The economist has a tendency to turn a pessimist. A certain degree of pessimism is imposed upon him by the fact that he takes ‘scarcity’ as the basis of his science. If resources are scarce, obviously there is a certain natural limit to the progress of an economy.
So much has been the preoccupation of some of our economists with the concept of ‘scarcity’ that they would go to the length of suggesting that the only problem that comes within the province of economic science is the problem of allocation of resources; the volume of resources under employment has to be taken as part of given ‘data’. That the economic problem transcends inter-industry allocation and covers inter-temporal allocation, too, is often forgotten. So economic development is important.
Excessive preoccupation with price analysis within a static framework which has been the characteristic of the development of economic science during the period between Marx and Keynes is largely responsible for this. The attitude should have changed in the post-war period, thanks to the advent of the idea of planning and the revival of interest among economists in the theory of growth. A planner cannot obviously tie himself down to a rigid notion of scarcity; his whole approach is based on the principle that inter-temporal allocation of resources as much as inter-industry allocation is capable of being controlled. And once the economist accepts this hypothesis he also accepts the principle that productive resources are, at any rate within limits, elastic and- capable of being used in ways which accelerate the growth of an economy. Consume a little less and invest a little more out of your income, and you have an enhancement of your capital resources. Once the initial push is given, the process of expansion of resources gathers momentum; for in growth itself there is inherent a potential for saving. As income increases over time, there is possibility of a larger share of the increment of income being devoted to investment, thus opening the way to a progressive accumulation of capital and a progressive strengthening of the base for economic growth.
This indeed is the principle underlying the concept of planning for the economic development of under-developed countries. We in India have had ten years of economic planning leading, according to the estimates of the Planning Commission, to an increase of national income (at constant prices) by about 42 per cent, of per capita income by about 20 per cent and per capita consumption by about 16 per cent. By modern standards these certainly will not be regarded as spectacular achievements. Yet they are not mean achievements either, considering the economic stupor the economy had been in for years before planning started. It is true that a large part of these achievements is due to foreign assistance and drafts on previously accumulated sterling balances, the contribution of current domestic savings being rather low. Yet, when the initial hurdle is over and the economy has been set along an upward-sloping path, our planners should have exhibited more confidence than they have done in their Draft Outline for the Third Five Year Plan.
So economic development is important. The approach to the Third Five Year Plan, as shown in the Draft Outline, is timid, when account is taken of the legitimate aspirations of our people. The size of investment contemplated is of the order of Rs 10,200 crores—just about 50 per cent higher than the investment realized in the Second Plan, whereas the latter was about double the investment that had been made in the First Plan. This is contrary to what one would expect, considering the fact that we are just entering the ‘crucial’ stage of our planning. The growth rate contemplated is just about 5 per cent per year as against a rate of about 4 per cent that the Second Plan actually achieved against all odds—partly natural and partly organizational. The income target looks particularly uninspiring when compared with the achievements of other countries where special efforts at economic development have been made in the post-war period.
The average growth rate over the period 1952-8 in China, for example, has been 7-6 per cent, in Western Germany 9-54 per cent, in Japan 10-4 per cent and in Yugoslavia about 17 per cent this last country having recorded a spectacular progress. These countries have achieved what progress they have made under different systems of economic organization and in varying circumstances.
Conditions in India are supposed, on social and institutional grounds, to be less favourable to growth. And yet even in the Indian context, a growth rate of 25 per cent in five years, as envisaged in the Third Plan, would not appear to be at all impressive particularly when one remembers that our long-term target, as shown in the Second Plan projection, was, with base 1950-1, to double the national income by 1966-7 and the per capita income by 1973-4, and further when account is taken of the fact that in the operation of the Second Plan itself we have lost some ground already. So economic development is important.