2nd Five Year Plan
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Chapter 1:

I. The First Five Year Plan

The central objective of public policy and of national endeavour in India since Independence has been promotion of rapid and balanced economic development. The first five year plan was intended as a step in that direction. For formulating the plan, the Planning Commission attempted a fairly comprehensive review of resources and of needs in the light of circumstances then existing. The programme of development incorporated in the plan was calculated to strengthen the economy at the base and to initiate institutional changes which would facilitate more rapid advance in the future. It also aimed at meeting certain urgent problems that had arisen out of the war and partition. It both respects, the first plan has registered significant advance. It has evoked public cooperation and enthusiasm and has given a new dimension to current thinking and policy.

2. The second five year plan has to carry forward the process initiated in the first plan period. It must provide for a larger increase in production, in investment and in employment Simultaneously, it must accelerate the institutional changes needed to make the economy more dynamic and more progressive in terms no less of social than of economic ends. Development is a continuous process; it touches all aspects of community life and has to be viewed comprehensively. Economic planning thus extends itself into extra-economic spheres, educational, social and cultural. Each plan for a limited period becomes the starting point for more sustained effort covering longer periods, and each step in advance opens out new vistas and brings into view new problems to be solved. While planning or programming, as it is often called—for a particular period, it is thus necessary to keep in view a more long-range perspective and to be ready to adjust and adapt the programmes in hand as this perspective becomes clearer.

3. The first five year plan was conceived as a modest effort, and the solution of certain immediate problems had necessarily to be attended to on a priority basis. Even this modest effort, it was felt, would strain the resources of the community. In the first two years, the emphasis inevitably was on correcting and controlling inflationary pressures and on restoring the economy to a position of balance. The outlay on the plan was stepped up substantially as from the third year, and the level of plan expenditure by the Central and State Governments was raised by the end of the plan period to about Wi times the level in 1951-52. Over the five years, the aggregate outlay in the public sector is now expected to b'e somewhat below Rs. 2,000 crores. This is about the level envisaged when the plan was brought out in 1952. Subsequently, additional programmes were undertaken with a view to making up the shortfalls in the earlier years and to enlarging employment opportunities. These additions, it was recognised, were in part at least substitutions for schemes in respect of which progress was slow for various reasons. The shortfall of Rs. 350 crores or so in plan expenditure in terms of the revised total of about Rs. 2,350 crores may with propriety be judged in this light In any case, it is the projects executed, the works completed and the results achieved which are of more real significance than the financial outlays incurred.

4. The overall results of the first plan may be stated briefly here. National income over the five years has increased by some 18 per cent Foodgrains production has gone up by 20 per cent; the output of cotton and of major oilseeds has shown an improvement of 45 and 8 per cent respectively. Over 6 million acres of land have been brought under irrigation through major works; another 10 million have benefited through smaller works. With the increased supplies of fertiliser and seed and the further expansion of the national extension movement now in view, the outlook for continued and substantial improvements in agricultural productivity can be regarded as distinctly good. Industrial production has increased steadily. The interim index (1946= 100) of industrial production works out at 161 for 1955 as compared to 105 for 1950 and 117 for 1951. The revised index with 1951 as base shows for 1955 a level of industrial production about 22 per cent higher than in 1951. The generation of electric power has gone up from 6575 million Kwh. in 1950-51 to 11,000 million Kwh. in 1955-56. The output of cement, which is an important indicator of the volume of investment in the economy is estimated to have gone up from 2.7 million tons in 1950-51 to 4.3 million tons in 1955-56, and the demand for cement has of late risen sharply. Several important industrial projects in the public sector have been completed, and considerable new investment, especially in the field of producer goods and capital goods industries has taken place in the private sector. Although construction work in respect of iron and steel and heavy electrical equipment could not be commenced in the plan period, the preliminary work in connection with the installation of three steel plants and the heavy electrical plant has been completed, and the foundation laid for the larger tasks to be taken in hand in the second plan period. On the whole, the results of the plan have been satisfactory. There is now increasing awareness of the need for development, and it is not without significance that there is demand all over the country for a plan that would secure more rapid advance in all directions.

5. Investment in the economy, it is now estimated, approximated Rs. 3,100 crores over the five years, 1951-56. It has risen from about Rs. 450 crores in 1950-51 to about Rs. 790 crores in 1955-56. The following table sets out the estimated levots of national income, investment and consumption for 1950-51 and for 1955-56:-

National Income. Investment and Consumption— 1950-51 and 1955-56 (at 1952-53 prices)

Item (Rs. crores)
1950-51 1955-56
  (1) (2) (3)
1. National Income 9,110 10,800
2. Investment 450 790
3. Investment as percentage of national 4.9 7.3
4. National Income (Index) 100 118
5. Per capita National Income (Index) 100 111
6. Per capita Consumer Expenditure (Index) 100 109

Annual estimates of investment in the plan years are difficult to make and only the broad magnitude of changes in the level of investment can be inferred. Investment in 1951-52 was at an exceptionally high level; it amounted probably to over 7 per cent. of national income. But, a part of it was stock-piling, and the strain on the economy was reflected in the large import surplus. Investment appears to have fallen back to a level of 5 per cent. or so in the subsequent two years. It picked up again in 1954-55 to 6 or 6.5 per cent. of national income, reaching a level of 7.3 per cent in the last year of the plan. The average rate of investment over the plan period works out at about 6 per cent. of national income, which cannot be regarded as impressive. A five year period is, in a sense, too short for a definitive appraisal of the trend or its significance for the future, especially when there have been considerable fluctuations in investment from year to year, but there is no doubt that investment now is running at a rate significantly higher than before the plan commenced.

6. This stepping up of investment, it will be noted, has not been accompanied by inflationary pressures. The following table sets forth the principle monetary and price data:—

Monetary and economic indicators

  IndicatorW Unit 1950-51 1951-52 1952-53 1953-54 1954-55 1955-56
  (1) (2) (3) (4) (5) (6) (7) (8)
l. Money supply with the public (as on last Friday of the financial year) Rs. crores 1,972 1,804 1,765 1,794 1,921 2,180
2. Rupee securities held by R. B. I. (as on last Friday of the financial year)' Rs. crores 586 567 546 487 553 726
3. Investment of scheduled banks in rupee securities (as on last Friday of the financial year) Rs. crores 316 296 303 319 344 360
4. Scheduled banks' advances (as on last Friday of the financial year) Rs. crores 547 580 529 539 580 713
5. Foreign assets held by R. B. I. (as on last Friday of the financial year) Rs. crores 884 723 724 753 730 746
6. Surplus (+) or deficit (—) on current account in the balance of payments Rs. crores +58 -136 +77 +57 +7 +16*


(1) (2)   (3) (4) (5) (6) (7) (8)
7. Wholesale prices (last week of the financial year) Index No.1939 =100) (Aug. 450 378 385 397 349 390
8. Cost of living Index No. (1949            
  =100)   101 104 104 106 99 96**
9. Agricultural production Index No.l 1949            
  50=100)   96 98 102 114 114  
10. Industrial production (annual (a) Interim              
averages for calendar years 1950 Index (1946 =100) 105 117 129 135 147 161
to 1955) (b)Revised              
  Index (1951 =100)   100 103.6 105.5 112.9 122.3

•This in respect of the first 9 months.
••This relates to the period April 1955 to January 1956.

Prices at the end of the first plan were lower by 13 per cent than when the plan started; in fact, they were slightly below the level on the eve of the Korean war. The all-India cost of living index in 1955 was at an average level of 96 as compared to 100 in 1949. Money supply in the hands of the public at the close of the fiscal year 1955-56 was about Rs. 208 crores above the level in early 1951—an increase of a little over 10 per cent as compared to the estimated increase of some 18 per cent in national income. The country's balance of payments improved substantially in 1952-53 which recorded a surplus of Rs. 77 crores. In 1953-54 there was a surplus of Rs. 57 crores. External accounts were virtually in balance in 1954-55, and 1955-56 is expected to end up with a small surplus. Over the five years the foreign exchange reserves held by the Reserve Bank have gone down by Rs. 138 crores as compared to the drawing down ofRs. 29C crores envisaged in the plan. Although money supply and prices have tended to riy rather sharply in recent months, and this trend needs careful watching, the overall picture ,is one of stability and steady progress. Domestic inflationary pressures in several countries, it may be added, are at present probably stronger than in India. On the whole, the economic situation on the eve of the second'plan is distinctly better than it was on the eve of the first plan; there is more confidence and greater readiness all round for a larger effort.

7. These gains notwithstanding, the fact remains that living standards in India are among the lowest in the world. The average intake of food in India is below accepted nutritional standards; the consumption of cloth in 1955-56, at about 16 yards per capita is still around the pre-war level; housing is very deficient;and only a half of the children in the age group 6—11 and less than one-fifth of the children in the age group 11—14 attend school. About a half of the population of India has, on an average, Rs. 13 per month to spend in consumer goods. The per capita consumption of energy in India is 1/73 of that in the U.S.A.: and that of steel is 1/122 of the level in the U.S.A.: as compared to Japan India's per capita consumption of energy and steel is one-ninth and one-fourteenth respectively. The rate of population growth in India is not higher than in some of the advanced countries, but the annual addition of 4.5 to 5 million represents a large absolute increase in terms of the resources required to maintain even existing standards. This makes it particularly difficult to increase the supply of tools and equipment per head so as to promote rapid economic development. Employment opportunities in the country have not been increasing pan passu with the increase in labour force. The increase in investment in the first plan has not been on a scale sufficient to absorb the new entrants to the labour market, and there is a backlog of unemployment and underemployment to be made good. In the second plan period, investment and employment have, therefore to be increased more rapidly. It was emphasized in the report on the first plan that development must be envisaged as a fairly long-period process, however much a country might try to shorten it by putting forth its best effort In foiTnulating the second plan, this long-period perspective has to be kept in mind, even as the emergent needs of the immediate future have to be provided for.

8. Development is a process of utilising more and more effectively the resources of the community in furtherar s of accepted ends. These resources are, in part, given by nature, but they can and have to be -transformed by the application of new skills and know-how. In a sense, these skills and know-how are more important than even capital formation proper. In an underdeveloped economy the resources endowed by nature are not fully known, and new techniques of utilising them have to be developed. Exploration and prospecting are in early stages; the necessary techniques are only imperfectly known and the means of bringing them to bear on such resources as have been located and mapped out are not easy to mobilise. A continuous and progressive increase in the community's level of living presupposes not only more effective utilisation of known resources and better application of known techniques; it .requires vigilant and increasing search for discovery of new resources and for adoption or development of newpro-ductive techniques.

9. It is no exaggeration to say that the most important single factor in promoting economic development is the community's readiness to develop and apply modem technology to processes of production. Advances in this field are taking place rapidly and they are of direct significance not only to the organisation of production, transport and other economic activities but also to the wider issues relating to economic and social organisation. Underdevelopment is essentially a consequence of insufficient technological progress, and this insufficiency or lopsided development can, in turn, be traced to various political, social and psychological factors. Given the desired change in these latter, the rate of development can be related almost. directly to advances in techniques. Countries which start late on their industrial career have some advantage in that they have, in the main, to take over and apply techniques that have been worked successfully in more advanced countries. But, there is need simultaneously for keeping abreast of the latest developments in science and technology, if the time lag in economic advance is to be progressively narrowed. The search for new resources and for new techniques and the readaptation of the available labour force to the new tasks which development connotes are indeed, the foundation of development.

10. In the report on the first plan, the principal determinants of development were indicated, and it was stressed that, apart from the important questions relating to techniques and of psychological and sociological factors bearing on the community's will to progress and its capacity to make the necessary institutional adjustments, the rate of economic development would depend upon (a) the rate of growth of population, (b) the proportion of the current income of the community devoted to capital formation, and (c) the return by way of additional output on the investment thus undertaken. The likely rates of development in India over the next few decades were worked out in terms of certain assumptions regarding these parameters. These we may review in the light of experience in the first plan period and the data now available regarding the rates and determinants of development in other countries.

11. Regarding population growth, only a few observation seem necessary. Rates of population growth can be altered only over a period, and in planning for a limited period, one has to go by the results of trends wnich commenced earlier. Nevertheless, over a period, the outcome of developmental effort can be noticeably different if population trends are altered in the right direction. This is one of those fields in which traditional modes of thought and behaviour are apt to offer considerable resistance to rational approaches and not many countries can be said to have any definite population policy at government level. Yet, these modes or attitudes are changeable and are probably changing faster than is sometimes realised. The logic of facts is unmistakable and there is no doubt that under the conditions prevailing in countries like India, a high rate of population growth is bound to affect adversely the rate of economic advance and living standards per capita. Given the overall shortage of land and of capital equipment relatively to pupulation as in India the conclusion is inescapable that an effective curb on population growth is an important condition for rapid improvement in incomes and in levels of living. This is particularly so, if one bears in mind the fact that the effect of improvements in public health and in the control of diseases and epidemics is to bring about an almost immediate increase in survival rates. While there may be differences as to the likely rates of pupulation growth over the next 20 or 25 years, indications clearly are that even with the utmost effort which can be made—and has to be made—at this stage to bring down birth-rates, population pressure is likely to become more acute in the coming years. This highlights the need for a large and active programme aimed at restraining population growth, even as it reinforces the case for a massive developmental effort.

12. In Chapter I of the First Five Year Plan (1952 Report) a graph showing the probable trends in the growth of national income and aggregate consumption expenditure in'India over a period of 25 to 30 years was given. The projections of national income, investment and aggregate consumption expenditure used for the purposes of this graph were designed to bring out the broad implications, in terms of effort and return, of a process of development extending to over a generation. With the help of these projections it was shown that given a continuity of effort in terms of the assumptions made, the country's 1950-51 national income could be doubled by 1971-72, that is, in about 21 years time. Similarly, it was shown that the 1950-51 percapita incomes could be doubled by 1977-78, that is, in a period of about 27 years. This latter, implied a raising of the average consumption standard by about 70 per cent by 1977-78 as compared with 1950-51.

13. For purposes of these calculations, the population growth rate was assumed at 12.5 per cent. per decade, for the entire period to which the projections related. It would appear more appropriate now to assume some increases in this rate. For the period 1951—60, the assumption of a 12.5 per cent rate of growth over the decade could perhaps be retained. The rates for the succeeding decades would depend upon the assumptions one makes regarding the rise in survival rates through improvements in public health, sanitation and the like and the fall in birth-rates as a result of volitional control. There is room for differences in judgment here. In the projection now attempted, the rate of growth assumed for the decade 1961—70 is 13.3 per cent. rate assumed is 14 per cent. On this basis population would total 408 million in 1960-61,434 million in 1965-66, 465 million in 1970-71 and 499 or almost '500 million in 1975-76. These estimates are intermediate between the upper and lower estimates put forward by the Census Commissioner in the Census Report, 1951, and it can be said of them, as the Census Commissioner has said regarding his own, that they may well prove to be on the low side.

14. In the first plan report, the proportion of investment to national income was assumed to rise from 5 per cent or so in 1950-51 to about 20 per cent by 1968-69 and to remain at that level thereafter; and, the capital-output ratio was taken at 3 : 1 with a time lag of two years between the increase in investment and the increase in output The increase in national income in the last quinquennium has been 18 per cent, that is, 7 per cent more than was originally expected. Allowing for certain special favourable factors which operated in this period, it would still appear that a more favourable capital-output ratio can be postulated for estimating the increases in national income for the next few years at any rate. The assumptions regarding the rate at which investment can be stepped up on the basis of domestic savings also need to be reviewed.

15. For the first plan period, the incremental capital-output ratio works out at 1.8 : 1. This highly favourable outcome is the result partly of good monsoons and it also reflects the fact that considerable expansion in industrial output has been possible through utilisation of unutilised capacity. For the second plan period, as will be seen later, an investment ofRs. 6,200 crores is expected to result in an increase in national income of Rs. 2,680 crores. This gives a capital-output ratio 2.3 : 1. This ratio is obtained from calculations of the estimated increases in net output in individual sectors corresponding to the investment proposed in these sectors. The ratio, in other words, is worked out broadly on the basis of the data furnished by the project-making authorities while commending these for acceptance. An element of conjecture does, however, enter into this overall estimate, as there are sectors of the economy for which increases have to be inferred from indirect evidence. A somewhat higher capital intensity than the one which prevailed in the first plan is to be expected in view of the shift in emphasis towards industrialisation. Indeed, as the shift proceeds further in subsequent plan periods, the amount of capital required per unit of additional output should go up further. For the third, fourth and fifth plan periods, we have in the present model assumed capital-output ratios of 2.6, 3.4 and 3.7 respectively. These ratios are illustrative. Precise calculations of investment-output relations can be made only in the light of concrete programmes of development and the technical data regarding costs and output.

16. The capital-output ratio for the economy as a whole is only a shorthand description of the productivity of capital in various sectors. This productivity depends not only on the amount of capital employed, but on a large number of other factors such as the degree of technological advance associated with capital investment, the efficiency with which the new types of equipment are handled and the quality of managerial and organisational skill brought to bear on the use of capital. It has also been observed that the increment of output corresponding to a unit investment of capital has been higher for planned than for unplanned economies. In part at least this is because of the greater coordination of programmes which planning facilitates and the avoidance of booms and depressions that characterise unregulated market economies. A great deal also depends upon the composition of investment. It has been argued, for, instance, that a considerable part of the favourable relationship between investment and product in the U.S.S.R. is attributable to the relatively low precedence accorded to housing. The capital-output ratio also depends upon the extent to which economic overheads are utilised. A phase of under-utilisation may have to be gone through before the full benefits of investment in economic overheads are obtained. It is on account of these diverse factors that the estimates of capital-output ratios for different countries and for different periods of time show considerable variation. By and large, taking a number of countries, the range of capital-output ratios may be said to lie between 3 : 1 and 4: 1, although, for individual countries, and for particular periods, ratios outside this range are not unknown. In comparing the capital-output ratios assumed for India with the ratios elsewhere it may be remembered that non-monetised investment has not been included in the calculations of capital inputs. There is considerable investment of this kind in a predominantly rural economy, and it has to be recognised that investment which involves the direct utilisation of labour and of raw materials available locally is of particular importance and has deliberately to be fostered in the context of prevailing underemployment.

17. This leads us to the question of the likely or feasible rate of-investment In the first plan report, a marginal rate of saving of 50 per cent, as from 1956-57 was assumed, and on this basis it was postulated that the rate of investment in the economy would go up to 20 per cent of national income by 1968-69 and would settle down at that level thereafter. These, it now appears, are excessively high expectations. In the projection that has now been worked out, the investment coefficient is assumed to go up from about 7 per cent In 1955-56 to about 11 percent in 1960-61; it rises to 14 per cent. by 1965-66, and to 16 per cent by 1970-71. Thereafter, it remains practically stable, rising to 17 per cent. by 1975-76. A net investment rate of 16 or 17 per cent of national income is decidedly high,'though not unattainable. In the western countries which started early on their industrial career, the rate of net capital formation seems to have ranged between10 and 15 per cent In Japan, the investment rate between 1913 and 1939 averaged 16 to 20 per cent. High investment rates varying between 15 and 20 per cent have been maintained continuously in the U.S.S.R. The data available for countries in the ECAFE region indicate that gross capital formation in Burma since 1950 has ranged from 10 to 20 per cent; in Japan from 24 to 30 per cent; in Ceylon from 10 to 13 per cent; and in the Phillippines from 7 to 8.5 per cent The comparable figure for India would be 10 to11 per cent In Latin American countries, the corresponding rates have been around 15 per cent., reaching even higher levels occasionally. Some of the countries in Eastern Europe, like Czechoslovakia and Poland, for instance, have gross investment rates between 20 and 25 per cent The rates of investment in newly developing countries can certainly be raised above present levels through appropriate investment policy and programmes initiated by the State, and it would be reasonable to assume that in India, the rate of investment can with effort be raised to levels mentioned earlier.

18. The graph opposite shows the results obtained on these assumptions. National income would, in terms of the projection, be doubled in 1967-68; per capita income would be doubled by 1973-74. It will be noticed that the rise in national income recorded in the first plan period having been above initial expectations, the improvement at the end of the first two plans will be as large as 47 per cent, in the aggregate as compared to 25 per cent. in the estimates put forward in the report on the first plan. The following table gives a synoptic view of the increasing tempo of development postulated in the model under consideration:

Growth in Income and Investment. 1951-56 (At 1952-53 prices)

Item 1st Plan (1951-56) 2nd Plan (1956-61) 3rd Plan (1961-66) 4th Plan (1966-71) 5th Plan (1971-76)
(1) (2) (3) (4) (5) (6)
1. National income at the end of the period (Rs. crores) 10800 13480 17260 21680 27270
2. Total net investment (Rs. crores) 3100 6200 9900 14800 20700
3 Investment as percentage of national income at the end of the period 7.3 10.7 13.7 16.0 17.0
4. Population at the end of the period (in millions) 384 408 434 465 500
5. Incremental capital-output ratio 1.8:1 2.3:1 2.6:1 3.4:1 3.7:1
6. Per capita income at the end of the period
(in Rs.)
281 331 396 466 546

It will be seen that the step-up in investment in the second and third plan periods is relatively larger than what is required later. These ten years may, therefore, be regarded as the most crucial in determining the further course of development, it is the crossing of this "threshold" at a time when living standards and the saving potential are low that calls for a measure of external assistance to supplement domestic resources.

Ill Changes In Economic Structure

19. Behind these changes in national income investment and consumption are, it need hardly be stressed,far-reaching changes in the pattern of economic activitiy. Development alters the level as well as the structure of demands and supplies, and these changes come about through and further promote changes in the allocation of resources. While one may describe these in aggregative terms like national income and investment, one must not lose sight of the concrete adjustments which take place and are necessary in various sectors and sub-sectors in the economy. Obviously, a doubling of national income does not mean that all products and services in the community flow in at twice the initial rate. Certain items like, say, cereals, may increase only moderately, while the other items in consumption may increase several fold. As the community's needs are satisfied, new wants



inevitably appear and these have to be met through supplies of new types of products. It is thus that the economy gets diversified and secondary and tertiary production grows. In other words, the national income stream at twice the initial level is bound to have a different composition; how different or in what respects it is not easy to predict. These changes in demand and in supply conditions need continuous study. The greater the pliability and mobility of resources, the more rapid can be the rate of growth of the economy. A corollary of economic growth is a rapidly changing occupational structure.

20. There has not been any marked change in the occupational pattern in India over the last three or four decades in spite of considerable increases in industrial production. Broadly speaking, agriculture and allied pursuits continue to absorb about 70 per cent of the working force; mining and factory industry absorb about 2.6 per cent of the working force; small enterprises, including construction, take up some 8 per cent;about 7 per cent. of the working force is engaged in transport, communications and trade; public administration, professions and liberal arts and domestic services account for over 10 per cent This means that the secondary and tertiary sectors have not grown rapidly enough to make an impact on the primary sector: nor has the primary sector itself thrown up surpluses which would create conditions favourable for expansion elsewhere. Continued growth of national income and employment requires simultaneous development all over the economy. In agriculture and allied pursuits, the net outpufper worker is at present barely one-fifth of that in mining and factory establishments, and it is one-third of the net output per worker in the trade and services sector. Development involves a transfer of part of the working force from agriculture to secondary and tertiary activities, but this, in turn, presupposes an increase in productivity in agriculture itself, if the food and raw material requirements of a developing economy are to be met Improvements in agriculture through irrigation, supply of better seed and fertiliser and through adoption of more efficient techniques are thus the basis on which the secondary and tertiary sectors have to be expanded. These latter call for relatively large investment per worker employed, so that the degree of shift that can be secured is ultimately related to the amount of investment effort that the economy can put forth.

21. The experience of other countries in the course of their economic development discloses a general tendency for primary employment to decline relatively to employment in industrial establishments and services. The available data on occupational structure show that between 1870 and 1930 the proportion of the active population employed in agriculture declined from 54 per cent. to 23 per cent in the U.S., from 42 to 25 per cent. in France, and from 80 to 48 per cent. In Japan. In Germany, this proportion delplned from 39 per cent. in 1880 to 22 per cent in 1930 and in the U.K. from 15 per cent in 1870 to 7 per cent. in 1920. There is, of course, no unique relationship between the rate of growth of national income and the degree of shift in the occupational structure; the latter is also conditioned by such factors as the availability of various types of natural resources and facilities, the pattern of development, the degree of access to markets abroad and the play of various institutional factors. In the U.S.A a two-fold increase in per capita net national product (decade average) during the period 1869-78 to 1894-03 was accompanied by a decline in the proportion of the active population engaged in agriculture from about 50 per cent to about 37 per cent At present, the U.S.A. has only about 12 per cent. of the population on the land. In the case of Japan, a decline in the proportion of the population engaged in agriculture from 77 per cent. in 1876 to 52 per cent in 1920 was accompanied by a five-fold increase in national output National income in Scandinavian.countries and in Switzerland has grown rapidly, but these countries have a relatively larger proportion of the labour force in agriculture than countries like the U.K. and U.S.A Recent data regarding Latin American experience also show a certain shift of labour from agriculture to industry during the post-war period which has witnessed considerable development Between 1945 and 1950, the agricultural labour force in that region declined from 60 per cent. to about 58 per cent; in this period the capital stock of that region increased by one-third and per capita gross domestic product showed an average rate of increase of over 4 per cent. per annum.

22. For India, the latest data on occupational distribution are those compiled for the 1951 census. For changes in inter-censal years, only rough guesses are possible, and it must be admitted that it is virtually impossible to detect in the short run if the occupational structure has started changing significantly. The rapid growth of towns and cities is perhaps a pointer to the impact of new forces on the occupational structure but the change is unlikely so far to have been of any noteworthy character. The objective of policy from the long-term point of view should clearly be to keep to the minimum further increases in the working force in agriculture. In this sector, effort has to be concentrated oh raising production and incomes through greater productivity rather than on increasing employment in terms of numbers. In fact, after a period, there should be a fall even in absolute numbers on the land. Similarly, there is little scope for increasing the working force in traditional small scale industries, which are already burdened with excessive numbers; the problem here is to prevent too rapid technological unemployment and to maintain and raise incomes through improvements in equipment techniques and organisation. The bulk of the new employment opportunities have, therefore, to be found in mining and in modem industry, large-scale as well as small-scale, in construction and in tertiary occupations. With the best effort that can be made, some increases in the working force in agriculture may be unavoidable for some years to come. By 1975-76, the proportion of the agricultural labour force to the total should come down to 60 per cent or so. But for this to happen something like a fourfold increase in the numbers engaged in mining and factory establishments has to be brought about, and the investment pattern in the plans has to be adjusted to these requirements. It is in terms like these that the task of creating new employment on an adequate scale has to be visualised. It has also to be borne in mind that the labour force itself, that is, the proportion of the population seeking employment, is apt to go up in course of time—through women seeking paid work, for instance. The fact that there is considerable unemployment and under-employment in other sectors such as trade and services is a further pointer to the need for a big increase in employment opportunities in industries, in construction and in transport and communications. These developments, in turn, lead to a larger demand for labour in the tertiary sector, and many types of work which at present get done within the household become distinct commercial services. In this way develop a large number of small businesses and trades offering opportunities for independent work. The problem of creating additional employment opportunities is thus inseparable from that of their diversification.

IV Physical And Financial Planning

23. These changes in the disposition of the community's manpower resources are an index of the changes that take place in the disposition of other resources as development proceeds. Or, rather, all these are interdependent changes; real resources have to grow and move in balance. Naturally, in these matters, it is not possible to comprehend all these changes and adjustments in a single forward view. But, planning for development involves a judgement, however limited and tentative, of how this disposition of real resources within the community has to be and can best be altered so as to give the results desired. This way of looking at the problem in terms of real resources—sometimes termed physical planning—is an attempt to work out the implications of the development effort in terms of factor allocations and product yields so as to maximise incomes and employment. The point is that while working out a programme, that is, its costs and benefits, it is necessary to look behind the financial or moentary "veil' and to assess the implications or significance of the programme in real terms, that is, in terms of the reactions it will have on supplies and demands in at least the strategic sectors of the system. Behind anvestimate of say, Rs. 100 crores by a project authority, the demand really is for so much machinery, so much building material, so much labour, etc. The question is not merely one of how the finance is to be raised— although that is an important question—but whether and how the real resources of the kind just mentioned have to be obtained. Similarly, when the project is completed, the question is how its benefits will be utilised and what types of demands this will satisfy and in mm create; plans for the latter may also have to be laid out in good time if resources are not to run to waste. What is more, the mobilisation of real resources has to be viewed in the light of the programme of development as a whole and not merely in relation to individual projects. To this end, the way demands for inputs rise in various related lines in response to a planned increase in outputs at particular points has to be studied.

24. There have to be, in other words, certain balances in the plan in terms of real resources. A plan unfolds itself in first upsetting an existing balance and then establishing a new one at a higher level. One has to ask: will the supplies of the machinery needed be forthcoming Will the necessary labour, skilled and managerial, be available Will it be necessary to secure some of the equipment from abroad and if so, will the community be in a position to export the additional amounts required to pay for the same? Will employment opportunities on the required scale be created and will the sum-total of all effort yield the results expected in terms of national income? To an extent, a plan worked out in terms of real resources can provide for the necessary balances through the pattern of investment to be adopted, and where this cannot be done, the bottlenecks to be faced and overcome can be concretely envisaged. The tasks of training the large number of technicians and other experts can hardly be conceived in any other terms.

25. It must be emphasised that the balance to be achieved in the plan has to be both in real and financial terms.. Money incomes are generated in the process of production, and supplies are utilised in response to money demands. It is important, therefore, to operate upon and modify money income Hows so as to maintain a balance between the supply of consumer goods and the purchasing power available for being spent on them, between savings and investment and between receipts and payments abroad. In addition, a balance between the demand and supply of each imporatant commodity is necessary. The required balances may, of course, be achieved in part through adjustment in prices and factor payments, through budegetary policies—and, if ncecessary, through physical controls; but the process as well as the means of adjustment have to be visualised in advance and have to be provided for in the plan.

26. The essence of financial planning is to ensure that demands and supplies are matched in a manner which exploits physical potentialities as fully as possible without major and unplanned changes in the price structure. Planning for balanced growth both in physical and financial terms opens up new fields for study and investigation. No economy which is in the early stages of development can have all the necessary data to start with, and the functioning of the economic mechanism cannot be reduced to a few simple rules or laws. The integration between physical and financial resources and the consistency between various sectoral developments have, therefore, to grow progressively, and continuous effort is necessary to secure and integration of policy and experience at each stage. Finance—or domestic finance—cannot, in any literal sense, be a bottleneck in development, since it can always be increased, but plenitude of means of payment is no assurance of the necessary real resources forthcoming; if real resources are not forthcoming an increase in the means of payment can only cause further upsets in the system. The stress on financial balances is, on proper analysis, only another name for sound planning and management of the economy iy terms of real needs and resources. Whether one thinks in terms of physical planning or of financial planning—the two are complementary—the object is to secure the various balances in the economy at continually higher levels.

V Perspective And Fleability

27. The large changes in the alignment of real resources that economic development connotes have to be kept in mind while preparing long-range or perspective plans. It may be sufficient for certain purposes to think in terms of a five year plan, but it is essential at the same time to have before the mind's eye a blue-print of developments to be undertaken over a longer period. There cannot be a complete balance between developments in each five year plan; to some extent, a measure of imbalance—seeming over-expansion in some lines and under-expansion in others—may facilitate more rapid and better-balanced development over a period. Considerations of this kind apply particularly to sectors like development of power, transport and basic industries where investments are by nature "lumpy". In appraising the need for such investments an important question is what developments are envisaged over the next ten or Fifteen years rather than the level of existing or immediate demands. In a developing economy, the growth of demands can be spectacular, once the ''threshold" has been crossed. It is not without significance that the picture regarding the demand for power, for instance, has changed so materially in the last few years, and fears of under-utilisation and of surpluses have given place to anticipations of a situation of the opposite kind. There are also signs that the demand for steel, for fertilisers and for cement, to mention a few other instances, will rise rapidly, and the same may be expected to happen in the field of consumer goods, once incomes start on a regular and sustained upward curve. Certain developments in the field of capital goods and heavy machinery might not appear of any great importance if one had in mind only one five-year plan, but these assume a vital role in a continuing developmental process visualised well in advance. This expanding perspective has to be the background for formulation and execution of programmes for the immediate future; it also suggests that the formulation and technical examination of projects to be taken in hand should commence well ahead of the time for implementing them. Further, scientific advance and new techniques in the exploitation of natural resources have a direct bearing on long-range planning. The long range, however, is but a summation of shorter ranges, and it is essential to ensure, as far as possible, that each five year programme fits into the long range perspective as it emerges from time to time.

28. If considerations like the above point to the need for envisaging programmes for a fairly long period ahead, there is need simultaneously for greater attention to plans for shorter periods within the framework of a five yerar plan. However important the strides in the future, the next step ahead is, for the moment, the most crucial. A five year plan has, therefore, to be broken up into annual plans or programmes, and performance must be judged more and more in terms of the tasks executed on an annual basis. This is not to say that there should be no flexibility in the matter of taking on and seeing through programmes or projects, but this flexibility must be part of the annual plans themselves rather than in the nature of ad hoc adjustments. The Central and State Governments operate in terms of an annual budget, and this offers a natural opportunity for reviewing and adjusting the broad annual phasing indicated in the five year plan. But, this review has to be undertaken by the planning authorities on a consideration of the overall needs of the economy and the experience in respect of the fulfilment of tasks for the year about to end. There are, however, difficulties at present in the way of forming an early or precise judgement as to the progress of performance so as to determine the size and content of the next year's programmes. There is in a federal structure a measure of delay involved in getting the data for assessing the performance in the current year well in time for deciding, in the light of this performance, upon the programmes for the coming year and the appropriate fiscal and other measures needed for the same. These difficulties can be overcome through improvements in organisation. Planning presupposes a continuous flow of information and an interchange of experiences, both upwards and downwards, between planning agencies and executive organisations at all levels. It also necessitates the making of adequate arrangements at various intermediate levels and particularly in the central planning office for expeditious processing and analysis of data. These data must relate not only to the developments in public sector but to those in the private sector as well. The two sectors have to work in unison. We should like to stress in this context the need for getting continuous and systematic information on the programmes of investment and development and the progress on them in the private sector. In advanced countries, data on investment intentions and on orders in hand and on stocks are obtained from businesses and enterprises with a view to maintaining a watch on inflationary or deflationary trends. In an underdeveloped country, these data are needed directly for working out plans and adjusting them from time to time.

29. The second five year plan has been conceived as a broad framework within which such annual plans will be made. A plan covering a five year period has to be regarded as flexible. The second five year plan as presented in this document indicates the magnitude and significance of the tasks to be undertaken, the order of benefits resulting from the developments proposed. and the means and techniques by which resources have to be mobilised and harnessed to the task to be taken in hand. The policy implications of the plan have also been brought out in broad terms. But, planning is not a once-for-all exercise for a five year period; it requires continual watch on current or incipient trends, systematic observations of technical, economic and social data and adjustments of programmes in the light of new requirements. There are, naturally, uncertainties attached to the various estimates • that can be made for a five year period. Some of the programmes set forth in the plan may take a little more time for completion. In a plan of the dimensions envisaged, experience may indicate fields where implementation can with advantage proceed ahead of schedule and others where progress may have to be inevitably slower. Moreover, India is not planning within a closed economy. Developments abroad, economic or ' political, may necessitate adjustments in the plan. It is in view of these considerations that the plan has to be regarded as a framework within which programmes for each year have to be worked out in detail and implemented.

30. Finally, we should like to refer here to an aspect of long-range planning to which, we feel, increasing attention will be necessary in the coming years. This relates to the developmental problems of the entire underdeveloped regions of Asia and Africa. For various political and social reasons, this region has so far remained largely underdeveloped, and the economies of some of these countries have either remained isolated or have developed affiliations with certain countries in Europe with which they had political ties. As a result, the volume of trade within this region itself has not developed sufficiently and the scope for complementary effort and mutual assistance as between countries in the region has remained largely unexplored. It is evident that as developmental planning proceeds in this region, problems of mutual adjustments in the matter of specialisation in certain lines of production and of mutually advantageous trade and exchange of know-how and experience will assume increasing importance. Planning in the different countries in this region is at different stages, and it is only to be expected that the prime consideration for each country will be the fullest development of its own resources in the light of its needs and along lines it finds economically and socially most promising. Nevertheless, it is essential that the programmes of development are so framed as to give scope for mutually advantageous exchange of products and technical know-how. Even countries which are on the whole short of technical know-how and personnel can still render assistance to others in a limited way. This is the basis on which cooperation within the Colombo Plan has been organised. It would be desirable to think along similar lines in respect of problems confronting this region and to arrange for interchange of ideas and of technical personnel. Planning in India has thus to be viewed in its wider regional perspective, and it has to be borne in mind that poverty, low standards of living and economic backwardness are problems of common interest, and the efforts and experiences in each country are bound to be of value to the others in the area faced with similar problems.

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