correspondingly larger.

44. Balance of payments difficulties and shortage of foreign exchange resources are normal features in periods of development. In the Plan, a high priority is accorded to lines of production which will help to reduce import requirements and increase the country's exportable surpluses. There is thus an attempt to anticipate and meet to some extent the kind of problem that is likely to come up in the future. The fact remains, however, that development cannot be completed in a short period, and it will therefore be necessary to visualise a programme of rising capital goods imports for many years to come.

45. For assessing the effect of the Plan on the balance of payments of the country, we have assumed the maintenance of strict import and export controls throughout the period of the Plan, and tried to estimate the export surpluses and import requirements by 1955-56 on the basis of the production and consumption targets in the Plan. An important variable, however, which would affect export surpluses and import requirements is the level of investment itself in the country ; for the purpose of making a first assessment, we have assumed a rate of outlay corresponding to a development expenditure on public account of the order of Rs. 1700 crores (i.e., an expenditure which could be more or less met from the budgetary resources of the Central and State Governments, deficit-financing to the extent of about Rs. 290 crores, and the external assistance already received). A higher rate of outlay, corresponding to the target of Rs. 2069 crores in the Plan is not likely to make a proportional contribution to production within this period, as the additional expenditure would be mainly on schemes started in the second half of the Plan period which would not be completed in this period ; but it would increase to some extent the direct foreign exchange requirements of the development programme and, even more significantly, the level of consumption demand in the country. With more purchasing power injected into the system the demand for food, for instance, may be higher. It is difficult, however, to forecast with any certainty The likely pressures that may be set up in this manner, and we have therefore left over for the present—but to be taken account of at a later stage—the effect on import requirements and export surpluses of a rate of a development expenditure corresponding to the target of Rs. 2069 crores in the Plan. Statement 'A' attached at the end of this chapter shows our estimates of the exports and imports, by the end of the Plan of some of the major commodities entering India's foreign trade. These estimates are based on the production and consumption targets in the. Plan, but assume the maintenance of strict export and import controls in order to maintain the foreign exchange deficit within the resources that would be available from the sterling balances. It will be seen that, at the prices prevailing in 1950-51 and in respect of the group of commodities shown, the increase in foreign exchange earnings by the end of the Plan due to higher exports and reduced imports would amount to nearly Rs. 133 crores. This would however be offset to the extent of nearly Rs. 108 crores through decreases in the volume of exports and increases in the volume of imports required in order to attain the higher targets of internal production and consumption visualised in the Plan. The net improvement in foreign exchange earnings thus works out to roughly Rs. 25 crores. This estimate does not cover the foreign exchange savings from the opening of the projected oil refineries and from the expansion of certain newly-developing lines of exports to countries in South East Asia ; on the other hand, it does not also include foreign exchange required for additional imports of machinery, equipment and certain metals needed to maintain the high levels of investment visualised towards the closing stages of the Plan. On balance, taking all items into account, there might not be any significant net improvement in the foreign exchange position as compared to 1950-51.

Likely Movements In Terms Of Trade And Their Effects

46. Considering that there was a surplus in balance of payments in 1950-51, this order of improvement on that base would suggest a fairly comfortable foreign exchange position by the end of the Plan. There are however a number of imponderables here, and the most important of them is the likely movement in the terms of trade. In the last few decades there have been considerable changes in India's terms of trade. Between 1938-39 and 1948-49, there was a movement in India's favour to the extent of about 15 percent, which appears to have cancelled out roughly the deterioration which took place in the previous decade. Between 1948-49 and 1950-51, on account of external factors, there was a sharp improvement in India's terms of trade to the extent of about 22 per cent. The large surplus in balance of payments in 1950-51 was thus fortuitous. After July 1951 there was an equally sharp deterioration , by April 1952 the terms of trade had returned to the 1948-49 level, and since then they have tended to worsen further. Although one cannot generalise on the basis of short period trends, it would appear that, on a long view, any improvement in terms of trade over the 1948-49 level is likely at best to be of a temporary character, and that in fact the terms of trade might become more unfavourable to India to the extent of about 10 per cent.

47. At the 1948-49 terms of trade, India is likely to have a deficit in its balance of payments at the end of the Plan despite the net improvement referred to earlier. There would meanwhile have been, however, considerable increases in the availabilities of certain commodities in conformity with the targets in the Plan, and in the event of difficulties in balance of payments it will be possible, in an emergency, to draw on them for balancing the country's external accounts.

Foreign Exchange Deficits And Balance Of Payments Policy During The Plan

48. The calculations made above rest on the assumption of strict import and export controls and a public development programme of the order of Rs. 1700 crores. If, as is intended, the target level of Rs. 2069 crores is to be reached without pressure on .consumption standards and on economic activity in the private sector, imports of some commodities will have to be increased and exports of some reduced. We shall have to provide not only for more food and raw materials to meet the additional demands generated by the expenditure but also for additional machinery, equipment and other producer goods. The precise effect this will have on the foreign exchange position of the country cannot be forecast at this stage, but a deficit of about Rs. 180-200 crores per annum in balance of payments seems likely and even necessary in the remaining years of the Plan. About Rs. 50 crores of the balance of payments deficits in this period could be financed each year from the sterling releases, but the ability to meet deficits in excess of this will depend to a great extent on the availability of additional external assistance. In the last analysis, the role of external assistance in relation to the Plan will be to supplement the real resources of the country with commodities for which additional demands will be generated in the process of development but the domestic supplies of which are limited. External assistance would help to avoid dislocations and to maintain a certain measure of stability in the economy. It follows that, for a balance of payments policy which is integrated with the overall requirements of planned development, it is necessary that external assistance is received in a form which allows flexibility in the use of the foreign exchange resources provided by it.

49. We should perhaps emphasise here that balance of payments difficulties are an inevitable aspect of development at this stage. Since the development of an economy like that of India requires initially imports on a large scale of machinery, capital equipment and other producer goods as well as of consumer goods like foodgrains, foreign exchange is bound to be a bottleneck for some time to come. In fact the degree of the pressure on foreign exchange under these conditions may be even regarded as an index of the extent to which the internal productive resources are being utilised. What has to be ensured is, on the one hand, that the development programme is so framed as to increase the potential exportable surpluses and decrease the import requirements of the country and, on the other, that the pressure on foreign exchange is kept within manageable limits. Apart from external factors, the actual deficits in balance of payments will depend to a great extent not only on the investment levels which are sought to be reached but also on the rate at which consumption in the country is allowed to rise from year to year.

V. The Problem Of Mobilising Financial And Physical Resources

50. The above assessment of resources, it will be seen, has been done largely in financial terms. This has been to some extent inevitable in that the Plan is a programme of development to be implemented by the Central and State Governments out of the budgetary resources likely to be available to them. But an attempt has also been made to estimate the total investment on private and public accounts that is likely to take place in this period and to assess the capacity of the country to divert resources of this order into capital formation. In view of the limited statistical data available, and also in view of the various complexities involved in forecasting the likely effects of particular rates of investment, the assessment has had to be, by necessity, a rough and ready one. The scope for increasing investment expenditure has been considered broadly with reference to the supply and demand conditions of certain commodities which either figure largely in the pattern of consumption and investment of the community or enter the country's foreign trade and might conceivably lead to bottlenecks. As we have stressed earlier, it is not finance as such which limits the rate of investment. For instance, the scope for deficit financing is intimately bound up with efficient organisation of the supply and distribution of essential commodities ; if the supply and distribution of these improve, either through improvements in organisation or for reasons that we are not able to foresee now, to that extent it might become possible to step up the rate of development expenditure in the future. In other words, though the assessment of resources has been presented in financial terms, the approach is basically in terms of physical resources. It is important that a programme which aims at using the resources of the country to the maximum extent possible should be conceived of and translated back at every stage in terms of the various types of physical resources needed for its implementation.

51. Among the unutilised resources of the country, manpower is undoubtedly one of the most important. In Chapter I we have referred at some length to the problem of utilising under-employed manpower for the development programme. It was pointed out there that unless productivity of labour could be raised quickly and the availability of basic essentials like foodgrains increased, a programme of full employment, designed to put to work all idle labour, would run the risk of breaking down on account of excessive pressure of money incomes on available supplies. Two conclusions were drawn from this : first, that in promoting higher levels of employment it was important to ensure that the newly mobilised labour would be able to raise total output with the shortest possible time lag; and second, that in the initial stages of development reliance will have to be placed as far as possible on voluntary labour, money being used mainly as a means of attracting and organising such labour. Both these have been kept in view in framing the programme of development for this five year period. In the programme for agriculture, there is considerable emphasis on quickly maturing forms of investment ; the consequent increase in food supplies is designed to remove one of the major bottlenecks to embarking on a programme of fuller mobilisation of manpower resources. The Plan also visualises using finance, wherever possible, as a means of attracting and organising under-utilised manpower and other resources. The community development programme is an instance in point. There is also provision in the Plan for assistance to local authorities in respect of schemes for which local effort is forthcoming. Famine relief works, it is visualised, will be so arranged in future as to fit in with the larger needs of development. Minor irrigation projects are another field in which mobilisation of local manpower could contribute considerably to the lowering of costs. For reducing the monetary outlay on development, the possibilities of paying part of the wages and salaries in the form of savings certificates could be explored with advantage.

52. While it is necessary to progress in these ways towards fuller utilisation of the large unutilised manpower resources in the country, it is also necessary to strengthen the financial mschanism behind planning. Finance is not only a means of accounting ; i.t is also a potent instrument for directing resources along desired lines. A necessary condition of the public sector playing an increasingly important part in development is that there should be such organisational changes in the financial system as will enable the public authorities to have command over the necessary resources. In the earlier sections of this chapter, we have referred at various points to the potentialities of increasing the budgetary resources of the Central and State Governments. These potentialities have to be explored to the full. The increase in budgetary resources would have to come to a considerable degree from additional tax revenues ; to emphasise that these should as far as possible be through widening the coverage of taxation is not to deny that, in the mass effort which is needed for development, considerations of equality in sacrifice would require to some extent further additions to the direct taxation of higher incomes. In regard to borrowing, there is particularly scope for improvement in techniques. As we have mentioned earlier, it is important that, with the country embarking on a long term programme of development, techniques of borrowing are so adapted as to bring home to the people the larger purposes for which the loans are required and also ro give the greatest possible scope for their direct participation in the financing and implementation of the various development programmes.

53. The progress of the small savings movement in recent years suggests that, with suitable adaptation to the preferences of different sections of the community and with a system of collection which will reach the farthest parts of the country, the savings of the lower income groups could become a growing source of finance for ..development. On an experimental basis, certain improvements in the facilities provided by the Post Office Savings Bank are to be shortly introduced in the Bombay State. These include :

  1. introducing the cheque system both for withdrawals and deposits ;
  2. affording greater facilities to the depositors by organising the working of the Bank on the lines of
    commercial banks ; and
  3. opening branches in a larger number of rural post offices.

The extension of these facilities to other States on the basis of the results of this experiment is likely to attract substantially more savings to the public sector in the next few years. Meanwhile, other methods of increasing small savings will also have to be explored.

54. Insurance has been in all countries a stimulus to, as well as an important channel for, private savings; it has therefore to be organised in India to fulfil its legitimate function in development. The precise steps to be taken in enlarging State participation in this sphere is a matter for closer examination. Apart from other measures which might be considered, the Government has in the Post Office Insurance Fund a medium even now for entering the field in a more active way than hitherto. Institution of provident funds is another method open for encouraging and mobilising savings on a large scale. The extension of this system recently to cover workers in six major industries indicates a direction in which more progress must be made.

55. Organisational changes along these lines will not only act as a powerful lever in the initial stages of development but will contribute to greater self-reliance in the further stages of this process. Parallel changes will be necessary also in other spheres to increase the supply of technical, managerial, and administrative resources in the country. The problems arising in this connection have been referred to elsewhere in this Report.

Statement 'A' Production, Imports and Exports of Certain Major Commodities
Entering India's Foreign Trade (referred to in para. 45)

  production imports* exports*
Name of Commodity Quantity Value (Rs. Quantity Value (Rs.
crores) crores)
  1950-51 1955-56 I950-51 1955-56 1950-51 1955-56 1950-51 1955-56 1950-51 1955-56
1 2 3 4 5 6 7 8 9 10 11
Raw Cotton (Lakh bales) 29-7 42-2 12-3 12-0 100-8 98-3 0-8 1-3 7-1 11-5
Raw Jute (iakh bales) 33-0 53-91 18-8 8-1 27-6 11-9        
Oil Seeds (Lakh cons) 510 55-0 0-4   2- I   2-0 0-51 17-0 4'2
Sugar (Lakh tons) 11-2 15-0 0-6   5 3   03 10- I 0- I 5
Food grdirs (Million tons) 54-0 6-6 2- I 3-00 80-6 115-0        
Cotton Manufactures
Yarn (Million Ibs.) 1179-0 1640.0 0.5


0-3   4-5 10.0 17-1 2-3
Mill Cloth (Million yards) 3718-0 4700.00









Hand loom (Mil-ion yards). 810.0 1700-00 5.7   1-3 0-2 1283.3   117-9 91 -9
Jute Manufactures (Lakh tons) 8-9 12-0  




6-5 10-0 137-8 212-0


Name of Commodity production imports* exports*
Quantity Value (Rs.
Quantity Value (Rs.
1950-51 1955-56 1950-51 1955-56 1950-51 l [955-56 i950-5i 1955-56 1950-51 1955-56
1 2 3 4 5 6 7 8 9 10 11
Coal (Million tons) 32-0 38-0         1.0 3-0 3.4 10.2
Pig iron (Lakhtons) 3-5 6-6                
Steel (Lakh tons) 10.0 13-7 2-8 5-0 21-7 38-4        
Fertilisers :
Ammonium Sulphate (Lakh tons) 0-5 4-5 3" 1-5 11-4 4-6





Other (Lakh tons) 0-6 8 0 7 0-2 0-9 0-3




Oils (Lakh tons) 11-2* * 13'0 0- 2 0-4 3-3 6-6 1-2 1-7 23-0 32-5
Cement (Lakh tons) 26-9 48-0 0-1   0-2   0-3 3-0 0-3 3-6

"'Value of imports and exports in 1955-56 is estimated at 1950-51 prices. Value of exports includes export duty.
Exclusive of the production ofmesta.

The fall in the exports ofoilseeds will be to a large extent compensated for by the increase in the exports of oil. Production in 1950-51 was 52-7 million tons; the targeted increase in the period of the Plan is over the 1949-50 level when the production was 54-0 million tons.

Hit is difficult to forecast the precise requirements by way of food imports by the end of the Plan as they will have to be adjusted from time to time to the level of investment outlay in the country and the pressures it tends to generate. Provisionally it has been assumed that about 3 million tons food grains would have to be imported every year in the period of the Plan.

Refers to the quantity of pig iron available for thefoundries i.e., the quantity available over and above what has been consumed in the manufacture of steel.

Production in 1950-51 has been assumed to be the same as in 1949-50.

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