According to whether one turns one’s eyes on the deficiencies or the achievements of the Second Five Year Plan one tends to become a pessimist or an optimist in one’s conception of the Third Plan. And this is what has happened here.We have our pessimists and our optimists one group contending that the Third Plan must be a moderate plan set by the limits of finance which, on the domestic front, has been found to be discouraging, the other pleading for a bold plan so framed as to take full advantage of the achievements of the Second Plan.
Indeed, recent controversy has related more to size than any other aspect of the Plan. The objectives enunciated in the Second Plan still continue to guide our thinking; indeed they are unexceptionable. There is not much scope for difference on the question of investment pattern either; such difference as has often been exhibited is rather of marginal importance.
A little more emphasis on agriculture than was given in the Second Plan, if only because of food shortage; perhaps a little shift away from major to minor irrigation and from irrigation over to fertilizer in so far as these two are substitutes; a little more care for the ‘social services’; these are about all the adjustments that the critics of the Second Plan asked for. The emphasis on a policy of industrialization with a special accent on heavy industries still continues to dominate our thinking. So economic plan is important.
Even on the mode of finance, there is more or less general agreement to the effect that taxation and profits from public enterprise must play a relatively larger part than they did in the Second Plan and, further, that the scope of deficit-financing is very much less now than it was when the Second Plan was formulated. A fair degree of agreement on this latter point seems to be one of the more refreshing features of our thinking on the Third Plan.
Even the most unorthodox among us would perhaps agree that the limit to deficit-financing in the Third Plan must be set by just one consideration the rate of growth of consumption goods during the period of the Plan. The extra cushion that the economy had at the commencement of the Second Plan to absorb the impact of deficit-financing is no longer there; for one thing, the sterling balances have been practically exhausted and, for another, the Third Plan takes its start from a base where the price level is already about 20 per cent higher than the base where the Second Plan started from, whereas the latter had a base which was about 15 per cent below the First Plan base.
In all these matters the draft outline of the Third Five Year Plan, just presented to the public by the Planning Commission, reflects ideas which are generally accepted. Agriculture, industry and power have received somewhat greater emphasis in the Third Plan than they did in the Second. The outlay ratio has been raised from 6-9 to 8-6 per cent in agriculture; from 19-1 to 20-7 per cent in industry and minerals, and from 8-9 to 12-8 per cent in power. There has been also a shift away from major and medium irrigation, the outlay ratio on this item being cut down from 9-8 to 9-0 per cent. So economic plan is important.
A little disappointment may perhaps be felt in certain quarters at the reduction in the outlay ratio in respect of ‘social services’ from 18-7 to 17-2 per cent. But after all if you want to raise the ratio at some point you have to lower it elsewhere. And if proper emphasis is maintained at strategic points within ‘social services’, a little reduction in the over-all ratio is in order.
The mode of financing the Plan indicated in the draft outline will surely please the more orthodox among our economists. And indeed, given the size of the Plan, the relative emphasis given to the different sources of finance is just what the circumstances would dictate. Rightly has deficit-financing been assigned a much less important role in the financing of the Third Plan.
A few will think, however, that the pendulum has swung the other way whereas in the Second Plan the ratio of deficit-financing to total Plan outlay in the public sector was more than 25 per cent, in the Third Plan it is proposed to be just about 8 per cent. Indeed, if the food target of 100-5 million tons (registering about a 40 per cent increase over the 1960-1 level) is realized, then it is most unlikely that the additional money demand which would be generated in the economy, given the proposed order of investment and of deficit-financing, will be sufficient to carry off the supply at current prices. If the operation of the Second Plan has pushed up food prices, the operation of the Third Plan. in case the various sectors behave as contemplated will perhaps pull them down.
Those who regard stabilization of food prices as the core of price policy would certainly favour a raising of the level of deficit-financing. Even then in the present circumstances the safe limit to deficit-financing would perhaps be of the order of Rs 700 crores i.e. to say, about 10 per cent of the Plan outlay in the public sector. So economic plan is important.