Economic plan-I

Economic plan-I okApproach to the Third Five Year Plan is a broad subject, and the contributors have interpreted its scope rather liberally. The topics brought under discussion range from Objectives of Planning to Size and Pattern of Investment, including Finance. Such specific questions as Family Planning. Community Development, Operation of Public Enterprises, etc., have also found a place in some of the papers.

I propose to confine my observations to the following broad items that figure more conspicuously in the papers that fall under this section. (i) Objectives; (ii) Size and Pattern of Investment; and (iii) Organization and Finance.
The broad objectives laid down in the Second Five Year Plan, namely, growth, employment and distributional equity, are generally accepted. The objectives are unexceptionable, and surely they must continue to shape our Plan. It is, however, our business as economists to spell out these objectives a little more clearly and to show the limits of their simultaneous achievement, particularly in the light of our experience of the earlier Plans. Perhaps then we would be led on to consider the organizational changes that would be necessary in this context. We do not live in the Keynesian world where a transfer of income from the rich to the poor increases consumption and hence employment and perhaps also investment where, therefore, a reduction in the inequality of income may be one of the methods by which employment and growth can be sustained.

Ours is an economy where growth is still retarded by shortage of capital resources, where there is still a large backlog of unemployment of a non-Keynesian variety and where the normal saving rate is still less than would permit a rate of investment adequate to absorb the additions to labour force consequent on the growth of population. High rate of growth here implies a high level of investible surplus, and this may involve a technique of production which does not offer a high level of employment. On the other hand, a high level of employment and an egalitarian operation may lead to a level of consumption inconsistent with the maintenance of an investible surplus adequate for our desired growth rate. It must be for our consideration how best we could reconcile these possible conflicts. So economic plan is important.

Some of the contributors maintain that the Third Plan marks a ‘crucial stage’ in the process of the economic development of our country. No argument, however, has been advanced to show why this Plan, in particular, should have a special title to being ‘crucial’. The idea that some peculiar significance attaches to the Third Plan seems to be based on the perspective indicated in the Second Plan. It may also have something to do with recent discussions concerning the economics of what is often called a ‘self-generating’ plan. In fact, it is widely held in this country that the next decade should see the economy put firmly along a path of economic development which could sustain itself by its own momentum. It may be recalled that the Second Plan envisaged a raising of the saving rate from 11 per cent to 14 per cent for the Third Plan and from 14 per cent to 17 per cent for the Fourth Plan, and maintaining it thereafter more or less at the same level. The emphasis on heavy industries suggested in the Second Plan also lends support, at the physical level, to the idea of self-generating growth. So economic plan is important.

The concept of self-generating growth has nowhere been clearly defined, and it is doubtful if a clear-cut definition is at all possible. In a sense any growth system is self-generating in so far as it is characterized by forces operating within the economy which are sufficiently strong to neutralize the depressing effect of population growth and rising marginal propensity to consume, if any. For example to take a limiting case if the saving rate is 6 per cent per minimum and the capital-output ratio is 3:1, then an investment rate which is equated to the rate of saving will generate a growth rate of 2 per cent per minimum, other things remaining the same. Suppose now the growth of population also to be 2 per cent per minimum; you have then a constant per capita income. If in a system such as this the representative individual’s marginal propensity to consume remains constant, too, you have a self-perpetuating growth rate at 2 per cent per minimum, with no improvement in living levels. So economic plan is important.

If, however, the rate of population growth turns out to be at all less than 2 per cent, so that the per capita income tends to rise and the individual’s marginal propensity to consume tends to fall, you have inherent in your economy forces that make for a progressively increasing rate of growth. In our present context it appears that the significant point is that we create through a high degree of initial effort certain basic conditions in the economy which, considering the resulting increment of per capita income and the associated marginal propensity to consume, are calculated to sustain a growth rate in conformity with full employment conditions. In Harrod’s terminology this means an effort to reach a stage at which the ‘warranted rate of growth’ is equated to the ‘natural rate of growth’, having regard to the fact that the so-called natural rate of growth refers to a point where the backlog of unemployed is already absorbed in the economy. The transition to this final stage must then necessarily be marked not only by an artificially high rate of saving to take care of finance, but also, at the physical level, by an artificially high rate of growth of heavy industries. For, at the final stage and thereafter we must have the required finance automatically generated by way of saving and also the necessary fixed capital to support the system.

This final objective the end point, as we may call it of economic planning will perhaps receive general support in the context of an over-populated, under-developed economy such as that of India. On the question, however, as to what should be the duration of the transition, there will surely be difference of opinion, as is evident from the attitude shown in the papers under discussion. So economic plan is important.

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