6th Five Year Plan
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28 || Appendix

Chapter 7:

The Plan is primarily a set of consistent and feasible investment programmes designed to achieve the targets of output and generation of surpluses for development in different sectors of the economy; but in order to ensure that the programmes move as scheduled and to bring about the requisite direction and effort in the wideranging economic activities of the people, corporate and non-corporate entitles and government machinery itself, it is necessary to indicate the framework of policies affecting these activities as an integral part of the Plan. The success of the Plan depends on many factors among which the choice of the correct policy framework must be rated as crucial.

7.2 Such a policy framework has to embrace mobilisation of savings, supply and demand management, measures for improving the performance of the public sector and adoption of specific steps required for the attainment of the obiectives of the Plan in different sectors of the economy: accelerated growth in agriculture, pursuit of a well coordinated energy policy aiming at reduced dependence on imported oil, promotion of empTctymenf including self-employment, reduction of regional disparities, protection of environment and ecological balance, family planning and welfare and so on. An attempt is made in this Chapter to indicate the underlying assumptions of the Plan in respect of some of these matters and the kind of policy measures which will need to be adopted from time to time. A more elaborate treatment of the issues involved is given in the relevant Chapters of the Plan.


7.3 A major task of economic policy in the Sixth Plan is to create the necessary conditions for the mobilisation of resources for development in a non-inflationary manner. The control of inflation and generation of stable price expectations are crucial for a successful implementation of the Plan. However, anti-inflationary policies must be so devised as to facilitate basic structural changes which are essential for a progressive increase in the country's productive potential. This is by no means an easy task even under normal conditions. It is rendered all the more difficult when the international environment is highly inflationary, the outlook for the country's terms of trade and external payments is unfavourable and there are bottle-necks in certain critical demestic sectors (like power, coal, rail transport) which fan inflationary expectations and can be overcome only gradually. In the background of such difficult external and internal conditions, the rate of inflation can be reduced only gradually. A great deal of ingenuity and imagination will be needed to devise effective economic policies to cope with inflationary pressures.

7.4 Sensible demand management policies will continue to be an important element of an effective package o tanti-inflationary polices. Fiscal and monetary policies will have to be so designed as to prevent an excesswe growth or money supply. Due attention will have to be paid to the proper phasing of investments so that inflationary pressures are not accentuated. If demand management policies are not to hurt the country's longer term growth prospects, major emphasis must be laid on curbing the growth of conspicuous consumption, preventing diversion of investible resources into low priority activities and on promoting savings so that investment requirements of accelerated growth can be financed in a non-inflationary manner. Thus fiscal and monetary policies will need to provide positive encouragement to savings, particularly to savings in the form of assets which are under social control.

7.5 In Indian conditions, agricultural prices are the kingpin of the price structure. Thus fluctuations in agricultural output can give rise to a price spiral whicn is not easily controlled by demand management policies once it gets started. In the long run, an increase in agricultural production and a reduction in the amplitude of fluctuations will no doubt contribute to greater stability of the price level. In the short run, the effects of fluctuations in weather conditions on the price level can be moderated if adequate buffer stocks of important agricultural products like food-grains, cotton, and sugar are built up and these are accompanied by an effective system of public distribution of essential commodities.

7.6 Recent experience shows that bottlenecks in certain critical sectors like power and transport can have a significant bullish effect on price expectations." These factors, together with the inevitable adjustments in prices demanded by an era of rising energy costs. bring out the growing importance of structural factors in generating inflationary pressures. To this extent, inflation has acquired a structural character. Thus, in any viable anti-inflationary strategy, adequate emphasis on supply management involving both fuJer utilisation of existing capacities and growth of Aese capacities over time must go hand in hand with demand management. Indeed, in a situation in which India is faced with a sharp deterioration in her terms of trade, a significant increase in productivity, both in agriculture and industry, is essential for maintaining a reasonable degree d pii;i; stability. Such an inciease in production', can mnu-iialise only in tlie framework of an expanding ccuntry.


7.7 The size of the plan its shceme of financing, the pattern of allocation of resource, the composition of output and the physical targets for various sectors including infrastructure etc. have been arrived at keepting in view the objective of accelerated growth while maintaining a resonable balance between aggregate demand and supply of essential goods and services, implementation of the Plan according to schedule and the realisation of the targets in different sectors is, therefore, of crucial importance from the point of view of ensuring relative price stability. The policy measures that need to be adopted in diferent areas are indicated below.

Fiscal Policy

7.8 The scheme of financing the Plan, which is described in detail in Chapter 5, has been so designed as to be essentially non-infla jonary in character. It calls for additional resource mobilisation of Rs.. 21,302 crores by the Central and State Governments and their enterprises while deficit financing is proposed to be restricted to Rs. 5,000 crores.

7.9 As a result of progressi'.e increases in tax rates, taxation expresed as a percentage of the country's national income now stands at 20 per cent. There is thus only a limited scope tor raising additional resources through taxation. In tin; held of direct taxes, the possibilities of raising additional resources through income tax, corporation tax and wealth tax are somewhat limited. There is need to check tax evasion through a strengthening of the administrative machinery for tax collection, plugging the loopholes in the tax laws and also through an imaginative adjustment of tax policy su as to reduce the incentive as well as scope for such evasion.

7.10 Direct taxes on aoiiciiltine at present constitute less than 1 per cent of the total agricultural income. Land revenue, which is the principal direct tax on agriculture, is generally a flat rate levy and, consequently, regressive in cliaracter. Fixation of minimum support and pioi.'iirement prices for major agricultural crops and provision of various inputs such as fertilisers, irrigation and electricity at subsidised or concessional rates have helped raise agricultural in-comes, particularly of large farmers. It is, therefore, necessary to consider measures for raising additional resources from the agricultural sector and introducing a measures of proyressivity in agricultural taxation. Care should, however, be taken to ensure that this does not in any way affect the incentives to increase production and productivity.

7.11 The resource base of the Indian fiscal system has been considerably eroded, among other things, due to the inability of the public sector enterprises to generate adequate resources for the expansion of public sector investment. In the case of Central Government's industrial and commercial enterprises, wmch accounted tor an investment of over Rs. 15,600 crores at tne end of March, 1979 the projections made tor the Plan period on the basis of 1979-80 pricing policies imply a rate of return on capital emioyed of about 8 per cent. This should be raised to at least 10 per cent by the end of the Plan period. Tor tins purpose, it would be necessary to improve management increase capacity utilisation, reduce inventories and adopt appropriate pricing policies. The Railways and Posts and Telegraphs are also expected to raise substantial additional resources.

7.12 In the States, the Electricity Boards are incurring Huge losses. In the case of irrigation, the gross receipts are not sufficient to cover even the working expenses. Most of the State Road Transport Corporations are also making losses. It would be necessary for these undertakings to improve their financial performance through a revision of tariffs, water charges and taxes and other suitable measures,

7.13 Another area which offers scope for contribution to the Plan resources is reduction of subsidies by both the Cenire and the States. The Central Government has already reduced the net burden of lertiliser subsidy by increasing its prices. Further, while increasing the procurement prices of rice and other knarif cereals, tne Central Government has also simultaneously decided to increase their issue prices to avoid additional subsidy. It is recognised that it may not be possible to eliminate altogether the subsidies that exist at present. Nevertheless a significant reduction in subsidies from the level budgeted for 1980-81 is necessary to raise the required order of resources for the Plan.

7.14 It will also be necessary for the Central and State Governments to take measures to improve tax collections, curb tax evasion and observe strict fiscal discipline. Severe restraints will have to be imposed in the growth of non-Plan and unproductive expenditure. In particular, there is no basis for the assumption tliat every item of non-Plan expenditure should automatically register growth at a certain minimum rate every year.

7.15 The possibilities of mobilising local resources for local use need to be fully explored. Block level committees and village panchayats could be given powers to raise specified resources, including land revenue, for deployment on local development schemes. The experience of some States demonstrates the usefulness of market cesses, for instance, in mobilising additional resources. In small towns and metropoliian areas also, local authorities have not fully tapped the resources through appropriate means available to them. Rent control and the consequent low valuation of properties, have the effect of eroding the tax base of local authorities; they in turn depend for resources for local programmes of development and improvement on the State Governments. The question of municipal finance needs to be reviewed in all its aspects.

7.16 Finally, it would be necessary to adopt further measures—fiscal, monetary and others—to increase savings. In so tar as this contributes to the increase in financial savings in the form of bank deposits, life insurance promia and contribution to provident funds, there would be an increased flow of resources for the public sector Plan through market borrowings; an increase in small savings and provident fund accumulatioiis of Government employees would flow directly to the public sector.

7.17 Studies in the Planning Commission indicate that the Indian fiscal system does not have adequate built-in elasticity to generate additional resources automatically for financing higher project costs in the wake of intlation. If, therefore, prices continue to rise, leading thereby to a arise in project costs, the additional resource mobilisation in nominal terms may have to be higher than indicated above if the re,al size of the Plan is to be protected. Any resort in such a situation to an increase in deficit financing to cover the gap between the desired level of Plan outlay and available resources will have to be scrupulously avoided as this would accentuate inflationary trends and create distortions in the structure of the Plan.

Monetary and Credit Policies

7.18 Money supply increased by over 13 per cent in 1979-80 (after adjustment for the change in the classification of demand and time deposits). This order of increase in money supply in the context of a decl.ne in both agricultural and industrial production was an important factor contributing to the price rise in that year. Its impact was all the more severe as it came over and above the substantial increase in money supply that liad taken place in the preceding years. The rate of growth of money supply has, however, decelerated in 1980-81 and this has helped materially in restraining the price rise in the last few months.

7.19 Monetary and credit policies, while aiding the process of economic and social development in line with the priorities of the Plan, have to be so designed as to help maintain a balance between the aggregate demand and supply of goods and services. For this purpose, to would be necessary to ensure that the growth of money supply over the Plan period bears a reasonable relationship with the increase in national income.

7.20 Thia would require coordination of fiscal, monetary ,and credit policies so that deficit financing by the Government, credit public agencies or agencies designated by the Government for purchase of foodgrains and other commodities as well as credit to the commercial sector taken together do not lead to an excessive increase in money supply. The anticipated deficit in the balance of payment would provide .some cushion for monetary growth' on the other hand , food credit, which has declined since 1979-80 as a result of the reduction in food stocks may be expected to go up with the '"building of food stocks. Procurement of other commodltws under price support operations or for the purpose of public distribution would add to the requirements of credit. Proper planning in regard to the deployment of monetary and credilt resources is, therefore, of utmost importance.

7.21 Credit policy is being reoriented to meet increasingly the needs of the poorer and weaker sections of the community in order to increase their productive capacity. It has been decided to increase the proportion of advances to the priority sectors, comprising agriculture, small-scale industry, retail trade and small business, professional and self-employ ed persons etc., from 33 1/3 per cent of total bank advances in 1979-80 to 40 per cent by 1985. Further, out of the total advances to the priority sectors, at least 40 per cent will be extended to the agricultural sector. To ensure a larger flow of funds to the weaker sections, separate targe;s are to be fixed for them within the priority sector lending for agriculture and small-scale industries, which account for ,a predominant share of the toial priority sector lending.

7.22 The monetary and credit trends would need to be monitored closely and may be reviewed periodically with a view to determining whether any corrective measures are needed. The level and pattern of interest rates wUl also need to be kept under constant review in the light of the evolving economic trends. There is evidence to suggest that savings in the form of deposits with financial institutions and certain other types of financial assets are responsive to changes m the rates of interest. Interest rate policy can thus be effectively employed for augmenting Savings, In addition to its use in the regulation of credit expansion by increasing the cost of inventories and speculative hoarding. The interest rates must also reflect the relative scarcity of capital and the need to promote labour intensive techniques of production, It will. of course, be necessary to ensure that the interest rates are not too high for the poor and we,aker sections or for investment in high priority areas. This could be taken care of by differential rates of interst on a selective basis.

Income Policies

7.23 The existence of wide disparities in incomes and living standards inevitably creates an atmosphere in which it is extremely difficult to secure discipline and dedicated effort in major areas of economic activity. On the other hand, given the fact that the vast bulk of the incomes are generated in the agricultural sector and among those who are self-employed, it is not easy to design an incomes policy on the same pattern as that attempted in some of the western countries. The paramount need to promote a sustained increase in agricultural productivity requires maintenance of adequate incentives for the farmers; similarly incentives for private industrial investment are also required consistent with the objective of avoiding concentration of wealth and economic power. None of these considerations, however, come in the way of creatins a ccneral climate of austerity and against conspicuous consumption.

7.24 An incomes policy as such has to derive its rationale from the objective of the Plan. It has to aim at reducing the existing disparities in order to bring about a more rational and equitable pattern of income distribution. Besides, it must help in stabilising'the prices. In fact. the success of the incomes policy itself is be'.ter assured under conditions of price stablity.

7.25 In spite of the various measures taken so far, there has been no significant dent yet in the problem of income disparities. While this is attributable partly to the limitations of the measures adopted and shortcomings in their implementation, the development process itself has also tended to benefit more the favourably placed sections of the community. The recurrence of the inflationary phenomenon has further accentuated the distortions in income distribution The problem is extremely complex on account of the skewed distribution of assets on the one hand and the deep-rooted historical socio-economic factor? on the other. The need to provide adequate incentives for increased efficiency and productivity renders the task of income redistribution even more difficult.

7.26 In a country where nearly half of the population lives below the poverty line, the most important task of the incomes policy has to be to increase the income levels of the poorer and weaker sections. One of the major objectives of the Plan is, therefore, to progressively reduce the incidence of poverty and unemployment and improve the quality of life of the people. The household-centred poverty alleviation strategy under the Integrated Rural Development Programme, development of agriculture and ancillary activities, promotion of cottage, village and sm,all industries and creation of additional employment under the National Rural Employment Programmes are among the important measures designed to achieve this objective. In addition, the Minimum Needs Programme would provide certain amenities to the people in the form of drinking water, elementary education, health care, house sites to the landless labour, etc. Further, the purchasing power of the incomes of the noorer and weaker sections of the community would be protected through the supply of essential consumer goods at reasonable prices under the public distribution system.

7.27 At the same time it is essential to exercise some fontrol on hiph incomes as well as on non-functional incomes. Reliance will have to be olaced mainlv on fiscal policy and measures such as industrial licensing, regulation of monopolies and restrictive trade practices, etc. It is of utmost importance in this context to tighten up tax administration and curb tax avoidence and' evasion. Expansion of the public sector will also help indirectly in preventing accrual of larpe incomes at the too level. There are ce'linss on income in the nublic sector and certain guidelines have also been adopted for fixing the emoluments of too executives in the coroorate sector. However, suitable differentials in emoluments in-favour of mwaserial and hi"h skill jobs will have to be permitted in order to attract the best people to these jobs.

7.28 In regard to wages, there is marked disparity between the organised and unorganised and urban and rural sectors. One of the main problems is that of lower wages than the prescribed minimum. It is therefore, necessary to enforce the Minimum Wages Act and to undertake periodical revision of the minimum wages notified under the Act. The real solution to the problem, however, lies in increasing substantially the employment opportunities and brinning about a better balance between the demand for and supply of labour. Measures to impart skills and promote diversification of occupations could contribute further to an improvement in wages.

7.29 Wage levels in the organised sector vary not only between regions and industries but even among units in the same industry. These are related neither to the nature of occupations nor to the level of skills. These anomalies and disparities have resulted in social tensions and industrial unrest. There is, therefore, need for bringing about a greater rationalisation of the wage structure and linking of wages at least in some measure to labour productivity. This can be done only with the full and willing cooperation of workers and their representatives and the success of any such attempt will depend a great deal on the pursuit of polices conducive to reduce the disparities in income and consumption. In an environment which promotes economic discipline gen" rally, it should be possible to ask those who are fully employed, both wage earners as well as others to accept some restraint on the growth of their consumption in the interest of those who are under-employed or unemployed. In the medium to longtenn. real wages must be allowed to move with gains in productivity in the economy as a whole; but such a policy may still require those engaged in occupations with (rapidly rising productivity to accept a somewhat lower increase in earnings in order to permit a measure of apquity vis-a-vis occupations in which productivity growth is likely to be small. Also, in the immediate period ahead, there should be less insistence on improvements in real incomes on the part of those who are fully employed to help establish expeo rations of price stability, so important for mounting the development effort called for by the Plan. There is also urgent need to generate a climate in favour of modernisation in industry and adoption of new techniques which help in increased productivity, without being detrimental to employment. In the sragll and decentralised sectors the scope for technological improvement is quite considerable and this must be
explored to the full.

Pricing Policy

7.30 In view of the increases in demand on accunt of the increase in population as well as the growth of incomes, the durable solution to the problem of maintaining a proper macro-balance between demand and supply would essentially lie in increasing the oroduction and availability of poods and services in relation to the growing -demand. This would be soRcially necessary in the case of basic consumer goods and essential raw materials and other inputs It is important, therefore, that the targets of production both in agriculture and industry are realised and, for this purpose, the various programmes, schemes and policy measures included in the Plan are effectively implemented. As recent experience indicates the increase in production would critically depend on adequate and timely availability of the basic facilities such as power and transport. Particular attention has, therefore, to be given to improving and developing the infrastructure so as to ensure that constraints in these sectors do not hamper growth. It would also be necessary to improve the monitoring system, so that remedial measures are taken erpedi-tiously as and when necessary.

7.31 Overall stability of prices does not mean rigidity in prices. Changes in relative prices may occur in response to changes in the demand-supply situation. These may also have to be induced to influence resource allocation in order to achieve the desired pattern of consumption, production and investment. The policy in regard to agricultural and industrial commodities is discussed below.

7.32 Agricultural commodities: Prices of agricultural products exercise a significant influence on the general price level as several of the essential articles of mass consump^on as well as some of the industrial raw materials are agriculture based. In fact, prices of foodgrains act as a pace setter in the behaviour of general prices. Food and food products account for a weight of over 60 per cent in the All India Consumer price Index for Industrial Workers and of over 75 per cent in the Consumer Price Index for Agricultural Labour. In the Wholesale Price Index, agricultural and agriculture based products account for more than half of the total weight. The output of agricultural commodities is not only subject to year to year fluctuations but the demand for these being generally inelastic, a marginal rise or fall in their output causes a disproportionate increase in prices. Maintenance of relative stability and reduction in seasonal fluctuations in their case is, therefore, of vital importance.

7.33 Since fluctuations of agricultural production tend to generate instability of prices and, in the lean years, trigger inflationary pressures, an important instrument of maintaining price stability is the establishment of adequate buffer stocks in as many of the essential commodities as possible. A buffer stock of about 15 million tonnes in respect of foodgrains, for instance, is considered absolutely necessary in order to minimise the impact of weather fluctuations on their availability and prices. Buffer stocks for the articles of common consumption will need to be created as the situation permits and marginally with the help of imports, to the extent feasible.

7.34 Minimum support/procurement prices are fixed for major agricultural commodities each year on the basis of the recommendations of the agricultural Prices Commission (APC). In making its recommendations, the Agricultural Prices Commission is expected to take into account the need for a "balanced and integrated price structure in the perspective of overall needs of the economy and with due regards to the interests of the producer and the consumer". Accordingly it takes into account all relevant factors such as the demand and supply situation in respect of individual commodities, cost of cultivation, changes in terms of trade between agricultural and non-agricultural sectors, prices of competing crops, etc.

7.35 It is hardly necessary to emphasis that the farmers need to be provided remunerative prices so as to ensure that they have adequate incentive to produce more and improve productivity. In determining remunerative prices, due account will have to be taken of the cost of production and other relevant factors, including changes in terms of trade, overall needs of the economy and interests of consumers. At the same •ime, the various programmes and schemes designed to increase yields should be effectively implemented to reduce unit costs. Improvement in management practices can also help in reducing costs. Moreover, it is necessary to bring about an improvement in marketing to reduce uk excessive share going to the middlemen and ensure better realisation for the farmers. There is also need to improve the efficiency of the public procurement/purchase agencies and increase the area of their operation whenever necessary.

7.36 Over time, the pattern of relative prices of agricultural commodities has to be such as to promote the desired pattern of crop production. However, in the case of commodities like pulses and oilseeds, where there is an imbalance between demand and supply, the use of the price instrument alone may not be sufficient to bring about the desired level of production. The main solution would seem to lie in technological break-through, and institutional improvements.

7.37 Industrial Commodities: In the interest of overall price stability, it will also be necessary to control or regulate the prices of certain essential industrial products, particularly basic consumer goods and important industrial or agricultural inputs. Care has however, to be taken to limit price control and regulation measures, or the system of administered prices, to as few commodities as possible.

7.38 Administered prices are generally fixed on the recommendations of an expert body like the Bureau of Industrial Costs Prices (BICP) or. in the case of certain public enterprises, of specially constituted Inter-Ministerial Committees or Groups. While recommending prices, the BTCP normally goes bv the guidelines for price fixation prescribed by the Government and inter alia, takes into account the cost of more efficient firms which account for a large percentage of the total output (to ensure a certain level of efficiency in production), the optimal norms of consumption of raw materials and energy as well as capacity utilisation and provides a fair rate of return which has eeneraly ranged between 10 to 14 per cent on net worth, depending on differences with respect to factors such as risk. priority, growth prospects, etc. Tn order to reconcile the interests of consumers as well as producers, a system of retention prices for different producers on the basis of costs of production on the one hand and uniform sale price for consumers on the other has been recommended and is in operation in several cases such as steel, fertilisers, cement, etc. Price adjustments arc allowed for changes in major cost components from time to time ,and a [review indepths is undertaken after suitable intervals. (This system will be continued.

7.39 The principle of fair return is relevant to public enterprises as well. However, these enterprises are generally engaged in the provision of infrastructural services or in the manufacture and supply of basic industrial materials such as coal, steel and POL, or agricultural inputs such as fertilisers and the increase in their prices generally has a cascading effect. Hence, an attempt has been made to keep down their prices. This, together with managerial deficiencies and other factors, has resulted in inadequate resource generation by public enterp-ases, losses in some of them and a heavy draft on the public exchequer. It has also meant supply of goods and services produced in the public sector at subsidised prices even for non-priority uses, and, consequently, accentuated the imbalances between demand and supply. Further, a delay in the revision of prices results in the subsequent revisions having to be of a substantial order. In the interest of making public enterprises viable, enabling them to play their assigned role and raising additional resources for development, there is need for rationalising their pricing policies in a iphased manner. While doing so, due weight will also have to be given to considerations of social costs and benefits.

7.40 It may be noted that in a number of public enterprises, there is sub-optimal utilisation of the existing capacities due to various factors, particularly infrastructural constraints and managerial deficiencies. Besides, delay in the implementation of projects has resulted in costs over-runs. Substantial improvement in the working of public enterprises as well as in the execution of projects is, therefore, necessary to increase production, reduce costs and improve the rate of return. Enterprises'in both the public and private sectors have, therefore, to strive to achieve greater efficiency and reduce costs through the adoption of modern management techniques, better inventory control, etc. Wherever economies of scale exercise an important influence on the cost of production, the expansion of existing enterprises has to be preferred to setting up of new plants. Tariff policies may also be reviewed to avoid excessive protection to indigenous industries and induce them to improve their competetiveness.


7.41 From the point of view of maintaining stable price conditions, an efficient management of the supplies of essential consumer goods is of crucial importance. The demand for such commodities being largely inelastic, even a marginal fall in their output and availability often leads to a disproportionate increase in prices. Further, as most of these commodities are agriculture-based, their prices are subject to large seasonal variations. Public distribution will, therefore, have to play a major role in ensuring supplies of essential consumer goods of mass consumption to people at reasonable prices, particularly to the weaker sections of the community.

7.42 A large proportion of agricultural products— foodgrains as well as industrial raw materials tends to come to the market immediately after the harvest when prices are depressed. A mechanism for buying such commodities at prices which ensure a certain minimum profit to the producers and their distribution through the public channels would provide a two-sided shield to protect the poor; in relatively easy times, they would be assured a minimum profit margin and in critical limes they would receive supplies of essential commodities at reasonable prices. The public distribution system will, therefore, have to be so developed that it remains hereafter a stable and permanent feature of our strategy to control prices, reduce fluctuations in them and achieve an equitable distribution of essential consumer goods.

7.43 The public distribution system will also be necessary for operating the dual pricinsr arrangements in the case of certain commodities. Under these arrangements, a certain proportion of the output of the commodities involved is procured by public agencies or agencies designated by the Government at reasonable prices for distribution through approved channels, while remaining supplies may be disposed of by the producers at market prices. This would ensure availability of certain quantities of selected commodities to the consumers, particularly the vulnerable sections, at reasonable prices and at the same time allow the producers to realise on the whole a fair price for their produce.

7.44 An efficient public distribution system requires a nexus between production, procurement, transportation, storage and distribution of the selected commodities,

7.45 In the past, responsibilities for these have been fragmented and thus there has been a lack of an integrated systems of approach which alone can ensure an effective system of public distribution. It is proposed in the Sixth Plan to follow such an approach and to pay attention, apart from production and procurement, to transportation and proper storage of the commodities covered by the public distribution isystem. A linkage will be established among the concerned agencies in the Central and State Governments as well as public undertakings and cooperative institutions at various levels.

7.46 In view of the complexity of the problem, a selective approach is called for in the matter. The essentiality of commodities to be covered under the system has to be determined with reference to the needs of the common man. Applying this criterion, cereals, sugar, edible oils, kerosene, soft coke, controlled cloth, tea, coffee, toilet soap, washing soap, match boxes and exercise books for children, etc could be treated as essential items for public distribution. The emphasis has to be on reaching all parts of the country, even if it means selection of a fewer essential commodities for supply through the system. Besides it is not necessary that the public distribution system all over the country should have a standardised list 01 commodities. The different regions may have different preferences. Further, different commodities may assume importance in the scheme of public distribution nl different points of time. But having regard to the standard of living of the vast majority of the people, it is obvious that the overwhelming majority of commodities needing the care of the public distribution system will be fairly common for the entire country. Depending on local conditions the public distribution agencies may undertake operations in respect ol certain perishable commodities also, provided suitable storage facilities are available or can be provided.

7.47. For the success of the public distribution system the maintenance of the supply line of the commodities selected for distribution would be of crucial importance. Even a temporary interruption in supplies could create great hardship to the people. The Plan includes suitable programmes for increasing the production of essential articles of mass consumption. There would, however, be need for forward planning in respect of individual commodities, so that the domestic supplies could be suitably augmented by timely inipoits, wherever possible. Besides, adequate arrangements should be made for procurement, transportation, storage and distribution of the commodities at the Central, State and local levels. Buffer Stocking may also be desirable in respect of certain commodities. In regard to foodgrains, the Plan envisages building up of buffer stock of 15 million tonnes to minimise the impact of weather fluctuations on their availability and prices.

Infrastructure for Public Distribution

7.48 For the effective functioning of the public distribution system, it would be necessary to revamp and strengthen its infrastructure and expand the system quickly to cover all areas in the country, particularly the backward, remote and inaccessible areas. Special attention will need to be given to rural areas, as the system is relatively less developed in such areas.

7.49. At the national as well as State levels, arrangements generally exist for procuring essential commodities and supplying them through the public distribution outlet;;. In regard to foodgrains, the necessary operations are undertaken by the Food Corporation of India. In the case of sugar, the operations are undertaken bv the Food Corporation of India in some States and Civil Supplies Corporations or co-operative, in other States. The responsibility for importing and distributing edible oils has been entrusted mainly to the State Trading Corporation of India. Soft coke is being handled by the Department of Coal and Coal India Ltd. Kerosene is being handled by the public sector corporations like Indian Oil Corporation. Hindustan Petroleum. Bharat Petroleum, etc. The production of controlled cloth has now been generally entrusted to the National Textile Corporation and distributed throush the National Consumers Cooperative Federation. Similarly, tea is being procured and distributed by'the National Consumers Coopera. live Federation and coffee supplied by the Coffee Board. The supply of match boxes is arranged through the Khadi and Village Industries Commission. As regards exercise books, the State Governments receive paper at controlled price for conversion into exercise books through their own organisations. For toilet soap. in the absence of any public sector agency, the necessary arrangements for supply are being made by th« Indian Soap and Toiletries Manufacturers Association. These arrangements will need to be kept continuously un'der watch and Suitably strengthened or modified whenever necessary.

7.50 In the States, distribution of essential commodities received from or through the Central agencies is, by and large, being handled by the State Civil Supplies Essential Commodities Corporations, State level apex consumer cooperative federations and other designated agencies. In some States like Tamil Nadu, Punjab and Kerala, the Civil Supplies Corporations have opened their own retail outlets also.

7.51 A number of Slates have a fairly developed system of consumer cooperatives. In 1979-80, out of the total fair price shops numbering 2.5 lakhs, nearly 72,000 were in the cooperative sector—about 58,000 in rural areas and 14,000 in urban areas. Besides, there were 470 wholesale consumer stores with 4500 branches (including 200 departmental stores) and 1500 primary stores functioning in urban areas. There are State level cooperative federations in each State and a national level cooperative consumers federation is also in existence.

7.52 The cooperatives in both urban and rural areas are selling consumer articles worth about Rs. 1600 crores per annum. The Civil Supplies Corporations' operations at the retail level are, however, rather limited. The cooperatives and Civil Supplies Corporations together, therefore, seem to be meeting only a small proportion of the essential consumer needs at present. Their share in the trade in essential commodities will need to be increased substantially in the Sixth Plan period.

7.53. For the successful operation of the public distribution system, it would be necessary to revamp and strengthen the existing arrangements. In the States; where a strong cooperative movement exists, the apex body of consumer cooperatives and marketing societies may take up the responsibility of procurement storage, movement and distribution of essential commodities. However, in other States, it would be necessary to set up Civil Supplies Corporations or strengthen the existina Civil Supplies Corporations/ Essential Commodities Corporations.

7.54 The Civil Supplies Corporations may have to construct some godowns also for meeting their requirements, where adequate godown space is not available from the Central and State Warehousing Corporations, cooperatives, etc. The Corporations will also have to build up a cadre of trained personnel. For this purpose, effective training will be necessary.

7.55 It has been found in practice that neither the private sector nor the cooperatives volunteer to go to maccesssible areas, especially areas innaoitect Toy me in-bals and weaker sections of the community because of the non-viability of operations there. The State Governments will have, tneretore, to shoulder this burden through then- own Civil Supplies Corporations or other suitable agencies. Some suosidy may also have to be given to retail outlets in such areas in the initial years of their operation.

7.56 In view of the weak resource base of the North-Eastern States, the Plan includes a provision tor assisting such States in setting up Civil Supplies Corporations as also for assisting these corporations for constructing godowns and for subsidy to retail outlets in inaccessible areas, etc.

7.57 It would also be necessary to strengthen and expand the structure of consumer cooperatives in both urban and rural areas and increase the number of co-operative retail outlets, in order to cover effectively all sections of the community, particularly the weaker sections. Necessary provision for this purpose has been made in the Plan. The main targets are indicated below:

Consumer Cooperatives
1979-80 1984-85
1 Fair price shops (number)
(a) Urban 14,501 20,000
(b) Rural 57,744 80,000
2 Distribution of consumer articles
(Rs. erores)
(a) Urban 800 1600
(b) Rural 800 2000

the total number of fair price shops, including private outlets, in the country is proposed to be increased from 2.5 lakhs at present to 3.5 lakhs by the end of the Sixth Plan.

7.58 Every care will have to be taken to ensure that the retail outlets established by the Civil Supplies Corporations or those operating in the cooperative sector are economically viable. Since a considerable infrastructure of private retail outlets exists and these have generally been operating for a long time, they would continue to play an important role in the public distribution during the Sixth Plan period also.

Other Improvements in the Public Distribution System

7.59. Emphasis has to be placed on efficient and socially-oriented marketing techniques and every effort will have to be made to reduce the cost of distribution by taking advantage of the economies of bulk handling, avoiding cross movement of goods, building up a network of rural godowns and use of non-mechanised means of transport from these godowns to consumer centres as far as possible. Besides, some fast selling items may oe allotted to fair price shops in the public and cooperative sectors to improve their financial viability. They snouid also be encouraged to handle postal anicles and tainuy planning materials.

7.60 Coordination and linkage between the consumer and marketing cooperatives wuuia oe siiei)ginened so that me lormer could procure farm products directly from trie tanners. Furtner, with a view to enabling the cooperatives 10 play a larger role in the public oistri-buuon system and tlie supply of essential articles in the rural and urban areas, considerable expansion in the storage capacity of cooperatives is envisaged.

7.61 The usefulness of the public distribution would be enhanced througn Horizontal linkages with Plan programmes. For instance, mobile tair price shops may be organised at Centres where rural works are in progress. Regular tan- price shops could be established in areas where large-scale employment is generated under the Plan projects and programmes. the possibilities of non-formal starting, i.e. use of personnel on part-time basis, may also be explored in appropriate places in order to minimise costs.

7.62. In the tribal areas, it may be noted, the problem is not merely one of supplying essential consumer goods, but also of supplying the other requirements, including the requirements of production inputs, and of procuring the products of tribals at reasonable prices, since they are often exploited by the middlemen. Some arrangement may also have to be made to supply goods to tribals on barter basis. The public agencies in tribal areas will have to take up all these tasks.

Consumer protection

7.63 It is necessary to provide a measure of protection to consumers in relation to quantity, qualny and prices of at least essential consumer goods. The basic legal framework for providing such protection already exists. However, it needs to be reviewed and strengthened. Steps should also be taken for more effective enforcement of the laws and the various consumer protection measures. Besides, there is need for a coordinated price policy in regard to important consumer goods in order iio ensure reasonable prices of such goods.

7.64 Voluntary consumer organisations could help a good deal in ensuring effective functioning of the public distribution system and providing more effective consumer protection. There is, therefore, need for promoting such organisations in both urban and rural areas. The major thrust of voluntary organisations should be towards reaching the generality of consumers. Women should be actively involved in voluntary organisations. Where it is not practicable to organise consumer organisations, there should be no hesitation to utilise the services of established and reputed social welfare organisations. In rural areas, local representative institutions like the Panchayats may be used to create consumer awareness through meetings and dissemination of information of consumer interest.

Intelligence and information system, enforcement and training

7.65 Finally, there is need lor strengthening the intelligence, early warning and demand-supply management miormaaon sysiem. It would be necessary to have an effective ana integrated system at different levels. Based on the inteliegence reports, prompt action should be taken at the block, district, male or Central level as the case may be. The enforcement machinery should be strengthened. Provision has also to be made for proper training of the personnel required for the collection of information, analysing it, monitoring the supply system and enforcing tne legal provisions.


7.66 A major task facing the country is to reduce i-ls dependence on imported encigy and generally tu promote exports and invisible earnings in an effort to secure self-reliance. It should be oovious, but often is not, that self-reliance does not mean self-suthciency in all sectors of the economy. So long as the country is able to pay its way, it cannot be said to be dependent on otners. The choice of the outputs to be produced domestically and those to be imported should then depend broadly on economic calculus and the long-term comparative advantage which the economy enjoys. While it may be necessary in respect of the basic and strategic sectors of the economy for Government itself to make such a choice, it should be possible in the rest of the economy to leave the choice to be made on the basis of criteria of rates of return. Given the resource constraint, the present skewness in income distribution and the balance of payments problem facing the country in the immediate future, there cannot be a question of adopting anything like a free trade policy. A considerable restraint on imports is inevitable, whether it is imposed through tariffs or import restrictions or both. A rapid increase in the domestic production of petroleum, fertilisers, cement, steel and vegetable oils is essential in order to contain growth of imports within reasonable limits. In addition, adequate stress will continue to be laid on promoting import substitution in activities where the country has a distinct long-term comparative advantage. Simultaneously, there is need to recognise, as has been done in recent years, that foreign trade policies should be such as not to come in the way of a rapid and wide ranging growth of exports. The system of incentives and disincentives should thus be neutral to the maximum extent possible as between export promotion and import substitution. This is not to deny that there could be a conflict as between different objectives of the Plan and that in making a choice of the appropriate foreign trade policy it would be necessary to keep in mind the other objectives of the Plan as well. When it comes to exports, however, it seems clear that over the next five years or so the balance of payments prospects facing the country are such that it can ill-afford not to give high priority to the promotion of exports and other foreign exchange earning activities.

7.67 To a considerable extent, the task of achieving the growth of 9 to 10 per cent a year in export volume will be greatly cased if inflation is brought under control. Tne most rapid growth of export's in recent history has been during me two years when our rate of inuati.on was well oelow that in the rest of the world. The prospects are for a further increase in the price of oil whicn would transfer resources from the rest of the world to the UPEC countries. We must continue our endeavour 10 capture as large a share as possible in the imports of the OPEC countries, which may be expected to continue to grow even if at a slower rate than in the past. As the scope for earnings from remittances of migrant workers is likely to be limited, we will need to enlarge opportunities for exports of commodities, technology and enterprise to tnese countries. In developing a general strategy of export growth, it is necessary to identity specific areas of relevance for exports to OPEC and give them a priority treatment. in point is the production and export of vegetables and fruits. The Plan provides tor special schemes for intensive cultivation in areas in the vicinity of easy air transport. Procedural and other obstacles in the way of Indian enterprises seeking 'to establish permissible business in the OPEC countries, e.g. construction activities—should be removed after a quick review of the present position.

7.68 A sustained increase in exports over a period of years cannot be achieved in the absence of a stable policy environment governing exports as well as production for export and production generally. Frequent changes in policies create uncertainty which is detrimental to the establishment of a stable market abroad and to risk-taking inherent in investment decisions. The environment for production also has to be such as to enable enterprising individuals, agencies and corporations to exploit the available opportunities to the full. Except in very special cases, any conflict between objectives must therefore be resolved in favour of exports. On a broad review of the current policies, it would appear that maximum attention will need to be given in the coming years to:

  1. Removing the disadvantages which exports suffer because of the restrictions on imports;
  2. Removing obstacles to the expansion of capacity for export;
  3. Streamlining the existing cash compensation and other schemes intended to remove the disadvantages suffered by exports on account of taxation and physical controls operating in the economy;
  4. Ensuring that Government intervention in the foreign trade policies is such as not to discriminate against exports and production for export, there is a case for making exporting marginally more profitable than import substitution, in view of the need to diversify export trade which involves capturing new markets abroad and retaining them; and
  5. Maintaining adequate links with technological developments abroad so that our export capability is not hurt by outdated-technology.

7.69 An effort has been made in the Sixth Plan to provide investments necessary to remove the infrastructure bottlenecks—e.g. in power and transport and to the extent that this effort succeeds, the environment for increased production and export will improve. A tight control on domestic demand will similarly help the export effort.


7.70 The Sixth Plan aims at an annuiil average increase ot 5.9 per cent in the gross value added in agriculture (and over 5 per cent in agricultural production). This; involves a considerable step up over the past trend of a little less than 3 per cent a year in gross value added. Indeed, the objective of attaining 5.2 per cent growth in gross domestic product is crucially dependent on acmevcment of this agricultural produclion targets. The success in the export etfort of the country on the scale visualised in the Plan will also depend to a great extent on augmenting agricultural production. A clear strategy will have to be evolved to ensure that agriculture receives a very high priority in all policies and programmes. The postulated increase in output is expetced to result from increases in area under irrigation and high yielding varieties, a substantial increase in the consumption ot chemical fertilisers and adoption of a system approach tor consolidating the gains already achieved and extending the benefits of new technology to all categories of farmers and all regions.

7.71 Along with the growth of production, it is proposed to remedy the imbalance in the relative growth of ditterent crops, in particular by acceleration of the growth rate in the output of pulses and oiheeds. The structure of production will be diversified for enabling a sustained rise in output and incomes and for helping the export efforts.

7.72 All available instruments of policy will have to be geared to the promotion of the proposed increase in agricultural production. In particular, it will be necessary to ensure that crop production is remunerative to the farmer through adoption of appropriate policies concerning pricing of agricultural inputs and outputs, arrangements for supply and distribution of inputs, adequacy and timeliness of credit as well as marketing support, an intensification of research, education and extension. These are spelt out in greater detail in the Chapter on Agriculture-7.73 An important task of policy is to ensure that the gains of the technology and publicly supported programmes accrue increasingly to the small and marginal farmers and are reflected in the adequacy of remuneration for agricultural labour. The National Rural Employment Programme will help provide additional employment opportunities in the lean season to the under-employed and thereby assist the efforts to enforce the minimum wage laws. Credit policies as well as special programmes including the integrated rural development scheme will be so designed as to make an effective contribution to the productive effort of small and marginal farmers. Organisation ot relevant services and oiversitication of the employment base—tor instance, by providing employment opportunities in occupations outside agriculture, including vinage and cottage industries such as hand-looms, 'carpel weaving and the like—are the two principal elements in the strategy of improving the economic status ot' the weaker sections in rural areas.

7.74 In order to transmit the growth process throughout the agricultural sector, it will-be necessary to increase the productivity of the small and marginal farmer. Provision of inputs and credit will help, but it is necessary, in order to induce durable investments in land, to give the tiller a stake in land. Thus the importance of etfecitve land reforms can hardly be over-emphasised. Even a limited redistribution of land can make a significant contribution to the generation of productive employment opportunities in tne rural areas. But the other elements ot the land reform policies which give security to the tenant are also important particularly for promoting productive investment in land. State Governments will take specific measures to record rights in land which remain unrecorded as in the case of share-croppers and the credit institutions will need to devise systems whereby credit lor land development and improvement could be provided jointly 10 the land owner and the share-croppers. If necessary, legislation will be undertaken to permit this.

7.75 Keeping in view the perspective of the next fifteen to twenty years, it is proposed to organise a National Water Development Corporation for the preparation of detailed blueprints for inter-basin transfers of water. Measures will also be taken for the conjunctive use of surface and ground water resources. Further, it is important to evolve a suitable policy frame-work for dealing with inter-State disputes in sharing river waters.

7.76 Long-term policy measures will also be necessary for a balanced-re-structuring of energy use and energy supply for agricultural purposes, taking account of substitution possibilities in energy-intensive inputs as well, such as chemical fertilisers. Agriculture is increasingly becoming science based, and future advances in application of science to agriculture will need to concentrate on improving productivity in agriculture consistent with the need to conserve non-renewable sources of energy.


7.77 Government intervention in industry is both direct and indirect. In so far as successive Five Year Plans have laid emphasis on the leading role of the* public sector in basic and producer goods industries, Government has the responsibility of planning the requisite investments for securing the growth of these industries and of managing their current operations with a view to reaching a level of performance which permits maintaining adequate returns from these investments. While several of the industrial units in the public sector have reached a profitable operation, otners are still making losses. In an earlier section, reference is made 10 the paramount importance or improving the eihciency of me public sector; this applies to industrial undertakings in the puoiic sector as mucn as to muse concerned with provision of power or transport.

7.78 The indirect Inter ventiun of Government in industry arises irom tne need to ensure that private investment suoserves national objectives and tnat its claims on resources 01 domestic as well as foreign finance, scarce raw materials and manpower are SO regulated as to conform broadly to the Flan priorities. Government also is concerned about due dispersal of industry ior the development ot backward regions, to avoid concentration in metropolitan regions aiid to promote tiie growtli ot srnail industries and labour intensive operatuns, navmg regard to the general scarcity ot capual and tne ncey to promote opportunities for employment on a large scale. Industrial policies also have me objective 01 preventing the concentration of ecunoini^ power in a few hands, thus the growth ot monopolies and restrictive practices nas 10 be regulated in the larger public interest.

7.79 It is clear by now that the basic structure and objectives of policies governing Government's intervention in industry have stood the test of time. The commanding heignts or the economy must continue to remain with tne public sector. At the same time the review ot past developments presented in Chapter i, as well as me need for rapid increase m industrial production and exports visualised in the Sixth Plan suggest a greater emphasis in the direction of competitive ability, reduced cost and greater mobility and flexibility in the development of investible resources available in the private sector in accordance with broad national priorities. In order to secure these, it would be necessary, apart from general fiscal and monetary measures, to use the instruments ol licensing policy and policies governing the regulation of capital marKets, including ihe operations of term-lending institutions. Measures taken recently (described in the Chapter on Industry) have already shown the llexibility with which industrial licensing policies are being operated.

7.80 Turning to the capital markets and the role of term-lending institutions, it is necessary to pursue somewhat different approaches simultaneously. On the one hand it is necessary to adopt flexible policies to revive investor interest in the capital market. On the other hand, the role of term-lending institutions in promoting Plan objectives will need to be more carefully defined.

7.81 The new issue market has remained weak for a number of years, causing serious problems of shortage of risk capital and drawing the term-lending institutions gradually into the business of risk taking which is not their primary function. To the extent that the controls on capital issues come in the way of corporate entities .drawing on the funds available in the market, such controls will need to be reviewed and the scope for simplification explored, ft seems, however, that the absence of interest in new issues is due to tne long gestation of many ol: the investment projects, difficulties in tne supply oŁ basic inputs such as power and transport whicn postpone the prospects of profitable production, a low rate of return compared with tne relative rewards available on fixed interest instrumncts and the general lack of innovation in the issue of new kinds of mstruments which might suit the investors' needs. There is cicurly need for improving the mvcstmcnl ciiniutc ;md broadening the new issue market so as to reduce the dependence of private industry on public financial institutions.

7.82 The activities of the term-lending institutions themselves, on the other hand need to be dlicclcd more than in the past to programmes germane to Hie implementation or the Pian targets. these institutions are operating under general guidelines issued by Government with respect to priorities they live to observe in their lending operations. If the efforts to revive the new issue mai'Kct bear success, the term-lending institutions will be better able to concentrate on priority areas. Tne contribution that these institutions make in promoting systematic project formulation and monitoring is of particular value 'for investments in critical sectors of the economy. Tiie resource position ot the term lending institutions, their capital base and their ability to raise resources' from domestic and foreign sources will be kept under constant review during the Plan period.


7.83 An important objective of the Plan is to bring about a progressive reduction in regional inequalities in the pace of development and in the diliuSlon of technological benefits. It should be generally accepted that the fulfilment of the objective requires upgrading the development process in the backward regions rather than curtailing the growth of these regions which have acquired a certain momentum. Thus the measures to be pursued for reduction of regional inequalities have to be consistent with the general objective of achieving a 5 per cent growth rate in the economy as a whole. The fact that there are vast areas or the country which have remained backward over the years is both a challenge and an opportunity. Diffusion of skills and technology to these areas should bring forth a proportionately greater improvement in productivity. Their resource base is low; and many of them face one or the other of the adverse natural factors which inhibit the prospects of growth: scanty rainfall, frequency of floods, difficult terrain, desert areas and so on. Specific programmes meant to deal with these deficiencies are already in operation and they will need to be strengthened. Backwardness does not recognise State boundaries; and it may be necessary, over time, to take account of this in the policies concerning resource transfers. Relatively richer States need to pay adequate attention to the backward areas within their territories and the claims of the backward States must also be sustained on the basis of proven programmes for the benefit of the backward regions. District and blockwise planning will bring to light the nature of the specific problems in each area and the manner in which they need to be dealt with.

7.84 Central policies with respect to resource transfers will need to be suitably tailored to the benefit of backward regions and broadly in relations to the effort made by the States in this regard. The IATP formula introduced in 1979 and the doubling of the segment for backward States in the Gadgil Formula for allocation of Central assistance for State plans illustrate the effort made in recent years to modify the distribution of resources in favour of the backward States. There are, however, obvious limits to the role of Central assistance in the promotion of backward areas and reduction of regional imbalances in development. The problem of regional disparities has several dimensions and action on several fronts is indicated if there is to be a perceptible decline in such disparities. Moreover, an increase in the flow of resources to the backward States does not necessarily imply that adequate provisions will be made for the backward regions. State Governments have a crucial role to play in evening out inter-State disparities, identifying local development potential and providing the administrative and financial support needed for local programmes. It must also be remembered that the special programmes for backward regions have to be dovetailed with the overall development plan in order to make them cost effective. Thus mechanisms of area planning have been adopted to provide an integrated approach to the problems o? regional inequalities, and the sub-plan approach ?ias been promoted so that the area plans are fully integrated with the national development plan. Special Tribal Component Plan, Hill Area Schemes and specific programmes handled by the North East Council have all been evolved from these approaches. Greater emphasis is placed on all these in the Sixth Plan.

7.85 The exact content of the development programme will vary between different types of backward areas. However, with regard to modalities of implementation, there are certain common problems. Some of them are the weakness of the administrative structure, both in the hierarchical insufficiency of technical personnel and in horizontal coordination, diversion of sectoral provisions to more developed areas where they can be more readily spent, insufficient delegation of power to local authorities and unwilling-ness of staff to serve in the area. The special programmes for area development will come to noueht unless these problems are tackled. The National Committee on Development of Backward Areas NCDBA) has recently recommended that the following features should form a part of financial arrangements for the development of backward areas.

i) Sub-Plan Approach: The concert of a sub-plan has been developed in the Integrated Tribal Development Proaramme, There should be a 'Sub-Plan' for the development of backward areas both at the State and Central levels. In the Plan of every development department there are programmes which are divisible. In the Sub-Plan approach, weighted allocation is proposed to be given to the backward area from the divisible part of the plan of the development department.

(ii) Project fund for local planning and special additive fund: Even though the divisible part of the State Plan is allocated to the projects the sheer inertia of on-going programmes will leave very little scope to the local planning group to adjust the funding to local requirements of an integrated development approach at the local level. Special steps will, therefore, have to be taken to force gradually a discretionary allocation to the local planning and implementation group to enable them to bring in local planning of areatcr and greater magnitude gradually. In addition, as development of backward areas has to be expedited, a special allocation of Rs. 5 lakhs per year for each block in the project area should be available as a special additive for the plan period.

(iii) Financial discipline: In view of the tendency to divert funds intended for backward and difficult areas to more forward areas and easier programmes, financial discipline will have to be imposed to ensure that the funds included in the Sub-Plan for the develpment of backward areas and allocated to the projects in the backward area by various departments and the additives are spent properly within the year in that project area.

7.86 According to the NCDBA, the effective implementation of the special programmes will require the adoption of the following organisational features:

(i) Project-based implementation: the development programmes for backward areas should be implemented through projects authorities created by an executive order for groups of 2 or 3 blocks, the actual size being left to the States, depending on the locat coddi-tions. The chief executive of the project sliould coordinate the work of all development functionaries in the project and should have the powers to issue orders to them for action on agreed programmes.

(ii) Incentives for staff: The most serious problem of backward areas is that the hierarchies of development departments that should be working in those areas generally have lots of "aps because of the unwillingness of staff to so to those backward areas. The Committee has identified lick of housinp-, health and educational facilities for children as three constraints to free movement of staff to those areas. In addition, a mix of incentives and penalties will have to be tried to ensure that the backward areas get their fair share of development staff and technical aid.

Many of these organisational features have been incorporated in some schemes like the Tribal Sub-Plan programmes and according to NCDBA they need to be extended to all backward areas development schemes.

7.87. The recommendations of the NCDBA on special areas development programmes will be considered by the Government and the required changes in scope coverage and organisational modalities will be introduced during the Sixth Plan period.

7.88 Apart from resource transfer and public sector programmes of development aiming specifically at the development of backward regions, Central policies have also been designed to provide incentives to private entrepreneurs through schemes of concessional finance, seed/margin money scheme, Central investment subsidy schemes, tax reliefs, specific interest subsidies for engineer entrepreneurs and so on. The experience ot these schemes will be evalua^d and the required modifications made so as to make these programmes more effective. The National Committee oil Development of Backward Areas has also submitted a ieport on industrial dispersal which makes a number of recommendations concerning the development of backward nreas through industrialisation. The Committee's evaluation of the existing policy for industrial dispersal shows that the Central investment subsidy and the scheme of concessional finance have benefited a small number of districts, mostly in close proximity to relatively developed industrial centres; that with a few exceptions the industrial estate programme has not helped relocate industries away from developed areas; that licensing policy is only a negative mstrii'ment and cannot by itself promote industrial development in backward regions; that the availability of concessional finance and subsidy has been a significant motivating factor in persuading entrepreneurs to locate their units in backward districts. Having regard to this experience as also the natural tendency of industry to congregate at certain locations the Committee has recommended a policy of encouraging location of industry in suitable growth centres with due weightage for such centres in industrially backward Slates. The Committee has suggested esta-lishment of an Industrial Development Authority in such selected centres which will work on a commercial basis to provide the necessary infrastructure and to channel development funds which might be allotted by Central or State Governments. The Authority will provide a Master Plan on the basis of which financial instituions would be able to assist development of the area. The Committee has also made recommendations regarding modification of some of the exist-ins; schemes of incentives. The Cominittee's recommendation will be examined and a suitable policy frame evolved.

7.89 The transmission of growth inpulses from the developed to the backward regions is only one part of the process of reduction of regional disparities; generation of growth impulses within the backward regions is an equally important part. It will be necessary to strengthen the arrangements for area planning so as to enable financial institutions, commercial banks and cooperatives to augment substantially their lending in the backward regions in agriculture and allied activities as well as for village and small industries.

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