The Five Year Plan: A Critique

By Prof. K. V. RAO, M.A., M.Litt.
(Govt. S. C. College, Puri)

India’s ‘First Five Year Plan’, like our new Constitution, is the first of its kind in this country attempted by the people themselves. And being the first of its kind, again like the Constitution, it contains all our aspirations, and, as we are novices in the art, contains also the shortcomings natural to any new attempt.

This Plan has been praised by many and at the same time equally blamed by many. But, paradoxical as it might look, it has not received that much of attention from the public of India that should be expected from a nation yearning for independence and planning. An attempt is made in this article to understand the Plan as well as to understand the criticism and assess its true value,–all from an academic point of view.

The Plan

A Draft Outline of this Plan was first published in the middle of 1951. This was the work of a Planning Commission set by the Government of India in March, 1950 by a Resolution. In that Resolution the Government of India defined the scope of its work in something like the following terms:

The Constitution of India guarantees to all citizens of India certain Fundamental Rights and also enunciates certain directive principles of State policy. Particularly the State is asked to strive to promote the welfare of the people by protecting as far as possible a social order in which justice, social, economic and political, shall prevail, and shall direct its policy for securing, especially, that all citizens shall have a right to adequate means of livelihood, that all the material means of production are used for the common good, and that the operation of the economic system does not result in the concentration of wealth and the means of production to the common detriment. In furtherance of these principles and also the declared policy of the Government “to promote a rapid rise in the standard of living” by “efficient exploitation of the natural resources, increasing production and offering equal opportunities to all for employment in the service of the community,” the Government appointed a Planning Commission.

This Planning Commission shall therefore assess the natural resources of India, formulate a Plan for the most effective and balanced utilisation of the country’s resources, determine priorities, indicate the factors responsible for the wardness of the country, and so on.

The most glaring point that strikes the reader is the difference, in the above Resolution, between the ambition of the Government and the scope they give to the Planning Commission. To repeat a few of the above points, the ambition of the Government is to “secure a social order in which justice, social, economic and political, shall prevail,” to see that “all citizens have aright to adequate means of livelihood,” to prevent the economic system resulting in “concentration of the wealth and the means of production,” “to promote the rapid rise in the standard of living” and to offer “equal opportunities to all for employment,” but all that the Planning Commission had been asked to do was to asses the resources and plan out priorities. In a way the high objects of the Government reflect the aspirations and expectations of the people in general, and that is why the Plan has so much disappointed them. And for this we must put the blame on the Resolution of the Government but not on the Planning Commission which had to report within the general framework of that Resolution.

In the Draft of the Plan which the Planning Commission published in July l951, they envisaged an expenditure of Rs. 1,793 crores in a period of five years, and this total expenditure was divided into two parts: the first involving an expenditure of Rs. 1,493 crores and consisting largely of projects in execution which were to be implemented in any case, and the second an outlay of Rs. 300 crores to be undertaken if external aid was forthcoming. This Draft was discussed at many levels and the Planning Commission published a new Draft (in the final form?) as a result of the suggestions they received from various persons and bodies. This was presented to parliament in December, 1952. The broad objectives and the philosophy of the Plan remain the same, but the Plan contains two changes,–the two parts of the first Plan have been combined together and the total outlay has been increased to Rs. 2,069 crores, and all this amount is to be spent on what is called the Public Sector, which means the capital outlay of the Governments of the Union and the States. The Plan also gives enough scope to private enterprise which we will leave out of discussion at this stage. The expenditure in the Public Sector is summarised by the Plan as follows:

Agriculture and Community Development Irrigation Multi-purpose irrigation and power projects Power Transport and Communications Industry Social Services Rehabilitation Others	Crores Rs. 361 168 266 127 497 173 340 85 52	Percent of Total 17.5 8.1 12.9 6.1 24.0 8.4 16.4 4.1 2.5
			2,069	100.0

This total outlay in the Public Sector is distributed between the Central and the State Governments as follows:

Central Government (including railways) States: Part A Part B Part C Jammu and Kashmir	Crores Rs. 1,241 610 173 32 13
		2,069

The Plan proposes to find the finances required for the implementation of the various projects in the following way:

	Centre	States including Jammu and Kashmir	In Crores of rupees
Planned outlay on development	1,241	828	2,069
Budgetary resources: i. Savings from Current revenues	330	408	738
ii. Capital receipts.	396	124	520
iii. Internal inter-governmental transfers i.e.    Central assistance to states.	– 229	229
	497	761	1,258
External Resources already received.	156	---	156
Total	653	761	1,414

“As brought out by the assessment of financial resources of the Plan,” says the Plan, “the balance of Rs. 655 crores necessary for public development Programme will have to be found from further external resources that may be forthcoming, or from internal taxation and borrowing as far as possible and by deficit-financing.”

What is planning?

The above summary roughly gives us an outline of the Plan and the way it is to be financed. This Plan, as already indicated, has received very high praise from some and the opposite from others. To a layman it looks surprising that some (and they are all experts and men of authority) should praise and some should condemn. Commonsense would tell us that there should be only one opinion. But this is not surprising if we remember that there is a fundamental difference between these two sections in their definition of ‘planning’, and this accounts for the great difference of opinion on the Plan. To some planning means merely assessing your resources and estimating the capacities and arranging your projects in an order of priorities, so that there could be an orderly development of the country according to ‘Planning in a given fixed period of time. This we may call democratic planning. To others it means something more than “merely preparing a bundle of schemes in advance and finding the finance and the technical know-how for it. It requires an apparatus for affecting a balance between production and consumption at every stage and every time, and at the same time it should take us towards our goal of social equity, whatever it might mean, without disturbing our equilibrium too much.” If planning means merely making a sincere effort to increase our income with all the resources at our disposal, then ours is a good plan and it is difficult to imagine what more could be possible within the five-year period which really commenced before the Plan was got ready. But, if planning means more than that, (and it means more to many, and we may call this the economist’s definition of planning), then ours falls short of the definition, firstly because our social aims are not clear and the mechanism of achieving those ends is not perfect. To ask a few questions which this Plan cannot answer, but which must be answered satisfactorily by any Plan by the second definition:

1.               How much additional wealth and purchasing power are created at the end of each year of planning?
2.               To which section of the community do they go and to which region of India? Is that distribution of additional wealth among the various income-groups and regions in accordance with our intentions?
3.               Is that additional purchasing power enough, and just enough only, to purchase all the consumption goods created by the Plan? Is that going into the hands of those income-groups that require to purchase these consumption goods?

The need for such balanced production and consumption is great. Otherwise there will be either over-production or under-production, and both are bad for planning. Take an example. Suppose we plan to produce more rice. At the same time we must see that enough additional purchasing power is put into the hands of those that require to consume this additional quantity of rice produced by the plan. Is there such adjustment in our Plan? To the professional economist, therefore, this Plan is not a ‘plan’ but a mere Capital budget made for a period of five years instead of for one year. Not that it is bad in any way, but this is not what an economist would like to call a Plan. This accounts for the great divergence of opinion on the merits of the Plan.

If we adopt the first definition of Planning and look at ours, we would not find it bad at all. But there is one difficulty. The plan itself does not adopt this definition and that is the justification for all the criticism. Our Plan has several objectives and some of them we have already seen in the Resolution of the Government. But unfortunately, the critics point out, the Plan does not contain anything to bring about the fulfillment of these objectives. Take, for instance, the objectives of employment and reduction in the inequalities of incomes. The Resolution of the Government speaks of “offering opportunities to all for employment” while the Final Report testifies that “a substantial increase in the volume of employment in the economy as early as possible is a major consideration in planning in India”. But it contains no definite solution for solving the problem directly! Similarly, the Resolution says that the Plan should see that “the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment,” and the Final Report affirms that “inequalities of income and wealth have clearly to be reduced”. And what we get in the Plan is not any deliberate attempt to achieve this objective, but only a hope that progressive rates of income-tax, along with controls and the imposition of death duties, would “make a significant contribution towards reduction of inequalities”! This is how it has disappointed, according to the critics, a number of people who expected a bold lead from the Commission towards attaining, what they consider to be, a better social structure.

Really speaking, the Plan has not got any such objectives; all this confusion has been created by the Resolution of the Government and some stray sentences here and there in the Reports of the Commission. The only and real objective of planning, as the Commission have understood it, is found in the very first sentence of Part I of the Final Plan (Summary) and it runs as follows: “The central objective of planning in India is to raise the standard of living of the people and to open out to them opportunities for a richer and more varied life.” If we take this alone and judge the Plan, we must raise our hats to it, for it contains enough means of achieving that objective. In fact, one of the great merits of this Plan is its realistic approach to the problem. It does not contain any utopian ideas and schemes; and there is nothing in the Plan that cannot be achieved, provided all co-operate to make it a success. And if the only objective is to raise the standard of life and giving opportunities for employment, an investment of the magnitude of Rs. 2,069 crores is bound to result in its fulfilment.

Population Planning

But there is a snag here. If meanwhile the population of India rises at the rate at which it has been doing all these years, there is a danger that the good results of the Plan might be more than counteracted by this increase in population, so that there could be neither a rise in the standard of living nor any reduction in unemployment. This involves, therefore, planning our population also, which is more social than economic. The Plan realises this when it says that “the essence of planning is a co-ordinated approach to economic and social problems”. But instead of giving a positive lead to tackle this problem, the solution is left in the air with a mild warning to whomsoever it concerns that “unless measures are initiated at this stage to bring down the birth-rate and thereby to reduce the rate of population growth, a continuously increasing amount of effort on the part of the community will be used up only in maintaining existing standards of consumption”. Nay, there may be even a reduction in the existing standards if the rate of population growth exceeds the rate of increase in national income. According to the Plan, the national income of India in 1950-51 was Rs. 9,000 crores and it is expected that it would be, as a result of the Plan, Rs. 10,000 crores, i.e., roughly an increase of about 2 per cent per year. This is not much and it may easily be outstripped by the growth of population, which will be accelerated by the higher standards of life and lower death-rate due to the decrease in the mortality rate as a resultof better health services etc. It is true that, in the opinion of some, In the West, population rates decreased due to higher standards of living, but India is different. In the West religious forces were never so strong as in this country and the same may not happen here. If the Plan has to succeed, a vital factor like population cannot be left to chance. At the same time in such an important matter where religion, sentiment and biology play a great part, nothing other than moral persuasion could be suggested, and that is what the Government are attempting. But the present methods are fraught with another injurious effect. Propaganda and moral persuasion has an effect, if any, only on the middle classes, and any reduction in the educated middle class population in the present context of India is not a good thing at all; they are essential to give leadership in our infant democracy based on adult franchise.

Deficit Financing

The financing part of the Plan has raised a big controversy in India and abroad. This is largely a technical matter and the layman should approach the subject with a sense of caution. We have already seen how the Plan aims at financing itself. After exhausting available resources from current revenues and external help, there is a gap of Rs. 655 crores left to be “found from further external resources or from internal taxation and borrowing and by deficit-financing”. At the same time the Plan itself realises that “a programme...cannot be made inflexibly conditional on the availability of external resources”, that “unless fiscal policy and the machinery of taxation are reoriented….the tendency will be not only for tax revenues to fall…..but the sharing of the burden of development outlay increasingly iniquitous”, that there is a “single pool of investible resources on which both the Private and the Public Sector have to draw, and the problem is not merely to find resources for the Public Sector but to enlarge progressively the size of the common pool and to see that the total thus available is allocated between the two sectors in terms of agreed priorities”, and that “deficit-financing involves injecting additional purchasing power into the economic system; it has therefore inflationary possibilities”.

At present, the Commission estimate, only 7 per cent of the national income is collected as tax in India and it is low compared with the other countries of the world. The Commission hope that there are possibilities of greater taxation in the country, and in this connection the recent appointment of the Taxation Enquiry Commission is welcome.

There are the twin questions of popular savings and deficit-financing. Can the nation be depended upon to save at a greater rate than at present? If it does, then one of the great problems is solved. Otherwise, if the additional purchasing power is utilised by the people only on the purchase of consumer goods, then the Plan would be upset in two ways. On the one hand capital formation will be retarded and on the other there will be a rise in prices of those commodities highly demanded. And if the demand is for foreign consumption goods, an additional problem of balance of payments would arise. The problem can to some extent be solved by controls, but controls alone cannot solve it, as the administration of controls in India has proved so far. What is required is education of the masses to which I will revert later.

Deficit finance, it is pointed out, will surely result in inflation. Let us see. Suppose the Reserve Bank issues more bank notes and lends them to the Government with which the Government will finance the FiveYear Plan. To this extent of additional pumping in of money there are no corresponding consumption goods, and so, it is argued, there is bound to be a rise in prices of consumption goods. So far it is understandable; but the critics confuse between two different kinds of problems. To the orthodox monetary authorities, inflation means (or deficit finance means) printing more notes than the gold assets of the bank would warrant. This is too nonsensical today to deserve any attention. There is no hard and fast rule about the proportion of assets to notes in circulation, and in a country which is not on the Gold Standard, there is no reason why gold reserves should have any say in the matter of note issue at all. The second view is more correct, that deficit finance means creation of additional money when there is noaddition of goods, and so the price level may rise. True; but this may not happen always, provided two steps are meanwhile taken, as I told Mr. Bernstein, the Leader of the I. M. F. Mission in India, at a recent interview at Delhi. We can either plan in such a way that, by the time the additional money pumped into circulation comes into the consumers’ market, we can provide that market with the additional goods as a result of planned production. Or we can mop up the surplus purchasing power by a policy of induced saving. Will the people save? Indians are not in the habit of saving at all, so runs the argument. Here we are making a big mistake. It is not correct to say that Indians have no habit of saving. They have, but they save in a different way; they put their saving into the form of metals. Everybody in India invests in metals–brass, silver or gold as the case may be–depending upon the economic status of the person. And this is because they are not accustomed to the idea of keeping their savings in the form of money in the banks. So what we have to do is not to educate the people to save but to keep their savings in the form of money and keep it in the banks or with the Government. This can be done by opening Post Office Savings in Banks in the rural areas and so on. If this is not quite successful, I would advocate the Government selling off their gold reserves in the Reserve Bank in the open market to mop up the surplus money; and I am surethat the heavens will not fall if we do that. The gold in the Reserve Bank is serving no purpose at all, and it is only our bankrupt orthodoxy that is keeping it there when we are not on the Gold Standard. At any rate, it is meaningless to be afraid of deficit-financing at the present moment.

Popular co-operation A National duty

The Plan is not without its faults and draws; but at the same time it contains enough features that ought to induce us to work. If worked well, it is bound to result in a higher standard of life; and that is what is urgently required in this poor country. The Plan has to succeed for another reason. People have been accustomed to think of planning with such great hopes as a panacea for all their ills, that any failure of this Plan is bound to result in a great national despair; and that would be a great catastrophe to be avoided at any cost. It is therefore for every one of us interested in India’s stability and future to see that the Plan succeeds. Therefore it requires the co-operation of all the people. Is the co-operation of the people required at all, asks such a responsible paper as the Eastern Economist of Delhi. It is, and it is required both in the negative and the positive ways. Negatively people who are pessimistic about the Plan should cease to be pessimistic, and at least cease telling others that it is a bad Plan and so bound to fail. Nothing can succeed when we start with the view that it would fail. Here is another lesson of democracy that we have to learn in this country. We have to learn that in a democracy the Majority have a right to take a decision and the Minority have a right to criticise; but they have also a duty to co-operate with the Majority to make the decisions, once taken, take effect. So every one of us, irrespective of our political ideologies, has a national duty to make this Plan a success.

On the positive side, people have to save and avoid unnecessary rise in the standard of life in the early stages of the execution of the Plan. Every one of us can help to avoid inflation in the country. We have to realise that saving is another of our national duties. If we have to survive as a nation in this age of industrial civilisation, we have to behave as a nation; and this requires a new outlook on our part. Our old conception of citizenship was based on the negative duty of not doing anything injurious to society; but our new conception is that we have positive duties towards society. One of those duties is national saving. Saving, no doubt, means lowering the standard of life immediately, but there cannot be any planning without tears.