It may be argued that there is nothing sacrosanct about the model projection given in the Second Five Year Plan and that the ground lost is irrevocable. It may also be argued that public response to planning in our country has been low, as indicated by the slow rate of increase in domestic savings since the beginning of the First Plan our domestic saving ratio is estimated to have increased from 5 per cent of our national income to just about 8 per cent.
In the absence of external support, this would hardly make for a growth rate of 3 per cent. This, however, points only to our organizational limitation, and is proof that enough effort was not put in for the mobilization of resources there was nothing inherent in the growth rate itself which would make for such low domestic savings ratio. So economic development is important.
The deficiency in the size of the Third Plan comes out more conspicuously when one turns to employment prospects. This is a point which needs underlining. Unemployment is a drag on an economy; it is a social nuisance and a source of political trouble. But above anything it is a conspicuous waste, worse in its effect on the economy than unused land or unused capital equipment. A day’s labour lost is a permanent loss, the ‘non-user cost’ (as we may call it, adapting a terminology of Keynes) being the entire potential product of labour, whereas in the case of land it is nil (probably negative sometimes, for a piece of land kept fallow for a time assumes higher fertility) and in the case of capital equipment it is negligible, when a long view is taken. So economic development is important.
Judged by the criterion of employment the achievement of the Second Plan is particularly depressing, and the prospects of the Third Five Year Plan do not look better if we adhere to the investment figure suggested in the Draft Outline. The Planning Commission expects that an aggregate investment of Rs 10,200 crores will provide employment opportunities for 14 million persons 3-5 million within agriculture and 10-5 million outside agriculture. If the expectations are realizable, consistently with the maintenance intact of the productivity of labour, well and good. The target of 14 million proposed by the Planning Commission does seem to accord with an important criterion, namely that it keeps the proportion of outstanding unemployment to total population constant over time. And this surely is the minimum one would ask for. One fears, however, that the proposed investment will fail to realize even this target. On a broad view of the matter, it appears that the proposed investment of Rs 10,200 crores will provide employment at best for 12 million persons about 2 million within agriculture and about 10 million outside agriculture. This is on the assumption that the over-all investment-labour ratio remains more or less the same as it was in the Second Plan. On the other hand, if the pattern of investment in the Third Plan is adjusted in such a way as to realize the employment target of 14 million, then, unless drastic organizational improvements are effected, the productivity of labour will come down. And this latter contingency is contrary to the basic idea of economic progress. So economic development is important.
Could, however, the organization of the productive apparatus be improved to an extent that would be needed to maintain the productivity of labour on a lower investment-labour ratio ? One cannot say; the effectiveness of organizational changes is uncertain. If, indeed, the economist talks more of investment and less of organization in the context of planning, it is because the effect of investment on output, given other things, can be worked out more or less precisely, while the effect of organization cannot be. Further, whatever effects organizational changes may produce on labour efficiency, they assert themselves slowly. It is extremely unlikely, therefore, that these effects would be strong enough over a five-year period to overbear the depressing effect on labour productivity of a reduction in the investment-labour ratio.
The way out is to increase the size of investment. On the assumption of the same investment-labour ratio that, according to the estimates of the Planning Commission, we had in the Second Five Year Plan, the aggregate investment that is called for in the Third Plan is about Rs 11,800 crores at 1958-9 prices. Translated in terms of 1952-3 prices on which the model projection in the Second Plan was made, it comes to just about Rs 10,450 crores. This, let us recall, is only Rs 550 crores higher than the investment figure shown for the Third Plan in the model projection.
Is this attainable? There is nothing inherently impossible about it. As it is, the Planning Commission seems to be satisfied with a marginal investment ratio of 20 per cent; only one-fifth of the increment of income during the Plan period is proposed to be put in as investment. If the various sectors behave in the way suggested in the Draft Outline, then the economy is expected to have an annual increase in the output of consumption goods by 3-75 per cent. If now the growth of population is at an annual rate of 2 per cent, our people will still have an improvement in their consumption level on the average at an annual rate of 1-75 per cent. This surely is not “conspicuous austerity’, considering the exigencies of circumstances.
If, then, the marginal investment ratio is raised from 20 per cent to, say, 33$ per cent, or, in other words, if one-third of the increment of income is drawn out for investment, the size of investment will increase while the people will still enjoy the benefit of a higher standard of consumption. What is more with an increase in the size of investment there will be a corresponding increase in the growth rate itself, thus supplying a flow of income out of which additional investment resources could be drawn. It is from recognition of this two-way relation between investment and output that a planner derives his confidence and optimism. So economic development is important.