The situation, I believe, is less obscure in the context of an economy such as ours, where in the past the growth of population has so far outstripped the rate of economic development that over the years there has emerged an accumulated backlog of unemployment. In such an economy the minimum that the ‘take-off’ must accomplish is the elimination of this unemployment, besides absorbing in productive employment the additional labour force that emerges as a result of the yearly growth of population. Here the demarcation is clear-cut if, once full employment is secured, the economy is raised to a level where growth is self-sustained and spontaneous.
Suppose you have an economy where the over-all capital-output ratio is 3:1 and the rate of population growth is 2 per cent per minimum. Suppose also that, production technique being what it is, full employment could be maintained by a rate of investment which is 6 per cent of the annual income. If in such an economy the actual rate of investment warranted by the normal saving rate is less than 6 per cent, you have over the years an accumulation of unemployment. Suppose now, as a result of this process of accumulation of unemployment, the number of unemployed comes up to 5 million at the tune you are supposed to start your ‘take-off’, and suppose further that over the period that you have in view the additional labour force that emerges as a result of the growth of population comes up to another 10 million.
Then if you hold the attainment of full employment as the end-point of the ‘take-off’ process, you have to raise the rate of saving of the community to 9 per cent of the annual income. And this, provided the technique of production in terms of the labour capital ratio remains the same. But of course, the technique does not remain the same in any process of change-over of an economy to a higher level. Capital is co-operant with labour; it is also its rival. And in the process of industrialization which is a main feature of the ‘take-off’ stage, some degree of rivalry between capital and labour must manifest itself. In so far as this happens, the rate of increase of employment turns out to be less than what it would be if the technique of production had remained constant. The ‘take-off’ stage must, if it is to usher in a progressive economy, be accompanied therefore by a rate of investment which is higher than we have just envisaged.
If 9 per cent saving rate ensures full employment on the assumption of constant technique, we require a saving of more than 9 per cent when we allow the technique of production to change in the labour-saving direction. The full employment rate of saving which is, by our definition, the end point of ‘take-off’ will be the higher, the more the labour-capital ratio is brought down in the process of industrialization; it will be 12 per cent, if the labour-capital ratio is reduced to three-fourths of the initial level 13-5 per cent if the labour-capital ratio is reduced to two-thirds of the initial level; and so on. The twin task of creating employment opportunities and of industrialization of the economy involves a rate of saving which is a good deal higher than the level existing at the tune the economy starts the ‘take-off’, its precise magnitude depending upon the initial volume of unemployment, the growth of labour force consequent on the growth of population and the change in technology that the process of industrialization involves.
In the light of the above, we may perhaps take a look at our Indian economy to see how far along ‘take-off’ the Plans have carried it. The possible criteria for judging the situation are growth of savings, growth of per capita income and the growth of employment and unemployment. Rostow puts India categorically among economies ‘attempting “take-off”.’ The sole test that he applies is that of growth in the rate of savings. Judged by this test surely India is well up on the ‘take-off’ line; even leaving out foreign aid, the rate of saving and investment in our economy will have gone up under the two Plans presumably from 5 per cent to around 8 per cent of the annual income. Over these years the marginal rate of savings will have been systematically higher than the average rate. The scope of savings has also widened, judged by the rise in the per capita income which has gone up by about 18 per cent over the period 1951-9.
There is, however, one snag about this latter, arising from the uncertainties that still characterize production in the agricultural sector witness the fall in the index of per capita income from 115-1 in 1956-7 to 111-9 in 1957-8, due obviously to bad harvest. At the physical level also the situation is encouraging if we go by the indices of production of strategic commodities such as iron and steel, cement, electricity etc.
When, however, it comes to employment which is chosen here as the element of overriding importance, the situation is alarming. Judged by the employment criterion, despite all the investment that has taken place over the period, our economy seems to be receding. If we started at the time of the formulation of the Second Five Year Plan with an estimate of a backlog of unemployed of the order of 5 million, the corresponding figure on the eve of the Third Five Year Plan is supposed to come up to 7 million.
If, therefore, the addition to the labour force consequent on the growth of population over the period of the Third Five Year Plan is going to be of the order of, say, 14 million, as it is expected to be on the assumption of a growth of population of about 2 per cent per minimum, then the extra employment for which the Third Five Year Plan must make provision will have to be at least double that which the Second Plan is expected to achieve. It is then that our economy will get on to the ‘take-off’ stage in any significant sense.