DESTDiCTEr Report No. SA-13a This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION ECOUNO~MIC S1IT UAIOJN AIND PROSPECTS OF INDIA April 24, 1970 South Asia Department (U.TRRM" EUTUAT.EMT 1 Indian Rupee = U. S. $0.13 ST. Q. Dollar = - '7.5 1 lakh = 100 thousand 1crore ='0 illo The Indian financia year runc 1rom April i through March 31. This report was prepared in the World Bank office in New Delhi by Willian Gilmartin (in charge), Jean Baneth (population, imports, exports and industrial strategy, balance of payments), Kenneth Bohr (steel, fertilizer, minerals, power), Robert Cassen (industry and industrial policy, employment), William Humphrey (transport), Howard Hyde (public sector industry), Basil Kavalsky (internal resources), Wolf Ladejinsky (agriculture-production and institutions), Timothy Lankester (urbanization), and Peter Naylor (agriculture-production and pre-investment studies). The preparation was facilitated by a separate IBRD study of Indian industry by Bevan Waide. Bong Suh Lee and Alexander Nowicki (India: A Review of Trends in Manufacturing Industry- ADril 1. 1970: and by a study. still in Droaress. of factors influencing fertilizer consuiption by the Ministry of Agriculture and the Institute of Amricultural Research Statistics with the collaboration of Dorris Brown of IBRD.  TARTRW. nV MNTRNTq Page No. BASIC DATA SUMMARY AND CONCLUSIONS .................... i I. RECENT DEVELOPMENTS ................ * .. ......... * ...... 1 II. DEVELOPMENT PROBLEMS ................................... 3 The Political Context ............................ 3 Changing Development Strategy ........................ 5 The Fourth Plan ........................ ..... 6 Development Uncertainties ............................ 7 Emphasis on Economic Growth ........... 8 III. POPULATION . . .................... ... . . . . . . 11 The Economics of Population Control .................. 11 The Indian Program .............. ... ....... ....... 13 Future Strategy ..... .................. ... . L7 IV. AGRICULTURE I: THE "GREEN REVOLUTION" - PROGRESS AND PROBLEMS ................ ....... 18 Wheat and Rice ................. ................. 21 Other Foodgrains ..................................... 24 Non-Foodgrains .......... ......... ........... 6 24 Research ................................. ......... 27 Seed ................................................. 27 Fertilizer ................ 0........0..........*......... 28 Pest Control ......................................... 29 Irrigation and Water Control ......................... 29 Some Pre-Investment Information Requirements in Agriculture ...................................... 31 Pre-Investment Studies - Storage, Marketing and Processing ......................................... 35 Pre-Investment Studies - Fisheries .................... 36 V. AGRICULTURE II: SOME BROADER CONSIDERATIONS ............ 37 Some Social Implications of Technical Change ......... 37 The Small Farmer Program .............. ... 41 Credit .......................... ....... 45 Land Reform .................... .. *. ................ 48 TABLE OF CONTENTS (Continued) Page No. VI. INDUSTRY ............................................... 53 A. Industrial Trends and Licensing Policy ......... 53 Production ................................ 53 Investment and Corporate Savings ............ 54 industrial Policy ....................... .. 55 B. Management of the Public Sector .............. 59 The Record of the Public Sector .............. 59 Improvement Program .......................... 60 Prospects and Conclusions ................... 62 C. The Steel Industry ......................... 63 Production Problems ........................... 63 The Current Situation and Prospects for Steel Production ................................ 64 Steel Requirements ........................... 65 The Steel Program .................... 66 Some Perspectives ............................ 68 D. The Fertilizer Program ................. 69 Perspective ......... . .......... ... .... t. 69 Recent Consumption and Future Requirements ... 71 Production ............................... . .. . 72 E. The Mineral Situation .......................... 74 Perspective .................................. 74 Petroleum ................................ 76 Non-Ferrous Metals ........................... 77 Pyrites and Phosphates ....................... 78 Iron Ore ..................................... 79 Coal ......................................... 80 F. Electric Power ................................. 80 G. Transportation ................................. 82 The Present Position ......................... 82 Future Prospects .......................... .. 85 VII. URBANIZATION ..... ................................... 87 Urban Congestion ........... ............ ........ 87 Calcutta ............................ . .......... 89 Urban Programs ....................... ......... 91 VIII. EMPLOYMENT .......... .. ......... *....... .... ......... 92 The Little Known Quantities ......................... 92 The Uneprtain Future ................................ 95 Labor-Capital Alternatives ........................... 96 ornl rtnahlnna and Rinne Rurda-n - . ---......-. -----97 Policies ........................... . . ............ 98 .rauatem9 The Fourth Plan ............................ 100 .... .... .... .... .... .... .... .... .l1 TABLE OF CONTENTS (Continued) Pa_e Ko. IX. INTERNAL RESOURCES ............................ 101 The Experience of the 1960's ........ ...... 101 Resurces andU the~ FrthL Plan.....................................4U Savings ............................................. 105 The Fiscal Plan................................ . 10 Budget Surpluses .................................... 110 Plan Foreign Aid and Self Reliance .................. 112 A. INDUSlKAL STRATEGY AND FUKLN TRAUE .....1.............13 imports and import Substitution ..................... 113 Industrial Export Strategy ................. ..... 118 XI. EXPORT PERFORMANCE, PROBLEMS AND PROSPECTS ............. 121 Industrial Exports .................................. 121 Primary and Quasi-Primary Exports ................... 125 XII. THE BALANCE OF PAYMENTS ............................... 128 The Recent Past: 1969/1970 .................. 128 Forecast for 1970/71 ...... ............ 132 Aid Requirements and the Transfer Problem ... .. 133  LIST OF APPENDIX TABLES Table 1: Population Table 2: National Product Table 3: Net National Product by Sector of Origin Table 4: Production of Principal Crops Table 5: Net availability of Cereals and Pulses Table 6: Public Sector Foodgrain Statistics Table 7: Use of Agricultural Inputs Table 8: Index Numbers of Industrial Production Table 9: Production of Selected Industries Table 10: Wholesale Price Index Table 11: Factors Affecting Money Supply Table 12: Consolidated Finances of Central and State Governments Table 13: Central Government Finances Table 14: Economic Classification of Central Government Finances Table 15: Current Expenditures - Center and State Table 16: Tax Revenue Table 17: Public Sector Plan Outlay - Past Actuals and Fourth Plan Table 18: Balance of Payments Summary Table 19: Imports Table 20: Exports Table 21: Imoort Component - Selected Engineerina Industries Table 22: Export Duties Table 23: Gold And Forpin Exrhann RamrvAn TahltA 24: Total Tnomnt In tlc Scttr Tnjutr C t Branch of Industry -2- Table 25: Capital Employed Sales and Inventory in the Public Sector Table 26: Gross and Net Profit in the Public Sector Table 27: Utilization of Capacity in Selected Enterprises (Public Sector) Table 28: Exports by Selected Manufacturing Undertakings (Public Sector) BASIC DATA Area! 1262,000 se. miles Population, 1969: 5t3 millin (And vear estimata) Rate of growth, current estimnate: 2.%pa 1951 - 19611 1.9% p.a. Gross national product at market prices, 1969/70 Rs. 327 billion Rate of growth 19555/6 - 1967/68: 3.5% p.a. at cona 9 6 5A./ .2 5p prices, 1966/67: 1.3% 1968/69 1.8% Lr 7a71 9U 0 vv . nw Li V(a> JL 7V 7t ( v Â¥ JO.p uv Gross damestic u producb a crn-t prices_ 1969/70_: R , 33 il.lion Percentage breakdown: Agricuiture 51 Mining i Manufacturing 18 Commerce & Transport 15 Government & Other Services 15  Money and Credit: 1900/00 - y/6o Average Rate of Rs. billion March 1969 Increase ] Total money supply 57.79 8.3 Net bank credit to gov't. sector 46.97 8.2 Net bank credit to pvt. sector 15.46 11.4 1968/69E Rate of increase in,prices Consumer prices 2: 0.0% 0.0 Wholesale prices: 4.2% 2.5 Third Plan Period 1961/62 - 1965/66 Public sector operations 1969/70(est) Annual Average Rs. billion Public sector Dlan outlay 22.71 17-C Balance from current revenues plus surpluses of public enterprises A -7 . A9 Domestic borrowings 6.29 4.23 Total external assistance to nublic sector 7.13 4.84 Dpf4nit financny 9g rY+j3mmn-nI nilhl,~ A='h1. ar-lielina iA/i- iQ(-,R/AQ suppliers' credits (US $ million): 1968/69 Annual Average Total debt outstanding V 7,786 5,833 Fe*+oI )/&awaJ Ank+ AV4e 040/? Average Rate of J -aL-%= UJ. L7 CLLY II L UO UO J IILAJ.JLULI/ i . L 7%J 71 - cL ov Ik 1/a Total imports 2 160 -5.5 - L7.I1 L wj w71. 1968/69 Annual Average Commodity concentra n of exports 32% 40F T%L .-I- -A. e% evI --. UUi UxVan AAn-U -- Foreign xannge Reserves kUO $ mi.lion): Gross foreign IMF outstanding Net foreign exchange reserves drawings exchange reserves SDu As of February 1970 903 212 691 120 As of December 1966 608 425 183 -  SUMMARY AND CONCLUSIONS The Recent Situation i. India concluded the decade of the sixties with a favorable and ertanAed nerind of eronomic improvement. National income went up by about 5% in real terms in 1969/70 and by this much on the average over the last three years. Agriculture led the contributions to income growth with all- time record crops in 1967/68 and 1969/70, reflecting both good weather and improd cnltvation4 44. This upswing fnllowing the severe drought and the recession of the mid-sixties, had favorable repercussions throughout the economy. In- A.s.., ad.ancda athnoh in a somewhat uneven manner. with additional pro- duction of 6 or 7% in each of the last two years, and with a heartening incursion 4to manufacted axarts. in rennonam to the incentives and pres- sures of official policy. iii. Exports moved up in total by 13% in 1968; last year, a sizeable -aa1 ..i11, e.. ... mnr than offset by the industrial gains, so that total exports rose again, albeit more slowly tila.plind tITI.L- unusually11. low 4m.-.wf-a ni e-rrnrjn1lfodn foreign aid i- flows, it was possible in the last two years to add $250 million to re- -c - - - - 9AC .4114> 4- ka TIIS (4was f-he awffWm 1'lY 1 se[ves after repayinga to 4-U TIM. . qrnt'0aVtrT61 nf level of reserves - less than one-tenth of annual imports - reached in 19067, this recovery in Ini' foreign exchange --------------------------- iv. This in combination with budget def cs ade substantial, to the money supply. With the concurrent rise in production, however, price increases over the last two years were moderate. Yet this was accomplished only with marked investment constraints. Within the confines of insuffi- cient resources, investment has not gone up in real terms over the last four years, and has sagged as a proportion of national income. For this year, however, the 1970/71 budget promises substanlal imprUvemCenUt wLI a rise of nearly 20% in development expenditure. Resources for additional development are to be provided through a counCeraul tax effoat ad.U non-development expenditures. No increase in the deficit is envisaged. Development Problems v. Despite India's broadly favorable current economic scene this resource handicap persists as one of the underlying obstacles to a sus- tained improvement on the longer term development trend of about 3.5% a year in national income growth or only about one per cent per capita. There are other obstacles. With all the promise of the new agricultural technology, experience suggests now that the dramatic surge in w1eat pro- duction of the last few years may be followed more slowly in other crops and that achievement may take longer than earlier expectation in sustain- ing the officially accelerated farm production targets. Other official targets also look high; industrial growth has been more than seemed likely at the time of the last World Bank report but it remains below its pace- setting role in official plans and is handicapped by technical and opera- tional bottlenecks and by labor difficulties. In exports, the recently - ii - rising industrial export capability has been maintained, but exports as a whole are off the pace of the official targets because of the discourag- ing developments in overseas markets for some of India's traditional export mainstays. And as experience grows in the programs of population control, awareness also grows of the depths of social resistance to be overcome and the vast organizational structure to be built and operated - tasks which again seem likely to delay the birth rate objectives at which the Govern- ment aims. vi. In the current Indian development situation these seem to be the most crucial uncertainties. They have not been minimized nor forgotten in the recently favorable short term course of the economy and this continuing preoccupation with India's development difficulties is perhaps an important positive consequence of the major diversions and realignments in the Indian political structure during the last nine months. This was a period when fragmenting patterns of political power in recent years culminated in the division of the Congress Party into two, with neither in a parliamentary majority. Much of the content of political rivalry has focused on the Indian economy and its persistent troubles - its slow economic growth not far ahead of population, the slow pace of employment behind the growth of the labor force, and the seemingly intractable difficulty of improving the level and quality of economic life of perhaps half the population which remains in or near destitution. Population and Employment vii. Population control is obviously one course for eventual better- ment of India's economic conditions, and the Indian family planning program has achieved much in a short time. A country-wide organization has been built up, an awareness of the possibility of family planning has been wide- ly disseminated, the absolute number of those practicing contraception as a result of the program is large indeed. Yet it is not large in relation to the size of the problem - to the 100 million couples in the child bear- ing age group. And not enough is known about the motivation for child bearinv and family nlanning or about the demogranhic imnact of the nroeram. It is clear that the organizational and administrative requirements of an effective nroaram are vant indeed. and exnPnnive. Finallv it would nepm that substantial consequences of India's family planning effort, important nA it In ar to hp Prnprtid only in tho innger run and that for anmp timfl the annual rise of about 13 million or 2-1/2% in population will go on cnnoninc up much of the anino in natIonl Ineema which miaht otherwice on to per capita improvement. viii. Growing along with population is the labor force which may now much is known about these numbers except that about 80% are rural and the resL WULrk in manulacLULin gMU a Ln L iy aLViL e in uruan aam How many are unemployed or underemployed on any definition, is not known ex- cept tnat the figures are probably large. Also unleCar L the L uLI =LC relevance of these concepts to India where the absorptive capacity of society for unemployment and underemployment without serious social mal- adjustment may be higher than in Western economies. Nevertheless, there - i1ii - is obvious need for an employment emphasis as well as growth emphasis in ndia's development effort. How this miaht be effected is not, however very clear, in the absence of information on areas of unemployment and on economic options for labor 4mt.ano. Anlnment policies. It does seem doubtful that even with a deliberate employment orientation, the likely groCh o thL econom over Coming decade -ill- provide adsnquate empoo- ment for the increase in the labor force. Development Objectives ix. A development program to match India's formidable economic dif- J.L±cu±Lts ±s rit easy to devise. It L 46± siL.4 erably larger international support, but this hardly seems in accordance with current moods - with the 5 l "aid fataiague" that -8 sad t pre vail on both sides of the aid relationship. Furthermore, there are rea.l structural obstacles to substantially arger asid under -h. ___vinag practices of transfer. Most aid is in the form of export goods which aid sources tie to a particular country, project or comony 'lst - Ammtkimes to all three at once. India on the other hand restricts the import of such goods if similar goods are available within the country, and most kinds of manufactured goods usually are available. A transfer arrangement by which a considerable share of aid would be usable for the large raw ma- terial component of Indian imports hardly fits with current aid practices. x. India's economic job appears then to be faster development with a fair share for the bulging lower income ranges, and this to be supported out of resources with an increasing proportion of "indigenous content",, - obviously, a large order. It is the order, nevertheless, of the current Fourth Five Year Plan for the period 1969/70 to 1973/74, now in its sec- ond year. The targets of the Plan are consistent with these objectives, and if the growth targets in production and export were to be achieved, the self-reliant resource assumptions might also be reasonable. To some extent this relationship between growth and resources also runs in reverse, but there is also much more to India's prospective growth process in the next few years than resources, difficult though the resource position is. Hence a preoccupation with potential growth capabilities and with clarifi- cation of inconsistencies where they exist among growth and other objec- tives would seem essential for accelerating the economic activity neces- sary to generate more resources which are in turn necessary for still greater activity. In the kind of atmosphere created by recent political re- alignments, there did appear the possibility that the importance of this growth preoccupation might be lost in the economics of political rivalry. In fact, however, adjustments of economic policy to recent political exi- gencies have been surprisingly moderate. xi. Medium-term problems of accelerating economic growth are con-- sidered here mainly in agriculture, industry, some of the infrastructure requirements and in exports. They add up to some doubt that the growth and hence the resource obiectives of the Fourth Plan can be achieved within the short space of the remaining Plan period. Given a longer time the prosoects are more promising. although with the population and labor force - iv - expanding as they are, significant improvements in the lives of the very 1nvon "iml%av nf vupy annn ar411 apm A Inna wnv off. changes taking place as a result of the research achievements in the tech- no1ogy -4f cerel ^%ot4-ation, the rar4 A -4 -aw, - n ration. Of th"s tecnolog in the countryside along with associated provision of necessary inputs and S.3.41 1 g4n ad.~ op 4 - -4 *1, +--^1, nn -n lk" .. . rn ms *l,A- .y. .. A_-...... #.C W.&& e ~) W4 .In 4& ---by&*3 3 * 4d *.4 V~ .,. .auo u.. physical circumstances were suitable. This process has gone forward in spectacular fashio n ILn whIeat , a nd I-t s p otential Is still very large not only in wheat but in rice and other cereals as well. But for rice and oUhL L L Lhe coUUs oL teCAhnlUgiaa cnuge -a L o-v- Au_ Lak -L- -UW- plex than for wheat, and much slower. Most of the rice is grown in heavy raifal ad water"lUgged sUil conditions, and the new vaietis d-isHeWm nated so far have not done well in these conditions. Furthermore seasonal and regional variations in rice environments are wide and require a range of high yielding varieties adopted to particular conditions. Water con- trol i importauL, as is te u uti of LLUu sy , LpeaLuLe, light and disease control. Hence the new rice technology is more demand- ing of the farmer, and adds to his risks with the much Larger input re- quirements of the high yielding varieties. The coarse grains, which are hybrids, have their own complications. All this explains why the spread of the new technology has so far been limited and patchy in rice and has hardly as yet affected the coarse grains. it also explains why all-india foodgrain production, as measured between the good weather year of 1964/65 and 1969/70, is not much above the long term trend. This in itself, how- ever, is no small achievement considering that the long term trend prior to the sixties included not only yield improvements but also additional acreage which in recent years has no longer been available. Technological improvements for the large areas of dry-land cultivation are still to be developed. This is also true for crops other than foodgrains, the produc- tion of which still barely exceeds the levels reached in the early 1960's. xiii. None of this is meant to disparage the promise of the so-called "green revolution" but only to emphasize that its real potential is still to be realized (wheat accounts for only 15% of foodgrain acreage), that a demanding and difficult job remains to be done in creating all the required conditions, that this job is expensive and subject to resource limitations and that progress while promising in the light of India's widespread re- search program and its results, will probably be slower than earlier ex- pectations and than implied in official agricultural targets. Industry xiv. In industry we noted last year the need for consolidation and adjustments following the dislocations which emerged out of the rapid in- dustrial exDansion and structural change of the latter fifties and the first half of the sixties. Industrial production, and this adjustment nrocan with it. have none forward somewhat faster than we expected. New industrial investment is still lagging and hence the pattern of industrial - v - expansion is uneven, but production to meet final demand for most consumer goods, for agro-industrial supplies, for some additional government orders, and for industrial exports has been brisk. However, available statistical details for the past year indicate that while consumer good production was growing at about 12% per year (up to August), the increase in intermediate goods was only 5% and capital goods, 2%. A major factor in the rise in consumer goods was a sharp rise in sugar which had been curtailed in 1968 for supply reasons. Statistics may nevertheless underplay the large and dynamic small-scale industrial sector and capacity is beginning to be reached in a number of industrial lines, which suggests early investment revival. Shortages have now appeared in some materials, especially steel, which reflect inability to get a reasonable outout from the investment that has been made because of technical, management and labor difficulties. Some similar problems of nlant utilization exist in parts of the fertilizer industry. There has nevertheless been a considerable increase in the use of fertilizer nanacfitv in the naRt vear and a nroaram is underway to remove the technical bottlenecks which exist in some of the plants. Approval of new undertakingR hna hpn mnvina nlnwlv hut there are alRo maior uneAr.- tainties about the growth in future demand which is hardly likely to be as high as offioial AtimAtP, xv. The Prtant nf an intinnariAl invetment revivql and its Pffert on the rate of expansion in industrial production are difficult to judge. One uinrertnintv i% Qhmit nbil14tv nf arel and nme nther shnrt-AOP Another is how far government investment will be able to expand within the limit nf n1lir roanI-nt006 And thiM nals -riaaa eastons bnnht the availability of private investment financing if private industrial rannivementa renh 4nen &^mnar4t4^%n w4t-hi nidkli^ lim a fer raanurea ...................M There are also the industrial uncertainties of the difficult labor situa- t-in in t-he E~astr Reg4-13 -aIn. A -,F ---------fl- 4- n --4 n,.4aI rc.na -n4nlI trial regulation. Recent changes in industrial licensing policy have been, as notu ead, more uodurte tan might nLave UCen epC edLLu nu u LUon id ringL political pressures. They have the dual objectives of greater freedom for all nA mA4inm a i aZe near.4 asnn aho aa hanA anA .1no- annnmental control over the larger private industrial complexes on the other - the latrin pursuit of social policy aga4nst concentrations of ecnomnic power. Wide latitude is left for administrative discretion, so it remains in terms of the nature and scale of industrial intervention by the Govern- ment T1- dAs 4k.k.. 4.se clear tht.A..-elr.4e1 inutiakll4..an4. ..411 u . L O uu C LnA I.LL.tH A- L t .AuU LL L C Lau.L.LLIUVL&1O. WA..L.L, for a time anyway, be limited to fields of heavy industry and larger in- ------------------ow.quiCJ..l.. ..411 1- Ust.a-, ...n,r VM.LMGHED* HUW Yu A H..L I CtZL WLULA C1LUL LL w AAJ & Ww 4sW jmIo W3 - -Qsm for whom it is reserved is another uncertainty. Infrastructure xvi. The allocation in the Fourth Plan of resources among different Lurastructure requiremenE seems reasonable given- Lne LSmI-1 m--as,ou it is hardly more than minimal for India's pressing needs. There are vast tranuportation requirements, other than the railways, which will only be marginally provided for, with perhaps the largest deficiencies in rural. - vi - roads and in urban transport. Port improvement is also needed but here the problems are as much those of management as of resources. Transport deficiencies are likely to be those which add to development costs rather than create development bottlenecks. But there may be reason for more concern about the rather modest electric power programs in relation to prospective load arowth. The vrogram leans heavily on larger output per unit of capacity through regional interconnections, improved load factors and other means of increased efficiency. If these operating improvements fall short of objectives, the program for new capacity may be very tight. Provisions for additional irrization are no more than adequate although substantial allowance is also made for institutional financing of private tubewells. numps and other minor irrigation. There is a shifting emphasis toward more comprehensive planning of irrigation works in relation to agri- cultural reauirements and the integration of surface and ground water in the interests of maximizing production. This should enhance the returns from irripation investment hut it In a diffinlt tnqk for which a areat deal of preparatory investigation is needed. Hence there are limits to the anePd with which thin onmnrehenzive annrnnch to more nrArctve de- velopment of water resources can be applied over the whole irrigation program. Another area where resource provisions are obviously scanty is in urban improvement and housing. There are many others, including family planning, which In discused helow and education and nublic health where facilities are grossly deficient. The latter are not discussed in this report - rnnarious thonah we are of thin nerinim ominnion. Exnortg xvii. xpot ouc±o has been accorded the nilace of ponrtannce it deserves in recent economic policy after fairly limited attention in earlier Plans. The export target 4ia a 7% increase per year, wit h havy~ reliance on the engineering industries to provide most of the dynamism. This is a circumstances and its higher potential as a contributor to growth. The unfortunate and throws an even larger growth burden on manufactured exports nu envisageu in tne ril targets are to ue met. Nevethnless ti , nLLe opportunities for Indian manufacturing to take on still more of this bur- uenare'Lrge indeed. ThIIS iLs Still a business, hoUwver, th L 2- special official support to meet the bitter competition of international markets. With ts support, Iuaia has o'u making consiueraube progress in exports of engineering goods, and such export oriented policies might also be extended to other manufactures. Somewhere along the Line there might also be consideration of further policy support for specialization in particular production lines, through favorable treatment for exports which will foster the emergence of industrial areas of demonstrated in- ternational competitive strength and with dynamic growth potentials as wide as the horizons of international markets. This implies, however, a concern for industrial efficiency which finds little encouragement in extremes of protection for domestic producers. Again, recent advances in manufactured exports are promising for the longer run but leave some doubt about achievement of the Fourth Plan targets for exports as a whole. - vii - Resource Difficulties and Aid Problems xviii. We come then to India's resource problem in circumstances where economic growth targets may be difficult to achieve within the next few years. In these circumstances the resource targets also seem doubtful. There is of course mutual interdependence between growth and resources al- though neither is exclusively dependent on the other. The record of the Central Government in fiscal efforts to improve resources over the last several years has been impressive, even in sluggish economic times. Never- theless it does seem doubtful that resource problems can be significantly eased except in a more dynamic economic context. xix. Even within the tight resource situation, there is scope for acceleratine economic activity through a preoccupation in policy and ef- fort with the most promising growth points of the economy - with concen- tration on easina the water- credit and other constraints on the nace of the "green revolution", on expeditious development of India's mineral re- sources includina iron ore. fertilizer. raw materialq and netroleum. or providing the elements of encouragement for potential "front runners" in industrial nrodnition and exnort et- Thio wmldlr noom tn ho rho inost nrni joing srantegy for stimyving the acceleration which, with reasonable luck on the weather, could turn the t-h ^th-ro 4unca fnin-rohlo tiiral-1-4n Th4v is actually the process which has been underway in the last two years and which can bDe pushed further. T*. -ee- likely however that It will take longer than the re-- maining four years of the Fourth Plan to reach the development objectives J. Lu I .yU LLAo proces. Ile proccss couu v acucelerte vy a ov- siderable increase in foreign aid to ease the resource position and allow uIa unueeu d sep-up iu puulic iuvestment. InuOwe-Vler, SuCl 4Ln aILU LLLLLt:U5u seems hardly likely in the immediate future. In the current circumstances of s-called "14A -1+-ue 4- A4F4cl to~ see p4.- lagr 41a41_ ities of aid or the possibilities for transferring much larger aid levels AAAAm .UL a L L[L UI.-I AU7I/.. UCLULRH LL FUMIA1 WUU.LU .LLVUJAV"- gross aid utilization of $1140 million including food-aid, and net aid aLeL UUL sULVeie L 9J7U mlliU. In LacL HeL aU ULizLaion Uy Lthe economy is likely to be much lower still, of the order of $300 million, LA.LI ~L ILL rep"n's aLW1L~iL ir~L~~AIL LU~ULJUI i ~ t .L XX eLL J. itual UJ.L ~ L JL A. URSUL LI.CUILLLU-S eL LU L& .L7/V/I 1,I. LA) L11L tain the aid pipeline would therefore involve new aid commitments this year oL $L40 mlL1n, including about $900 million of non-food aid. This we think is not enough to boost the growth-resource-growth process to an early and sustained annual rate of increase in national income or something .Like 5%. We have indicated before that a net aid inflow of perhaps $1,000 million a year (or gross aid of $1.6 billion) could move the investment level up enough to add considerable momentum to the growth process. If this were an - viii - objective of the near future, it would require an immediate increase in new aid commitment above current aid use in order to expand the aid pipeline for larger future disbursements. This suggests new non-food aid commitments this year of about $1100 million ($200 million above disbursements) with the early objective, after allowing for rising debt service, of increasing net non-food aid from this year's likely $350 million to around $500 million. This would also require greater flexibility in aid tying practices and in Indian import policy to render possible the transfer of larger aid flows in- to India. All this may seem rather hypothetical. It is not clear how much lee-way India would have, in view of strong domestic protectionists pres- sures, to adapt import policies in a way to permit the transfer of aid in its presently tied form in much larger amounts. However, the aid relation- ship could probably be greatly improved and facilitated if there were as- surance of aid in larger amounts and greater continuity and with fewer country, project and commodity ties. I. RECENT DEVELOPMENTS 1. The past year has been a good one in most respects for the Indian economy, adding a third year to the favorable economic period which India has recently enjoyed. The monsoons have been good - a none too frequent occurrence for three years running. Harvests, augmented by improved farming as well as weather, have reached new records in two of the last three years, and so, for India, food supplies have been fairly easy. 2. As always the rest of the economy has improved with the har- vests. Industrial production has revived from the depression of 1966 and 1967 by 6% in 1968 and another 7% in 1969. All this pushed the real national income up from the low of the drought-depression period by 9% in 1967/68, by about 2% in 1968/69 as harvests remained at the peak reached in the preceding year, and probably by another 5 or 6% in 1969/ 70 when grain production set another new record. This makes an average gain in national income for the last three years of 5 or 6%; a favorable bulge on the longer run upward trend in GNP of only about 3.5% per year. 3. Unfortunately the population went right on expanding at its steadv 2-1/2% or about 13 million Persons per year, and this took away about half of the improvement of the last three years when measured in nr cnaita terms. It in worth noting that, because of this and the set- back which the economy suffered during the 1966 and 1967 droughts, per annita ran1 inrnmp in 1969 after three good years had only climbed back to the previous peak reached in 1965. At current prices per capita in- cnma remains at ahout Ra. 600 or snmething like $80 per year. 41 Vinanc4n11v the Prnfnomy has achieved a fair degree of stability in the price level after four years of sharply rising prices prior to 1968. Wholesale Prices declined slightly in 1968 and inrreaqP in 1969 by about 4%. There has been a substantial addition to the money supply by 6% in loD anA bout 10%/ i. 10O --4tahla maiinl%v t-r% fiaal dafirit and rising foreign exchange reserves. For most of the last two years this moar-i avnsion ws avarenti fnrly well cotinterhalanced hv the larger flow of goods and probably also by a rather slow turn-over of AA4tal incomen eanA in agricultue. There are hnwever %alens in early 1970 that money incomes are pressing hard against prices, including grain. prics W1 410 C1 suggestsi at the r.-ate --f .eatar exaj so com-t ble with reasonably stable prices may be reaching its limits. 5. In foreign transactions, India's slender foreign exchange re- sources wer cons idera ll impove by SU1-S -who .ich financedA a net re- payment to the IMF of $245 million in the period from April 1968 to the en o~ f.L arch L7,FJ aL.J.Aons to. ofcia reserve of $50 m- 41-fo _I 1968/69 and another $200 million in 1969/70. The trade deficit declined - Lavc J.11-. 4. Intm/to .. 140 .k.- t tAA M4114.. 4n 1O/ Lrom UVCe r UaAAAUI UUbilLo dl a n 17U0uu UO less -LaL Y*Jum us&AJ*n _10,659.1 70; if food imports were deducted the trade account for the past year would have been balanced. Lis impruvmnoL in the trade poition more than counterbalanced declining foreign aid and rising debt service in the last two years. - 2 - 6. This favorable balance of payments reflects in part a marked rise in industrial exports which boosted total exports in 1968/69 by 13%. Last year was less favorable because much of the continuing gain in engi- neerine products was offset by sagging traditional exports - tea and cot- ton and jute goods. Imports meanwhile have remained at a surprisingly low level. A decline in food imports was of course to be expected. but other imports consisting mainly of raw materials and manufactured investment voodR rose only slightly in 1968/69 from their depression levels and de- clined again in 1969/70. The behaviour of exports and imports is sub- senuently analyzed. hut it may be noted here that in anite of the drnn in some traditional exports in the past year, the dynamism of sharply risinv Pynortn of machinery and other metnl manufactureR- on which much of India's future depends, was well maintained. 7. Progress on economic development continued in 1969/70, the first year of the Fourth Five Year Plan, much as it has under the annuM plans of recent years but without spectacular advances or bold new initia- 1tyaQ Tf was chratr ve a ntrva-e"a a moderately fnasterpac in some cases, of projects already underway in the public sector, and by some revival of investment activity in the nrivAte eartor reflPted mninly in rising agricultural demand for agro-industrial equipment like tractors, pumpsets, gneators, etc* and greater output o-f indstiesa li4nked to construction and to additions of machinery, commercial vehicles and ma- terinl handlIAn animent iThb nAA4tInn=1 4-rreatmm-t probaby all however, and considering the rise in the national income it would seem un-.likely that the target for an Increase In the, rate, of ne_Ivetmn was achieved. 8. Investment activity was somewhat affected by raw material short- ages, especially steel, VuL tue mUst severe Unstraint coinuueu ou ue tne budget and its limitations on increased public investment and indirectly on private iuvestment. Nevertneless, through a cutiLuug UULLI1 Lax effort, larger domestic borrowing and some run-down of the foreign aid pipeline, the Central Government was able to nold deficit financing in check and still expand outlays on development capital, especially in agriculture and irrigation, transport and communication, and several lines of manufacturing. 9. This year, a large increase of almost 20% in public development spending is provided in the new budget tor 19/U/1 - the first signiticant increase in public plan expenditure in four years. The budget boosts plan outlays trom about Rs. ZZ billion last year to about Rs. Z billion this year. The increase is about evenly divided between the Centre and State Governments. It is to be financed within a framework of fiscal stability by means of a substantial resource effort through additional central taxa- tion, combined with tight restraints on non-plan expenditure. Deficit financing is to be kept again to a moderate level. - 3 - II. DEVELOPMENT PROBLEMS The Political Context 10. One might expect an optimistic and confident mood in India about the economic situation after three good crop years, two years of steady if moderate industrial advance, recent signs of further rising and spreading investment, and an extended period of rising reserves and reasonably stable finances and prices. There are important areas of current economic buoyancy, both in activity and outlook. By and large, however, despite the improvements of the last two or three years, there seems to be a prevailing dissatisfaction with the performance of the economy, and uncertainty in political, administrative and business circles over what can be done about it. The self-assured days of con- sensus on the proper lonR-run course of the economy and of conviction that it could be so steered according to plan have gone. In the face of India's economic complexities and difficulties, confidence in cen- tralized physical planning of development has waned with the disappoint- ments of the Third Plan, the trials and delays in drafting and agreeing on a Fourth Plan, and the difficulty of devising policies for the econ- omy which have both realistic economic nromise and political appeal. Meanwhile planning has become more decentralized with the dispersion of nAliHPA1 and Pronom c nnur thrnuah the arovina nover of the States. 1.Pn1iti-.nI e-mi%t-itInn 'han int&nqffipd In the nrnrass of frag- mentation of India's political power structure which, since Nehru's time, haa ar^AAa the Aomnannc of the nnre Party and has now finallv divided the Congress in two, with neither part in a parliamentary majority. In the pu -AIL c exchanges, -uch of the, coIn of thkis 4ntensI%afied nn14-4r1 rivalry has been in terms of economic problems and solutions. It is th. L... .-- #k.....4na -h- - -4ph.. -9n n nnt4, n t noteworthuy7, WUUCULUtVW- --*C -5--&Y~ -.l which have found advocacy in the stirred political atmosphere of the recent pat the response nf nwac 1 noi4c whilwi mre ntIuit has hen moderate and reasonable. Bank nationalization stopped short of foreign banks, and there has been nothing to sul-gest Other 00,n rean=.aih1 bank administration, with operational change mainly in greater effort to mo- u.L.L.L amasaviug aon widen t9ue acc-98 t-o IoD-akng fo --- me amog-- creditworthy borrowers. The political clamor for more exacting indus- L.L4.L1. UI.. L* - LASD V... U b A ULI.. Awma nesA.l.y m41A .&.t & na S*w a S* 11 tErial eguAation naoed vauon unexpectedly mildd responsew w af411 leaves ample scope for liberal administration. For larger operations, -1 A __ I ~ - ALU_ -L.- AdustaAAAAug M1a 4,LL .vu w--1a- dAU #-rae AU1 U0=0 AWO aWnyL JLL%JLU L9= Lm.LL ..&.&5 UAA.V- L.J.L& WLRIJ. 6 L -5Jl~ policy has taken in recent years, but for smaller firms and smaller in- vestments the regulation is relaxed. Considering the force of the po- litical winds industrial policy might well have leaned much further to- waru reviva o inuUULlral COtELS Lhan has acUually been Lu case. Finally the new budget, the first since the Congress break-up, has evoked a large favorable consensus for its nice oaance between new anu reason- able initiatives to help the disadvantaged and encouragement of investment growth in the corporate and the public sectors - all combined with a broad and substantial resource effort in the interest of financial and price stability. 1z. All this interaction of politics and economics has served to draw public attention away from a satisfied focus on short term economic gains to the fundamental and persistent troubles of the Indian economy - the slow longer term pace of economic growth not much ahead of population, steadily rising unemployment, and the seemingly intractable problem of the large part of the population which is very poor indeed and hardly affected by economic growth. Preoccupation with these chronic troubles of the Indian economy in the glare of the political arena has at once intensified the urgency and aggravated the difficulty of the search for a strategy of effective and broadly based economic betterment. 13. The breakup of the Congress Party is more than a passing realign- ment of political forces. It seems perhaps the most serious of the many deep cracks in the Indian political structure in recent years. It raises the question whether, for some time anyway, a national party of governing majority proportions, built around a large country-wide following will again be possible. The political fragmentation of the past decade is hardly surprising in view of the diverse and loosely integrated nature of Indian society. India combines cohesive ties of cultural unity with strong localized political constellations around a variety of sectional interests such as region, language, religion and caste. There used to be a common bond of attachment to the independence movement and to its post-independence personification in Nehru. No similar nationally bind- ing political interest has since appeared except momentarily during the Pakistan war in 1965. And so there has been a substantial shift of po- litical power from central to local, state and regional groupings and manifest in the multiplication of parties, the intense factionalism within parties, and the bitter contention for party control in the Congress. 14. This would seem to be the background of last year's split in the Congress, and the subsequent alignments and realignments that have taken place among political leaders in the competition for power. There have been ideological overtones in the process; yet economic ideology has not been a dominant focus of political polarization. Over a fairly broad range on both sides of the political center there seem to be few who disavow the pursuit of democratic socialism. The importance of eco- nomic issues in current political rivalries is, however, significant for Indian economic policy. It seems an accepted part of the present politi- cal scene that the difficult task of consolidation of political strength by any party will have to include some promise of near term amelioration of India's chronic economic troubles. Furthermore, it also seems clear that political consolidation is necessary for the kind of economic leader- ship needed to accelerate economic progress. Otherwise it may be difficult to mobilize the necesary nolitical consensus for difficult but positive moves in vital areas of development, and to head-off pressures for policies which whatever thair mprit onlitically or otherwise mav hp contrary to pen- nomic growth aspirations. It is only realistic therefore, that economic priorities. Hence the political imperatives of economic policy may make some deMns o ourceum Butme ba ic whc wl b to find some sort of optimum adjustment of policy which will both strengthen -5- put±ca LaJealership an' dvance tILe econoy. "y e theJ.L emerenc ofI~~L another one-party majority government seems hardly probable in the cur- rently evolving political situation, an emerging stability through a coalescence of sectional and national political interests around a moderate center-left position would seem a reasonable possioinLy. Changing Development Strategy 15. Even assuming effective economic leadership, the nature of a realistically promising development strategy to cope with the basic troubles of the economy in ndiat's difficult circumstances is still hardly obvious. Previous economic reports have noted the fundamental difficulties of generating a cumulative economic momentum considering the vast, heterogeneous, and loosely integrated nature of the economy; its poverty; and its vulnerability to irregular but frequent shocks especially from the weather and associated crop variations. 16. There was a fairly clearly articulated economic strategy of the late 1950s and early 1960s. It sought to combat these basic dif- ficulties through transformation of the economic structure by means of rapid heavy industrialization. Serious weaknesses emerged, however, in pursuit of this strategy. One was the high cost involved in over-taxing the technical and managerial capabilities of the economy. Another was the want of sufficient resource generation or, put another way, of ade- quate effective demand, to keep the industrialization process going. Domestic resource mobilization was augmented for a time, first by use of the foreign exchange accumulated during the war and then by rising foreign aid in the late Fifties and early Sixties. Thereafter, when aid leveled off the strategy was sustained for a time by forced saving through fiscal deficits, but the price consequences became politically unmanageable especially in the severe drought conditions of the mid- Sixties. By then the continuation of this strategy was no longer a realistic option. 17. The broad outlines of more recent economic policy were in- dicated in the economic report of last year and were subsequently set forth in a draft of a new Fourth Five Year Plan for the period 1969/70.- 1973/74 published in April 1969. 18. The key change from the Second and Third Plan strategy was a shift in emphasis away from heavy industrialization toward agriculture in order to make the most of the new technological opportunities for substantial increases in the yields of foodgrains. Industrial develop- ment, including industrial import substitutions, continues to be an im- portant preoccupation as does the requirement of infrastructure-power, transport, communications and other overhead facilities. Broadly the Fourth Plan approach is more balanced among sectors than its predecessors with greater emphasis also on exports and on family planning. -6- The Fourth Plan 19. High economic growth objectives of the Government are reaffirm- ed as targets in the Fourth Plan, including annual increases in national income of 5.5%, in agriculture of 5%, in industry of 8 to 10%, in exports of 7%, and increases in net saving and net investment rates relative to national income from 8% and 11.5% respectively in 1967/68, to 12.6% and 13.8% in 1973/74. With the target for exports 2% higher than the 5% target for imports, and with correspondingly higher rates of domestic saving, it is calculated that net foreign aid (gross aid minus external debt repayment) could be cut in half by the last year of the Plan. 20. The paths of production and demand by which to reach these tar- gets are not of course specified in step by step detail. This could hard- ly be realistically expected in any economy with the complexities and un- certainties of that in India. Past practice has diverged widely from attempted planning in more elaborate operational detail. Current plan- ning does not attempt a systematic framework of physically balanced inputs and outputs. Rather it is indicative of desirable lines and magnitudes of investment and growth, with specific operational targets of investment and, to a lesser extent, of related output limited to programs of the Central Government, to parts of the State programs. and to basic industrial pri- orities like steel, fertilizer, fuels and minerals in the private as well as public sector. Most of private and State development activity is left in the Plan to private decision and State and local determination, to be influenced by central policies but not steered from the Centre. 21. In its investment provisions, the Fourth Plan can be considered quite modest in relation to India's requirements. The total public and private nlan expenditures are, in real terms. only about a third larger than those of the Third Plan for the period 1960/61-1964/65. This is a ner canita increase of only about 10%. The nlan assumntion is for a some- what larger increase in private investment than in public, although as Indieated the naturp of nrivate development activity is for the most nart left to private decision. While within the severe limitations of resources, the nllirntinn nf nithlir invPeztment among sect-ors seems reasonable- there is hardly a field of public development expenditure in which one could not rnrneonahiv argue on the hasi oF nresina naad fnr Inraer Allnentionns than provided in the Plan if resources were available. This applies both to expenditure wh,a abIich are dli-rctly prdctv n-,,p-ia nd those for socil imp,rove- ment. For the latter there are significant increases in provisions for family 1.. ni ng , pulicA health. and w.nar --.n- i.-0A nwnlnlm being introduced for assistance to small farmers and rural labor and for hotusing,6, ur.bian IproJvement , and.. -".Ji 1A 12uo- 4L..JS f41A -f flO social development and others, especially education, the impact feasible try's social problems. 22. Different aspects of the Fourth Plan are subsequently discussed in the separate sections or this report. Iis Iu.CuUes LLICe Iuanea aspects, with some indication of reasons for uncertainty whether resources - 7 - wl.lAl ue enough Ir even his mouerate sizeu pilan, especially consioering the sharply reduced place of foreign aid in the financial planning. Development Uncertainties 23. Perhaps the most important consideration about the Plan and current economic poilicy is whether these hold realistic promise for reach- ing the Plan targets when measured against the difficulties of the devel- opment problems. The answer to this question is not clear and it would be indeed a confident practitioner of the development art who could say what the course of the critical determinants of India's development will be over the next several years and how their manipulation by plan and policy will affect the growth of the Indian economy. Certainly without any pretentions to such confidence it does seem doubtful or at least un- certain that economic growth can reach the Fourth Plan targets. This is because of the uncertain course of some of the key determinants of India's forthcoming economic growth. Agriculture is crucial and promising but still hardly certain to come up quickly to the great expectations of the improved agricultural technology which, after the dramatic recent burst in wheat production now seems off the pace of official targets in its spread to other crops and other areas. Industrial growth, despite the moderate revival of the last 18 months, also remains below its pace- setting role in plan targets. Shortages of materials and of investment demand, as well as labor unrest, politically motivated but reflecting also the brittle socio-economic foundations of a low wage industrial structure, complicate the industrial outlook. The weakness of tradi- tional export markets is disquieting, and escalates the size of the chal- lenge to Indian industry to reach the ambitious export targets, crucial to India's planning objectives, mainly along non-traditional lines. Pop- ulation control remains an unclear prospect, despite the well-conceived and expanded effort of recent years, because of the administratively unwieldy size.of a family planning program to match the size and com- plexity of the problem. Finally, there is the pervasive uncertainty about financial availability all along the line of public investment and social improvement with no clear way out of the vicious circle of pinched resources - slow growth, and slow growth - pinched resources. 24. More is said later about these rather key aspects of India's development problem. But a further word may be added here about shortage of resources and its adverse interaction with growth. This vicious circle might be reversed in a world of greater compassion, where more external support might be expected out of foreign concern for India's poor, and sympathy with India's compounded difficulties in trying to develop with grossly inadequate means. It is perhaps an indication of the relative significance of aid to recipient and donor that India's Fourth Plan if entirely successful would add about $2.00 per year to the average indi- vidual income, thereby raising it to about $85.00 and that this latter figure is less than the amount by which income per head grows in the United States in an average year. In a world of greater international generosity, aid patterns might be better adapted to countries like India which do most of their own manufacturing and import mainly food and raw materials, ubile 8 India with assurance of reliable and flexible aid might see its way to acceptance of a broader range of imports as the means of transforming foreign assistance into development resources. With a higher level of available and transferable foreign assistance, an early build-up of growth momentum should be possible which would in turn facilitate fur- ther resource accumulation and growth. As it is, this is not the formula of the Fourth Plan nor is it probably a realistic option with current attitudes toward foreign aid both abroad and in India. 25. Perhaps these circumstances will change. But for the time being they suggest, as does the Fourth Plan, that India will have to look to it- self for the incremental resources of both domestic saving and foreign ex- change which a faster development momentum will require. The reverse of this statement is just as true; i.e. that India will somehow have to ac- celerate the development momentum necessary to generate the incremental resources required for further acceleration. It seems clear that the resource limitations can only be eased in a dynamic and not a static economic context. Without larger foreign support the early acceleration of development may have to be slow, but it could pick up with reasonable speed, given some luck with the weather, and policy encouragement of the mutually reinforcing process of economic expansion and resource genera- tion. This will also require special concern for expansion of exports because of the particular magic that a dynamic export sector could work in India, by providing some relief from the rigidities of severe foreign exchange shortages and as a growth area with wide demand horizons. Emphasis on Economic Growth 26. The implications of this for India's development effort would seem to be in the first place an overriding preoccupation with improve- ments in efficiency, with extracting the largest additional output pos- sible from existing capacities and additional investments. In the second place it would imply preferential treatment for those parts of the econ- omy in which promise is already high, which have the capabilities to take the greatest possible advantage of demand opportunities, and which are likely to be leaders in production, in earnings and/or in foreign exchange receipts. 27. Foodgrains should continue to be one of those parts of the econ- omv with high policy preference in view of the prospective payoff in ac- celerating farm production and expanding demand for non-farm products - agro-industrial supplies and equipment and consumer goods. If there are misgivings about the pace so far of the high yielding grain technology, it would neem to be not because of the technology itself but because its further potential awaits more vigorous efforts in farm oriented irriga- tion and wntr conntrnl farm npnlv ArrangementsQ credit and other in- stitutional improvements. The Fourth Plan places high hopes not only on agricultural expansinn, hvit alan nn ahianuamon of thin anannion with a very favorable return in relation to proposed expenditure. Technically this possibilit seems realistic but it is far from clear that control, if ic varietal improvements, the programs of irrigation and water control, - 9 - and the institutional arrangements necessary to facilitate the spread of the new technology are ready and phased to achieve the Plan targets. If agriculture falls short of its targets, this would be serious for the fi- nancial framework of the Plan in terms of its rather favorable assumptions about the relationship between investment and output - unless of course other sectors should prove to be more efficient in the use of capital relative to output than assumed. Resource promise suggests potentials and the need for similar effort in the field of mineral development and especially in the expeditious exploration of India's oil probabilities. 28. If priorities are to be guided not only by resource potentials and physical output preferences, but also by high demand and earning po- tentials, there are probably many opportunities for rapid advance in the industrial sector. These include possibilities for better use of present capacities as in metallurgy, fertilizers, and various kinds of machinery production. Demand is strong for agro-industrial products and for vehicles. There should also be attractive expansion and earning possibilities in lighter industrial fields, especially if there is no particular onus on the expansion of less-essential consumer goods - amply taxed of course - and if export production is encouraged as a priority for specialization and not only as an adjunct of supplying the domestic market. Export markets offer demand opportunities for the widest kind of expansion in size and variety. In recent years export production has been elevated in the scale of economic policy preferences and encouraged as well as pushed with special incentives and pressures. This is an area where initial success is difficult and may be elusive in favorable domestic market circumstances unless there are generous rewards and considerable freedom for efficient and adantive competition. 29. The nlace of exnorts in the scale of Tndian policy nreferences might be reweighed in relation to import-substitution. The latter seems no Innapr q rmnrahl nlternntfue to exnrt prnmotion, Aither In rela- tion to foreign exchange problems or as an area of potential economic growth. The margins for still more imnort substitution are becoming ever smaller in the total industrial picture, and increasingly difficult and costly. Hence. its inconsistencies with the nromotion of export effi- ciency in industry. Such substitution ranks higher as a policy preference than It dpqprvpq on eithpr Prnnnmir or anoinl grnunda TV navarthalaa keeps a preferred place in policy as an industrial promotion and protec- t1on deviep with the wiide aupnnrt of Tnelinn indiiQtry, Prefrencfo small scale 4"dustrY is an understandable ele- ment of economic policy for both economic and social reasons. Measures fective in recent years. These enterprises now account for about half of.. indstia valu added, and.. hav --.-t4#-,,t2A tho fatant gvnwi7ng parts of the Indian industrial structure in recent years. All this suggests organized credit, and licensing and supply arrangements, small scale in- austry can Larive on, inUependent eonomic grounds, both in a conama---- relationship with larger industry and in competition in many lines of - 10 - industrial production. In other words small-scale industry has been grow- ing rapidly and generally doing well. Some of this has been the result of official discrimination in favor of small-scale industry and in re- straint of larger scale enterprise. The case for further extension of this policy where the result may be less efficiency and loss of growth and employment potential is not clear on either economic or social grounds. 31. A further word may be added on this matter of industrial effi- ciencv and the need to conserve resources relative to output. Its econom- ic importance seems obvious in the context of India's need to accelerate physical output and to generate domestic and foreign resources in the process. The doubtful prospects have been noted of achieving the large output in relation to expenditure which the Fourth Plan envisages in agriculture. Whether this could be offset to some extent by an improve- ment in the not narticularlv favorable exnenditure-outnut relationshin which the Plan expects in industry is difficult to say. But it is im- nortant enouh in the dpulonment outlook to he wnrth a serious attempt. It may be noted in this respect that there is more to the economic growth process than lust investment projects and related plan expenditures from which additional output emerges. This is a fact often observed but not very clearly elucidated in economic develonment literature. 32. Whatever thpqp other elementq are thpv include hoth the ra- pability and the opportunity for those charged with production decisions to adant nroductsq technianues material. oroanization nernnnel and system of operation in accordance with changing conditions and innova- tve AnAlvain And i noinntinn TnueQrment ia of entorne nno form nf ach adaptation. So are changes, with or without investment, in such things no prnout mi, innut mir, Work lanut, mnfearial flow wage and other incentives, labor relations, work schedules, inventory systems, etc. Thna3 1-"A f nAn"nt4n" ave, nl Imnnvfn" in the onth nroes no less in public than in private production. They are facilitated or hindered by ~ ^ f ---A4t4jnna. Ana I- t4s ..zr4 a4 %1 n"A, wn14- bility of overhead services like power, water, transport, and communica- personnel, information and technology. An advanced set of financial and other fairly free sources of foreign exchange, including untied or non-LUCL LV=Lr& ".LU* LIC LCL..LA.L. WL1A. G LUaLfLrtaUl= pAL0si- jUA tion allows for adaptation in economic management and administration is h.Lugh among tne reasonsun tJ.u e SrtatCgiC p]aCe e1 pAULL2 .LL 1ULCtLU± development experience. Finally it is important to note that adapta- bility depends also on the degree of freedom of decision which public and private producers can be allowed by a socially responsible govern- ment within its framework of legal and administrative regulations. 33. Perhaps even with a pronounced growth orientation of economic policy it may still be difficult to achieve the Fourth Plan targets without larger foreign support than at present. Nevertheless, the simultaneous pursuit of faster development and self reliance could be - 11 - behalf of rapid increases in production, resource generation and export. expansion. Certainly the nigh priOrity of agriculture is Clear anU we1.3 deserved, although programs designed to exploit the potentials of the new agricultural technology might be pursued with a vigor appropriate to -e serious consequences for India's development of a loss of agricultural momentum. Export priority is just as crucial as are ample rewards and policy preference for exports and export efficiency over import- substitution and domestic demand. Resource mobilization hardly needs to be emphasized again except to repeat the importance of a resource effort in its widest possible context including fiscal measures, espec.al- ly by the States, a wider and more attractive spread of institutional saving facilities, and the encouragement of production activities with a high resource mobilization potential. And this last point suggests a development strategy which continues the trend of the late Sixties for greater freedom over the range of public and private industry to adapt, expand and compete as efficiency guides, and to develop according to de- mand and earning potentials without distinction among producer or con- sumer goods, essential and non-essential goods, etc. 34. Such freedom must obviously have limits within India's foreign exchange capabilities. It may also run counter to social prescriptions against concentration of power and the capability of market manipulation. But such concentrations and capabilities might be better subjected to social control when they emerge, than be prevented by means which at the same time compromise growth opportunities. Relief from at least some of the delay and inefficiency which is solely associated with the compulsive concern for maximum protection of Indian production should also be pos- sible. III. POPULATION The Economics of Population Control 35. Next year's Census will show whether India's population is con- tinuing to grow at the officially estimated annual rate of 2.5%, or faster. There is little hope for a lower figure to emerge. Current demographic estimates are based on age-distribution data provided by the 1961 Census and updated from time to time by sample surveys, and may well underestimate both live births and infant mortality. A real increase in growth rate may well show up in the 1971 Census as an apparent rise in the birth rate, though really due to a combination of stable or possibly even falling birth rate and a greater than apparent fall in infant mortality. 1/ Almost 1/ It may also be that the 1961 Census figures were inadequately cor- rected for underestimates. When the coverage improves, the popula- tion figure will appear higher than expected, and correctly; but the intercensal growth rate would appear unduly high. - 12 - certainly the overall death rate has also continued to fall. Though these changes tend to increase the growth rate, they also denote a partial mod- ernization of the demographic structure. Such modernization may now have gone quite far in selected areas, but for India as a whole, progress is bound to have been slow. 36. Dramatic transformation in a short period should not be ex- pected. The attitude of those Indian peasant women who reportedly think of family planning as a "davai", an instantaneously applied recipe al- lowing at will the avoidance of conception, should not be parallelled by thinking of population control as a painless and almost costless device, affording an easy way out of the major dilemmas of development. A typical Indian peasant has no security of tenure, nor of work, nor of food; little education, no proper drinking water, no health facilities, no dwelling but a mud hut. His social horizon, the choice of his marriage partners and the transmission of his sexual experience are circumscribed within the limits of a small community (the so-called caste), of which there are several thousands in India. He sees no signs and is offered no hope of fast improvement on any of these accounts. He still largely thinks of his life as shaped by outside forces, not as shaping them. Of course, he often desires material progress; he may also wish to limit the number of his children, though he may even more often believe that he has solid material or religious personal reasons for desiring the insurance of many children. In any case, as long as he sees no way in which his own actions can help him to achieve economic and social better- ment, he is not likely to adopt spontaneously the behaviour patterns of well-off citizens of developed countries in his sexual and procreative activity alone. 37. Most people, if they experience and foresee no change in their so- cial and economic circumstances, and generally see little connection between their own actions and their welfare are likely to change their procreative habits only if they are impelled to do so by a very large, powerful and purposeful. and therefore very costly, population control program. Once there is a population control program of substantial size, conceptually there is always a point beyond which it is less efficient. in terms of the expected economic returns, to allocate additional resources to that program than to directly productive uses. How close this point is depends on the opportunities for directly productive investment and returns from it, and also on the relative magnitudes of the influences exercised on family size by levels and changes in income on the one hand, and by pure nonulation nntrol enpndittire on the other. 1/ I/ These influences are also likely to be mutually interdependent; the marginal impact of pure population control expenditure may well be greater when reinforced by economic progress, while, conversely, be- low a certain development level family size may wel be impervious to family planning services and advice not accompanied by developmental action. it should go without saying that improved knowledge about the ways and means of population control should, ceteris paribus, in- crease the productivity of pure population control expenditure. - 13 - 38 ~- . r,4- FJ of .r, ecnoi nd pouato gro4 ., .wath p'rvides a very crude illustration of the problem. Economic growth rates vary underdeveloped countries in the range of 4 to 6 per cent; population LVWLh VOLACl LLUU V LU J.J P=L UOLL6 W.LL41 Lai= VCOL WJU LJ&.LLy WA UnUOLe developed countries comprised in the range of 2 to 3.5 per cent. A une puLi iucrease in Lue uverll grUwth rate of iucoLue se roughly the same Impact on per capita income as a one point decline in popula.- tion growth. Ue could cUnceptu1.Ly Cefiue a comiULnation o poluCes and of additional investment which would raise the growth of production by two, 'our or even five or six per cent per annum, though the policLes are not necessarily feasible and the additional capital is not neces- sarily available. When it comes to family planning, we can be fairly certain that even a set of optimal policies would not achieve large reductions in the Dirth rate within a very short Time - UL that we know what would constitute such a set of policies. We also do not know how effective a given level of expenditure will be. But provided that such expenditure is reasonably well directed - as we believe it is in indiaTs program - there is some point up to which its economic return is as high as that of other investments or higher, and beyond that point it is lower. We do not know where that point lies in India; it may not be beyond the current level of family planning expenditure. 39. Yet it is intuitively obvious, in a country like India, that a slowdown of population growth is urgently desirable. No method has yet been developed for measuring the costs of additional population als density relative to natural resources increases exponentially; but even a superficial knowledge of India shows that the cost must be high indeed. If, as is likely, the slowdown of population growth can be hastened by well-applied expenditures, a proper development program must include ex- penditures on population control. The unresolved question is not whether to spend on population control; in most countries, and certainly in India, intelligent intuition gives a clear and emphatic answer to that question. As so often in economics, the questions yet to be answered are how to spend, and how much. One must admit that until now, most of the litera- ture purporting to measure the economic returns from population control has succeeded in obfuscating rather than clarifying these issues. The Indian Program 40. India is already spending substantial amounts on family plan- ning. Although this is a health-related and therefore State subject under the Constitution, the Central Government has undertaken to pay for all public family planning expenditures during at least a ten-year period. The Fourth Five Year Plan has allocated Rs. 3,150 million to family plan- ning, almost 15 times the allocation of the Third Plan and an annual rate double the current level. I/ Government programs are based on spreading 1/ The Government of India has just given a further indication of its commitment to family planning; in the last budget, family size was completely eliminated as a ground for tax deductions. - 14 - associatea ramily planning ana maternal ana cnil nealth (MHn services through a network of urban centers and rural Primary Health Centers and sub-centers - though variations within this overall framework and de- partures from it do occur; thus Andhra Pradesh places greater reliance on periodic family planning camps, and Maharashtra on mobile units con- veying candidates for sterilization to its network of clinics. When the new law, now under consideration by Parliament, is adopted, abortion may well also be used in certain specified cases. The recent second mis- sion of the United Nations on family planning has endorsed the general approach of the program. 41. It is now accepted that to establish and maintain frequent con- tacts with all eligible couples, one would need to provide one sub-center (staffed by one Auxiliary Nurse-Midwife (ANM), one male health assistant and one attendant) for roughly each 3-4 thousand of the rural population. The magnitude of India's problem is illustrated by the fact that this would involve a total staff larger than the whole population of half a dozen World Bank member countries. In fact, given other pressing needs and the genuine uncertainty surrounding returns to be expected from additional family planning expenditures, the Government does not con- sider it possible to finance such a dense network. It has now been decided to aim for roughly one sub-center per 10,000 rural population, staffed by an ANM and attendant, supplemented by one male worker for about two sub-centers. For this target, about 43,000 sub-centers would be required. In fact, less than 25,000 are functioning, and the Fourth Plan provides resources for opening only another 7,000. Even those sub- centers in existence are most often incomplete and rudimentary. New living and working accommodation has been built for less than one tenth of them; the Fourth Plan aims at raising this proportion to 1 in 3. Nor are all the "functioning" sub-centers by any means adequately staffed. 42. The sub-centers are to be supported by a network of about 5,500 Block-level 1/ family planning centers, staffed by a doctor, an ANM, an extension educator and health assistants (one for each 20,000 population), Lady Health Visitors (one for each 40,000 of population), and statistical and other staff. This personnel, though it would be assigned to the Family Planning program and financed by it, would be physically located at the Primary Health Center and working in close coordination with its staff. Most Block-level Centers are already partly functioning, but neither their staffing nor their equipment are vet generally adeauate. though there are wide regional disparties. 2/ Less than one out of five 1/ The Block is the administrative subdivision of the District, and tharpfnrp thp f-hird-ripcyrpp QihMuiczinn nf thp R~tntp n ~ftr thp Division and the District. 2/ For instance, Kerala, a State with a population larger than a good many countrb-en tes. mad v go pors.ah4- a staffing sub-centers. - 15 - centers has so far been assigned a doctor specifically for family plan-- ning. The qituiation for other nersonnel is a little better, and reRular health personnel also perform some family planning work. Adequate build- Inam have hoe nrnuiad for A few renters only the Fourth Plan's tarift is to provide them for about half the centers. 43. The Government is well aware of these inadequacies of the pro- gra; indee-d, n-- tkethekbove data are araurn frorm Gov'iernment douet Tt is clear that the family planning program is still far from having achieved, .o. ny th. lvel desirable in ome a ute sene, ut even thp, czane- tioned level. Financing is a crucial bottleneck, even though it is true spent. For instance, both the low level of remuneration and the lack of areas; and the expansion of training facilities is limited by the rela- tively low density of planned final facilities.*1 414. Wnen true dynamim was irLpdteCu F.U UIC LUJ.Ly YjaLL1L6 pLVmLLL in 1965, major emphasis was placed on the Lippes loop, known as the intra- uterine contraceptive device, or BMvD, an on steriIation. Ime Lu% program had great initial success, but later ran into "consumer" resist- ance, not the least because of its over-enthusiastic propagation and tle incautious under-estimate of post-insertion difficulties and after-effects. Nevertheless, more than 3 million 1UODs have been inserted in India, and despite setbacks, new insertions are performed at the rate of about 1,200 a day. Sterilizations have had unprecedented and unparalleled success. More than 7 million operations have already been performed; they have not shown the same fall-ott as the IUCDs, though of course now that the most easily motivated couples have been served, further success requires greater efforts. From a peak of 1.8 million in 1967/ 68, the number of operations performed is expected to have dropped to 1.3-1.5 million in 1969/70. Recently the use of conventional modern contraceptives, particularly condoms, has been soaring; the number of regular users is now estimated (by methods which are admittedly rough and ready) at' about 1.5 million. 45. In a short time, the Indian family planning program has achieved much, in absolute numbers, though not yet in relation to the total popula- tion of India. Furthermore, the most eager, and therefore earliest, users of modern contraceptives probably include many switchovers from less con- venient means: a considerable welfare gain, but not a demographic one. The probably high proportion of early users who already have large fani- lies would in any case have relatively few additional children even with- out the benefit of modern contraceptive facilities, because of natural causes or the use of traditional methods. Thus, the demographic impact 1/ In the sense that it does not appear worthwhile to step up training activities if there is to be adequate demand for the increased out- put of trainees for a few years only. - 16 - u Lue populaioU contrul progras A past acuievemuns may still ue rla- tively minor. However, there is also a hopeful angle to these considera- tions; if, as is likely, the fall in new sterilIzation cases represents the exhaustion of pent-up demand for family planning services by those already practicing some form of contraception, the current sterilizations and spread of conventional modern contraceptives may have a comparatively greater demographic impact. 46. One must once again note that given the difficult context in which it operates, the Indian family planning program has achieved con- siderable success. Compared to other programs run in India, which have often been established much longer, it is reasonably efficient, although admittedly far from qualitatively optimal in an absolute sense. In such a complex and new field, without experience of a problem of comparable magnitude anywhere, and given also the limitation of administrative ca- pacity and the particular problems of intertwined responsibilities of the Centre and the States in the Family Planning field, dramatic improvement in the quality of program administration should not be expected, even less awaited before further efforts are made. Nevertheless, there is scope for some immediate improvements. The Second United Nations Family Planning Mission has suggested several concrete steps to improve the program's administrative effectiveness. A major recommendation was to give perma- nent civil service status to at least 80% of the personnel employed by the program. This should greatly facilitate recruitment without placing an additional burden on resources. The Government is considering a partial implementation of this proposal. 1/ Another major administrative problem identified by the U.N. mission was the inflexibility and cumbersomeness of financial procedures, which further unnecessarily slow down the pro- gram's expansion. Such inflexibility presumably pervades most administra- tive structures but it is particularly obstructive for a new program which has not yet settled down into well-worn channels. Last year the State of Gujarat gave the lead in arranging far-reaching delegations of power to and within the Family Planning organization; under active prodding by the Centre, several other States have followed suit and there is good hope that most of the remaining ones will do so soon. 47. Outside the purely administrative field, the most urgent clear- ly seen need is for better gathering and processing of information. We have often noted the urgency of this need in past reports; the passage of time has not reduced it. We are really quite ignorant about all as- pects of family planning in Indian conditions, notably about desired family size and its determinants and the socio-economic and demographic 1/ Part of the problem is due to the peculiarities of a program run by the States but financed by the Centre. A solution would no doubt have to include the indefinite extension of the Centre's undertaking to finncep the proarAm for tpn vpArq, - 17 - distribution of family planning acceptors. 1/ It is particularly urgeni: to study the factors determining the acceptability of various kinds of contraception and the efficiency of various promotional methods in order to provide guidance on promotional means and types of contraceptives adapted to the different categories of users. Until we improve our knowledge of these factors, we shall know next to nothing about the marginal efficiency of population control expenditure 2/ in general or on particular items. This makes it increasingly difficult to measure the advantages of a further expansion of the program. Future Strategy 48. If one can make any statement at all with some confidence in this field, it is that the level of expenditure now contemplated is not going, by itself, to reduce measurably the growth rate of India's popula- tion in the near future. The population control program may, however, be already contributing substantially to offsetting the natural tendency of Indian population growth still to accelerate. This does not neces- sarily mean that a vast increase in population control expenditure is desirable. However desirable that would be per se, one would be hard put to designate any other field where investment should be cut below the planned level in order to transfer additional resources to family planning. Neither do we wish to give in to despair, and suggest that India's nonulation will inqt on on exnandincy until therP im sa-ndinc room only (which should presumably reduce the birth rate) or until there is an nffit-t-ina rina in ihP dpnth rate. Develonment italf - in the broad sense embracing economic and technical progress, social transforma- tinn And anrpAd ^f adiirAtinn - ja nannin-atd aith a fall in t-h hMrth rate as has been experienced time and again by many countries. Though tion of a real possibility of material improvement also seems to create family size. At that stage, a purposeful family planning campaign com- hininc tyaihl hPalth imnrmvpmant-a nrannnandA And r-ho nau myni 1mh414t-y of family planning devices may well play a very important role in pre- cipitating the demographic transformation and shortening t-he transition period. Historical precedents certainly lend support to this hypothesis. Inda4 n data are unfortu.nsaly incmplete both in depth and in area cover- age; but nothing in them contradicts, and much seems to support, the 1/ Much new light may be shed on the composition of acceptors when the results.~ oi a recently cond.t4u.c A*j ampl suve b comes avallab.le hopefully within the next few months. 2/ That is, about the economic benefits derived from the demographic chnuges affecteu uy a maginle expanesiu o the popultuio couLrol program. Only in such marginal terms does the discussion have eLiher theoretL±ial valditUy or operat1±Uinal usefuIlness . - 18 - intuitively appealing idea that the family planning campaign is most suc- cessful in those regions where overall development also seems to be pro- ceeding faster. 1/ 49. We are not suggesting that all official population control ef- forts should be concentrated on such areas. Our knowledge of the problem is too rudimentary for such a concentration of all eggs in one basket. Some components of the population control program are, in any case, of a preparatory nature: for example, basic education in reproductive phys- iology, and general propaganda on the family planning theme. Further- more, in every area there are some people (particularly those who would otherwise use traditional birth control methods) who can be persuaded to use modern methods, and who, if satisfied, would themselves spread family planning advice. Such an approach may be particularly effective in dense- ly populated areas. This is why the Government intends to provide the planned level of services (one sub-center per 10,000 population) first in the country's most populous districts. 50. Nevertheless, it may also be worthwhile to try out a more con- centrated family planning effort in selected densely populated areas. The main aim of such an approach should be to examine the interactions between intense population control efforts and material progress, and also to see how the marginal impact of the program changes when the inputs are intensified. Such an enterprise would probably offer the most rewarding scope for international involvement which could be chan- nelled if desired through the financing of the requisite infrastructure and other capital facilities (housing for family planning workers, training centers. clinics, medical facilities and equipment. transport and communication facilities, etc.). The amounts involved are bound to remain small in relation to India's overall capital import needs; and as the population control program is unlikely to require significant capital goods imports. or many foreian experts. foreign aid would have to be extended to financing local expenditures. International involve- ment would nevertheless be desirable, in order to help to gain exoerience jointly and to clarify the major unresolved issues. Clearly the popula- tion nrohlam in going to he a noneern of the international romminity for many years to come. TV- Ar_RTrT7TTTr T* THE "rprp RVAT.TTTOM1" - PRv4zW. Amn PRARTPM4 51. Moods about Indian agriculture range widely at different times 1/ We must stress that even if this is really so, that would not prove areas than elsewhere. However, the idea that it is so has consider- able LtuitlAve appeal, au, as su ufen ±u LIC L.±=,U UL WcoVuVLUm.L'. policy, action based on mere intuition is probably to be preferred Lo inaction. - 19 - Dy nexican wnear ana miracle rice, and soDering reacions to grain pro- duction statistics are understandable - and perhaps consistent. In the light of these varied assessments and considering the poor agricultural statistics and the short span of experience in fundamentally changing agricultural processes, some diffidence about pronouncements on the state and course of Indian agriculture may be pardonable. 52. The statistics of total foodgrain output since the introduc- tion of the new technology (1966/67) present a discouraging picture. The fact that the overall rate of growth is closer to 2.5 or 3 than 5 per cent explains why the optimism about the "green revolution" follow- ing the 1967/68 crop year is on the wane. Words of caution about over- playing the "green revolution" go back to 1968 1/ when the then Chairman of the Agricultural Prices Commission wrote: "At this stage, we can therefore hardly afford to slide into romanticism: the agricultural revolution is still a prospective event. This year's harvest implies a process of recovery from the harrowing two years following 1964/65, but at least for the present, not very much else than that." Since then the refrain that the "green revolution is not yet" speaks as loudly as such topical headlines as "The Golden Revolution" or "Spectacular Results of the Green Revolution". The major criticism of the strategy has been on the rationale of fertilizer allocation between. old and new varieties and between smaller and larger farmers, the optimum performance versus sub-optimum application of the new practices, impact of inequities in tenurial arrangements on the new program, administrative inadequacies, and social and political consequences of the selective approach. Rightly or wronelv. the vendulum has swung from a hasty con- clusion by some observers that the agricultural revolution has all but turned the corner to a more sober and more meanineful assessment by still others of what it has accomplished and is likely to accomplish in the years immediately ahead. 53. The "areen revolution" is beset by grave social and techno- logical limitations, but not necessarily of its own making. The social. ones in particular will be discussed separately, but it should be stressed here that the global statistical trends do not tell all of the story, narticularly as one looks into the future. There are tangible and intangible reasons why the admittedly mixed picture need not be sainted In overly dark colors. To begin with, there is the unmistakable presence of a wheat revolution. This is an important achievement not only for ir.qPlf hut ;ln for the nontin1 qide effert-s it miaht have on other crops. Second, where ingredients that make up the new tech- nomay ar ax'Ailahla - new h4gh vielding variptioq haked un with con- centrated doses of fertilizers in limited areas with assured sources The Statesman, November 14-15, 1968. - 20 - of perennial irrigation - no farmer denies their effectiveness. Third, agriculture in the late 1960's has benefited from a guaranteed minimum price of wheat and from a general improvement of terms of trade vis-a- vis other sectors. 54. Fourth, there is a positive change in the mental outlook about better farming and better living not only on the part of the relatively small numbers of the practitioners of the new technology, but also on the part of the countless numbers of farmers who would like to share in it if assisted with the requisite resources. These cultivators are beginning to accept the situation with less than the customary placidi- ty and fatalism, and the resource-allocators are beginning to hear from this until recently "silent majority". The point to stress, how- ever, is that the potential of this mental attitude, even if not often supported by resources to bridge the gap between desire and fulfillment, cannot be overstated. It derives from the proposition that at long last in India, too, it is being demonstrated that ideas have the remarkable property of being powerful instruments of change and mutually self- enforcing. In any assessment of the new agricultural strategy, the ex- pectations which have been aroused cannot be neglected. To do so is to risk, as one put it, "A sharper confrontation of progress and despair in the countryside". 1/ The future aside, an additional, if unquantified, factor of growth has been ushered in by the new strategy. Fifth, all of the above rests not on past and futile appeals to grow more food but on the tested propostion that Indian farmers also respond to price trends, incentives, and profitability. Finally and importantly, the progress in agriculture in the late 1960's was the result of major efforts at several strategic points, slowly creating a milieu which was radically different from the circumstances of the 1950's and early 1960's. Their cumulative effect has been evident in recent years. The conclusion is that apart from the role certain groups of peasants played in furthering agricultural advance, a variety of governmental institutions have done a yeoman job in organizing and launching this kind of a program. 55. These are accomplishments regardless of the current agricultural rate of arowth, and despite the program's shortcomings. The agricultural transformation cannot therefore be deemed a misnomer because it has not to date lived un to early expectations. The "green revolution" is de- pendent on continuous, not to speak of adequately supported, breeding and reearrh nrnorams. on the ire of imnroved nrartices of all kinds- including the availability of quality seed, fertilizer, pesticides, farm eniinment and QiiitAhlp wnter delivery avsyrmc and denntp nrnduction incentives for farmers, large and small. While quantitatively and qual- _ttIel this range of techical fcoslg t-~neofthe cultivators, they can be and are being dealt with, as witnessed, for 1/ John P. Lewis: Wanted in India: A Relevant Radicalism. p. 27 s DUe.L.L cbL 9U 6Y 9 UA. LL. . L 0 6 U.L A Univer sity, December 1969. - 21 - less appreciated is that in a country such as India even a fully equipped tional reforms in agriculture are part of the overall change. Because * ss w a uL0 "L F =u=&& L=VW 1 .LUL ULA UMy LO.L.L ZIAHULL U1 expectations even in the years immediately ahead; even so, the concept Of the new osraegy and tne evuraing unw technuulugy wiJ,1 stjll I-u1u. &.A ..fA && W Ot LLLL5Y O.LIU LIC~ CVU.LVLLYg 1W i.Z ULgY W.L.L.L L.L.L LILUU Judged by the available experience, the inadequacies on the purely tech- nial aiu Le in ULeL ULLeciUns, and the ca8e of -wheat versus rice - the two pivotal foodgrain crops - illustrates this. Wheat and Rice 56. Wheat has been a success story par-excellence despite the re- gional differences of yield, differences which depend upon the degree of water availability, while rice can claim no such distinction. The rice crop is not without its significant pockets of progress in Kerala, Tamil Nadu, parts of Andhra, West Bengal and in a few other sections of the country. Yet the overall picture leaves no room for complacency. In rice, between 1964/65 and 1968/69 the indices of acreage, production and productivity are roughly the same, though 1968/69 is better than the previous years. In contrast, the wheat acreage increased by 19%, production by,52%, and productivity by 28%. Since wheat accounts for only 15% of the total acreage under foodgrains as against 31% under rice, it is the latter which is much more important in determining the overall growth of foodgrains. If rice productivity had shown anything comparable to that of wheat, India would have been self-sufficient in foodgrains now. The prospects, therefore, for a higher rate of produc- tivity crucially depend on how far the lag in respect to rice can be reduced in the next few years. One of the factors explaining the dis- parity in the performance of the two crops is the successful evolution of new wheat varieties, both from foreign and domestic strains, whereas the much talked about "miracle" rice strains from the Philippines and Taiwan have met with insufficient response, especially in areas of heavy rainfall or water-logged soil conditions. The spread of the new varie- ties is likely to be faster in the rabi season devoid of monsoon pre- cipitation. With a number of exceptions the newer, domestically developed rice varieties have also been highly susceptible to virus and bacterial disease in many areas, and with results to match. This is one of the serious defects that stands in the way of a major rice production break- through. 57. Another factor in the striking success achieved with wheat and only meager results in rice is the dynamic expansion of minor irrigation through tubewells in the major wheat tracts. The increase in tubewells in Punjab from 7,000 to 120,000 within a decade is the dramatic evidence of this development, and a good case of success feeding upon success. This is what has reduced the uncertainties in water supply investments. and tubewells have helped to maintain wheat production in Punjab and - 22 - elsewhere on n eC kcl as eviuece vy LLt £uctuade, ucpLLC UnLaVUK- able weather, in 1968/69. In contrast, the lack of irrigation and drain- age faciities in some u Lhe principal rice growing states anu lack o[ resources to create them are a major handicap. It would be difficult to expect a speedy solution to this problem even if satisfactory rice varieties are released unless the water situation is improved far beyond what currently exists so that the monsoon would no longer remain the dominant factor in production of crops. 58. Just as the relative absence of significant development in the rice fields as against the experiment stations tends for the time being to retard productivity and leaves the future somewhat uncertain, the position of wheat is different. In the northern tier of the country where wheat is the important crop, water resources are considerable and not dif- ficult to exploit and wheat will register further growth. Official ex- pectations are that the current output of 18-19 million tons may reach the 1973-74 target of 24 million tons. This is partly based on the fact that whereas the national wheat yield is 1.2 tons per hectare, in Punjab it is 2.2 and in Haryana 1.7 tons per hectare. While the conditions in these States are more favorable than in other wheat growing areas, their potential for still higher yields can be realized only with the continued improvement of irrigation facilities. To be sure, in Punjab, for example, yields show signs of flattening out if not declining (even though produc- tion as a whole for the State has continued to rise), and the further rate of growth will also depend on still newer, more fertilizer-absorbing and disease resistant varieties. 59. The prospects for the continuance of the growth in production over the next few years are good though it is unlikely that the 10% per annum rate will be maintained. For one thing there were still at least two million acres of irrigated wheat in 1968-69 not yet planted to the new varieties. If this were fully planted to them it would represent a 20% increase in their area. For another the profitability of these varieties has induced a massive investment in groundwater development which is leading to an increase in the wheat area which can be irrigated or to a more reliable supply on areas already classified as irrigated. This should benefit a further 3-4 million acres during the Fourth Plan period. Further increases in the area under wheat can also be expected in the new wheat growing areas of north-east India; and perhaps also in the old wheat growing areas through the displacement of pulses and barley. 60. Nothing so encouraging can be immediately perceived about rice. and Indian research institutions now deeply involved in propagating suit- able varieties are yet to make their signal contribution. That they seemed to have assumed so much at an earlier date and delivered so rela- tively little may be attributed to numerous causes not easily foreseen in a plant so infinitely more demanding and capricious than wheat. In certain districtg there has been a marked increase in rice nroduction as a result of the adoption of the new varieties. However, the total nrpn iin~dpr rhp npws unriptiec~ nrt hpqf rnuprq nhn1if 1n7_ nf thp Mral1 rirp 23 - area and this is mostly concentrated in 20 to 25 districts out of the 280 districts where rice is grown. In these districts one can begin to speak of a real rice revolution. 61. The reason for this much slower growth in the adoption of the new varieties of paddy than of wheat lie partly in the much wider range of conditions under which paddy is grown and partly in the nature of the crop itself. Not only are there several different paddy seasons in India with the crop variety best suited to one not necessarily being the same as that best suited to another, but also varieties are not necessarily interchangeable between different locations. Thus far more varieties are needed than for wheat to bring about any comparable impact. In the initial introduction the new varieties were only suitable for a limited range of conditions. Newer varieties, suitable for a wider range of conditions, are becoming available but they are still not really suitable for at 1past half of the total rice area. 629 Tho now unrirtipq nf nanddv are more sensitive than those of wheat and most other foodgrains to environmental conditions; e.g. date nf ---ne-- -mnrmn-,r honurs oF sumihine moisture stress or excess. availability of plant nutrients, and disease. Demands are therefore reantro n th armers' m=Ananial sh4lirv if he In ro srhipvs the vild potential of these new varieties. They also make the new rice varieties much more risky to growt' han the -new wheat 'uarrla Th-in IQ lega ruei of irrigated paddy grown in the rabi or post-monsoon season, when the new varIetIes hae, a cler 1-A over, the Old local vtn-rrite 0m f aronA 1flfl0 lbs per acre, than it is of paddy grown in the kharif or monsoon season, ..k n -L AJ Ca.....na 4. ._..ll.i .. ., na. i00n-r%nA 11. n na ",=v ch.n-rr IC CIL. L M 'O .L ---L~ ---t ~ -------------- certain conditions may be negative. 63. The new rice varieties have also been handicapped by adverse cunsumer reaction. rarmers preeru no L eav Ut a em themselvO WAG, when sold, they fetched lower prices than local varieties. With higher production costs, this madethmlspofabeogrwhnteod varieties unless the yield margin was substantial. Newer varieties, witoUL DUmC UL ILC inhCLuLLL io van t agle of se origially intoduced varieties, are now becoming available. Over the next few years high quality, disease-resistant, short-duration varieties adapted to a wider range of conditions should replace the originally introduced varieties and spread Lo an increasing proportion of thICe L.UL area. Thee Vares.a, while having greater market acceptability, will probably be some 15-25% Lower yielding than the present new varieties. LIMLK LLLC u1 ULCaU Ati likely to remain slow for the next two or three years, gradually accelerat- ing as the adaptability of new releases is proved in an increasing range of ecological conditions. This slow rate of growth is compounded by credit and tenancy problems which tend to be greater in the rice than in the neat growing areas. If this appraisal of the situation is correct, therefore, the prospects for increasing rice production from a million tons to 52 million tons in 1973/74 - the Fourth Plan target - are not encouraging. - 24 - 64. High yielding varieties of maize, sorghum and millets, wnie as in the case of rice holding out the hope of large increases in pro- duction, have not yet been adopted on a sufficiently wide scale to make any substantial impact on the level of production. In the case of maize the new varieties only yield really satisfactorily in well irrigated and drained soils. Their management requirements are also much more demanding than for local varieties. The main restraint on the spread of maize va- rieties, however, is the limited and localized demand for maize as a food- grain in India, together with limited demands in other uses. Where maize output has increased rapidly there have been severe marketing problems and failing prices. As a result the area under hybrid and composite maize has only increased rather slowly over the past four years. There is little prospects of a more accelerated increase in the near future. 65. The new sorghum and millet varieties on the other hand have spread as fast as was expected and there is every prospect that they will find increasing acceptance. Although they perform best under irrigated conditions, they have been found to have their highest com- parative advantage over the old local varieties under conditions of moisture stress. Their ability to utilize fertilizers under these conditions is naturally restricted, and their impact on total produc- tion is thus likely to be limited. Their high susceptibility to pest attack is a further limitation to their wider adoption. 66. There is little prospect that the 25% of the foodgrain area which has not benefitted from new high yielding varieties (i.e. that under small millets, barley and pulses) will make any substantial con- tribution to the growth in foodgrain production. Over the past decade their contribution to foodgrain production has fallen both absolutely and relatively and only represented 17% of the total in 1968-69. There- fore, although in years of good rainfall their production may show an increase, on average the trend of production of these crops is likely to continue downwards under the impact of the much greater profitability of the new varieties. Non-Foodgrains 67. The non-foodgrains crops (mainly oilseeds. fibres, plantation crops and sugarcane) account for almost one third by value of total agri- cultural production. The possibilities of achieving high growth rates in the output of these crops is therefore very important to the achieve- ment of thp overall nroduction target of the Fourth Plan - a 5% growth in total production. 68. Between 1949-50 and 1964-65 the production of non-foodgrains had been -rowingat afaster rate than that of foodgrains (I.6% ae against 3.0% per annum). Since then non-foodgrains have lagged and in 1969-70 will be considerably better it is unlikely that it will be much - 25 - above the 1904-05 level. An examination or inaividual crop proupects does not indicate an early acceleration in production. 69. In the case of oilseeds (with groundnuts accounting for about two-thirds of the total volume of production) there are few signs of any major production breakthrough. For the 20 years up to 1968-69 oilseeds output had been increasing at a trend rate of about 3% per annum; up to 1964-65 four-fifths of this increase was the result of area changes, only one-fifth the result of higher yields. Since then area growth has ceased while yields have fluctuated according to weather variations. So long as the greater proportion of the oilseed crop remains unirriga:ed substantial yield increases will be difficult to achieve. This is re- cognized in the Fourth Plan and attempts are being made to popularize groundnuts and soyabeans as irrigated and off-season crops. In addition an intensive effort is to be made to improve cultivation practices on about 20% of the total oilseed area. Improvements are also being sought through an intensified research program as well as by increasing the proportion of cotton seed which is crushed (currently only about 37% of the total) and by using more efficient oil extraction methods for the other oilseeds (which alone would increase the availability of edible oils by about 20-25%). 70. The next most important of the non-foodgrains crops is sugar- cane. While this had a high growth rate, of about 4% per annum in the 20 years up to 1968-69, this was largely the result of area growth. There have been modest yield increases especially in more recent years and indeed the 1969-70 crop is likely to be a record. Future increases in production must largely depend on the higher yields expected through larger supplies of disease free plant material, the spread of irriga- tion, and more widespread use of fertilizer. It seems unlikely however, that the results will reach the Fourth Plan target of a 25% increase in sugarcane in the next few years. 71. The problems of jute are mainly the need for increased produc- tion and for an upgrading of quality. Achievements on either score seem likely to come slowly with continuing varietal research, improvement in farmer incentives and measures to ensure better water and water control for retting which is the main requirement for higher quality. Prospects for jute production are also linked with the success of the new high- yielding rice varieties in the jute growing districts. Jute production in the past has always been sensitive to variations in the price of jute and in the price relationships between jute and paddy. There are govern- ment programs with the dual aims of improving yields and maintaining price incentives. A special package program in selected areas is trying to popularize improved new varieties, line sowing and the use of fer- tilizers. Government purchasing through the State Trading Corporation is attempting to maintain prices to the farmer. It is too early yet to say how well these programs will succeed but the difficulties are formid- able. - 26 - 72. In the case of cotton production has been virtually static since 1964/65. The Fourth Plan target of a 33% increase in production would therefore involve a very sharp change in the cotton situation by extending the area of irrigated cotton, increasing the use of fertilizer, expanding plant protection, and maintaining a favorable price level; this last may well occur as a result of continued shortages. The other changes are expected from various improvement programs on about 45% of the cotton area. It would, however, require a 70% increase in yields over the whole of this area to reach the Plan target. This would seem optimistic. 73. Livestock and dairying accounts for something like 5% of the national income. Milk and milk products are thought to have been increas- ing recently at about 3% per annum. The Fourth Plan aim is to increase the rate to 4% per annum. There are two main programs for increasing milk production. In one program 30 Intensive Cattle Development Projects on the lines of the Intensive Agricultural District Programs are planned for both cattle breeding and milk producing areas. These emphasize im- proved breeding and feeding, and fodder production. The other program is an expansion of dairying serving Delhi, Bombay, Calcutta and Madras. As part of this the sale of World Food Programme surplus milk powder and butter will provide funds for stimulating production in the milk shed areas of these cities which range over eleven states. The aim is to im- prove the financial attractions of dairying through greater efficiency, thereby stimulating fodder production and the use of trains and oilcakes as feed, encouraging cross-breeding, and introducing better methods of collection, processina and marketing. Inefficiencies in these largely account for the rather depressing results of many of the 61 urban milk schemes now in operation. Some of these have been highly successful how- ever, indicating that with efficient management prices are high enough to stimulate rural milk oroduction and yield a orofit to the processor. 74. This review of individual cron prosoects indicates the diffi- culty of maintaining agricultural growth at the target rate of 5% a year over the Rnurtih Plan nerind- When it is realized that production in 1969-70 is likely to be only 5 or 6% greater than 5 years ago at the than nPak yanr 196A/A tha im anaity of tha affnrt npaded to attnin a steady growth rate of 5% per year will be evident. While the main re- qiremeants fr fasteri grw,thl are 1 wel enough mandurv ar-. e inclutderd In a program of action - problem oriented research, better seeds, more fertilizer, more adequate plant protection measures, more credit, more secure tenure conditions, and above all more irrigation - they are also tU. J. I.L AJ.L %A., ..& UU AtOSS*5 U* L*L p jaa..fn 05S~.. these requirements can be met promptly and effectively enough to ensure an average 5% Icras In ___-o 0- U-1 -__~ --A *U next three years - even with satisfactory weather - is probably more tuan can ue expecteu. ILKe man iLL1IULe tIIU L&u%L.LLULLVLtnL aOZL. uLs the Indian effort to improve agriculture are discussed below and in the following chapter. - 27 - Research 75. There are now all-India coordinated plant improvement projects for the five major cereals. All the new varieties now being released are products of these projects. Some of the programs nave nowever been slow to follow problem oriented directions, as in the case of long delays in. tocussing on the potential dangers of wheat rust and methods to combat it. Apart from the all-India projects, a considerable amount of research and plant breeding is also carried out at the state level and at the Agricul- tural universities; and special research programs are going ahead on dry- land farming. There are still areas in which a greater research effort is required, particularly on applied water use and on pulses, oilseeds and other cash crops. The Central Government through the Indian Council of Agricultural Research is paying increasing attention to filling some: of these gaps (e.g. in dryland farming research), and in adaptation, through regional research centers, of the findings of the all-India proj- ects to local conditions. Seed 76. The seed industry is in a period of transition. Two sets of changes are occurring simultaneously: production on contract to govern- ments and distribution by government agencies is giving way to production and distribution by the seed industry in both public and private sectors; and a system of seed certification and quality control is being intro- duced. 77. The first change is in line with general government policy to withdraw where possible from involvement in the distribution of farm inputs, as is happening in the case of both fertilizers and pesticides. However, while the withdrawal of government from contracting for seed production and distribution has gone on aPace, the development of a private seed industry has been limited. Private seed producers are now trying to build up their own marketing and distribution organizations but the suddenness of the changeover has caught them unprepared. This is equally true of the Nation- al Seeds Corporation (NSC). The private seed producers also lack adequate processing equipment and weather-proof storage space. The problem of the next few years is the development of this marketing and distribution system, and the construction of seed processing plants and appropriate storage. 78. The second change which is now occurring is the introduction of a system of seed certification and quality control. The 1966 Seeds Act which came into effect in October 1969, lays down that all commercial sales of seeds of officially notified varieties must conform to certain minimum standards and be labelled to this effect. Guarantees of quality are to be provided by seed ertification agncies to be antablished in each state. It is too early to say how well this Act will work. - 28 - Fertilizer 79. The trends in fertilizer consumption and the program for fertil- izer production are subsequently discussed in the Section on Industry. Consideration of fertilizer at this point is limited to a description of the recent geographical pattern of fertilizer use together with some of the factors which have contributed to the observed differences in growth among different regions. 80. Better information has now become available on the conditions under which fertilizer use in India has been increasing and on the geo- graphical location of such areas. Maps on pages 28a&b show consumption by district for 1968-69, and indicate the high geographical concentration of heavy fertilization and, by implication, of technological advances in agriculture. High fertilizer consumption has been mainly in the north-western wheat belt, and in parts of southern India either where high-yielding rice varieties have caught on or where there are concen- trations of cash crops (e.g. sugarcane, tobacco, potatoes, chillies) as a result of assured irrigation facilities. On the other hand, over huge tracts of central India fertilizers are still virtually unused. The basic precondition of rising fertilizer consumption has clearly been the availability of adequate water, a crop responsive to high fertilizer application and a favourable ratio between fertilizer prices and crop prices. The as yet limited geographical range of this prescrip- tion for agricultural progress is reflected in the fact that only 31 of the 330 districts in India consumed more than 10,000 tons of N per dis- trict in 1968-69 yet they accounted for 40% of all nitrogen and phosphate used in that year. Some idea of the variation between districts is shown by the following figures of the consumption of nitrogenous and phosphatic fertilizers per hectare of cropped land: Consumption of N & P in Kilos per ha of gross cropped area Percentage of districts 1968-69 in each class Under 1.0 17 1.0 to 4.9 28 5.0 to 9.9 21 10.0 to 19.9 16 20.0 to 29.9 8 'An- rn 319.9 5 40.0 and over 5 100 81. It is difficult to predict how much higher fertilizer consumption will go in the districts which have the highest rates of consumption. It is possible that in some of them fertilizer consumption growth will slow down since levels of application on the crops which are tertilized are ap- proaching the economic optimum. Current research is indicating that these MRM~m ~~i I I -- .M,. . - - -W -M -- rm w ti I 1 7 pp ~ * * -TONS 4l,t PL rR' A~ }. 5 HT ~ j,7S ~<*~.*~ ~,Boy *-~-.. ~ O..S,ofga NDIA NITROGEN FERTILIZER SALES BY DISTRICT *z . 968-69 5, ~ 5~E/  - _- IMr"\I A NITROGEN AND PHOSPHATE FERTILIZER CONSUMPTION PER HECTAR GROSS p 4 cROP LAND, BY DISTRICT, 1969 /68 I~~T DET1 ýi /-A, J'' /4<:~.... ....- . ~ HUA I' I - ..o.l ý.2 o.o 2,ltp. ý N 11 p T M MYQMäitißWK M e,nj4I a4KII CEYL Qa yoNrnP',sa,ri e dP Hectare Gross Crop band - Indian Dstricts 1968/69 -ZlI Und0r 000 Kgs plus P per hectare, zes 0gO 000 p 9pb. rr0.0, -000 0000OgCEYLONsoN.:.-  - 29 - optimum levels may be below the officially recommended levels, which assume better management and water control than normally exist and do not make enough allowance for the risks and uncertainties of fertilizer application where water control is insufficient or unreliable, nor for the farmers' level of discounting for such risks and uncertainties. 82. At the other extreme it is clear that in 17% of the districts fertilizer consumption is negligible. Conditions in these districts are such that prospects for greatly increased consumption are poor. Growth prospects in those districts - almost 50% - with consumption between 1 and 10 kg per ha, is also likely to be slow, pending the development in these districts of varieties and physical and institutional conditions con- ducive to change in their agricultural technology. The prospects for early increases in consumption probably lie in the 29% of districts with consumption levels between 10 and 40 kg per hectare. Pest Control 83. Official statistics of the crop area covered by pest control measures show an encourazing increase from vear to year. from iust over 40 million acres in 1965-66 to about 100 million acres in 1968-69, with a tarket of 200 million acres in 1973-74. About half this ara is ac- tually covered by crop spraying operations: included in the total are also areas covered by seed treatment, weed control and rat control oner- ations. 84. Plant protection subsidies have now largely been withdrawn ex- cent in South Tndin and distribution in hPina transfPrrAd t rnanvea and private dealers. It is too early yet to judge if this will result in a reduction in thp nran rnvPrPd_ CnrVn4n1-U the 'unliII nf lne0-nt *nrn- 4nn chemicals applied is inadequate to allow chemical manufacturers or distri- hutorn to undorrkn Uch mnrkar development nor can the nr4vate A-n- provide farmers with adequate information for effective plant protection and east control mnsuras until more ronArrh In arried nVr Irriation and wantar ronnrol 85. Apat%& from t-hp a%"a41.1414ty of fnputs- the aotherareondition for the successful adoption of the new agricultural technology is the need for Aamntna an As.uv.^l1A 4rr4ne*4nn Tk..n4a ra na --a- andequ te .n. W.,,&W ..& 5 - -&~C *UF _ ahe .-- cm&J var et e LC. are both more sensitive than the old to inadequate or untimely applications and Mnra rn-song-4-e to cntrolled1a -te. nl nEn 14-AJ -. cr. call v ~.- --- -nCA ---.h.ed%I. arra cU OL . LLLC6 stages of crop growth. These exacting irrigation demands of the new vari- eties have sarongiy U4_.h14hes-A h1 , ..-- ---- -C --- ***in. O.LLn1ay I5aJ L JLL&CU=4UO&J W& u oS S W& m6ny LLLC SA&UL.Lg surface irrigation systems, with all their related uncertainties as to anlt4*desand timin of.4.. wate supplies.. "r a"...isieinvsmeL U r - U LLU&L i CC Ij~..LC&& A. 1 A. EIV LC.L L41S 4CC .VU JLVaL Li in surface irrigation since Independence much irrigated land is still Val- nlulc to VariatiUns Ju ra "Iu±on, being served by smal works witn in- adequate storage in periods of low rainfall or else by extensive canal - 30 - svntAmn dplihPratplv deniaaned fnr drntioht nrotpctinn- Tn thene area rnl- tivation of the new varieties involves high risk and agricultural innova- tinnq may hp iinnrnfithlP in In rainfall vpqr. rnmnnttndPd with thiq i% the lack of attention to land development and field channel construction, an rhAt a%van whon aimnlipn arp ndaminto- thir uttil47.QHnn i.a inpffiris-nt- -...................................................... 86. Theneed for chantges -n the plannIng and de -_oIrgto projects to remedy these defects has been recognized for some time. Most new nro4c,n started In the ourth F4Iv Var Plan Ill he anA onan 4n- tegrated plan of water and agricultural development designed for intensive i rrigaian undenr cnt rolled .--I-, --A4#-4-n .-A -fb., 0-a,n ~ need for on-farm development and the provision of credit and supporting agricuturL.Lal anut marUe4n ser .vice. T* C -~ ---4--+--5 ht.fL fi J~..t particularly the large Kosi and Nagarjunasagar projects, changes will also ve maue to speeu-up 'anu AuAvelopment anu Aprv4Aue a AAutioal ar. asmervics. kA &A . JU L Uj~LLU U5a5. A. A. 1 %& Li .LL4 %ALAJ. ..j~j a.I Of.VL Over the majority of the presently irrigated area, however, such compre- liensiVe aLe uCveUptlCL WilA HUL U U UMhLe probl olC gLUUI luL HW LU speed up this type of development is currently under scrutiny by the Cen- traL. LU-V1efrLnC-nt. ±Lt: LUlUPAC.LY UILU LUbL U1. IL[AC WUEt& LLIVU.LVCU Lt% CLULUJUUb. The type of skills and trained manpower are in short supply. The organiza- Ltunala pLUULl UL LocooArdLAng nuLUO departmt a oa Awous a siAg ob- jective have still to be solved, although a number of patterns are being trieu out. rysicaL accomplisuments in Lilt roUKLsL r.L4U pCLJ.UU Lay LLUZ UC small; but a great deal of preparatory study and planning can be accom- plished along lines subsequently indicated. 87. The development of groundwater has received greatly increased em- phasis as a result of the new technology. The profitability to the indi- vidual farmer of possessing his own source of water under his own control has resulted in a very large increase in the area under minor irrigation in the past three years. The gross increase in the area under minor irriga- tion during the Fourth Plan is expected to be the same as the increase in the irrigation potential created by major and medium schemes, 12 million acres in each case. There has also been official support for a very large expansion in the pump electrification program. A Rural Electritication Corporation has been established and it is now expected that the number of pumps electrified during the Plan period will be 1.5 million, as against the 740,000 estimated in last year's draft of the Plan. The total invest- ment in this minor irrigation and supporting rural electrification program during the Fourth Plan is estimated to be as much as Rs. 18,000 million or US$2.4 billion (including both private and public investment together); this is more than has been spent on all surface irrigation development since Independence. 88. The booming demand for private wells appears to be matched by rising domestic production of electric motors, diesel engines, pumpsets and steel tubing and by expanded public credit facilities for tubewell financing. While given the availability of water there appear to be few problems in the expansion of dug wells, the tubewell program does face difficulties. In particular there is a shortage of private drillers, partly as a result of the rapid growth in demand, although the numbers - 31 - of private contraCto-S 4 a 4-C--aSa4 n- Stat- organ 4-n 1- largely confine their activities to exploratory drilling. The quality of much of F6&- WVL. UC.L L&6 1"LLACU UL AsU neeUd LmLptv=LUvL1%u u LP o LL"wwA and reduce running costs. Some Pre-investment Information Requirements in Agriculture 89. The accelerated exploitation of India's large agricultural capa- uiities requires a priority-orienteu accumuilatlIon o iuurmation on ar- cultural resources and markets and on the technological and economic pos- sibilities for using resource potentials to meet market needs. 0ovious ly, the information requirements are vast in an agriculture as large and varied as that of India. The accumulated knowledge available for invest- ment guidance and decision is also vast and is being constantly augmented by the Government of India and by private investigations supplemented in some case by international and foreign agencies. There are nevertheless areas where further study is of vital importance as a basis for the iden- tification of specific project priorities and the preparation of invest- ment projects and programs to facilitate faster agricultural growth. 90. Some lines of pre-investment investigation which would seem vir- gently needed, especially in the vitally important field of irrigation and water control, are indicated below. Also indicated are some of the studies now in progress to meet these information requirements. 91. The highest priority for pre-investment studies in the agricul- tural sector is undoubtedly for studies which will lead to a fuller and more effective use of water resources - water and water control being per- haps the most crucial single determinant in the further spread of the new high yielding crop varieties. Within this enormous field of study three main requirements stand out: 1. Studies required for the development of groundwater; 2. Studies required for the improved utilization of surface water in existing irrigation projects; 3. Studies required for the development of presently unused surface water supplies. 92. Each of these is obviously a major field of investigation in it- self with many facets. Furthermore regional investigation requirements are vast. The requirements therefore greatly exceed India's capacity and the establishment of priorities is thus important. Priorities for each area are considered separately. a) Development of Groundwater The priorities for pre-investment studies in groundwater would seem to be as follows: - 32 - 1) for most of the hard rock areas geo-hydrological mapping should be accelerated along with an in- ventory of existing wells in the more promising areas, particularly the trap rock areas of Maharashtra and Madhya Pradesh. 2) Quantitative assessment of groundwater is needed in: i) areas already experiencing decreasing ground- water availability; ii) the older irrigation commands, particularly those designed for "protective" irrigation. 93. These priorities are based on the likely economic benefits from groundwater development. Priorities based on the need to lessen regional disparities, but whose economic merits are harder to assess, would in- dicate that quantitative assessment of groundwater should also be carried out in some of the more promising low rainfall areas that do not possess surface irrigation. 94. Exploratory studies of groundwater availability, the first phase in any assessment of groundwater potential, have been widely carried out in the alluvial areas of India principally by the Geological Survey of In- dia and the Exploratory Tubewells Organization, but hardly anything has been done in the hard rock areas (see map page 32a). To complete the basic geo-hydrological mapping in those hard rock areas at the present rate of progress will require an estimated 30 years. Since this mapping, together with a compilation of detailed information about all existing wells, is the basic prerequisite to exploratory drilling, anything which can reduce this time period has a high priority. Although this could be done to some extent by increasing the manpower devoted to such mapping, it could be much better done by the introduction of modern methods of surveying and prospecting, using aerial photography and airborne electronic equipment. A preinvestment survey to introduce such methods is therefore of high priority. 95. The other high priority for preinvestment work in groundwater is for surveys to provide accurate assessments of the capacity and recharge conditions of individual aquifers. While exploratory work gives some in- dication of those it is inadequate for the scientific management and op- timum utilization of the groundwater resource. There is no local experience in India of this kind of work and no nrospects at present of develooina any on the scale needed in India over the next two or three decades. Thus pre- invARtmPnt qtuiA in rritiral areas tocyether with adenuate training of Indian staff would appear to be the second type of survey where external muitan tanlA he partIcularlyv unluable. 9n. Some quantextat easssnen wtunrle nf ha nbtira cndutrventl under way with external assistance. Two studies are being conducted under INDIA STATUS OF GRnUNDWATER RESERVC_ R STATS CÖIINASHR _R___ \ ? AND THEIR FUTURE MANAGEMENT Ã¥k ä o num 07° r- ¯ -- I--n BHUTANý1 2nt - 1 ZO|C-RIDN~ ___________,,~01K4PAM lBMUAN r __ - 1 A BUOD.TI.. -r -i-! - - --- -† ,. CID PITL | FUL 1I IUII |R :NG |A1SIN|JS.| | - - Bangi/ DOGE L SAIN ABHA RuEN!E IT H n e A_EPRRUMýc D .L FT 3O IORUIN WOT ENOUGH GN THE RESERVDIR5 To FlNE~A ANAENET 4 SiTCSAA GROUNAER RESEV-RS FUTNURL! ARGE TOE \- - - LO SCF PL WIE TH RIETUR MIGW ANDj DRANAGE1D CNR, QÄA T T1 B T IV T RI G -D OF L G E AG CRd NATFR RAICT. AnAE nvn nTi o CYTT - AND MTH EE T TUTRLINFEATRES. ~ AU1R H C NUL4 CCPE IHRTR LW N RIÃ…E GID. GR NWTRRSO IRNT RYCOI 10 NIS UFUT14 RE HANAGEXEN C-SL FOR P4RREIEESTNÄE 0N THE15 QUAVTITATIVE4 DE001RHI-I-S 0 O U ARLRES 3OUGE/ECH0N4 En;U0071 C" ~ T IS IETHS OF101 RE ÂŽ)1 BR 7OI OPERATION, BE PRE1CISELY0O D9 1INE E ÄS IE jjijj T0410 i.iÂŽ ii00110 HANA1ÂŽCHEXT1 OS~E LINED 0SUPPL00 011OR .NESE 14 p SB,I.43014g5S. LARGLYIG TI%0 G LOG440ÂŽ0IC FRAKElo0 F0141 IR440047O ANG7 R- k ~LER I TY FR4.1 -EFTHER- 14LR F.R74 CEYLON\ AP701145800L170019RIS  - 33 - UNDP auspices, one in three districts of Rajasthan and the oher in the Cauvery Delta in Tamil Nadu. Another one for Gujarat is under consider- ation. A project to be financed by USAID to provide assistance in five States is at present under consideration. Some assistance is also about to be provided by the Canadian government to Andhra Pradesh for similar studies. 97. The first priority for additional studies would be in areas which are currently running into difficulties through overexploitation of ground- water. These are known to exist in Gujarat, Rajasthan, Maharashtra and Tamil Nadu and concern is beginning to be felt that similar situations may soon arise in parts of Punjab and Haryana, in western U.P. and Bihar. Some of these are being covered by existing assistance (e.g. Tamil Nadu by the USAID project). Work on the others should begin as soon as possible. 98. The second priority for studies of quantitative assessment of groundwater is within the commands of existing irrigation projects. Most of these commands are in need of modernization and improvement to enable them to supply water in the quantities and at the time needed for the new high-yielding crop varieties. The addition of tubewell water would be a major step in the right direction and could be done without expensive ad- ditional construction and remodelling. Accurate quantitative assessment of groundwater availability, however, would be a prerequisite to this type of development, whether tubewell operation were in public or private hands. The irrigation commands which should be studied first are those originally designed for "protective" irrigation and unable to provide reliable water supplies for intensive irrigation. Selection of actual areas within this priority would need further study. b) Water Utilization in Existing Irrigation Prolects 99. Tn many If not mat. maior irrIvatIon nrnipetg thp area irri- gated in any one year falls far below the area for which the project was designed, sometimes because water availability was overestimated in the first place; more often because the project was never designed for in- tensive irriention. Investment aimed at increasina the rate of utiliza- tion of these projects would carry a high return and have a rapid impact on orniinierin. Rafnrp thin invatment- Can he uondrtaken, haver, prp- investment studies are needed to determine for each particular project what type of iniastman- in rami4vad t-n hringy about improvebd wAtaer 111-4 zation since the obstacles to greater utilization will differ from proj- et to project, inn- Tho m nnr 4-aina ^f 4 uaint-manti ava 141eair V i-n ,el,iela (41 thga w^nA_ ernization of the distribution system (in conjunction, as already mentioned, wi th -j"mAt.av-" devemlonpmenO t o a to supply wte*r 4in aequate and t- .imel amounts for present day crop varieties; (ii) on-farm development particularly fl-l ha .lnn-el cns truct.4ion anSI 1 anA_.1ap4mg -A A.nk. c--. n..nl n. tion; (iii) development of a rural road network; and (iv) provision of mar- potain, siorg aria prcaesingfclde te. pvin o ina n.dU l.o o portant in particular cases include the provision of drainage and flood - 34 - control, erosion control, fam mech-hn4-f4_ +-I,- 4----v-an --+ -CA ---# facilities, rural electrification and the provision of crop drying facili- ties. Ths preinvest-meu.cn ,t..c Uet 4aaI L*JL.. LIU J tJL. Li addition to laying down investment priorities, would also propose methods L AuIs yau A n1vg 0se standard L water managent.ic ALAL WOU.LU invUVe Le classification and study of soils so that their response to management under~ a±lternative croppingLL patterns0 canL Ue predicted ;L t sudy oL crop water requirements; and the design of multiple cropping systems to aid in water uelvery anu a.suoation UCq.LZ%L1b UtLWVLl coups and eaun Lae Lu- vestigation of methods of reducing conveyance losses; and the introduction u more efficient metuous of water application. 10u. Two studies which cover a part of this type of work are currently being conducted by UNDP. One in the Rajasthan Canal area is assessing soil types, selecting those most responsive to irrigation and establishing optimum irrigation practices for a number of selected crops which have proved suitable for the area. Another project in the Chambal irrigated area, also in Rajasthan, is carrying out similar work. In addition, three soil and water management projects in irrigated areas are being carried out jointly by the Government and USAID with approximately similar objec- tives to those of Ur. A number of others are also planned. None of these studies, however, has as its immediate objective the maximization of agricultural production in a complete irrigation command, or the prepara- tion of an investment plan to utilize the existing capital works more effi- ciently. 103. The project areas which would be studied first would be chosen from among the projects which are proposed for integrated area development in the Fourth Plan. The criteria for selection would be for projects where construction of the irrigation works was completed, where percentage utilization of water was lowest or where prospects of large-scale ground- water development were favorable. c) Development of Unused Surface Water Supplies 104. India possesses wide competence in the planning of irrigation in- vestment and a considerable number of preinvestment studies are currently under way for the development of new surface irrigation projects. There are two shortcomings in this work where additional preinvestment studies are necessary: 1) Project preparation, carried out by state departments of irrigation, is primarily concerned with engineering and lacks consideration of alternative project formu- lations related to agricultural possibilities. Addi- tional preinvestment work is needed to determine the optimum relationship between water availability, com- mandable area, cropping intensity and cropping pat- terns so that the final design of the project will - 35 - narmit intensive cronnine with affertive np of new short-duration high yielding crop varieties; 2) Project preparation usually pays little attention to develonment alternatives within n rivra haain qnA does not attempt to ensure that each project is com- nathle with the ptimum develnment of tha reanures of the basin as a whole. The best way this can be done is by preparing a comrehen".4- rIvebasn pla. Such a plan involves assessing all the resources which ara ava4l.Ule for devmelopmnt in U-asi we.~ v4 -1,4 - up alternative ways of using these resources and se- .lecting I- I at.~ CW-mbinLLaiWont&JA of O r&e0-A-LCS which wi..lW.1J lea to an optimum development of the basin over time. The WULA AHVU.LVU LUVCLB CVIII tCLA.LcA. tULV=y CAU mapping, through soil survey, surface stream gauging anu quanitative assessment of gruuUws-er to cost estimation of alternative development plans and esti- maio L L[e hUe LH[ L t HLanL Uni o SUCh altEraLiVCs. tu1. Many or thne river basins in India nave passea Une stage wnen such planning can usefully assist in project design since most of the alterna- tives nave already been pre-empted. However, there are two river basins which still remain relatively undeveloped and where the preparation of a comprehensive plan could make a major contribution to their orderly develop- ment. The two rivers are the Narmada and the Godavari. Both of these in- volve conflicting inter-state claims to water which are currently underc con- sideration by tribunals. Since the preparation of a river basin plan would take at least three years to complete the fact that a tribunal is in pro- gress need not prevent work on the basin plan from starting; indeed the de- lay in development caused by the tribunal provides a useful interval in which to prepare the plan. Finalization of the plan would have to await the tribunal's verdict, which would become one of the basic parameters. 106. A third basin where such a comprehensive plan is also required is that of the Ganges. Its preparation would, however, be an enormous task and, given also the international complications which would be in-- volved, the Narmada and Godavari appear to offer better prospects for more useful preinvestment studies at the present moment, pending the opportu- nity to consider development of the Ganges and tributary waters within a broad international understanding. Preinvestment Studies - Storage, Marketing and Processing 107. Another high priority area for preinvestment studies, after those related to water, is that of storage, marketing and processing. Storage preinvestment studies are required to ensure the most economical utiliza- tion of stocks of foodgrains. Their objective should be to determine how much additional grain storage is needed, when it should be built, where it should be located and what type of storage is most appropriate for differ- ent locations. The studies would take into account the expected regional - 36 - growth of production and consumption of grains of different types, the likely magnitude of the marketable surplus and its probable variation from year to year so as to develop a grain storage program that would minimize the total of transport, storage and handling costs. They would also need to consider the effect of variations in the volume of storage on storage costs to test the appropriateness of present buffer stock targets. 108. Preinvestment studies related to marketing and processing are needed because of the growing commercialization of Indian agriculture, the increasing proportion of total output that must be marketed to feed the growing urban population and the present wasteful and inefficient methods in use. Modernization is required not only to make it possible to handle much larger volumes but would give rise also to large in- creases in output available for consumption. This is particularly true of wheat and rice marketing and rice and oilseed processing which would have priority in such studies. Large gains are also possible from im- provements in livestock processing but, as it is probable that some such studies will shortly be undertaken for the World Bank, and also as UNDP is giving some assistance in this area, additional work is not required. Preinvestment Studies - Fisheries 109. Indian marine fishing is currently hindered, apart from lack of knowledge of the resource, by two particular bottlenecks, the inability to tap deep-sea fishery resources and the undeveloped nature of the inland market for sea fish. A UNDP preinvestment survey is attempting to locate sites for additional fishing harbors suitable to handle larger fishing boats capable of tapping the deep-sea resources. This will go some way to alleviating the first bottleneck but it will be incomplete without allevia- ting the second marketing bottleneck. What is required here is a pre- investment survey to determine how much additional product could be absorbed at various price levels and by what routes it would move from these new harbors and the alternative costs of supplying different markets from al- ternative harbor sites. This study could also cover the marketing of ad- ditional fish from the new fishing harbors currently being planned (parti- cularly Bombay, Madras and Tuticorin). In addition to this a second sur- vey is also needed to take a comprehensive look at existing fisheries fa- cilities and fish landing sites to assess the volume of catch presently landed and how and where it is marketed, as well as to obtain details of the number of vessels available at each site and the number of persons em- ployed. The objective of this survey would be to indicate in which places additional market survevs should be attempted, and where trial fishing sur- veys and other resource investigations should be concentrated. 110. Considerable information has been acquired about the offshore fishery resources in the past few years and these are now beinq. rapidly developed, particularly the shrimp resource, but little is known about the deen-sea fishery resources. Before there is extensive investment in larger trawlers it is necessary to assess these further. Some work of this naturp iq being started: a UNDP nelagic fisherv investigation off the southwest coast of India is likely to start shortly; India is also - 37 - deeply involved in the FAO-sponsored Indian Ocean Fisheries Commission which is starting some survey work. Incidental information on deep-sea resources also comes from the Central Government Deep-Sea Fishing Orga- nization as well as the Indo-Norwegian Fishery project. All this work, however, is still on a relatively small scale; the important long-term need for fisheries preinvestment studies is to-enlarge this resource in- ventory nurvev work, V. AGRICULTURE II: SOME BROADER CONSIDERATIONS roma rcial Tmpi4cation sf Tagha-xal Chanoa 111 Whatever the dMff4iclt raoblem an tha sar-nt1ral reanvh Qida they do not reflect adversely on the technical prescriptions of the new strategy. The following tn may he usaeally kep in -nn 4,, mind*n44n: the historical trend in foodgrain production means a sharply increased rate of groJwth .Ln prodtii~ty pe h.ectar *t ofse '.JLeW factUO. th.at net~ cropped%. area has not increased much in the 1960's and that in the 1950's the in- crase in.. area accout-eAL~LL~~ L 'or ~ 4aJ. near LL .LL LUJ&AL . I The recent rate of growth, therefore, is no mean achievement, even if it GULI DiHA.L IML L JU 1 MULC ULLAiticUL LAIH bUCLAWED jULLEGyCUe ALLC technological knowledge for a more rapid rate of growth is better unde:rstood now than at any previous time, atu e same holds for rice as well', [he illusions that it can be achieved quickly have been largely dissipated. Even the growing social stirrings in mIe village may work to tne same en-ma. And this is not to overlook the presence of all the promising elements pre- viously noted. But if all this is to bear fruit, the well-known must be dones" need to be stressed once again. These are, among others, the high priorities in research and water supply and water management; political commitments relevant to social and economic rural problems, and considera- tion of the acute regional imbalances. That Punjab, Haryana, Western U.P. and pockets of Tamil Nadu, Andhra and Maharashtra have recently developed an investment capacity sufficient to sustain a self-generating growth IraLe does not mean that the rest of the country is in anything like an equally comfortable position. Moreover, as the country moves from subsistence to commercial agriculture, the risks as well as the gains are multiplied. In a technical sense this calls for making fewer mistakes, which in turn depends upon the transmission of useful information to millions of farmers from the relatively few scientists and technicians, and an extension serv- ice of a much higher caliber than presently available. 112. If not all that needs be done can or will be done, careful selec- tivity and concentration on a few strategic areas might suffice in the cir- cumstances. The Small Farmers' Development Agency now in its early stages 1/ Martin E. Abel: Agriculture in India in the 1970's. The Ford Foun- dation, Feb. 1970. See also Minhas, B.S., Fourth Plan: Objectives and Policy Frame, Commerce Pamphlet 20-21, September 1969. - 38 - u formation is an example in point. Three-rourths or inoia's cultivatea acreage is not irrigated; the gradual introduction of better practices into the dry areas and what that might take is one of the numerous instances of what might be done. In general, further advances can be accomplished depend- ing how public policy, and particularly public policy in the States, deals with the technical, economic, social and organizational problems which the new strategy has thrust upon the farmers in different farm-size groups, functioning under greatly varying conditions. Genuinely dealt with, the !green revolution" might come into its own not only as a better technical tool but also as a tool in the hands of a much greater number of cultivators. And the latter is crucial, for the larger the coverage of the "green revolution" the narrower the disparities among cultivators clamoring for shares in India's agricultural New Deal. To this extent, and barring monsoon failure, self- sufficiency in foodgrains could become a realistic target for the 1970's, even if not in 1971-72 as is assumed in some quarters. 113. As noted earlier, the advances in Indian agriculture have taken place not in a vacuum but in a given framework of resources, inputs, level of technical knowledge and organization. As a general proposition and in practice the soundness of this approach cannot be contested. The results, though very uneven, do point to the renewal of Indian agriculture. The fact that rice, coarse grains and cash crops have not come up to anticipa- tions presents serious difficulties, but they are not insuperable. The muscle of the country's agriculture as already developed shows what can be accomplished, though at a much greater concentration of effort, beginning with the yet unimproved varieties, the more complicated water problems and on through a host of other technical problems. Yet, without minimizing the importance of attaining food self-sufficiency and raising the output of cash crops, this is not the sole issue facing the country as it proceeds in that direction. The more difficult and vital questions calling for answers are these: who among the farmers is largely responsible for the additional output; how the additional income is being distributed, and how to inter- marry rising productivity and welfare of the farm community as a whole. Put another way, the troublesome issue that is beginning to make itself felt is the quality of the "green revolution". 114. The "green revolution" is mainly confined to land with an assured water supply, larger holdings and farmers with resources, both owned and borrowed, sufficiently large to take care of all other inputs. Such farmers, including those partially participating in the new package of practices, are relatively few; even in a technologically advanced State like Punjab their total number probably doesn't exceed 10-20 per cent of all the cultivators. But such is the recent shift in attitude generated by the innovations that the great maiority of the cultivators who are not practicing them for lack of resources also recognize that they offer a method of getting away from meager crops, low income and poor livine. Recognizine the promise but not sharing in it creates its own social and economic problems, some of which are rpAdilv ohPrvable. Chief amone them is the widenine gan between the recently self-enriched and the mass of the poor farmers. Thus, directly or indirectly the "arpen revolution" hq nitshpd to the fore rather suddenly and dramatically the nagging question of rural income distribution. The - 39 - inevitable tensions that this breeds are heightened by the fact that the new technology applies equally beneficially on small as well as large hold- ings, and that the overwhelming majority of the cultivators are in the former category. The distributional and other awkward implications of a progressive agriculture are well understood by the Government of India, although much less so by the governments of individual Indian States. Out of deep concern with these problems, the Government understands equally well that in order to raise production, narrow down economic polarization and insure peace in the countryside agricultural policy must widen the scope of the "green revolution". 115. While the bigger farmers are producing the surpluses and profiting handsomely from the imoroved packaee of oractices. the same cannot be said about many other farmers including, of course, the small farmers, and par- ticularly the tenants. sharecronners and the landless agricultural laborers. The traditional handicaps of the small farmers aside, the new strategy has exacerbated the notoriously trouhlesome tenurlal nroblems. Where the new farm practices are in vogue, land values have risen three, four or five- fold, and unrPatritcted nntrnl over rnch land hv the owners has never been more prized. As a consequence not only have rents risen to as high as 70 nPr ent of the crn in nme n1Ars htr ertritv of tenure and other r1chts in land the tenant might claim are in greater jeopardy now. Where not too Inng aon the nnnr4nal iniaan hot-woon umava and tonanta were the size of the rent and the degree to which the tenants or sharecroppers could remain nn tha InnA na *a,n-had 1n2" "'rln lraaluHan" In1A 4 a^ rvnfitahla that owners would like to get rid of the tenants altogether, to resume the land for sel f.,.14 uculti-tion aid ton opt for t-ha pleaniful siupl ofi hire lal1 sOr which has no claims on the land whatsoever. There are too many tenants or sh...aecroppers. *-o deal.. with t-hem. W.4i-V, 4.n... - -#- -.4 i-Uout- #..--.40-..,ht there is evidence that the long-run process of shifting tenants to the rank of sarecroppers anA indless is Leng aCCel=er-AeA 4-M m0re of 66-h big-)Cer owners become participants of the "green revolution". In such circumstances, ocurui t Lnure, LaLr AeLt asLU modUsL measukes UL lAnu UwnCsip pluviuu by the reform laws are less attainable than in the recent past. In fine, one other,a conseaque.nce of --h - - -,nl.- -.. -. -4.e -i ,, aau-A sharper focus the vexatious tenurial issues while at the same time further .AAU. ILh neW type UL agicULUL Ha5 iUmpotLnL cUnsqucesC LUL labor. These are discussed in this Report in the Chapter on Employment. It is in i0L ULLLAG.UL LU LULLe HlUW WhaL the n L LL-apCL W L lC Ue ofl1 LIC Changes which are going on. Certainly the new technology demands and enables farmers to afforda mechnica assisance 'u At als create dean folbo. ' I u while one should question the view that the "green revolution" will neces- sarily help ou suve tue empluyment probem, if one comes o tne conclusion that the outlook is for an overcrowded, low-wage farm labor market as the L1V a unfold, this WU can hardly be Ulameu ou te new technology. 117. here are otner imbalances long part and parcel of tne rural scene. The new technology has undoubtedly served to tilt some to a critical point, and the biased distribution of all kinds of resources in favor of the - 40 - more affluent cultivators is one of them. But after all is said and done, the imbalance, or, to put it more accurately, the pervasive rural poverty must be attributed to the sm total of all the social, religious, economic, and political arrangements which govern the village and which are in turn mirrored in the character of the "green revolution. In such conditions on top of scarce national resources, willy-nilly agricultural policy tends to encourage a more rapid rate of growth in a promising area at the expense of a less promising one. Economic justice, then, almost inevitably takes a back seat. This said, there is no necessary immutability in current agri- cultural policies. The strains they impose and the discontent they feed could be eased if the time comes when modernization of agriculture is a com- bination of technical factors and of the long-awaited man-made adjustments in the institutional agricultural framework. When the question is raised, therefore, where the "green revolution" stands in relation to the non- technical items of production, the following may be claimed with reasonable certainty: it is not the fault of the new technology that the credit coop- eratives do not serve well those for whom it was primarily intended; that the extension service continues to languish; that the panchayats are essen- tially political rather than developmental bodies; that security of tenure is still a prime concern of many tenants; that rentals are exorbitant; that ceilings on farm land are notional, or that farm labor wage rates in many areas barely keep up with the cost of living. To repeat, the "green revolu- tion" did not spawn these conditions, whereas various acts of commission and omission have surely a share in the debilitating forms they assumed. 118. The perennial question how to deal with these problems is upon the country once again. As there is no recipe for "instant development", drama- tic and fast solutions are not in the picture. On the other hand, some of the conditions for amelioration are riper than in the past, and precisely because social consciousness and political rights have properly made people more impatient and more demanding. In relation to agriculture, this is a consequence that extends beyond the "green revolution". More specifically, it is reflected in the stage India has reached, well summed up in these words: "The real divide in India today is between traditionalism and modern- ity, revivalism and progress, conservators and innovators, the superstitious and the scientific and rational". 1/ As for India as a whole, so for the countryside, and with the possibility that (a) the new forces will prevail, (b) "modernity" in agriculture stands for a good deal more than the further upgrading of the well-to-do farmers, and (c) "practical circumstances would compel the necessary corrections". 1/ 119. If this is indeed so, then-reverting to the main theme - the scope of the new technology could be considerably enlarged. In that event all its 1/ B.G. Verghese, "An Agenda for India". The Hindustan Times, January TR_ 1Q70. - 41 - parts would mean in a more liberating sphere o1 greater promise ana Detter performance. Admittedly, preceding this phase are political considerations and decisions which are studded with some big "ifs". If their elimination depended only on the apprehension of the Government of India about rural institutional disabilities, the current political climate could usher in a desirable breakthrough. But it is the State Governments which have the sole responsibility for matters agricultural and it is they who have so tar dis- played little interest in dealing with the touchy subject of rural inequities. If they continue in the same vein, the full potential of the "green revolu- tion" will not be realized even if India becomes self-sufficient in food. In present day India with the rising clamor for more widely shared benefits of rural growth, achieving food self-sufficiency in the present manner is much less than enough. The underprivileged small farmers, tenants, share- croppers and the landless can be left to fend for themselves only at the price of overt discontent, which no longer lies in the realm of theoretical assumptions of interested reformers. This, as remarked earlier, is better appreciated now by the Government of India than in the past. How much longer will the State Governments find inaction politically profitable and at what price - to this question there is no ready answer. 120. It is in this connection that three particular aspects of the agricultural scene may be discussed because of their importance to the improvement of India's agricultural society - improvements not only in production and employment but also in the quality of rural life. These are the situations of the small farmer, farm credit and land reform. The Small Farmer Program 121. Who is a "small farmer," and "smallness" in farming, are not easy to identify, and there are about as many definitions as there are economists trying to define them. To cite but one example: a farmer in India with 3-4 acres of irrigated land is possibly better off than one with 10-15 acres of dry land. Perhaps the most meaningful definition is that "a small farm is one which does not provide a net farm income sufficient for the subsis- tence of the farm family." 1/ The size of this group of farmers is estimated at approximately two-thirds of all the farm households and they account for about 20 per cent of the cultivated land. Whatever the differences in the size of holdings, all owned, partly tenanted or all tenanted, quality of land, cropping pattern, etc., the group as a whole is characterized by the following features: badly framented holdings of sometimes more but mostly less than five acres; little irrigation or none at all; insecurity of tenure; low productivity and low income; Poor implements; insufficient access to credit; malnutrition to the point of affecting productive effi- ciency; underemployment, and, not surprisingly, the average Der acre amount 1/ V.M. Dandekar. Foreword to the Seminar on Problems of Small Farmers ,no T Published b- the Tndian Society of AorJiiiurA Rrnennim 1968. - 42 - otf capit1al expendtures is a mere Rs 75 as aainsat RP 716 among,. big, far.- er l/ Most of these farmers have hardly any margin left above subsistence living, and saving for investment is almost p recue -_ Th-1.lr o A 7% - f thI, is 4 that the majority of them are not only bypassed by the new technology but provide for basic needs they must compete for outside employment for a size- constitute the central problem of small farms and small farmers. 122. For a long time this issue has been in limbo except for a great U~a. L LLV L..L.. LAI .LU ~ L L.LJ1 A a.UU.L L U L L J~ X LL id.. Cdly tinged~ with pessimism about shifting it to a practical plane. Now, though, the Government of India is in the midst of d o iu ng somehing about it. U.LbLL.iU- utive" justice and the urgency to allay discontent are some of the consid- eraLions. DUL tHe DasiC LacLor Lhat makes acLion pss1ile noW 1s Lh presence of the new technology. While it widened the gap between the rich and poor cultivators, it also demonstrated that, given requisite inpurts, its beneficial effects can be applied with equal success on small holdings as well. it is the combination of all these elements that has brought about the creation of the Small Farmer Development Agency with the follow- ing aims in mind: promotion of small farm interests before official bDies; ensuring the availability of inputs and services to these farmers; and help- ing design production programs to fit the specific needs of a group of farmers in a given geographic area while tailoring credit and supplies to its re- quirements in the light of improved farm practices. 123. Financially and organizationally the scheme could not serve all of the 40 million or so farm families in need of assistance, particularly the farmers with less than 2.5 acres of dry land. The immediate stress therefore is primarily - though not exclusively - on the "potentially viable small farmers" whose problems are more manageable. Presently, the Agency's goal is 45 pilot projects or separate agencies spread throughout the country. The selection is based on criteria favoring higher productivity and essen- tial assistance provided by the projects and the States where the projects are located. Since the aim is to cover approximately 30,000-50,000 farm families per project, the scheme contemplates the rehabilitation of 1.5 to 2 million families by the end of the Fourth Five-Year Plan. On the finan- cial side, a total of Rs 670 million or Rs 15 million per project has been allocated. In relation to small farmer pilot projects, the contribution of the Center is expected to be considerably augmented by those of the State Governments. This on the top of the anticipated institutional credit and credit from commercial banks, the Center's Rs 15 million per scheme is likely to be increased four or five-fold. 124. Getting the program off the ground is proving to be time consuming, but projects in Purnea (Bihar), Darjeeling (West Bengal) and Chindwara (Madhya Pradesh) have been initiated, while a number are in preparation in 1/ All India Rural Debt and Investment Survey, Reserve Bank of India Bulletin, June 1965. - 43 - seven other States. For all practical purposes they are operated by the States. The Chairman of a local project is the Collector of the district or the Development Commissioner of the area. All other active participants on the management side are the District Officers of the Agriculture and Animal Husbandry Department of the State, and the heads of local credit cooperatives. There are two representatives from the Center - one from the Planning Commission and the other from the Ministry of Agriculture. As part of the Administrative setup the projects do not intend to do what other appropriate organizations are already doing, but direct participation is not excluded, especially in the area of water supply, which is the most important input no matter in which district the program will operate. Another anticipated direct function of the Agency relates both to the owner- ship and leasine out on a no-orofit-no-loss basis of a variety of equin- ment ranging from tractors to sprayers and to servicing of equipment owned by farmers. 125. It iQ reonnizd thar rrfdir fnr hnth rnnumntinn anti nrntirinn purposes of the small farmers is the centerpiece of the effort, but em-- nhanin will ha nn tha lotter. Tf %h4o anfl ah aanwY hna r%lonar i :L- self to assist the credit cooperatives with special funds and also to hire neiditrinnAl stanff "Petn aairo th%at, rho f4"nnr.4n 4a*ntaror cn tion of supervised credit". This is a departure from previous practices and a algnificant 0n 1f .1nlmentEdC Annual Shor-ternm Ifnn o s 500 and one long-term loan of Rs 1,500 during the five-year period is part of 0ho a.nhama r ------ A r.i- r-rono ,ra .4 11 be generous adA------J an Cr few farmers in this category were known to receive such accommodations. if tho new, apprachsuceedl, coverAt 4 n.-.ng I.C -.4114o, ~ .. C....4 A.'.O.L 0 L.tCUO L1~~JVCL &&5 L. J ILL..L.LIAI Ut LtJ C A. at J . CWILJ L.tC it is estimated that the total amount of such loans in the last year of rho Plan may. eaeaRsoaA Dn L4114 a . y n 9 ---A aa. -C -11 k-- nay ~ ~ ~ ~ ~ ~ ~ F_ 4'f JLC IJ&tOV-o=u~n y j t LL4. VJ. aULA. 4LlL.L V credit in 1968-69. 126. In addition, the Union Government has formulated another scheme LD CAutr asaisance to suumarginal rarmers anu landless Xarm JLaoorers. The former fall in the category of holdings up to 2.5 acres and the latter th r.oe w4o arn orean C50pe cen o- their. J----- u. Lao wLSuJ CaL L&I ho La u .J'J yCL L.CILL UA LILCL iALIC XLUIR a 6LL A.LLIL%,1 labor. The scheme calls for 40 projects and outlay of Rs 175 million, and 4tepet to cover a---------------4 .-al.. 1 C _-.J1...J..*.4... .-Z C_ - J - mar'-o V L CJLLLAU=C& .VJ HLA.ALLLAULI ±1HU.LVLUU4A.0 UUL U. ML C0L1 mated total of 52 million. More significant than the projects just men- teuCU is LuC antuLcpatiun Lta Lucy will iuuuce tue States to mount similar programs of their own. 127. Such, in brief, are the problems of the small farmers and the mechanism to dea with them. It is much too early to venture a judgment how this effort will be translated into action and implemented. The difficul- tiea facing Lte agency are enormous . me task of picking and choosing the "proper" small farmers is enough to give one pause. The effective gearing of material and human assistance belongs in the same category. Besides, many a small farmer is a tenant farmer or a sharecropper, and how trouble- some a problem this is was well expressed by the guiding spirit of the Small Farmer Development Agency, Mr. B. Venkatappiah: -44 - than, say, the infra-structure of credit, marketing, storage and communications. These nave references to tenants, sub-tenants and more especially sharecroppers and are concerned with such basic requirements as the existence of land records and the im- plementation of land reforms. It is being increasingly borne in on those concerned with the formulation of these projects in different parts of India that, where the potential beneficiaries of land reforms are concerned, The Small Farmers' Development Agency will be virtually inoperative in various sectors, includ- ing the important one of credit, unless a number of measures are first undertaken in the project area in regard to land records and land reforms." 1/ To these formidable barriers one can add a string of others such as the un- certainties about the expertise rendered by the experts; the lackluster performance of the credit cooperatives, particularly in the face of added responsibilities; the same about the extension service; how unequivocal the State Governments will be in supporting the program, and so on. 128. To touch on these items is to note that the transformation of the small farmers into non-subsistence farmers is bound to have all manner of snags. But however great the handicaps, they in no way argue for the dis- missal of the program out of hand, or for taking the position that subsis- tence farming is beyond help because "it is futile to search for the solu- tion of subsistence agriculture which is not also a solution of general underdevelopment. Correspondingly, that which is a solution for general economic underdevelopment will also be a solution for subsistence agri- culture." 2/ The plausibility of the argument, as the difficulties mentioned, hold only so long as the Government has done nothing to counter them. This speaks for the past. What is new and significant is that for the first time in the history of the country's agriculture this particular class of farmers has been singled out with a view to rehabilitation. Whether at the end of the Fourth Five-Year Plan the targets are attained is not all that important. More immediately im- portant is that these farmers will no longer be neglected. There is just a chance that the testing process may yield useful results even though the program, to start with, deals with farmers who live and work in hostile conditions and surroundings and are "backward". 129. As against these constraints, there are the lessons of the new practices with their proven transferability of experience and response to 1/ B. Venkatappiah, Member Planning Commission, Address before 29th Annual Conference of the Indian Society of Agricultural Economics, n. 25. December 30. 1969. 21 M-1 )ant-wala. "Problermt of Subsistence Farm Economw: The Indian Case", p. 6. In Seminar on Problems of Small Farmers. Published by the IndIan SCietyu nf A cri ri I 1tirnl Rrnnni qs-Jimp~ 196R* - 45 - economic incentives, which apply to all types of farmers in propitious cir- cumstances. On the plus side, too, are at least some of the lessons learned from the administrative arrangement and drive exemplified by the implemen- tation of the new strategy. Without minimizing the tenurial drawbacks, the Aeency which is directly involved in forcing the issue into the open may yet prove something of a catalyst in effecting desirable changes. Finally, it would he foolhardy to expect the impossible in the sense that all prob- lems of the small farmers can be resolved satisfactorily and within a five year neriod. Partial resnonse to some of them may spell the difference between a firm beginning and failure. It is recognized that much of the Ahnve i snpolttivp what i not qnpp,1Jative is that the small farmer sector, even if selectively determined, has been placed on the agenda of TnAinla rri%rtcs This is in itclf An Advanr_ The nroaram therefore is eminently worth trying, and without waiting either for improvements of th conditio of t~ he village poor ia the logdaw-u p?rcci of __n niur- all economic development of India, or for a sharp decline of population pressurea on the.and.~ rural credit provided by the cooperatives. The intervening year shows no change H Ln teL LrLheL iaequaeL peIfUmance, alth.u-6hU L-m Lum -JSuJ -L view of loans advanced they have continued to forge ahead. However, perhaps more signiicant ror rural creait in 190 than the expansion U sut anu medium-term credit by Rs 600 million, was the publication of the monumental and searching "Report of the All-India Rural Credit Review Committee". Apart from its thorough analysis of the current state of institutional credit and the future credit requirements, the Report contains a number or conclusions, both familiar and new. Chief among the latter is that the credit cooperatives can no longer remain the sole mainstay of institutional credit and the only answer to private money-lending. This sharp break with a traditional policy is due not only to the manner in which the cooperatives have been discharg- ing their tasks, but mainly because of the significant changes in the rural economy and the anticipated huge credit demands, which the cooperatives could not possibly meet. 131. The image of the credit cooperatives does not fare well in the Committee's report. Judged quantitatively, they are a landmark in the countryside and it could not do without them. Between 1951-52 and 1968-69 their share in total credit used by farmers increased from 3 to 33-35 per cent; membership from 5 to 28 million, number of societies from 100,000 to 1/2,000 and short and medium-term loans from 140 to 4,900 million in 1969. On the plus side, too, is the long-term credit provided by the land develop- ment banks, which increased from Rs 1,700 million in 1966 to 3,620 million in 1969. The value of farm inputs distributed by the cooperatives rose from about Rs 360 million in 1960-61 to Ra 2,500 million in 1968-69, and of these fertilizer accounted for Rs 2,000 million, or 60 per cent of the total consumption of fertilizer in the country. Lastly, the Agricultural Refinance Corporation which in the past couple of years has improved its - 46 - st andn a financieor of lnrange gor icult *na' prnn* Jec -. ra4 s Rs 790 million in 1968-69 as against an average of Rs 100 million during the f4rst four years of its existenc, Ue4nn4n In lo-1 These accomAJplihet ,u,,~c annot s.e un IAfUerestmaL.Utu anLU LUe L.cdit cooperatives remain the main source of credit to the farmer-borrowers or LA OOJ.L .Lng bor ow rs "U. L -CL0~~ L 6.C U=J. C &&LLAL L LA.LU= LAIt: A.41L-L. 1.19C&L qualitatively the cooperative credit system is replete with major short- cLMAugDe UCDjJ.LL LLUC IL.L. Llab LIW.LI LLIJLC LOLLECES GEC UCILCL Ling1 LLUIU LHLCWp not more than 40 per cent of the membership borrows from the co-ops; the tie-in between credit and production is rather weak; distribution of credit is often below reasonable standards of timeliness, adequacy and dependabil- ity; cooperative-owned capital is 27 per cent of their working capital, and dependence upon funds from Reserve Bank and other official financial institutions goes on; mobilization of deposits is rar snort or the reasile; overdues account for one-third of the outstanding loans, causing the credit line to be choked up and credit restricted. Ine central cooperative banks do no better than the primary cooperative societies; out of a total of 344 central cooperative banks, as many as 67 accumulated overdues exceeding 50 per cent of the loans granted, and an estimated third of these banks have no reason for existence. Worthy of note, too, is that the more pros- perous States are as derelict in repayment as are the poorer States. Many credit cooperatives are such in name only. While their number has been reduced, with an eye to weeding out the weak ones, from 212,000 in 1961-62 to 172,000 in 1967-68, another 50,000 are "sick", or slated for the mortuary. Finally, the discrimination against small farmers and tenants goes on un- checked. According to an official source: "The traditional emphasis on linking of credit to security offered by the borrower in the form of land and other tangi- ble assets, exclusion of small farmers from the membership of the cooperatives ... absence of tenancy records and preva- lence of the system of oral tenancies are among the major factors that have led to the denial of adequate credit to small farmers". 1/ 133. Much of the above is attributed to poor management and poor lead- ership of the credit cooperatives and cooperative banks. All these are familiar charges. What is less well-known is the political character of the credit cooperatives and its negative effects on credit disbursement. In the words of the Committee's Report: "this often implies that individuals not belonging to the particular political parties or factions are virtually out of the scope of cooperative credit. Another disturbing factor is what amounts to political interference in the working of 1/ Cinnprrtin inel Community Develonment. n. 13- Chanter 8 of the Fourth Five Year Plan. - 47 - cooperative institutions such as central cooperative banks. For reasons such as this, again, the assumption that the co- oneratives could meet the credit demands of all creditworthy cultivators has proved untrue or only partially true. Even whpre rhnirn11v all rnn1d hp Rerved nolitirally only some have benefited". 134. The strictures against the existing cooperative credit system come at ti4me whe new. develop.men~tsar ciai-ng i for a vas~t incrase in rual financing. These are the "green revolution" with its augmented requirements; a rising trend towards more long-term credit, and the requirements of huge numbers of small farmers who have little or no credit standing with the coope ative. Tn~ +J_. 14.-1,0- ,-.F +-14-, tj r- 4-I- -t4 4p 0- t- f-],- short-term requirements of the farmers in 1973-74, both in kind and in c.ash, will. aoMIuntL Lo abut IRS 20 billio orA.L& nearfl&~y .. ve-. l compare with current advances. Since this type of loan can be utilized most advantageouUsly oUly Lr uULL-u --U luLuul u anuLAng Mu AOAnO LJA. UL v improvements of the agricultural economy, such requirements between 1969- These anticipated huge demands for credit and how to meet them constitute the core of all the Committee's deliberations, and its recommendations are tied in with the problem of mobilizing additional resources and how to disburse them properly. 135. Part of the effort to gather in such resources is expected from the Land Development Banks with Rs 7 billion, the Agricultural Refinance Coop. with Rs 2 billion and the commercial banks with Rs 2 to 4 billion, during the Fourth Five-Year Plan. Most of the remainder will depend OL the cooperatives, and the immediate concern of the Review Committee is to correct all that has gone wrong with the existing cooperative credit structure, while at the same time opening the rural credit field to new institutions. The recommendations about cooperatives are essentially a. reiteration of the familiar theme that it is time they grew up to their obligation of better distribution of short-term credit. Similar injunc- tions in the past were not productive, and it is far from certain whether the Committee's newly laid down policy for new institutions to compete with the cooperatives will yield much better results. But whatever the outcome, it appears certain that the cooperatives will no longer continue as the sole purveyor of institutional credit. The financial institutions which are to help effect this change, while providing more badly needed resources, are the Reserve Bank once again, a newly established Rural Electrification Corporation, the Land Development Banks, an expanded Agri- cultural Refinance Corporation, and the commercial banks - only recently involved as an important source of rural credit. 136. The movement of commercial banks into the rural areas was an in- evitable development with or without nationalization, but until 1968 their role as providers of rural credit was negligible. The shift in their atti- tude followed the Government's pre-nationalization policy of "social control" of the banks, which meant tighter Reserve Bank supervision of their credit allocations "in keeping with the new national priorities". The objective - 48 - was to compel the commercial banks to divert more of their riniirre tn the agricultural sector, considering the high priority in national planning Pninvpei hv agrie1ti-ire nn nef nurne the nrnfitnhilif-y of the naw tAh- nology and the large scope for tapping rural deposits and for reinvestment through rrpeit ne"nna fnr all manner nf inniit 1137. Tn addI4ton to the sharpn increanae In ruallndIng by th0C- mr cial Banks, there was also set up in April, 1968 a joint Agricultural Finance Corporation with an authorized caspital1 of P. 1,000 -41lion. The objective of the Corporation is to finance every conceivable and well con- agents, the choice depending upon the strength of a particular bank's con- ...C*t.L~LULL Utf = CUL a. C . LJ. C... I LJ,Ar. tLUlLLtALL6 %j. aCL * LUU I .U%A= UL. .LLLU. vidual farmers is still very much in the future, and emphasis will continue clientele among the large owners of unencumbered and mortgageable properties. On this basis alone, and concurrent with e experience 6AU L t: i lenuiUg to agriculture, the prospects are that the commercial banks will continue to extend their operations on a significant scale. J LLitL Lher t UIllULmmrcal Uda k UL nor ULIIL UULt Ur LsourW ofGceL can displace the cooperatives. The new sources promise only indirect and limited answers to the co-op disabilities. Whatever their weaknesses and however vociferous the grumbling of the membership, they are too much a part of the rural scene; the long-lived notion of their indispensibility, the variety of interests controlling them, and their supporters in the Central and State Governments are sufficiently strong to insure their existence. Besides, they do render a useful service to those who do borrow from them. For the reasons stated, even the well-conceived recommendations, in addition to the competition incentive offered by other institutions may not suffice to effect drastic improvements in their service. Without de- crying the pressure to shed their old ways, the possible solution lies pri- marily in the emerging new agricultural setting and difterent mental atti- tudes that are beginning to come into their own. Of sheer necessity, there- fore, the management of the cooperatives and the distribution of credit will have to adjust to the new situation. This is when a recommendation to correct past failures can become effective. In the meantime this much is certain: regardless of how well or poorly the cooperatives will do in the future, and whether or not the projected Rs 40 billion of requirements are met, a great deal more money will be poured into rural credit in the next five years. The "climate" of expanding agricultural production favors it. The quality of credit disbursement is another matter and its lopsidedness and inequities may well persist. But the funds will be expanded just the same, assuming, of course, that the scope of the new technology is expanded way beyond its present limits. Land Reforms 139. This old and vexing problem was in the Indian picture in 1969 as in the preceding years - except much more so. The past year did not stand out as one of improvements in security of tenure, fair rentals, firmly - 49 - rarnrded righto on the 1nd and n on NevarthalesC it wnQ a ver of soul-searching and breast-beating, of patience wearing thin, of tensions nnt thranka nf iri nlaon in% t-ha e-e%int-v-arai and nf enaO nf fnvribl P occupations of land or crops by tenants and landless in the majority of the States of India. On the positive side, the year was also notable for the conference of the State Chief Ministers, sponsored by the Prine Minister fo t he soleC PU - - _ft 4Pfl -O -.. -,j -. -O -.. 4-- Jf +11 - 'I UL a-4V than they thought and urging upon them an "integrated" land reform program L L. 1 6LLAI= LLULIyear, ,LL al-LL.L3 IUL. usually given to involvement with such issues, plunged in to pinpoint the V. UK A L iL dH ULUSL d=U UL . LL LIU ULLoL L i.LL.I L= Lill, L=HIU.LC III=C2,1ULCD to allay fears of worse unrest. 140. All these worrisome trends are of long standing but they acquired specal relevance as a result or auverse consequence8 0 LIo M LeW L"cIuuLUgy in exacerbating social tensions in the village, for the reasons already given. If to ti is added te aimension or ai other tenurial asincen- tives, then one must recognize that the inequalities in rural India are likely to increase rather sharply. It is the combination of the old and the new disabilities of farm groups accounting for about 25 per cent of the total farm population and roughly 20 per cent of the cultivated land which is at the bottom of the overt discontent. It is the same combination that refocused attention in 1969 on such questions as these: how to relieve the plight of cultivators working mostly for a pittance, how to revive their stagnating economies and how to root them securely and beneficially on the land they cultivate. 141. It would be pleasant to record that the 1969 pre-occupations have yielded some tangible results, but nothing very much went beyond verbal affirmations. Although a number of States are contemplating tenurial improvements, the evidence is far from clear as to the character of the would-be legislative enactments and their enforcement. On the whole, for the time being agrarian reforms tell the same familiar story of many a year past and just as often recounted, but then as now its essentials are worth repeating once again. 142. If judged by the agrarian reform debates, one can easily assume that the entire reform movement in India is a failure. This is not the case. As pointed out in last year's report, the Zamindari system 1/ was abolished and 20 million cultivators and 40 per cent of the cultivated land of India came into direct relationship with the State and for all practical purposes most of these cultivators are now owners of the land they cultivate. The elimination of this system with its absurdities and injustices was not difficult to accomplish because it was imposed by a colonial government which handed out property rights to which neither the British nor most of the recipients had any claim. A vastly more diffizult 1/ See footnote p. 29. Economic Situation and Prospects of India, April 18, 1969. - 50 - the tenants in the non-Zamindari, ryotwari areas, where owner proprietor- DLIg ICUUL AH U 41U %AJV=LLL11=LL ULL 1I0 U.LU UecLUe LU pLViU HU WLA L security of tenure, reduction of rents, and the conferment of ownership tungu h e Ltefamilar ceilng Uevice u 1iLIL Ltug L1uC 5L4 UL holdings ana distributing the surplus. Under the guidance and continuous prodding of tne Planuing Commsuion, the States with Leir sole jurisdiction in agri- cultural matters have enacted a voluminous body of legislation designed to meet these goals. 143. These efforts were not without their benefits; some 3 million tenants and sharecroppers have become owners of an estimated 7 million acres of land, while here and there farmers who continued to work somebody else's land came to benefit from the legislative provisions. The diffi- culty is that it is only here and there-, for, in the main, and aside from the formidable administrative obstacles to implement the reforms, they have been shot through with acts of commission and omission which often negate the reforming intentions of successive Five Year Plans. In Kerala, West Bengal and Tamil Nadu legislation has been enacted or is about to be enacted with an eye to plugging some loopholes, but how the new measures will be enforced remains to be seen. Despite these new efforts, and with- out going into too many details, the implementation of the reforms in most - not all - States is in serious difficulty. As against the noted positive side, there are the wholesale evasions of ceiling provisions upon which an increase in peasant-ownership was to rest; widespread eviction of tenants on the so-called ground of "voluntary surrenders" of land by tenants, and the failure of the rental provisions due to lack of security of tenure or the right to remain on the land undisturbed barring some exceptional conditions. One of the many glaring loopholes in the legisla- tive enactments is the seemingly reasonable but ill-defined right of a landlord to resume tenanted land for what is euphemistically called "personal cultivation". This has led to extensive evictions or to "volun- tary surrenders" of land. The "green revolution" and the value it places on land clear of any claims by any individual other than the owner is yet another invitation for tenant displacement. Such developments are not productive of the kinds of incentives among tenants that stand for good farming. But apart from this, and recognizing that new technology can potentially produce all the food India needs without recourse to tenanted land, there are nevertheless the pervasive questions of social injustice, inequity, and political instability which come in the wake of reforms that fall far short of their goals. 144. It was the realization that the land reforms during the past two decades have not measured up to anticipations that led to the conference of the State Chief Ministers in November 1969. The Prime Minister left nothing unsaid to stress the urgency of the meeting. In her view, "The warning of the times is that unless the green revolution is accompanied by a revolution based on social iustice I am afraid the green revolution may not remain green". Mrs. Gandhi wanted the Chief Ministers to "act now when there is still time and hope" to implement the reforms properly as part of the new agricultural strategy, because "No single program so - 51 - Proceeding from the general to the specific, the Prime Minister pointed 6 6 & LlU nV..~%.QWLI CLAJS Q X,j -Uf 6 .fi,A,V. tAt-flL , -St6-r*: - -U - lies in the lack of effective implementation. Important too, was the eIUplliAs on rLULIs CLfecVly caLLU UUL wAU h WaL cces k o r eLLUAL and other resources so that the newly obtained rights in the land could be productively used. .L#. I. Llie %.1Le i.lJ~lstrt were to couiiitU themse~lVC- inL =-arnes Lo the cause espoused by the Prime Minister, the following would have to be attended to: the preparation of a record of rights of ownership as well as tenancy, for without it no claim could be legally established and no tenant could attain security of tenure; written agreements instead of the prevall- ing oral agreements, rentals clearly defined, and receipts for rents made mandatory; as has been provided in some States, a tenant should not be liable for eviction for non-payment of rent when arrears of rent are being recovered from the produce and other assets of the tenant; the right of resumption should be extinguished at least until "personal cultivation" is so defined as not to infringe on tenancy rights; "voluntary surrenders" should be so regulated that the Government or local authority can settle other tenants on surrendered land if such takes place; while the ineffective ceiling provisions are practically beyond redemption, they should be re- examined primarily with an eye to preventing further concentration of land in relatively few hands; in any new rights gained by a tenant, access to water where available should be part of it, particularly as a means of utilizing new farm practices; finally, the creation of the type of vil- lage body in which the representation of tenants could become directly involved as an aid to the implementation of a reform. 146. These are not novel measures; all are mainly concerned with security of tenure rather than distribution of land. The failure to enforce the ceiling provisions to create surplus land for distribution has been so general that any corrective measures are probably futile. The recent (late February 1970) announcement of the U.P. Government and that of Tamil Nadu that they are contemplating the lowering of the ceilings is hardly the panacea it appears at first glance even if such measures are enacted. One must note not only the evasions, litigations and harassment produced by the ceiling measures in the past, but also the distinct possi- bility of diverting attention from the fundamental problem of how to achieve security of tenure. For these reasons, security of tenure rather than redistribution of land is the main issue of reforming what has remained unreformed in the agrarian structure of India. 147. The enforcement of any of the proposals depends above all upon the political will of a party in power. Absence of this crucial factor has been a major drawback in the past, and the conference of the Chief Ministers veered in the same direction. On the all-important question of preparing an up-to-date record of rights, the "utmost priority" has been recommended but no time limit set. The Prime Minister's call for a commit- ment "not only to broad objectives but to meeting them by a certain definite date" has been largely ignored. A very useful suggestion of - 52 - separate judicial machinery to deal with cases arising from implementa- tion has not fared any better. The same may be said of measures to protect tenants from eviction, fair rentals, and prevention of land resumption. Looking back therefore at the results of the conference they are reminiscent of the familiar pattern of representatives of States subscribing in "principle" to much of what the reform proponents have to offer, but shying away from translating the principles into something concrete. And it is the States which have the power to legislate, ad- minister and enforce land reform programs. 148. The agrarian reform prospects for the 1970's are certainly not bright, for only politicians strategically placed make or unmake agrarian reforms. This is not to understate the fact that, especially in a country like India, the economic environment, population pressure on the land, and customary relationships of a long history of caste and religious traditions exert great influence on what kind of legislation is written to break insti- tutional molds and what happens to it after enactment. They point, too, to the back-breaking task of renewing the old farm structure. But the fact that changes in that structure are inevitable does not invalidate the main premise - that the content and implementation of agrarian reforms are a reflection of a particular balance of forces in a country. In India a balance conducive to reforms has been largely absent all along, and the immediate future holds no great promise of reversing that trend. In fact, the political hurdles may be greater following the split of the Congress party. Reforms which were unattainable in the Congress heyday of undis- puted authority are much more difficult of attainment now when the support of the political leadership of this or that State, the bargaining involved, and the price exacted become crucial to the governing power. Countering this logic of political development is that not many years back agrarian reform was not nearly the subject of political debate it is now. The widespread surrender of land by tenants used to evoke hardly a ripple of official concern-nowadays it is very likely to ensure a fight. It cannot be overlooked, therefore, that the more recently pronounced reform stand of the ruling Congress party can be a deterrent against bargaining reforms away from political considerations. 149. Despite the mixed setting with the preponderance of negative factors, it is reasonable to conclude that the issue of reform will not remain in the doldrums. The tide of unrest is bound to rise and with it aitation and orvanization of the discontented by nolitical narties, both old and new, and not only the parties of the extreme left. In these cir- cumstances- what State' leoisatures normally refnaz to Pnqet and .nforep under the due process of law, they may well be compelled to grant under Aiiraaa Tamil Nadu for Armn1o mau he a raca in nninto Prinr tn the 1969 outbreaks of violence and loss of life, Tamil Nadu was reluctant to Commission; recent indications are that it might, at long last, fall in agrarian unrest in Ganganagar district and the chances of allaying it. Toe s t h o..a ogabied i osrriaeiyehee R farmers to make sure that the land about to be irrigated by the new Rajasthan - 53 - canal ic nt- nti-tned nff t-n thp hiahat hiddprn hnt radi.tqrihtjted amoing the underprivileged at fixed prices. Under this pressure and in the hope of hrn4n -h 4t-at4nn to n nAr tha~ ~rlrnant- of Rn4at-ahAnna ei% pelled to set up a committee to conduct an on-the-spot probe into the existing rules for the allot-ent of l a to po- farmers. The outcome~ of the committee's deliberations remains to be seen, but the point to stress Jso tbat even t- nnan .n ran con-cea.,o-4rSion.. of 1--4- 4 oa taken place but for the agitation and organization of the farmers by a varc i ut u poLcal paties. INIone l Luoh Lscases, nrth 'Lau Anu anu harvest-grabbing in West Bengal, Kerala, and similar instances in a few other States, are modlsJ± oIt agrria reform±im. -are noth Lingt -it U kind, but it takes little imagination to see that the stage is gradually UCALIg, D. LUL d UCLCLIHIIL~U gLVUp LU MaC PUL.L.LLC UaPLLO.LLOYLL1 U LLA.Ld.Lu: the village poor and pressing their demands outside an orderly legislative prUces. It is or Luhis reasun uhat Lue nuime MUitLy envisiun an "explosion" in the countryside if these problems are not dealt with vigorously and without delay. "Explosion may be long in coming or in its literal sense it may not come at all. But the prospect of mounting ilstability and violence cannot be excluded - unless the States come to realize that theirs are the opportunities of enforcing beneficially the modest, non-revolutionary, programs which have always Deen the core of the Indian agrarian reform movement. VI. INDUSTRY A. Industrial Trends and Licensing Policy Production 150. The industrial picture of recent years was described in last year's Economic Report; the 1960's were there divided into three periods, during the first of which up to 1965, industrial production grew at an average of 8% per year. There had been some slackening of growth towards the end of this period; after it the problems both of demand and supply due to the agricultural setbacks of the next two years brought some level- ling in industry and even, in 1966 and 1967, a slight actual decline. 1968/69 saw an industrial revival, with a rate of growth of about 6%; 1969/70 has continued the revival, probably at a slightly faster rate. The revival has, however, still not led to an overall resuscitation of heavy industry. As other Bank reports and studies have shown, capacity- utilization in heavy industry depends fundamentally on the level of pub- lic investment, which owing to continued financial constraint has not expanded at rates which would stimulate heavy industry. The problem is further complicated by a certain amount of mismatch of inter-industry and capacity demand, partly due to the fact that a few major investments in the heavy sector were made several years ago with a less than realistic appreciation of financially sustainable levels of demand, and partly due to changes in the pattern of demand which were not easily foreseeable in the past. - 54 - .Lj. mere 'a in fact no general corresponuence or trenos in airer- ent branches of the heavy industry sector. Thus while non-electrical machinery as a wnole picked up in 1968, production of machine tools, earth-moving and construction equipment declined. The heavier items of electrical equipment which had even been rising in 1966 and 1967, declined substantially in 1968. Of these, machine tools and electricals showed signs of recovery in 19o and electricals now have substantial orders for several years to come; they should keep up their progress. Railway equipment has been a stubborn problem - a large industry, and stagnant now for several years, owing to a slowdown of railway invest- ment, lack of increase in traffic, and a backlog of surplus stock. Higher levels of investment and traffic in the Fourth Plan period, and some prospect of export orders, may bring relief in future. A notable feature of the year has been a steel shortage, due to pressure on demand, both from exports of steel and the domestic revival, and also to steel production difficulties referred to below. This was seen to be having a damaging impact on manufactured exports, and the situation was met by a 'crash program' of priority allocation of steel from domestic sources, which seems to have had success. 152. Consumer industries have done reasonably well. Provisional mid-year figures showed little change in the output of cotton textiles after their upswing in 1968; woolen textiles had risen rapidly once again; but jute manufactures took a severe fall, attributed to a strike - though there were signs of recovery at the end of 1969. The total for textiles thus showed a decline; clearly cotton textiles are not yet out of the woods, with an unmet need for modernization in many plants, fi- nancial burdens, a shortage of raw cotton, and signs of a shift in de- mand away from cheaper qualities to superior cottons and to artificial fibres or fibre mixtures. Sugar output has risen dramatically, thanks to increased supplies of cane. Such things as radios, motorcycles and scooters have been booming. At the middle of the year, output of the consumption goods industries as a whole was up by about 12%. Investment and Corporate Savings 153. It has been noted that public investment has not expanded for some time - indeed, public sector Plan outlays in 1966/67, 67/68 and 68/69 even at current prices were below the level of 65/66. (70/71 should, however, see some expansion - in particular in steel and min- erals.) Data on private investment are very poor, but such as they are, they indicate levels of total fixed investment in the corporate private sector which have changed very little since 63/64; the current level may not even vet have regained that reached in 65/66. (The non-corporate sector is a little known quantity.) Certainly there are few indications of any general buoyancy in private investment at present. Consents for capital issues for 67/68 and 1969 are well below the level for 1966, while canital raised in 1967 and 1968 was only a little below 1966: the 1969 figure is not known, but January-June 1969 looks to be below the -55 - amount for the same period in 1968. 1/ One or two explanations have been suggested for this state of affairs - particularly that potential in- vestors, no longer willing to rely on Plan targets, are waiting for clearer signs of an upturn in demand after the recession of two years ago. This explanation is not very convincing. India has now had two years of revived demand, and many branches of industry are working at or near full capacity. What would count as the "clearer signs" entre- preneurs are waiting for? 154. At least part of the explanation must lie elsewhere; and an unavoidable candidate for this explanation is uncertainty of one kind or another. The country has seen a fair amount of labor unrest and civil disturbance in certain industrialized regions; this has undoubtedly had an adverse impact on expansion plans for these regions; indeed firms elsewhere who previously ordered goods in the more troubled industrial areas are starting to look for alternative sources of supply. Possibly still more important nationally has been uncertainty about government policy towards industry - the new regulations, discussed below, may do something to remedy this. Industrial Policy 155. The section on Imports and Import Substitution discusses a number of matters relevant to industrial policy. Indeed, it is sug- Rested there that a new export and import strategy could be the key to successful industrial development. This section discusses indus- trial policy issues other than those which relate mainly to export and import policies. Emphasis elsewhere in this Report has been given to ouestions of efficiency and growth. and domestic industrial policy may also benefit from examination in this light. 156. The Industrial Licensing Policy has been the subject of a good deal of comment and diasion- culminating in the isuae of a report 2/ last year. After lengthy consideration, the Government in- troduced some changes in February of this year. It should be said by way of preface that a preoccupation both of the Dutt Report and of the new licensina nolicv is the auestion of the 'larger industrial houses'- I/ 1/ Source - Government of India, Economic Survey, 1969-70, Table VIII, p. 2/ Report of the Industrial Licensing Policy Inquiry Committee, Gov- ernment of India, Ministry of Industrial Development, July 1969 (known as the 'Dutt Report'). 3/ The 'lAr^ industrial hoaaa' wara defined hv the ni2r Ranrt; a house includes 'those business concerns over which a common authority holdA eway' - they nre nt Aof4noA nlu 4n torma f ubtlIcl^ 0041. able evidence such as financial and management structure, but also other connectins,a .li~a,, 1,4-A,a etwen members of a-rup of concerns such that the 'o6mmon authority' can influence them. The are known as 'larger' industrial houses. - 56A - The main provisions are as follows: (1) a list of 'core industries' has been dlrawn u, for w.h4ih deailed plaAnis will be 1 p-i reared ai nnr4- inputs made available on a priority basis. These include chemical in- steel; non-ferrous metals; petroleum industries and selected petro- shipbuilding; newsprint; and certain fields of electronics. In such tor, the larger houses, together with foreign firms and subsidiaries, wUld ve c Lexpectedo partiipate longE Wit ther appl -ns LOlDaViLtg the remaining sectors primarily to others. (2) A 'heavy investment' seto s defined, con-JsJino a 1 new. Jnvetmns-a over R C% -J1 GCULUL .LM UCLAHCup4 LU)LEMALAu VA455 I LA LICW ARI1VCLUICULD UJVCL II. JUJ USAL" lion. This sector is grouped with the 'core' sector as far as concerns potential aplcat - thatL .4s, it.4 LIs aIL field LLU~ [-I-- are expected to participate. (3) The 'joint sector' concept as suggested by the Dutt Report has been accepted in principle tis is discussed be- low). (4) A 'middle sector' has been defined, involving investments of Rs u-5u million, where special consuieration will De given anG licenses issued 'liberally' to applicants other than those belonging to the larger houses; though foreign exchange considerations will continue to receive 'careful scrutiny'. In this size range of investments, applications from the larger houses will be considered only on grounds of expansion for greater cost efficiency. (5) The exemption limit has been raised so that investments for expansions of up to Rs 10 million (previously Rs 2.5 million) now require no license, provided they are made by firms whose assets (after expansion) do not exceed Rs 50 million, and such firms do not belong to the larger houses; and provided that they require a maximum of 10% in foreign exchange for machinery and equipment imports, and only "marginal" amounts of foreign exchange for maintenance imports - the Government does not commit itself to making allocations for mainte- nance imports to firms exempted from licensing under this provision. (6) The policy of reservation of certain industries to the small scale sec- tor is continued, indeed a list of eight new items to which such reserva- tion is extended has been issued, making 55 items in all. (7) All items for which licensing, previously required, had been withdrawn are now 'relicensed', i.e. subject to licensing requirements once more. 157. In summary the new policy attempts to confine the larger en- terprises to the larger investments and investments in particular fields - the so-called core sector. All investments of the larger industrial houses, foreign firms and firms with assets exceeding Rs 50 million are subject to licensing. A second objective is to encourage and liberalize the regulation of small-scale industry. Smaller firms with assets less than Rs 50 million are to be free from licensing for investments up to Rs 10 million, although they will require licenses for investments which are larger than this or which are in the core sector or which require more 1/ By the Industrial Policy Resolution of 1958 and its subsequent emendations. - 57 - than marginal amounts of foreign exchange. To meet an obvious economic need the larger houses and firms are also permitted to make small invest- ments which increase existing plants to economic size. 158. What contribution does the new policy make to economic effi- ciency? To take the more clearly positive provisions first, it is said that the raising of the exemption limit will cut out about 80% of all licensing applications, so that the administrative burden will be reduced; the provision for the 'middle sector' is designed as a net to catch the larger houses, and the policy intention of liberal licensing for the rest is encouraging if followed in practice. Of course, Govern- ment will still exercise control even in the 'middle' sector, where for- eign exchange is required; but in the 'exempted' sector firms will be expected to discipline themselves and refrain from investments requiring foreign exchange in more than marginal amounts. The 'relicensine' of industries referred to in item (7) of paragraph 156 above is not the retrogressive sten it might annear. since the vast maiority of the in- dustries concerned are reserved for the small-scale sector, and are therefore exemot under the less-than-Rs 10 million limit. 159. The rPnI nnpqtinn in the firmnneA with which the new onliev grasps the nettle of 'size'. Large, or at least rapidly growing, firms unuit 11v mkP Prnnnmir cPnsA And Piarpr Pffnrt Qhiilt he mnrle to AlloW enterprises to grow as fast as they can - the harmful effects of this grnwth (and thPQe nft-pin sariQl ntaht t-n he delnt- with h mann ther than limitation of growth itself. Thus a desirable policy would go for economic aie - hy which is meant aiz of n1t aor a s f firm where there are important technological economies or economies of vertical or horizontal inIeration* it would deal with any monopoly power thus created by price regulation, other controls, or public participation, i f necesa-. amu nt..ing t-now --er-4p;. and it-WoulA A4.C-U-ag.- 0- glomerate' corporation, with diversified and economically unrelated erates are operated by exceptional managements, and represent economies o,f sale in n mannament.) 160. The provisions regarding the 'core'1 sector and the 4-4-tsec tor could well achieve this; but they will have to be very positively whom so many of these policy instruments are directed, there has long been a mne for a publ1ic1y reoeda defindtion of w.hatwill4 LtheLir u at. a as u tlL a jou. y L0 LUu u u LIMA. L± U. O L W . wL.L Uc L.I LL sphere of activity; in return for greater certainty of operation within this sphere, -Vw4 cU s ..o 1A 4-I1..A- -_-1__ -_an .A1 .. e e l - LSsJO syss .0 w as as LA =LAuu k-LVO= aC=CaO WrK=L= VO L .La VJ. L 0 1u.1 zontal or technological integration makes sense, they might be persuaded LLLa .L J. WU6S.LII L AHLu ADHAg CALL OICUUD LOLCULD . LOAC .LAAA LU UC seen whether the new policy provides such a definition adequately, and LU pUU.L.C ~SHLABLdCLUHe LL W.111J DE UHOLUIRLULLHLU.E LUL 811 LUHICCLIHU .511 expressions of social concern accompany the grant of any new licence to the larger houses. The difficulty of dealing with them should not be underestimated; at the moment a large share of investment proposals awaiting consideration stem from the large houses. At a time when the - 58 - Countrv nppnda dditinan1 inuatmPnt it- ig tn ho hnnad thAt tho now policy will defuse this issue, and secure without harm the participation of the lArar hmnpa in firttrp growth. 161. A nntntijally nrnmiana fpntir nf thp nnliy rhnnaana 4a that about which the Government has said least - the joint sector. The thought whIch preoumahl 14 o hahinf th-fa ryrnia4ol^n 4= that (nmas by whatever means, already puts up a substantial proportion of the capi- tlfr mjrinvestments in. the PrIat SeCtor By taIn "p ut rather than making loans the Government - confining itself to a minority holAin g, though one wh 4ck - 4h -4 be, #an-4al wAld acquire a share in the profits of the enterprise and a say in management. Apart from acceptace in prS4 .LnC4ple, theI onfly offcia A.S.O SLi L SJ4 fU~ULL* I.L sector concept is to the effect that Government will endeavor 'to apply Lnn~~ in Um& case , o f m.S uajori projectsL taken~ up by pri.vate enterpriLLa groups' in the core and heavy-investment sectors. But this appears to be an adJuminl meani S L 414LL roki th 1 oltial, socl.4.T an econocJ. objectives of the Government - it could permit the emergence of the really large corporations which alone, in some fields, are capable of being internationally competitive, without danger of the abuse of monopoly 1U. L geneasl it is not clear L"n Lu nLw licensing puliy nUaS been designed with growth in mind, once firms are beyond the small or medium size, firms do accumulate reserves and want to maKe new invest- ments; but it is difficult to find in any Government policy statements much or a view as to now tne growth of enterprises should proceed. me set of policies in the small-scale sector, while not subject to the same criticisms, also leaves something to be desired. Certainly parts of the small-scale sector are very profitable; but we do not know to what extent profits are due to protection either from foreign or from domestic large-scale competition, to fiscal and other benefits, to ar- rangements with large purchasers based on family or other connections, or to efficiency. It is uncertain whether the present scale of Govern- ment concessions to this sector is justified; and even more uncertain that all can be well in industries which not only receive major conces- sions from Government but are protected from most forms of competition, even in some cases from competition among themselves. As so often, there is more hunch than information, so that it is difficult to suggest any policy measures other than the gathering of information. Given the size of the small-scale sector, however, a survey of it which will permit making the distinctions that policy requires would be most useful. 163. To conclude, the new industrial licensing policy has two aims - to help solve the social problems arising from the existence of the large houses, whilst permitting them to carry out necessary economic functions; and to provide new freedom for smaller firms and new entrepreneurs. The Government has responded positively to criticism, research and recommenda- tions: much will depend on how the new guidelines are administered. But it should not be long before we can see whether this proves to be the clearance of obstacles for the private sector that has been awaited with such interest. - 59 - B. Management of the Public Sector The Record of the Public Sector 164. The Indian public sector has been simultaneously a significant factor in planned development and a major problem area. Investment in public sector industrial enterprises at the end of 1968/69 was approx:L- mately Rs 39 billion (of which Rs 5 billion was in commercial enter- prise) with a projected increase during the Fourth Plan of Rs 31.5 bil- lion or 81%. Public sector industry and mining has absorbed about one third of all manufacturing investment in recent years. Public sector industrial activity is largely in heavy industry. Steel, engineering, chemicals, petroleum, and mines and minerals constituted 87% of all public sector industrial investment in 1969. 1/ 165. Thus the public sector has absorbed a large volume of resources, and will continue to do so. The projects, being mostly in heavy indua- try, are typically slow maturing; implementation has been delayed, and returns have been low. Hence there has been a continuing demand on re- sources without sufficient generation of returns to finance expansion. This has in turn limited the pace and scope of Indian development. Al- though performance has left much to be desired, production has been sub- stantial. 166. Industrial production by the public sector was Rs 7.3 billion in 1967/68 or 10% of that of all organized industry in 1966/67. Public sector output has been increasing in recent years at the rate of about 30% annually. 2/ Increases in capital employed have also been near that rate throu2h 1968/69. Althouah some enternrises run at or near canacity substantial unutilized capacity is more common. 3/ Foreign exchange earn- inas have grown from 86 million in 1965/66 to 892 million in 1968/69. 4/ 167. In addition to production, gross profits may be considered as one measure of performance and reflect the contributions of the enter- orise to resources for expansion. Most enterprises show a small return on capital employed; a few show losses. While from 1965 to 1968 most firms onerated nliahtlv abou thp hrpakpven nonnt. in 1968/69 there was a general upward shift which continued in 1969/70 and seems likely to be maintainpd in 1970/71- Hnwever- inerpaa in ornna nrnffts are roughly I/ Rap AnnanAiw T.ahlpa ?A~ 71; 96 Q,oa A .i"A4 Toh1la ?q T .k m ')7 'ral 1 1) I eaJ' MJ - 60 - matched by increases in capital employed. Hence the combined rate of gross profit is fairly constant, at about 3% arithmetic average and 5% median of major enterprises for the past several years. 1/ These rates of return are below reasonable economic returns under Indian economic conditions. 168. The reasons for shortfalls or excess capacity are many and varied. Slow maturation is inherent in establishment of heavy indus- try, whether public or private. Also seemingly inherent in public sec- tor operations are strong political pressures for taking non-economic actions -- e.g. for locations in States or regions other than as deter- mined on economic cost/benefit criteria, for hiring numbers and specific groups or individuals on bases other than enterprise need and merit, for providing amenities well beyond prevailing levels, for tempering eco- nomic discipline, etc. Public sector enterprises are vulnerable to such pressures and success is dependent upon responsible authorities' estab- lishing sufficient counter-pressures for economic performance. Tmnrovement Program 169. The various difficulties of the public sector have been examined from time to time and efforts made to meet many of them. Last year the GovArnmnt nirculated to thp cornorations a memorandum summarIzina its many decisions and actions designed to "improve the working and profit- nhiltv" of nnhlir aprtnr Pntrnrimn. ThiR rather rnmnrPhAnAivA nro- gram does not involve basic or radical departure from past patterns but rather ic a QvotmaPIr hnrina up of wank arans in the context nf rnn- tinuing reliance upon public sector corporations under general minis- terial diretion The app,roacih isa to incre-asea performance~ and p%rofifta- bility through better filling of order books (by diversification of productio n, expoart p_o__*-4_ an .t-q)%01 4qah___# ^-F nn-v4 a ^f on*orn40aN and through management improvement (delegation, managerial personnel, 117lkA~ ~ff .L~*llMC A- - ahfLllCt ll lementsL of tis p oga. sb-n .Lf M-A..ULL V.11 1J~.LL.aL. A... e.l L .~L L Ut.LM F WLO prgr. 40 JLng taken but with unevenness of progress. In regard to enhancing orders, eApULLs haV grUWn srLrpy. DiVeALL.fiaLUn Vi proUcti LA O UCgun in some places and two consortia for effecting complex projects in elec- tricity and engineering are being established . However, shortage of orders is not nearly as significant as shortcomings in operational and managerial efficiency. rme Government has in fact delegated very sub- stantial financial and administrative powers to the enterprises. But, with notable exceptions, the enterprises have been slow to take advantage of the new pattern and to effect redelegations through their internal structures. 1/ Table 26. - 61 - 171. For managerial personnel, the most striking action has been the Government effort to sever the dependence of the public sector on temporary secondments from the Civil Service for numerous management positions. The cutoff date for top assignees to decide for continuance with the public sector or return to the Civil Service was April 1970. However, relatively few have indicated their decisions to stay and the time has been extended 6-12 months. Management training, by and large, is proceeding very well. Also taking place is some enlargement of the importance of merit and corresnonding decrease in that of seniority in promotions, but progress is slow. 172. General progress, with substantial variation, can be reported. in the anlIation nf A rano nf nodprn manAgment technintipq Mu21h improvement has taken place in project planning. Indians now do analyses and senan 4 nn Er wh4,-h -oher AevlopIng countriec tinanA uonn for- eign consultants. Standards and guidelines are enforced on review. Man- proving for many others. Periodic systematic review at the top coordinat- patterned after formats already developed in fertilizer and steel, should reDUAL AH LapU auUopti oU suppotn io suysem inLL to rA euImain4ng enterprises and achieve a general tightening of performance. This is currenly unue consUieratiu. riancal management also shows siguif.- cant progress in costing, budgeting and financial reporting, although acievemenL U sUphLsLAcLaUi 1 U WLnLus L L ime. IVetoULes con- tinue to be a major cost problem. 1/ Much of the difficulty goes back to tue establisnment or Le plants. -auaous Uaagers protecteu themr selves against the vagaries of foreign exchange and equipment supply by purchasing ample insurance stoCKs, wich often have contnued with reLa- tively little mse. 173. In labor relations, public sector management is faced with many of the same circumstances as the private sector. Early gross overstaffing is extremely difficult to reduce. However, manning scales for plants now coming up are much more realistic. Expansions are helping to absorb some excess. Wildcat strikes, slowdowns, and 'gheraos' occur in the public as well as in the private sector. A few enterprises have demonstrated that fairness with firmness gives about as good a response as can be ex- pected in present circumstances of unrest. 174. Auditing is undergoing a fundamental change -- a shift of em- phasis from financial legality to managerial effectiveness. At the enterprise level internal audit is now the standard pattern, although much improvement in the application of management perspectives is stilL indicated. At the national level, the Comptroller and Auditor General has instituted audit boards with membership including experts outside his organization. Eight enterprises were examined in 1969-70 and eleven 1/ Inventory holdings are given in Table 25. - 62 - more are scheduled for 1970-71. It is too early for the impact of this shift in emphasis to be reflected clearly in management performance. However, the shift is clearly in the right direction and much needed in India. Prospects and Conclusions 175. The contributions of public sector industry to the resources of the Fourth Plan envisage a gross profit rate of 5+% on capital employed plus investment of depreciation reserves of another 5+% or a combined total of about 11%. Corresponding recent cash generation has been about 8% (3% gross profit plus depreciation) and the enterprises have predicted the equivalent of about 10% for 1970-71. 1/ For an average of 11% for the Fourth Plan period this would mean combined rates of about 12% for the remaining three years, or an increase in gross profit from 3% in the recent past to 7% for 1971-74, assuming that predicted performance for 1970-71 in reali7ed. Thin imnrnvement In Intended ton ome Inrelv thronah increased production with current resources. Most of the new investment in nzihlir aprtnr inittatry durina the Fourth Plqn will etill he inder cnn- struction at the end of the Plan and hence not yet in the category of "lanital emploved". Imorovement to the indicated extent doeR not annpear impossible but it will take some doing. The estimates of company perform- ance underlying the summary estimates of internal resources to be geertd by the public sector pose formidable tasks for many individual companies. 176. Thus strong Government responses are needed. The actions de- QpirhaA in fh Memoiranduim on Public Sec-tonr Vnteavriaga arA=n- H r-^%Go- ernment's seriousness in wanting economy and efficiency to prevail. One the additional cost involved if less economic choices are to be made and re .S . L~ A JLSJ A L i~~ UJ LL~ U.SALJ L .&A'U ALL9. . "&=LLL~ A.= is State pressure to establish a plant in other than its most economic close off equivalent other projects and grant the difference in cost to the~ Plativo.lved. ThisL notL ol.y would hlp~4 FUL. LLM~ UCLL.LUL1.5 AL FLIUpr-L perspective but would also alert the proponents of the projects being reduced. Such subsidy-or-alternative decisions nave been used elsewhere to good effect in analogous circumstances. 177. There needs to be insistence on effecting delegation in action and in judging management Dy economic results. Rapid extensions or the best reporting patterns to all levels and the institution of regular Cabinet review based on these would have great impact. The public sec- tor is important enough in India's development plans to merit this high level systematic attention. Sporadic reports of Parliamentary Committees which emphasize negative aspects do not meet this need, important as they are in a democracy. 1/ Table 26. - 63 - 178. Service in the public sector must be made more attractive to outstanding managerial talent. The attempt to end dependence upon tem- porary secondment from the public sector is commendable. However, the minor accompanying inducements apparently are not adequate since so few have opted to stay in the public sector. Cabinet attention and backing for economic actions, mentioned above, would help greatly. Also, as the British have found, it may be useful and necessary to have a salary structure that goes much higher than that of civil servants of compara- ble status. A few outstanding managers can be attracted under present circumstances for limited periods of time. But the public sector must be able to attract enoueh of the best on a continuing basis. 179. Inventories are, perhaps, a special case. Enlarged cost con- sciousness and application of material management techniques can support the slow reduction of excess stocks. Profits can make more palatable absorbing the costs of salvage or revaluation. But prevention is basic and is related to reducina the uncertainties of sunly should unusual need arise. Here both the Consortium and the Government might be of hAln in imnipmentin nrnnonala for htter imnort and nooling natterns. 180. Wit-h f-ha paytrtiulnr Pmnhqqpa- and Pnergetic nrnnecutinn, the Government's program for systematic improvement seems to be rea- annAhlv doacinaA t^ moot t-ha nadAn nf rnnriniin& vpfnrm and atrPnothPn-- ing of the public sector. C. The tal TInduatry Production Problems 181. The decline in Indian steel consumption which took place from 1041.1KC ALS*J,fl,J 10 .7/ --W rev rse 4- 1OK 1K AOL sU ---J'J --- I.,% 10fU shortages in other than the perennially short flat products have developed. While domeftIc demand has. .. . ben nceain-------tfo Idinsteel abroad has been opening up with the assistance of worldwide shortages andA steep increases In steel pr4 na 4...-- 4__a -, ...1,-* Av I-U in stee prce - --L -_- -~ ...-~fl 0 time production has remained more or less stagnant at levels first achieved five years ago and te prospects are p-Or fOr any aubstantIal increase in the next few years. Assuming a continued growth in domestic reureet aL a rate rougly conistentCL~ W-. wa- 6& .U-~ -9~LL L~WL&U the economy, severe shortages are likely to persist for the next four LU LiVe yeaLDs eAuLo ate LU Ui tO ULLO IU= CUrtile and impOL uL ments to increase. 182. The immediate predicament is not so much the result of a failure 10n planning as 1n execution. Substantial expansions of all three P'Ub.LC sector mills were started in the early 60's. Although most of the in- vestment was compeea Dy oaout 1-00 tere nas been no significant in- crease in production, which remains far short of what was expected. "Rated capacities" are not yet effective capacities; some items are - 64 - vet to be installed and there have been breakdowns of eauipment which require replacement. Still, only part of the present deficiencies can be accounted for this way. In addition to aeneral nroblemq of manage- ment, poor production can also be attributed to severe labor-management nroblemq in RAveral n1ants- narticularlv the nublic and orivate n1antR located in West Bengal. 1/ 183. In addition to failures of execution there has also been a loning Anwn in the arnwth nf rnnArity whirh will limit tho prnduction possibilities in the near future. Substantial expansions originally nlAnnoA hu MinAn20tan qtool fAVrhe IAA 1QAO- at D1nnV- n ani- ol-al have not been undertaken and the third stage expansion of Bhilai from 2. to 32 7 milin -nna heaa heani AaloA Mn Annht- 4h ,A,'l4na 4 armal demand during the mid 1960's, the heavy expense of the new public sector mIll at --kamo started in 1965, the tigMh resource position and the problems of bringing in the first expansions of Durgapur and Rourkela al co1ntr4iute to s!i n"n dOn.. rte r*a Of a,nn4-- Tk...n nna and delays in steel plans have the effect of limiting the growth of ca- stantial increase in capacity are the Bhilai and the Bokaro plants, -4*1-of which can be expected to contribute much before 1974-75. 10/. T_& a - - n d- J'- a- -L W.. & 7 41 4 s m .. e an J~TC e Ce. Si,tuat,ion anA. I tscjJts for8 Steel. ProducLbtion, * £LugoL pLoUUutiJL D nW OLUUL M*I 1i on.AV Lono a year anu finished steel about 5 million tons. This is about 75% of rated ca- pacJ'&. Ole k1 ..ul Oa .1114- r-- qn J.4.1 Th n n CCam a n 4Anwk pacLLy UL au UL 7 M.LiLLon tUn UL ingot. 1Aeu rte Uifer uonusustaU.y from plant to plant. The Tata steel company has been consistently be- tWeen 7U/oVU/o& L.LalAi s pLUUULtn H UC%-J.LLL=U LH LCL yaL0 LCL6=.y due to labor-management troubles to about 75% capacity. Bhilai, Rourkela an" Durgapur, the three no plants, have iot yet come near LU their re- cently increased capacities. Bhilai has reached 70%, Rourkela somewhat less and Durgapur, plagued with heavy maintenance problems and labor troubles is operating at about 50% capacity. Rated capacities of the HSL plants are not presently attainaDle unT11 certain investments are made to complete expansions or replace damaged or worn out equipment. 185. Roughly, an additional .5 million tons of ingots can probably be produced from all the present plants as they stand simply by better operations, including better labor management relations. Given time for necessary installations and repair perhaps an additional .4-.5 mil- lion tons might be produced assuming effective management. This would mean an operating rate of 85% for the industry as a whole. This would be a substantial achievement and would yield 7.6 million tons of ingots and about 5.7 million tons of finished steel. 1/ The Durgapur plant of Hindustan Steel Ltd. (HSL) and the plant of the Indian Iron and Steel Co. (IISCO) at Burnpur. - 65 - W_J Lt aU J. L..Lt* -- ,tA JA.tlLa MJ % v..DJ.A.U.AtO **fh increases may also come from expansions of capacity during the Fourth Plan periodU, most ±likely ar .3 milo tonsLLLJI ai t LLHO1COJ aand pOss-.Ly UnUttlLer .7 million tons at Bhilai, although the latter is still being weighed .L[ a~d1 f t L U UV± ILt L U U. L.LLL L UL. DLILL. 107. The construction of a new steel plant at Bokaro (in Bihar) is well under way. Pig iron is expected in another year or so and steel by 1973/4. Bokaro is a flat products mill. Ingots from its melting stage will be fed through a huge slabbing mill to prepare them for the rolling mills. Rolled steel from Bokaro involves the erection and running in of a great chain of processing equipment. It is optimistic to count on any volume of steel from this plant until the mid 1970's. 188. Thus it would seem that the most that can reasonably be ex- pected by 1973/4 is about 8 million tons of ingot steel and 6 million tons of finished steel. Furthermore these levels will require greatly improved performance in production and labor management which may be a lot to expect. The Steel Ministry estimates domestic requirements at 7 million tons of finished steel in that year and exports at over 1 million tons. These are clearly beyond what can be expected. Some im- ports of steel would be required in any case to supply types not pro- duced in the country. Given the above prospects, imports will have to be considerable simply to supply domestic requirements. Steel Requirements 189. Consumption of finished steel in 1969/70 was estimated around 4.5 million tons. Taking into account shortages, the demand might be estimated roughly at 5 million tons. The Steel Ministry estimates re- quirements in 1973/74 at about 7 million tons. This implies an average growth rate of about 9%. But if this target were related to the long run trend of consumption since the mid 1950's the rate of growth would be lower. Consumption exceeded 5 million tons in both 1964/5 and 1965/6. (The projected consumption in 1973/4 is only 25% above the level reached in 1964/5, nine years earlier.) A 9% average rate is also implied in the Ministry's projection of domestic demand for the period 1973/4 to 1978/9. 190. The potential of the export market is of growing importance in the assessment of steel requirements. Exports of steel have increased rapidly in recent years. During this period when domestic demand was reduced producers turned to the export market to help keep from reducing their pace of operations. At first the market was not easy to enter but since early 1969 worldwide shortages have developed and today the prices for many types of Indian steel are below the sharplv increased f.o.b. prices in most major steel producing countries and considerably below - 66 - continental export prices. 1/ This is after Indian prices were increased by an average of about 14% on January 1, 1970. Today the export market for Indian steel is easy and orofitable but only limited amounts Are available. 191. World steel prices cannot be expected to remain at the 1969 hpohtq thev have rPnrhed_ (Continnal ornnrt nricez ron h 40-8A depending on the product during 1969 and some Japanese home prices 40- 70%7) Rrill TndiA should have nme real advantrna in this fialri4th its excellent supplies of ore, its well located coking coal and its relativelv rhap lahr The recent incrnca in riceas will nd4Aernalr improve the HSL financial position and there is no doubt the plants can beo --evr--te more efficintly. 1 - suc. a.h imotn respects experience HSL is still an infant industry. 192. The possibility and need for exports lessens the importance sidered only the minimum. A recent Steel Ministry estimate, allowing for Luture exports~ ,I 2/1 LC places selCIULI L reureet at UU abu0 ini.1U1Lo tonts in 1973, 7 million for domestic consumption and 1 million for exports. be about 2 million tons of finished steel. The Steel Program 193. The Steel investment program is dominated by Bokaro which ac- counts for two-thirds of the Fourth Plan allocation for public sector steel. The project, a four million ton flat product mill is being designed, engineered, constructed and financed with assistance from the USSR. It is presently estimated to cost about Rs 11 billion which is high by any standard. 3/ it was originally planned to construct the plant in two stages, a first stage of 1.7 million tons followed by a second stage to reach 4.0 million tons. It has recently been decided to go continuously from the first into the second phase, but the latter will nevertheless not be completed until well into the Fifth Plan. 1/ For many types of steel the Indian railhead prices including trans- port and excise duty are lower than corresponding f.o.b. prices abroad. For all but certain types of flat products the Indian f.o.b. plant price is significantly lower than the foreign f.o.b. price. Comparison made with current prices in U.S.A., U.K., West Germany, Belgium, France, Italy, Netherlands, Japan and with con- tinental steel export prices as quoted in Metal Bulletin, London. 2/ 1.3 million tons 1973/4. 1.8 million tons 1978/9. 3/ The investment cost for Rourkela, also a flat product mill was about $300 per ton, the corresponding estimate for the much larger Bokaro is $370 per ton. - 67 - 194. The first producing nits fan RnItnrn will he rho coke^van and blast furnaces. It is expected that some pig iron will be produced mills into production before the end of the Fourth Plan but this schedule will probably not be produced until about 1975. 195. The Bokaro project has encountered numerous problems with management, with contractors, differences between USSR and Indian con- sultants on design and layout, differences about construction practices Detween Russian and Indian engineers and also problems or procurement. At the same time the estimates of cost have increased and the date of completion has receded. These problems are not particularly new; they are similar to those encountered during the erection of Bhilai, Durgapur and Rourkela. The form of USSR assistance is similar to that provided for Bhilai but in this case a considerable part of the steelmaking equipment will be produced in India by Heavy Engineering Corp. at Ranchi, Bihar, a Russian and Czech assisted enterprise. The basic technical decisions and the mode of execution have been taken long ago. Attempts to reduce its cost have been unsuccessful. 196. Aside from allocations to finish the expansions nearly com- pleted at Bhilai, Durgapur and Rourkela and at the alloy steel projects at Durgapur and Mysore Iron & Steel, the rest of the plan provides re- sources for the further expansion of Bhilai (from 2.5 to 3.2 million tons) for a plate mill, for technical improvements and balancing equip- ment to be added to the three main HSL plants, for an electrical sheet mill, a refractories plant, further expansion of alloy steel capacity and for the initial expenditure on several new steel mills whose loca- tion is yet to be decided. Thus, aside from the balancing equipment and additional finishing capacity, the only plan-period increase in public sector capacity is that from completion of Bhilai's third stage expansion. And in this case the final plans are still under study. In addition to the original scheme of expanding Bhilai to 3.2 million tons and later to 4.2 million tons there is an alternate proposal to expand up to 4.2 million tons in a single step. This proposal would mean that no new capacity would come into production until the Fifth Plan. The decision of whether to go for less sooner or more later has not yet been taken. 197. In the private sector there is a scheme for increasing the ca- pacity of IISCO from 1.0 to 1.3 million tons. This has been long delayed but could be implemented by 1973 with expeditious effort. However, as in the case of Durgapur, achieving an increased level of output will not be possible until there is a substantial improvement in labor management relations. 198. There is also the possibility of expanding the other existing plants, Durgapur, Rourkela and Tata. Earlier proposals to expand Durgapur and Rourkela were dropped in the face of troubles encountered in bringing the first expansions of these plants up to capacity. This experience did - 68 - not lead to any eagerness on the part of the countries aiding these nlnts, the U.K. and West Germany, to extend their assistance for expansion pro- grams at that time. In thp lipht of aiihinient lnhar trnle at urannr this seems to have been a wise move. In the case of Rourkela the current uipw of HT. managoment Is that It Ic nrpfprqhlp t-n crnhili7p tha nroAdc- tion of this sophisticated flat products mill before going through the dirint-iv arnprianes of an a-nnnn nrnornm Thus the pnauthleexran- sion of these plants is still a way in the future. 199. Tata is another case. Its record is by far the best in India; for -e---a it has been corn--istentl,, noratingnealor coaacity 0nd 4S 4in the best position of any plant to take on an expansion program. Tata a- S. 0how- nm nFro 4-, ---lo.,4- Jf- 4 ^lA ni nt-n Mill1 W.4#-I, - mill of larger capacity but there are not as yet any specific proposals 200. Because of the long gestation period for steel (about 8 years from the decision to construct a mill to getting finished steel in vol- umte; L .l J11LpLLkV= LAlLL LC4U.LL=eI-Ltn L L LU LLeC LULULC aLe &CL U- tinuously in view. There is a limit to the capacity that can be created LLUm Cxansion aneLl 1 LW 1"Ils Will LIaVe LU U i UULL. LL LnLE ll Ras AL vj million is allocated to starting new steel mills. A number of sites are under consideration iu anuAra Pradesh, ysore, Goa and Madras. Feasi- bility studies of the various alternative sites are to be re-examined before deciding on the locations. After this decision it will require some time to draw up the necessary detailed project reports. Considering the steps to be taken it may not be possiOle to proceed very far with these projects before the end of the Fourth Plan period but it is neces- sary to make a start. New plants started in 1972 or 1973 cannot De ex- pected to produce until around 1980. By that time steel requirements can be expected to exceed the present capacity plus bokaro and expanded Bhilai. Some Perspectives 201. India is engaged in the great task of building a large steel industry based on excellent supplies of ore and coal and the prospects for a large domestic market. Although the economic bases for the indus- try are good the problem of rapidly developing such large and complex enterprises is bound to be difficult. The particular conditions under which this task is being undertaken in India involve maximum possible use of indigenous resources both human and material, with principal responsibility on public sector enterprises. This course has led to the purchase of foreign technology, technical assistance and equipment under bilateral aid programs without foreign participation in ownership or any continuing responsibility for management. Plants built under these conditions cannot be expected to be cheap nor to operate as they do in countries with a long steelmaking tradition while local management and labor learns in a hurry what has been done more gradually elsewhere. No doubt many of the troubles encountered by HSL are inherent in the approach chosen for developing the industry. It is a slow approach to - 69 - efficiency but the lessons learned may have long-run value in leading to the goal of self-assurance and true self-reliance which can only come from havina 1ivAd with resnonsibilitv throurh crises. What is most needed now is some tangible success. The stage is set. The need for inernQPd nrndtrf-inn iq e1par and the nrice increase of January should make it possible for HSL to break into the black. 202. With Bokaro the old pattern of constructing plants will prob- ably come to an end. Doesi competrece has incraedso has capabili ty in the manufacture of equipment. The proposed new plants are the appro- prlate plc to tray a nelw approaLc..A *h cOtrvrse ow,re- thel~*.&V cost and obsolescence of Bokaro it should be a most suitable time to con- mills. The choice of technology should not be confined to any single nationlUUJ surce norL stlu.LU LLLe suply.) Of LMFV&JL.=U =4.&UW&U.L*~AAWAb from the best sources abroad combined with the best Indian experience coulu accom plin a great ueal. new steel plant woulu seem to ue an ideal project to organize as a joint sector enterprise combining the financial power and experience of the government with the Long traudi- tion and best experience available from the private sector. D. Tne Fertilizer Program Perspective 203. The program to increase rapidly the consumption of chemical fertilizers is very large, ambitious and is a very important element in the overall agricultural strategy. Earlier the program consisted of two distinct parts, the import and distribution of all nitrogenous and com-- plex fertilizers, including those produced domestically, administered by the Ministry of Agriculture, and the domestic production of fertilizers and a large program of investment in new capacity under the jurisdiction of the Ministry of Petroleum and Chemicals. Recently, as consumption has increased rapidly and the complexity of distribution and marketing have become more evident, the responsibility for distribution and mar- keting has been shifted onto the producers and the operation of the government fertilizer pool has been limited to imported fertilizers. The recent increase of fertilizer stocks in the country has reinforced the pressure for integration of the program in the sense of better in- formation on the state of supply and demand. It has led to efforts to improve the information basis for planning and distributing imports and to reassess future requirements in relation to the planning of new capacity. It has also forced producers to take a more active role in marketing and promotion. The following paragraphs deal with the program in the broad context; a summary statement of the present state of con- sumption is included in the chapter on Agriculture (p. 28). - 70 - 204. The anal of the fertilizer nroaram in a very ranid ornwth of fertilizer use increasingly supplied from domestic production. The con- aitnmninn anal rpniiirpa the dPvPlnment of a hichlv davolnnati avat-m nf C3 _ - ---------- - --- - _- '_11_ ----_- distribution and marketing to handle the great volume of material flow- in* frrm Inva mndwrn fnntnrion to tho millinna nf inAiuidAtnl fArmer consumers. The production goal, which derives much of its rationale frmaneed to sav foregn exchangae, is understandably wsociate with- pressure to procure equipment for new plants from domestic sources and t nda.- enineenfring talnt-- fully --- possib4le ain the desiP a and construction of new plants. Thus the establishment of the large and growi.sng h4n ch-an, 4 actvites necaessary to carry.. -1. n -n.,-- 4 - a ing an important innovative role in the economy. 205. While the progress of the program both in its accomplishment UL iLcrasdOU GUUpLLU RU cLnUUULLpUi anU rLDd ctHnaUVOLVC LUC U con- structive economic change is impressive, the question of efficiency at any one puuL ume ift nLIULAuL mHtLL. wLu_e UI LULCUe may be VJeWCU with some optimism as pressures for increased efficiency are evident there ib sLJ.! some room Lor coUcern dOUL ule e1LecLovenes5 OK Lne response. Today construction schedules lag, plants have difficulty prouuucig near capacity, anu te knouwleuge of the prenuL state of tue market is not sufficient to base an import program and allocate pool supplies to States without large margins of error. Although improve- ments are underway success will require vigorous and continued prosecu- tion. 206. While it is important to build up indigenous competence there is room for differences of opinion on how this can best be done. This is a complicated process involving a balance between the purchase and development of "know-how", between technical assistance from outside and training of staff within, between purchasing equipment abroad and developing reliable and competent suppliers at home. There is in fact some conflict between immediate and long-run efficiencies. Learning requires time and resources and it is important that possibilites for achievement in the future are not restricted by rigidities in the pres- ent. There can, for example, be a tendency for technology to be isolated from developments in the more industrialized countries - to hold to what has been available in the past and to seek its perfection. Not all tech- nological developments may be suitable for Indian conditions - but the vigorous growth of the industry requires that it be open to the stimula- tion of new developments elsewhere. In fact the varied sponsorship of fertilizer projects has contributed and is contributing to the import of varied technology and there is no doubt about the growth of indigenous competence; but the latter can clearly benefit from continued exposure to developments elsewhere. 207. Another area where flexibility serves long-run efficiency is in the planning for future supplies. The concern with self-sufficiency should not divert attention from the possible implications of the devel- opment of new sources of supply from abroad under new economic conditions. Large exportable surpluses of nitrogenous fertilizers can be expected in - 71 - the Persian Gulf area. The current Indo-Iranian discussions and the recent agreement to import ammonia from Iran are in part a response to these changed conditions. The possible development of new indigenous supplies of oil or gas for feedstock are of particular importance. 208. In the development of indigenous competence "mistakes" and delays are of course inevitable. It is difficult to administer restric- tions on import of equipment and technical collaboration when knowledge of indigenous competence is incomplete and experience is still limited. A system more vigorous in eliminating delay would clearly seem to be beneficial even at the expense of some additional expenditure of foreign exchange. 209. In the following paragraphs the state of the program in its several aspects is briefly noted together with the prospects for develop- ment during the Fourth Plan. Recent Consumption and Future Requirements 210. Since 1965/66 and the initiation of the High Yielding Varieties Program in agriculture the use of nitrogenous fertilizer has increased 2-1/2 times 1/ even though supply was a partial constraint on consumpti:on until 1967/68. Extremely rapid growth continued through 1968/69 and then in 1969/70 the rate dropped to around 15%. Whereas some of the rapid growth in recent years was attributable to the fulfilline of existing unsatisfied demand, this was no longer the case by 1969/70 followine two years of very adeauate sunlies. Some of the developments which supported the past spectacular growth have slowed down e.g. spread of hiah viAldina wheat in the North which haA earnmnanned mnat of the irrigated areas suited to wheat. 211. This slower rate of increase in consumption was not clearly reflected in ranuiramant foarasts na Rta ) oartmant nf Acr4riltulva followed accepted official requirement targets which, as each year fell. short imnlied inrreinalv ranid rates of arowth to attain the next year's target. 2/ When the supply position eased in 1968 and it became possible to stnk for ainrh arnwth Anma States did- Thim roatiltedt in a rnnniepr- able increase in stocks during 1968 and 1969. As a consequence imports, have hOOn reduced, Stae rusata fr pool snlIe hae hean ivan closer and more frequent scrutiny by the Center, and there has been a 1/ Nitrogenous is by far the most important type of fertilizer; phosphatic fertlizer hno also n I-i-I.anA Ptn4sAl. knt me mnk nmranu l Un* ah is used to a much smaller extent. All fertilizer quantities here are in terms of t r was-8% phosphate or potsh content. ~q ..~j5. L&L I ra-a of . grwt Lf or 3960/7 for the coun~'J ..U.~ . tr y as a whole. *Impliedt in the official targets was 18% while that needed to reach the 1969/70 Large-..L fromI 41-h4e actu.alA .le vel Of. Consu=tio inJkL.LL 1076A 81/60/ 'J)wasL - 72 - shift in the burden of financina pool stocks from the Center to the States. In addition factors influencing the demand for fertilizer are beina examined more closalv and stenn are heina taken to imnrnve renort- ing and data collection for more accurate planning needs. 212. Another response to the build up of stocks and the lag of con- mmntion hplnw rarapta was a Adwnward rpvi%tinn of thp Prnrth Plan tar- gets. The old target for nitrogen in 1973/74 was 3,730,000 tons; the new tnrat is i_?n n_n tna_ 4nna 1QA/70 rinaimnt-4n wna a-ntinA 1,400,000 tons, achievement of even the revised target still requires a very ran4d -rate, of trowth. r'r%n*4Aav-4n thda nvresent- level of consup- tion, its geographical distribution and the factors that appear to in- fluence its growth a. descr4bed 4- v hm A..'4,tl. ,a 1 aetn4 f-, 29N It seems unlikely that all the necessary conditions for reaching these tar- gne leveis can bee met 4nn the short time remaning t4111 TO7917A TJ7- --..1 A expect that targets would be reached later than expected and that con- su.mpi,6-in by TOTUA . 4 moast pro- 1k1. f.11 12w a -.9114- * - C onusyp vu 1.v .st wou u I yvu%A aA.y a n.L.L onL o of J M..L.LLn tonsoAu nitrogen. 213. The fact that the targets are proving too high happens to be of 14-4#--Aed o-*r-ac 4 this cae. T%---.44 ^-^.,,4f-. 4.- -.A w~411 1.e far short of any reasonable expectation of demand. On the other hand this sor"al1 and k1m I.k - -J A L.. L. U-1.4-.. t 4--o -lesa ULL& &sAva L.A aL uA "&= kPA%JU4.M L UOAuC u U s 4L UAAuu U.L LAXVL1L W. A has stimulated a constructive examination of the determinants of demand LUL ACLLierLMV. WCaL HAVD UHI ==ULP.L=% W& a L.Au.LULa.L UULJU6, FLL'_=0, irrigation, weather and fertilizer use on a district by district basis. FeWU DLUUdCD Ue maVLtLL&1 4LLiL1UULALJ LULLHU LAM CLL.LLUuca U LLWL are being undertaken in some areas, and studies of response of various varie- ties to various UUdages unuer different ciUUUtions are beug anayzeu. These efforts will provide a better understanding of fertilizer demand; they will also add to the understanding of Indian agriculture and could provide a more systematic approach to priorities. Production 214. There are at present 12 major plants producing nitrogenous and complex fertilizers. 1/ Two have been in operation since the early 195u's, three came into production between 1960 and 1965, one in 1966, and two in each of the following years 1967, 1968 and 1969. Technologically they are a mixed lot based on a variety of feedstock and processes in- cluding several which are considered obsolete in other parts of the world. In the newer more modern plants technical collaboration has been obtained from a variety of sources, and processes originating in Japan, U.K., U.S., Italy, Belgium, Netherlands and West Germany are represented. 1/ There were also two small private plants and some ammonium sulphate was produced as a byproduct by several steel mills. - 73 - 9)1 r. Thr 4 ls & t r.arliet- 'in rhip~ natt*prn nf nnarAt4ninq. - ? ir ,-f the plants are operated by the Fertilizer Corporation of India (FCI), a pu."i sector enterrise The Lare~ opeate 'M thre ote p ubc sector enterprises: Fertilizers and Chemicals Travancore (FACT), n1uustan SteeL Limited ILS1.) anu NLCyVC.. "iJgLIL '.ULpULaL.AVU kA",.J One is operated by the Gujarat State Fertilizer Corporation (GSFG), a mixed enterprise witn 491 Sate ownersuip, Mu the Uter LAILu= re aa in the private sector; two, Indian Explosive Ltd. (IEL), and Coromandel Fertilizers, have foreign collaboration,; and one, Delhi Cloth Mills (DCM), is wholly Indian owned. 216. Production of nitrogen fertilizer was about 550,000 tons in 1968/69 and is expected to have exceeded 700,000 tons in 1969/70. The increase is attributable to the five newer plants coming into fuller production and to a large expansion of another plant. 217. If we ignore the three 1/ newer plants still in the breaking-in period, the average level of production was a little over 70% of ca- pacity for the year. However, there were serious production problems in four plants. 2/ In one, an explosion in a new naphtha reforming unit cut off its supply of feedstock; another is based on the gasification of lignite, a difficult process under any conditions; a third is the most elderly plant in the country, and the fourth is suffering from problems arising from inadequacies in the original design. Taken to- gether these four plants, representing 40% of the installed capacity beyond the breaking-in stage, produced at about 50% of capacity during the year. On the other hand, the other five plants 3/ together operated at over 85% capacity. Action is being undertaken to remove the defi- ciencies in some of the ailing plants. In addition a program is under way to increase the capacity and output of a number of plants by the addition of balancing equipment and technical changes. 218. Capacity now in operation is about 1,300,000 tons of nitrogen. Another 1,200,000 tons is under construction or about to be started. Of this 500,000 tons is due for completion in 1971, 300,000 tons a year or so later and construction of about 400,000 tons is just getting under way this year. In addition, there are a number of projects with a com- bined capacity of over 1,200,000 tons which are in advanced stages of preparation. Some of these are expected to be started during 1970; others shortly thereafter. 219. From the plants now in operation and those expected to be con- pleted in the next few years production should reach about 2,000,000 tons by 1973/74. and several hundred thousand tons more than that in subsequent years as the newest units come up to full production. In addition there it Namrup (FCI), Kotan (DCM) ana Kanpur (L5). 2/ Rourkela (HSL)t Neyveli (NLC)t Alwaye (FACT) & Trombay (FCI). 3/ Nangal, Gorakhpur & Sindri (FCI), Gujarat (GSFC) & Vizag (Coromandel). - 74 - ah minlt hp nnre naw e-nnrijy af tor 1Q771/7 frnm T%,rn4 aca thAt. W4 11 14l1,M I get under way late this year. It is important that construction of more ca,n-ait is started soon for the ex-ecteneed i,nn 1975 ,ad afte. Be cause such a large portion of future production is expected from plants -trna 4in ----.t4 -4t 4~ f-h- Vjfth V0. -n n 4 --- -#. r4atn n -_ t " - - Wr -A. -h . - -jl t*% . ...- - - . - - ra - - - _ F -' A .m ~ J - c'. O A yet started - future projections of production are fairly speculative. it is -even mo,re difficu4,lt to p roject #-he like11. development- of deand. In general it seems reasonable to expect that the Government's aim to ful during the 1970's. It also seems likely that the initial agreement wih an L impot ammonui may ue Unh veglinuiug V-JE L a nuLL0 LfL t i u yp = anud source of imported nitrogenous materials during this period. 220. There are limited possibilities for saving foreign exchange from domestic production of nitrogenous ferilizers weu imporLed feeo- stock, such as petroleum or its products, is required. This has led to an active interest in the use of coal - an inferior but readily available indigenous feedatock with the particular limitation that plants based on it must for economic reasons be sited at the coal source. A project is now being started to construct a large coal based plant in Orissa. The coal is cheap and abundant. It is claimed the plant sited on the coal field will be able to produce fertilizer for consumption in the area more cheaply than an alternative naphtha-based plant. However, in this case the present consumption in the area which the plant is expected to serve is low and there is already sufficient capacity in that part of India to meet the expected needs for some years to come. Unless the market develops strongly this could turn out to be an expensive attempt to save foreign exchange. 221. One of the most important new developments for India's fer- tilizer industry has been the discovery of large deposits of phosphate rock in Rajasthan near Udaipur. Some preliminary work has been done to evaluate the deposits and some material is being mined by hand but a great deal remains to be done before a large-scale mining project can be undertaken. In addition to the mining itself there will need to be some beneficiation of the ore and there are also proposals for process- ing it into fertilizer of higher phosphate concentration. It is of great importance that these plans be pushed with vigor and care. E. The Mineral Situation Perspective 222. India is an important producer of some minerals - iron ore and coal are the best examples - and a small but potentially significant producer of others. Development has brought an increasing demand for mineral products. Today imports of petroleum, non-ferrous metals and sunh non-mptAllic mineralR as nhosohate rock and sulphur are costine - 75 - about $300 million a year and the prospect is for a sharp future in- crease in imports. Potentially much more of India's mineral require- ments could be economically produced in the country but this will take some time. On the other hand exports of iron ore and other minerals, today earning about $160 million, are expected to increase substantially during the Fourth Plan period. All in all, India's mineral development has not reached the level that the demand for its products and its po- tential would justify. In some respects it can be considered a lagging sector - costine more in foreign exchange and earninR less than might have been the case if more emphasis had been given to it over the past years. 223. There are certain snecial nroblems connected with large scale mineral development. It is usually a long and expensive journey from first discovery to commercial exploitation. There are high risks in- volved in exploration. One discovery may or may not be as good as an- other- One rAn he ton careful or ton reckless. The exnloitation itself must frequently be on a large scale to keep down costs, and in the case of irnn nre- my involve an interation of functions surh as minino. rail transport and port operations not normally required in other fields. The fact that the nr&anizt-en for minarol davlnnmant is h4ghly insti- tutionalized in India probably limits the pace of development. In some of the more spectacular recent minal deuelopments in other parts of the world the link between exploration and exploitation has been close, pressure on the enterprisa onerned to rach the market has hen severe and operations have been undertaken as an integrated whole from mine to conume * T- the Indian case, except for petroleum, exploration isa function of the Geological Survey of India and exploitation generally of In the case of petroleum, exploration is carried out by the Oil and iakLA % "o& umA O l , \L u ML.1 1 Lan t 1-=L A .LyLu.La, VUY 'J A. u .uUL& Ltd., a joint sector undertaking of the GOI and the Burmah Oil Company. 224. With the exception of parts of the coal industry, some iron ose mAncs, ungauec uinu,o a ujS parst of %tn alumutuMi ndusry, a small copper mine and smelter, and a large part of oil refining and ditrbtin 5.e mU'I LJf~Liner.&* al. indstr y 49 SUn LL5e puli sor ','-a+,W 1 recent large developments have been handled by public sector corpora- L.Up* aLLe cULpuLaUL Ao [have UeeH n L U LU LitmULLUL Umin-ium., copper and zinc, and to mine pyrites, iron ore, coal and manganese. In LLIC LA.LU UL peoULUW LheLe As a pUULiL secLUL cULpULMLftUX IUL WLACL.A1g petroleum products and several corporations for refining. A relatively rLcenL deVelUpWe has Uee tHE eULUALIWUCL UL JULIL IMULUL CAfCL1JLL0t in the mineral field. Two of the public sector oil refineries are jointly owneU uy tne overnment anu fureign private o c. pnumpaues au as menitioneu Oil India is a joint sector enterprise. The most recent innovation along these lines is the Kudremukh iron ore export project in ysore. it in- volves the Government, a U.S. ore development firm and several Japanese enterprises which will consume the ore. The project is still in the pilot stage. There is also approval in principle by the Government for foreign collaboration in recently discovered copper and lead deposits in Andhra Pradesh. - 76 - 221 e p o e s e I ddY.L 41bf MaL n.fl =U4.L* . =-r a l 4 LUd u0 1A Ly - LLA aqu r 1. nL, - jIsLp ialized skills and experience in new fields within the public enterprise A. a~WJ L~.L ~L .L .L .UIJJ L L lLL%-= .VLLIL. a .~LLL LICL U)CULL UU tained from individuals and organizations generally on a project by )JLIJJeI van±. moUmn LO L = oCLA FLUV4.U=U UY Uq.UmeLIL SupJpLx s. With the exception of the cases noted above, the contributors of exper- tse nave no stake in e pruject itself - LUougLI LUey may LU some cases have an interest in the operation of the equipment. This would seem to be an appropriate field for the furthe extenuion of the joint sector. The payoff in terms of technical assistance at vital points in project development would appear to be high. Looked at in the context of Indian development more vigor and perhaps even some daring would seem to be justified; the joint sector might be a useful instrument for bringing this about in selected areas. 226. In the following paragraphs the position of each of the major minerals is noted together with the prospects for development during the Fourth Plan. Petroleum 227. The production of indigenous crude from fields in Gujarat and Assam is now about 6 million tons; an additional 9-10 million tons is imported to feed the country's coastal refineries. The demand for products is about 16 million tons. The Fourth Plan program for ex- ploration and development aims to increase domestic production to 10 million tons by 1973/74. By that time consumption is expected to in- crease to about 27 million tons and imports to increase accordingly. It is planned to increase refinery capacity to handle the increased demand. 228. The estimate of reserves in the north Gujarat field has re- cently been reduced and accordingly the rate of exploitation is being cut. At the same time exploration is being extended to the shallow coastal water in the Gulf of Cambay where drilling is possible from a fixed platform. Construction of such a platform has been completed recently. There are also plans to increase drilling in Tripura at the far eastern end of the country near Assam. This is considered a prom- ising area because oil has been discovered nearby in East Pakistan. It is also very far from centers of consumption in India and although near the Bay of Bengal access to the sea is only through East Pakistan. 229. There is known to be a large formation in the deep water of the Gulf of Cambay, the so-called Bombay High, which is likely to con- tain oil. Drilling in this formation is a complicated and expensive process and requires a large investment in a floating platform. Over the past two years the Government has received a number of offers from foreign companies to drill in this area as partner or under various contract arrangements with various types of collaboratiod. At the pres- ent time a proposal to construct a platform with foreian technical and - 77 - financial assistance is being considered. Even assuming an early deci- sion on this project, drilling is a long way off and unlikely to start before the end of the Fourth Plan. 230. In addition to the search for indigenous supplies of crude, the Government through the ONGC has entered into a partnership with an associated company of ENI (Italy), Phillips Petroleum (USA) and the National Iranian Oil Company to undertake exploration in offshore areas in Iran. 1/ Oil has been found but it is a high sulphur crude unsuitable for use in Indian refineries without modification of the equipment. India's share from this discovery is expected to be two million tons per year. There is a proposal under consideration to ship some of this crude to the Barauni refinery in Bihar which can be modified to use it and which may require an additional source of supply. Some has been sold to Spain. 231. All in all the search for oil is being intensified in a careful and cautious way. Some new and promising areas are being explored. There is a study underway of the oresent state of exploration and information to assist in focusing on the most promising areas for new work and the ONGC has drawn up a 10-vear proaram budget. The collaboration in offshore Iran is an interesting development entered into at relatively small risk which could lead to other similar projects. Up to now exploration of the area that experts seem to think holds particular promise, the Bombay High. remains a nronosal. Its early exnloration by foreiln com-- panies on a partnership basis has not been acceptable, and the approach now under conAideration will take time. In the meanwhile pressure is being exerted on importers of crude to get the best price possible for the arowing unltum nf rpnirpments.. Non-Ferrous Mtals 232 The nr4ncinal non-farra metals vcat 4n Tndin nv& minitm copper, lead and zinc. In the case of aluminium a well developed indus- try already excists in the nrivate sector with onllahoration from nevernl of the world's leading producers. Capacity is about 160,000 tons now and pnaninna undernwa w411 ine-raqna It- rn over 1Mf)f10 tnna. There are further private proposals under consideration amounting to 120,000 tons.a in naddition t-here 4a ign nnnA #-^noa t%f e-an4tirtA rn-w pna-tiptr,4 T in two plants in the public sector with technical help from Hungary and USSqR. Ti- 4a wrmar-t-&A t-hat t1he t^tal n%^i 4r %%b-n-nmh the eMnd of the Fourth Plan will be sufficient to meet expected demand. In the case of co-e andiAc th -' resent high level1 of mport. (8000 ons of copper and 70,000 tons of zinc) are expected to remain during the W n . he ep---teA 5-row-tin in productio. n of copffer ".. -..C w.411 be about the same as the expected increase in demand. More domestic pro- A -f-4-- -f i--A 4- --f- =4-4 l .* 41 w o W 5 h D s GA -1 1 OXA .j."OL I. 1C r_8ICOUL t- b.J eS fS t-A h I a n d. 1/ Phillips is the minority partner in the public sector Cochin re- finery and NIOC is a m.nority -artne in the public sector refinery. - 78 - 233. The cooner Dro2ram rests on the completion of the Khetri oroj- ect in northern Rajasthan. This 30,000 ton project has had a long his- tory and there are still nroblems to be overcome before it reaches pro- duction. The original ore body is lean and may prove difficult to mine. A second richer denonit Rome dintance away will aso he uRd and this greatly improves the economics of the project. There are no doubt other denonits in that nart of Raiathan but avatematir exnlratory work has not been completed. The development of a deposit at Rakha in Bihar is under nnaideration. T- in lnntAd near the nlant of the Tndinn ronnr Corporation, a private sector enterprise operating the only smelter in the rmintr- 234A Thera in Alan A priart i-n it-a onrlvy ai-tgen fn-r t-ho a--l^4tn_ tion of copper and lead ores at Agnigundula in the Guntur district of Andhra PraAmah Thin anarently could hgala nren and 4mnrtnnt- pr4ae ..... 1 - - - * - - re - - - - - - - 12)- -11- I- - - - - r-03--E-* It is proposed to undertake during the Fourth Plan an extension of more detailed exploration. and to A-, upaf-1414l4-y udf- 41-de--1,y ment. 235. In the case of zinc a project is underway to double the ca- "acit-, of th Zavar mines se-,.,n- Hind,ustan Z7n's^la nt- t Deba near Udaipur in Rajasthan. At the present time the production from the mine ning at a reasonable capacity. It is proposed to double the capacity A.L Luc Pmc t an. U L ULcLuc AX .aos LutA u La U * USLUUL IS produced as a by-product of zinc smelting. The production is sufficient Lt mee I ALaUe LLJ a preoseLt uu Lnee X1 seco uL CuansmL A a jJLvokev C sector plant with Canadian collaboration, operates at Alwaye, Kerala, using imported zinc concenLtrate. 1t i. to be.ePandedU L LAIthe coastal smelter based on imported concentrates has been proposed for v.Lag (1ar). A uetalied project report is beiug uLwu up n L1A- p--A ect. It is proposed to be constructed with Polish technical assistance. A decision will be aken aDout this project Ln LIn ligHt of itb economic viability after completion of the project report. Pyrites and Phosphates 236. Growing sulphur imports have spurred the search for domestic deposits of sulphurous materials. One deposit of iron pyrites at Amjore in Bihar has been under development for some time. It is a poor deposit and there have been troubles bringing it into production. Recently a more promising deposit has been discovered in Rajasthan at Saladipura near Jaipur and not far from the Khetri copper mines. Part of this -area has been turned over to the Pyrites, Chemicals and Phosphates Corpora- tion, a Central Government undertaking, for development. 237. The Rajasthan pyrites are of particular interest because of the discovery in Rajasthan near Udaipur of a large deposit of commercial grade phosphate rock. There is a strong case to convert some of the phosphate into a more concentrated form in Rajasthan. Such conversion - 79 - requires sulphuric acid. Some is expected to be produced from the copper refinery at Khetri but an alternative source of sulphur is most desirable. 238. The problems in mounting a large-scale development of the Rajasthan phosphate illustrate the peculiar and complex nature of large mineral develooments. There is the problem of defining the extent and quality of the deposit, deciding upon a mining plan and (after suitable testine) a nroaram of beneficiation. Then there is the problem of dis- posing of the product. This involves deciding where the rock will be noraanpd intn fprtilizpr and makina annronriate nlans for the facilities that may be necessary and deciding where they should be located. A nund annrnArh tn thia nrnhlpm mAt tnke intn aeont the geogranhical development of demand for phosphatic fertilizer; the location of producers of phn%ahat-4 fart-ilipr uinina nhnhata rnrk and nrantn1 rtnatmpri mainly producers of nitrogenous fertilizer wanting to add complex fer- tilizer to their output;* and other possiblitie suc .ih as more concentrated phosphatic products such as phosphoric acid, triple super phosphate or amoltnphosphate which may be produced ne-'. *1 f .^I A fairly sophisticated level of planning is required if an integrated It is an important present challenge to the State of Rajasthan and to *u, va-R -L o A o k n VA - -_ -. 8 4 he Cen-al Goverum u w16 L may ve lu- ulII V4XJ..LU%AO WL801114aul. n1I LPL iC&I I .k LLLJ %YU CLIA~A nen LLL W"Y ~ volved. Iron Ore 239. The program for iron ore is intended to support a substantial increase in both domestic consumption and exports. It is planned aLmout to double total production during the plan with the larger part of the increased production going into exports. Exports would thereby double; with domestic consumption growing at a somewhat slower pace. Associated with the mining developments are port developments at Mormugao, Madras and Vishakapatnam to enable larger ore carriers to be used and loading to be accomplished more quickly than by the present methods. Inese projects will carry over into the Fifth Plan. The Kudremukh project already mentioned, involving foreign collaboration, will export through the port of Mangalore but is not likely to do so before the end of the Fourth Plan. 240. Although the ore requirements of Japan, the major market for India's ore, are expected to continue to grow rapidly, India is facing stiff competition from Australia and South America in supplying the in-- creased requirements. Although Indian ore is plentiful and of high quality, it is being penalized by high shipping costs because the size of ship that can be accommodated is small by international standards and the absence of facilities for rapid loading increases loading time. The port developments being undertaken are intended to meet at least partially the requirements for more efficient and lower cost shipping. - 80 - 241. The Indian ore export effort also labors under a handicap arising from a lack of real integration between mining, transport and shipping. Whereas foreign ore export operations competing with India are large and fully integrated from mine to ship, the Indian effort is broken up by separate iurisdictions for mining, transport and port operations. A recent study team of the National Mineral Development Corporation (NMDC), the organization operating the government's export mines, after visiting mining operations in Canada, Peru and Brazil has recommended single agency control from mine to marketing as is the usual practice in these coun- tries. It can be hoped that the time is finally propitious for imple- mentina this recommendation which has long seemed necessary. ?42? Tha coal nvngavnm has bean cniurccssiely ndiiiata ton .4arlinina targets. The Third Plan target of 97.5 million tons by 1965/66 proved to he qn4ta eesa4va Tn 1966 the then proaad Fourth P1n tarnet se 106 million tons by 1970/71. Production in 1968/69 actually reached 71 million tons and the aaen target for 19731/74 is 9l.0 m4114n tns Of this 68 million tons is non-coking coal only slightly in excess of the inds1arr' paraant caaecnt- ao the main effort of the program will be in the fuller development of several projects for coking coal to meet the expected demand from the steel indus try. *in addition thr m-sab projects for non-coking coal to meet the needs of specific power plants or othser heav- coal consumers in particular loc atio ns. connal1~ is more on consolidating and improving existing operations than on rapid exasin Ti-e probhlem. of. manuacturing coke. fn... __ n,. nl_ 4. f-1- sort of problem that is beginning to receive consideration. r . LLLIrui 243. The problems faced in the continued development of the elec- tric power industry are more tractable than those facea iu sucu sectors as steel, minerals and fertilizer. The generation, transmission and distribution of power is relatively well organized, the principal prob- lems are widely recognized and there is a steady growth not only in the size of the national system but also toward the more efficient use or the system particularly by integrated operations of regional grids. There is much room for improvement in this last respect but still it is significant that the physical problem of planning and constructing power systems is well in hand. Supply has generally been adequate over the years except in limited areas and during emergency periods following breakdowns such as recently occurred following an earthquake in Maharashtra. The overall growth of the system has been rapid and sustained. 244. The use of electrical energy has grown at a rate of about 12% a year since 1950. Peak demand has grown at about the same rate, and installed capacity at a slightly slower rate. At present the peak de- - 81 - mand in the country is estimated to be about 11.3 million K.W. The in- stalled capacity is about 15 million K.W. (Since about 6 million K.W. of capacity are in hydroelectric plants where generation depends on the level and flow of water the firm capacity of the country is appreciably less than 15 million K.W.) 245. During the Fourth Plan it is proposed to increase capacity from 15 to 23 million K.W. This amounts to an average rate of 9% a year It hna heen assumed that thin ernansion can sunnort a more ranid growth of energy use and peak demand by the more efficient use of ca- naritv. The natumed rate nf ornwth of demand and AnAerg in 13.0% Rnmi- what higher than in the recent past. There is a measure of optimism in the na tinn-4nn t nt the nlnnnad vnqnninn nf rnnnritv wi11 he Adonnate to handle the expected increase in demand. 246. In addition to increasing generating capacity the plan provides l arge --!locnan for. trannsmuission adistribution a. nd r-a,.l ala .*r-J4 4, tion - roughly 50% of the plan is allocated for these purposes. This is the recognized need to achieve a better balance between generation and in.Oungg schemes now unuC-y W.LL nU. U- LUm- pleted until after 1973/74; it is estimated that almost 3 million K.W. are iu this category, anu audtioUal scheme will have LU ve taken up during the Fourth Plan period to provide for the capacity needed in the Fifth Plan period. In this respect the Plan allocation may be somewhat less than adequate. During this period additional capacity requirements may be anywhere from 13 to 20 million K.W. In implementing the expansion of the system financial resources appear to be a greater limitation than project preparation. 248. A great deal of the equipment required for the expansion pro- gram can be supplied from Indian factories. Some important exceptions may occur in the transmission program, where the requirements for aluminum cable may develop more rapidly than domestic capacity to produce aluminum. it is also possible that there may be difficulty obtaining steel in view of the general shortage that has recently developed. On the other hand little is heard of the earlier concern with keeping the domestic pro- ducers of heavy equipment fully occupied. Capacity to produce hydro- electric equipment is booked well into the future and with an appropriate scheduling of orders to meet expected needs for thermal plants there is no great concern with keeping production at a reasonable level. 249. A number of measures are underway to improve the operations of the power sector. There is a continuing program in the integration of systems both within states and between states and exchanges of power are taking place in increasing amounts. There are also plans for the in- tegrated operation of regional grids, much more than just periodic ex- changes of power, but these will not be realized until the Fifth Plan. - 82 - 250. In addition to the direct plans for improving overall operations by integration there can be expected to be some improvements from the con- tinuing pressure on the various State Electricity Boards to increase their returns. The drive for the Boards to achieve financial viability arose from the recommendations of the Venkataraman Committee in 1964, which were accepted as an official objective by the Government, and made a condition of the IBRD power transmission loan of 1965. Thus far the Boards have been unable to reach the rate of return target originally agreed to. Under the revised targets it will be 1973 before any sub- stantial number will be able to reach the goals. This pressure -to in-- creasing returns should stimulate some increase in system efficiency which can serve the purpose as well as increases in rates. It appears that this sort of a reaction is not as strone as it might be. The re- cords of the individual electricity boards vary greatly in this respect, and a Power Economy Committee has been set un to suggest measures for improving efficiency. Its report is expected late this year. 251. Rural electrification is to be given increased emphasis by the nrnviginn of a new Aource of funds for thiR nurnone nver and Ahove the central assistance directly available. The funds are to be administered by a Rural Electrification Cornoration followina the recommendation of the All India Rural Credit Review Committee. The funds are to be al- lArArea on A nvniprt AnrAArh r-n fvAtp plptvi-ritu hAA-d4a fn fi"Anra specific schemes of rural distribution. The funds are to be lent at lona term for ashames that can anrn a return at ovan aeonomIc rates for power. The terms to the boards will be somewhat easier than the usual commeIal loanna from $hG -arnwm.- or other financingInatIet- tions but the assistance is not meant as a subsidy but rather as an -dditi-*4nal. i n'ant-nmn rer a ndA abovea the St.a Pl an oay.s . to accaelerae a the progress of rural electrification. Trans LLBporL I..Lon, The Present Position 252. In a country of India's size and population the transportation requirements are obviously very large. rast iUvestmeUs Uave been very substantial, absorbing over one-fifth of the total investment in the economy and one-third of total public outlays during the period of the first three plans. The present system includes 60,000 route kilometers of railways, over 300,000 kilometers of surfaced roads and ports handling nearly 60 million tons of cargo a year. The railways have absorbed a lion's share of the resources partly because of the high priority given to the movement of bulk commodities for heavy industry which was being built up during the 1950's. The importance given to rail transport was probably appropriate on more general grounds, since the creation of a comprehensive, unified, national rail system presented fewer problems than the development of an equally good system of roads and road transport. This was because major decisions on both highway expenditures and road - 83 - t~axaton L ay wLih tLUe Stte rathCer thaenL LL1e C'ne whle.J~ aJll rail i vestment was centrally determined and financed. However, in recent years, freight traffic on the roads has been growing muc faster than on the railways, and an increasing proportion of total investment in transportation has been going into roads and road transport. 253. The large amount of resources devoted to the railways has pro- duced one of the largest railway systems in the world employing about 1.4 million people. By international standards the system is reasonably well run. Indeed in terms both of net ton kilometers moved per year per ton of freight capacity and in terms of average utilization of track, the Indian Railways are second only to the Japanese, though other indi- cators are less favorable. The recession caused freight traffic to stagnate between 1965 and 1967 but upward growth resumed in line with the industrial revival in 1968. Growth slowed down again during 1969/0'0 when the increase is expected to be only 5 million tons instead of the 8 million tons which was forecast. This was despite the fact that over- all industrial production probably rose faster in 1969 than in 1968 and is largely due to the shortfall in steel production causing a correspond- ing shortfall in the tonnage of both raw materials and finished steel products carried by rail. However, general cargo, particularly foodgrains, also grew less fast than expected. 254. Although some of the rate increases originally proposed in the Railway Budget for 1970-71 have been withdrawn because of political op-- position, the remaining changes will result in a roughly 5 percent in- crease in revenue and should reduce Railway recourse to the Government for financing capital expenditure. The measures in the revised budget are expected to increase revenues by Rs 260 million leaving the railways with an operating surplus, before paying the dividend to Government, of Rs 1,760 million in 1970/71 as compared with a surplus of Rs 1,460 mil- lion in 1969/70. After dividend payment, the railway budget surplus amounts to Rs 100 million which, if realized, would contrast with the small after-dividend deficits of recent years. The tariff structure will also be somewhat improved by reducing the degree to which passenger services are subsidized by freight services and also. within the freight rates themselves, bringing charges more in line with the costs of pro- vidine the different freight services. In addition, the lone distance rates for bulk commodities will be increased by more than the shorter distance rate. ThIR in a nod move. since the previous rate structure tapered off so much with distance that the transport of coal, for ex- amnle. on1v envered Its full irnata over diatnt-ea tinder 1-000 km. Thi. combined with uniform railhead pricing for commodities like cement, Almnat- rwrtAnlw -in thP T%ARt- 1PA 1-n tho nnevr le%nt-inin nf I-Art-Ain ivreila- tries which did not have to pay the full economic cost of transporting their inputs over long dstancesd However, further progress needs to be achieved in measuring costs and making rates responsive to them and to ecnoi conSi-dr-ston - 84 - 255. In contrast to the slow growth of rail freight traffic, the transport of goods by road has been rising relatively rapidly. Ten years ago the roads were carrying only 16% of the total road and rail freight traffic. This proportion has now risen further and is expected to continue to rise in the future. The rapid growth of freight traffic on the roads has taken place despite heavy taxation of road transport. This is a difficult problem since a substantial amount of revenues arise from vehicle taxation. These revenues would be hard to replace if motor- taxation were reduced. Although the licensing of commercial vehicles has been liberalized and progress made in reducing restrictions on inter- state traffic, the efficiency of road transport is still markedly reduced by the number of checkpoints within each State, and by the octroi posts where municipal vehicle taxes are levied. The Central Government is working with the States to see how the number of checkpoints can be re- duced and octroi eliminated, but so far only very limited progress has been made. 256. India's eight major ports, which are administered by statutory Port Trusts under the Central Government, handled about 57 million tons of traffic in 1969/70. Bombay is by far the largest port, handling nearly twice the traffic of the next largest - Mormugao. The most serious prob- lem faced by India's ports is high ship turn-around time due to slow cargo handling practices. These delays increase demurrage and reduce the com- petitiveness of Indian exports. Port finances and to some extent port output suffer from other inefficiencies in port operations; one notable example is the low utilization achieved by Port Trust dredgers. India's port facilities are unable to handle the large bulk carriers now being introduced in international ocean transport. The completion of deep draft facilities for large vessels is an urgent but expensive task. 257. Many difficulties are attributable to the present organization of the Port Trusts and their relation to the Central Government. These may well need to be changed both to improve port management and to ensure appropriate long-term planning for the port sector as a whole. The Gov- ernment has been fully aware of these problems for some time and in 1968 set up a Commission to study all aspects of the working of the major ports. The report of this Commission, which is due shortly, may well nrnvidp thp hAci% fnr fqirlv eyrpnnivp rhannA ro Pnnh1p thp norrn tA meet the increasing demands on them as efficiently as possible. 258. Civil aviation has also been expanding rapidly to meet increas- n demand Here the io toresvn Boetn 7s frece bn hem- solved with the decision to order seven Boeing 737's for use on the middle dt.L ancet d4.JUoetic routes. - 85 - Future Prospects 259. The allocation of investment funds for transport during the Fourth Plan continues the recent shift from rail into road transport development. As a proportion of total public outlay on transport, rail- way investment 1/ after coming down from over 70% in the Third Plan to about 50% in the three subsequent years, is projected to fall to about: 40% in the Fourth Plan. Conversely, the proportion allocated to roads will increase from 22% in the Third Plan to 34% in the Fourth Plan. In the light of the recent slow growth of rail freight traffic, the draft Fourth Plan forecast of an increase in rail freight tonnage from 209 mil- lion tons a year in 1969/70 to about 280 million tons in 1973/74 is now beinR reviewed. Whatever the final figure, a major element of railway investment will be the renewal of over-age equipment and replacement of steam by diesel and electric locomotives. 260. Tn contrast to a relatively modet arowth In rail freicht traffic, the burgeoning demand for road transport services is almost cartain to Conntilmn- The "green rPvolutinn"_ with thp ranultina rice in rural incomes, creates a powerful demand both for more and better rural rnAaC tnuathar with mnrnaivj rand trananvrt arvio_ Thamp Avo needed both to get the increased food production out and to get consumer goodsa 4in Tis4 latter point is verny importnt snce good price inen tives for increased production are only really effective if the farmer 41 k abl to speA 4 nf.n ..aanas. n,4.4 n. Tf- 4a .1-aa, appropriate that the Center has persuaded State Governments to agree to eaark1 faout 15% -4 total ^-.* "^.a nA A.,aInnmntoy. fa. r.-al "o-As w.. , usJw .L. .Jdb wL I U. -- _11O -&f G-M OFU L -01 LM -1 X--- Careful planning will be needed at the state level to ensure that this ICT in speut in tue places where 4& uaews le utu *--auLuu aft5 .50 JL L L U&I ~ jJ.0 W&A~L L~5. MI0J~ L. = L=*JL.55I5.M I..& L. J. LP" A .L &L 1.%J rural development. 261. The other main emphasis in road investment will be filling in the. missi.ng 1.lnk .-A 4-p.',a.4a 1. .,44.a- A44..n.Cn,41. 4.- *fl. If OA.& ,n a.. .- .-V-n,ft the. naioal C-tic from th state,~ highway system. Of the total 24,000 kilometers of national highways - double-laned. During the plan period it is hoped to raise this propor- tion substauntially anu alsu improve tsuhuuudurs on tae remaiuiug one- lane roads to speed traffic flow and to increase capacity. It is impor- tLnu Luth Lue relative priVurty ULVI UL LAI pJUPLVVeULenU W.LLLu.Lnu ne n- tional highway system and of investment in national as opposed to state 1/ Excluding investment financed from depreciation funds. aue Local nignways De caretuily examned. vOtner questions wnich need further study are, first, whether road specifications fully take into account the relatively low cost of maintenance of roads and trucks given fairly abundant labor and, second, whether the labor employed in road building - where labor intensive construction methods are widely used - could not be better organized so that productivity is increased. One problem here may be the practice of awarding a labor contract to the lowest bidder, even though the low quality of labor he employes may result in a longer completion time thus delaying the benefits of the road. Basically, the improvement of efficiency and organization of the road contracting industry needs encouragement. 262. There is little doubt that rising demand, particularly in rural areas, will create a need for the big expansion in the commercial goods vehicle fleet from 300,000 in 1968/69 to 470,000 at the end of 1973/74 which is projected in the draft Plan. To achieve this without recourse to truck imports will involve more than doubling commercial vehicle production over the plan period. This will be difficult but perhaps not impossible to achieve. Important requirements are both the financing of manufacturing expansion and the provision of hire- purchase credit for commercial vehicle operators. 263. The draft Fourth Plan expects the traffic handled by major ports to increase from just under 60 million tons now to 90 million tons in 1968/69. Most of the increase is expected to be in bulk com- modities such as iron ore, oil products and fertilizers (both finished and raw materials). This means that, despite the scope for using the existing general cargo berths more intensively, substantial investments will be needed in specialized handling facilities. The expected in- crease in traffic in these commodities also means that draft limitation could be a serious bottleneck if the ports cannot handle the larger vessels. Fourth Plan investment, which emphasizes particularly the handling of iron ore traffic, is concentrated mainly on the deep-draft port development at Haldia, the outer harbor at Visakhpatnam, and on Madras and Mormugao. It is important that the relative advantages of domestic and foreian procurement be carefully examined in each project to make sure that completion - and hence the reaping of the benefits of the new investment - is not unduly delayed. Finally any action stemming from the report of the Major Ports Commission which will speed un the execution of nort projects should be taken auickly if the nort investment program of the Fourth Plan is to be achieved. The planned Ananditurp in Ra 19.5 hillion. not Inrluding annroximately RR 10 bil- lion to be spent out of the Port Trusts' own resources. - 87 - 264. The Fourth Plan calls for substantial increases in outlays for civil aviation and tourism, both of which also contribute directly to foreign exchange earnings. In civil aviation, now that the basic decision has been made on the equipment for the internal medium distance traffic, the opportunity exists for further rationalizing of internal air routes. Much of the investment for civil aviation in the Fourth Plan period will be for additional jets both for internal and inter- national service and for improving the ground facilities at airports throughout the country, including the accommodation of the international "jumbo" jets. 265. In general, if it were not for financial constraints, there ounld nro-nh h ann fnr invour inventmenta than eonntemnlared in all areas of the transport field except the railways. In particular, lare amonts, alA cu amost -tetinly be seafully annt nin rural randa and on investments to ease the urban transport problems. The latter are of money needed to make a significant impact will probably turn out to VII. URBANIZATION Urban Congestion 266. According to the 1961 Census, 79 million people, or 18% of India's total population, were living in urban areas, of these, 35 mil- lion were in cities of 100,000 and over. Seven cities had populations exceeding one million, and the Calcutta metropolitan district and the Bom- bay metropolitan region had populations of 6.7 million and 5.3 million respectively. At the other end of tne "urban" scale, only 1o.O miL.lon lived in towns of less than 20,000 inhabitants. 267. An examination of earlier census results shows that over the 60 years 1901-1961 the urban population increased just over twice as fast as the total (see Appendix Table 1). Urbanization was especially rapid from the 1930's onwards. In the 1930's and 1940's the urban popula- tion arew by 32% and 41% respectively. In the 1950's. despite a faster increase in overall population and contrary to most expectations, urban growth was somewhat less than in the preceding decade, with a 36% rate of - 88 - increase; 1/ but this was still about twice as fast as the increase in rural population. On the whole, the larger cities have grown a good deal more rapidly than the smaller towns; a notable exception was Calcutta in the 1950's, when growth of the metropolitan districts was only 2% p.a. on average - less than the growth rate for urban India as a whole and half that of the Bombay metropolitan region. 268. The record of urbanization in the 1960's will have to await the 1971 Census findings. However, there is nothing to suggest any slowing down. On the contrary the Planning Commission has forecast an urban population in 1971 of 111.6 million, which is 32.7 million and 41% larger than in 1961. Of the big cities, Delhi will probably show the most spectacular growth, with a likely population of about 4 million compared with 2.3 million in 1961. The growth of Bombay has probably been slower than in the 1950's, though still faster than Calcutta which has experienced about the same rate of increase as in the previous decade. 269. Making projections of India's urban population is fraught with pitfalls. To begin with, the "models" derived from the developed countries' urbanization experiences, which demographers are apt to apply to India, may not have much relevance; and secondly, insufficient information is known about rural-urban migration in India and its causes, or of mortality/fertility differentials, 2/ to construct a theoretical framework applicable to India. The following is by way of illustration. The Fourth Plan Draft forecasts an urban population of "nearly 160 million" in 1981 out of a total popula- tion of about 700 million; this would be twice the 1961 figure, and 23% of the total. If this proportion remained constant thereafter, and assuming optimistically a total population of 870 million in the year 2000, 3/ a further 40 million would be added to the urban population by that data. Tf on the other hand the proportion increased to 27%. which would roughly accord with the past trend, the additional urban population would be 75 1/ A comparison of the urban population figures in the 1951 and 1961 censuses in, fac showsan increase --f only, 92y Howevr,pr in the 1961 census a more rigorous definition of "urban" was used than 4n the 101 or earlecensuse. The - m a nritnir4 an timto that on the 1961 definition the 1951 urban population would have bee 51. =.411ion. rater. thn th.e official figure~ of 62 .4 million;~ and this would imply a 36% growth rate over the decade. 2/ All that can be said, with any certainty, of birth and death rates CLaRSULL.Leu -n LULal adU ULUa UaDis is LaL UUh aLe lUWeL - urban areas. (At least part of the difference in birth rates is due to the preponderance of males iU the tOwns, i.e. fErtlJity rates are not dissimilar.) Their relative magnitude and movement over time are quite uncertain. 3/ Estimate in Fourth Five Year Plan Draft, p. 31. - 89 - million. The latter would of course be higher if the total of 870 mil-- lion nroved too ontimistic: thus. for example. on the same proportion assumption, a total population of 950 million would imply an urban popula- tion of 297 milllon. about 100 million more than the Fourth Plan Draft forecast for 1981. One of the determinants of the outcome will be the capacity of thp agricultural %otnr to absorb new labor- for unemnloved rural labor will doubtless be forced to move to the cities. As it is eeA 4n the chnter on Emlom,ent, the -rnSnprrq in thig rpqnprt are not altogether gratifying. 270. While the numbers are impressive, Indian cities are more than lust feo- api phenomena.4 They% kairpavirt-al deornl p fivintf-4n especiall for industry and foreign trade, and they contain much of the country's soci.all anUd. phnysic.al infr&ascture t~. TLs. hsng been arged#-av...a 4---.1 development would be better served and its effects less harmful, if there we mute moLUuA.L&u LmoLre, AL med llum- Usi a. u.8 kne1 A un-a*LT u more market towns to serve as growth points in the countryside. 1/ The aL umUL 5 MCU URVA HI c.LLU A C LM.LL LL LaVUL UL 0111a.L. al&U jI=UULUUK M.Le.=U cities needs to be encouraged; "decentralization" has long been a principle Of 001 policy but by and large it has not had any great effect. Neverd.he- less, given the existing distribution of cities, with one striking except- ion, they do appear to perform their economic functions tolerably well. Calcutta 271. The exception again is Calcutta. Here, there has been a visible deterioration of urban services and amenities for some time. While this is to some extent attributable to the relative stagnation for other reasons of the Calcutta economy, yet at the same time there can be no doubt that it is eroding the city's etenomic base. Traffic congestion and deteriora- tion in Calcutta's port facilities affect industry and trade directly. But perhaps as important are the appalling quality and lack of shelter - 100,000 people (admittedly many of these migrants) are estimated to sleep on the streets nightly, a declining supply of potable water and the serious inadequacy of the sewerage and drainage systems and its attendant health hazards. These factors, together with a large, and increasing, unemployed labor force, 2/ have made for an explosive political situation. Labor unrest, insecurity in respect of life and property, and the apparent inability or absence of intention on the part of recent State goverments to take 1/ See, for example, J.P. Lewis "Quiet Crisis in India", Ch. 7; and N.C.A.E.R. "Market Towns and Spatial Development in India", 1965. 2/ In 1961 the completely unemployed in the Calcutta Metropolitan District were conservatively estimated to number 170,000 with 330,000 additional employed on a marginal, part-time basis. In 1969 industrial employment in the CMD had not risen above its 1961 level. - 90 - effective action, have undoubtedly been a deterrent to new investment. For- tunately, and presumably for the same reasons as enumerated above, Calcutta's population has grown more slowly than other large cities. 272. In 1960, a Bank economic mission analyzed Calcutta's situation in much the same terms, and urged immediate action to arrest the decay. 1/ In the ensuing decade too little has been done. This was not for want of adequate planning; on the contrary, a planning organization was set up in 1961 which produced a comprehensive development plan for the twenty years 1966-1986, with specific proposals for 1966-1971. The plan called for expenditure of Rs 1 billion over the latter period; in fact only about Rs 600 million is likely to have been spent. This was partly through lack of resources (and because of Calcutta's physical limitations and topography most schemes are very expensive), but more fundamentally because of political and institutional difficulties. The governmental structure in the metropolitan district is broken into unusually numerous fragments - there are 3 municipal corporations, 31 municipalities and a variety of other authorities: and there is a multitude of government agencies, lacking in coordination and often working at cross purposes. Metropolitan-wide Aurisdiction. or at least a high degree of cooperation and coordination, is necessary in a number of fields, and without them the implementation of the plan has been severely handicapped. The plan placed great emphasis on this aspect, and made a number of organizational proposals; but of these, only one - the Rettina un in 1966 of the Calcutta Metronolitan Water and Sanitation Agency - has been implemented, and so far even this has been inactive because of its innhility to obtain agreement from the various jurisdictions for taking over their water systems. 273. A new program comprising Rs 800 million of outlays has been proposed for 1969-74 of which accondino to the Fourth Plan Draft, Ra AAA million will be contributed by the Center and State. On account of the reouc stingencie,4s at- the,~ mu-.ineal Onv,A Of t-I-t lD 7jI - %!3V74 ne (V n",M- Central assistance - and in view of the apparent declining influence of the plann oraniatio itself an t-h- A4..&a,, 4" h im,inje-4nnI ndf state governments, the achievement of even this smaller program seems LL L% y , CXLIU L.Ll= chances.~ of dMingA mor tha s . .J -1, 4L 1 situation look bleak. In view of Calcutta's important preponderance both as an iustia center andL~ auu expotin base, 4/ IC Z%L_U2L1& Ot_.1.LC not only for the city itself, and for West Bengal, but for India. 1/ Report of Bank Mission to India, August 10, 1960. 2/ Calcutta produces about 15% of India's manufactures; about 40% of all exports and about 357. of imports pass through the port of Calcutta. - 91 - Urban Programs 274. The emphasis on Calcutta does not imply that the communications network and housing, etc., in other towns and cities is in any sense adequate. But they do not seem to pose a comparable obstacle to growth; and other large cities, where the problems are generally most acute, appear to have a greater capacity to deal with them. This is certainly true of Bombay. Madras, Ahmedabad and Delhi. Most of these have drawn up some plans for development over the past decade, which are being implemented with some, if varvine effectiveness. However, at least on the most pessimistic projections of urban growth over the next 30 years, they will be hard pressed to prevent a Calcutta-type situation developing. 275. It is self-evident that the living conditions of much of the urban population - and particularly in the large cities - are deplorable, even thouah the novertv of the bulk of rural inhabitants - if less strikine - is generally greater. Part of it is of course due to unemployment, under- AmnlymAnt And low waaaa hut alao there are huap defiriti in housing and other amenities. For example, in its annual report for 1968/69, the Danartment of Wnrks, Hmnin and TrhAn )aualnpment antimat-a the rnrrPnt housing shortage in urban areas at about 12 million units. Though the As f4nz4 t4 nrim o%.f lahn.vf-aea a " 4 a vw%t- 4.i a a % - t M21 imt fnv at2ih n hne-1-1n ---------- s. no car, to make n would cost at the very least Rs 70 billion, 1/ which is twenty times the amount snt -klC4 sector h-s.n4 scheme the whole a Additional urban population, assuming it is 50 million in the 1970's, would S,uire U rt lC X1 OU 4U1 11& n una.. S41h t a tB a 0 8 &Wf _W 00 S A---f "-av year. 276. It would require a tremendous growth of domestic savings for amounUs even appacUhnug uhes magnitues oU Lu Jusifnauly alelced tu urban housing or other facilities over the whole of India, given the cumpweng umand u or rsource - not 1eftSt iu CK ne bura ector. uL course, a good deal of housing will be undertaken out of private savings, but public sector schemes, whCh UaW pCL--- MsL HMOU WAA VEA constrained by the shortage of resources. The Fourth Plan Draft allocates Ju tae puuA scour nw 400 "aJxOon Lor urban water suppy unu UnuLLaLson, and Rs 1,710 million for housing and other urban development schemes. InougU tLs is more tuan was allotted in tue unird Plan, it is recoguied that it will have only a small impact. There is also concern that Central Ussistance for nousiug scuemes wdill on diverted to other projects saice it is now made in the form of block grants and loans; even in the past, 20-30% of such funds appear to nave been diverted. in an attempt to augment resources for urban development and to help overcome the problems of 1/ At Rs 6,000 per unit for minimum low cost shelter. This is an optimistic estimate, since unit costs in the past, at least in the public sector, have been higher. - 92 - "resource diversion" the Government will shortly set up a Central Housing and Urban Development Corporation. The Corporation's objective will be to borrow domestically and abroad and to finance urban infrastructure and housing schemes. 277. Hitherto, unit costs of public housing schemes have been inordi- nately high. Costs have been approximately Re 7,000 per unit on average and are now rather higher. The National Buildings Organization. a Central Government institution, is engaged in research into new technology and materials; also, the Government of India has lowered its sights with respect to the standards of public housing from a basic two-room to a one-room unit. Efforts to reduce housina costs need to be pushed further so that the available funds can at least be spread more evenly; this will require effort particularly at the state level, since housing is basically a state concern. 278. Ultimately only economic growth, particularly in the regions anrrandinv and away from the maior urban centern will "anlve" TndiA'a urban problems. The stimulation of employment opportunities outside the maior cities seems essential to stem the flow of migrants to them. The planned development of small and medium-size towns, with State and Central assistane, may -ll he rennired to nrovide a ine-aaVy ent2ntarrAlOht- But on economic - let alone human - grounds a rescue operation appears to be necessary at least for Cal t t n and before tn lang perhaps for Rmbay as well. They cannot wait for economic growth at its present rate; indeed thev mav h-a toaav o 4 VIII. EMPLOYMENT 1)> 'M -1us Ja known abutu em-ymu -uZueua snsnsu 4 17 0 L...LL. L ..L LML L U U'. Llyment. Ln U .L LL LL. L.&L= LOUIS= Wi. estimates for the future is exceptionally wide. It can be said with reasonaue assurance Luha. tne 15J57 age gouup, frum whm uh labur foucb is drawn, 1/ will grow by approximately 60 million between 1970 and 1980. The participation rate is commoUly tamen to be about 7u; it may oe rising, as more women enter the labor force - though there is some counteracting tendency of more young people staying Longer in education; applying this rate as constant - which it is probably not - the growth in the labor force in the next ten years will be about 40 million. On the same basis, the present labor force numbers about 200 million. 1/ The reason for this choice of age group in official statistics is not that people do not start to work before the age of 15; it is rather that within these years people are more likely to have than to be dependents. - 93 - 280. Relative freedom from uncertainty ends when one tries to move beyond these facts. There appears to be little point in attempting to estimate unemployment levels in terms of the concepts of Western economics textbooks; and unfortunately such figures as exist have been collected with these concepts in mind. India's employment problem may be posed in the form of the following question: how many people (or household) can now obtain a means of livelihood and how many will be able to in the future; to answer these questions, one would need data on how many neoDle are working, and at vhat and for how long, and for how much, they work. Such data, even nartial data. searcely exist in even the most rudimentary form. 1/ To give a thumbnail sketch of the Indian labor scene, one would first look at "rural" labor, which has remained a more or 1nn ennatant 702 of the total between the 1951 and 1961 censuses. The bulk of this section of the lahbor fore ia in norinulturp - the laraat nuomher haina farm fSamiliAa (with or without secure tenure) cultivating with unpaid family labor accord- oto the -m nattern of the op, rotation, and hiv4ino Inkbo -_ _rUzin periods or - especially in the case of those with very small holdings - ninn1mant4na, thIpir eun 4inmia-ea w4th %n4A Inkn- almannhaira- Tha mimhe- of "landless" laborers is put at about 40 million; their main income comes Fvnm unrk n the ngalr aanmadna anA vnnw ha na4A i." f-e% AA vo -enr 4in 1411d - ok the r-- -- .r - P-1- UP -- O ri many of them supplement their incomes outside the periods in the fields with various k,ns of pa4A -lployment In the -411 ages or remaining 30% of the labor force is in manpfacturing industry or in the force also includes a large number of people in non-agricultural pur- note the existence of such things as the "jajmani" system, a caste-related "borus yost under -wL1serawvicse are performed withut rlatnku to payment mLuU L~J IUL WILA U L .LL J~LJ U .HiI L. L L L.A.J L t.7I~I and payment made without relation to services; also sample surveys have @ILJWL A~ L.Y L14426 UP . L WUUL± IV UL;Up4L.LVL1Z W UL LA&CLL LLICY swn not on"-ty ua - pue -- sUmmOnly n11eve SOnevera' cuaan, u utsc both change frequently within a year the time they spend on each, and take up new occupations frum one year to mhe next. i is sucu features as ee which make normal notions of "underemployment" and "unemployment" inappro- ,)all. T'tt'e L 1-nwn fU tne peUu empluymuent position or auu now it has been changing in recent years. Some illustrative facts can be quoted. Peak season rural hired-labor rates as high as Ras 8 per day or even more have been observed in the Punjab; but this is the region of the most rapid rural growth in India - and not only is agriculture growing rapidly; there is also considerable growth in the manufacturing, servicing and repair of farm implements and other goods, so much so that observers speak of a shrinkage of the landless labor force in the Punjab (though the suggestion of a labor shortage generally in the Punjab is true only or the peak season in some agricultural districts; there is no lack of labor in non-agricultural employment at rates of a 2 or 3 per day for most or 1/ It is honed that the 1971 cansua and other aurvva will haln to fill this gap. A Government Committee has just submitted a report tackling the nroblem of what infermatinn ahnnlif ha -ol1eteA and how. - 94 - the year). One should not be mesmerized by the Punjab, whose "success story" has been repeated only in a few areas elsewhere. In towns in Eastern U.P., small workshops can engage labor at 75 paise per day (10 cents U.S.) - migrant landless laborers who prefer such a rate on a daily basis, with a meal and a place to sleep, to the Rs 1 or 2 (with some additional payment in kind) they can earn from farm work only irregularly; they also have expectations of rising to Re 2 or more per day after a year or two. Payment on relief works in different parts of India ranges from Rs 1.50 to 1.75 including any real payment. Averages, or distributions showing numbers of population at various levels of income, however, do not exist to enable one to tell how characteristic these rates are. Studies in four States (Punjab, Madras, A.P., U.P., - i.e. both fast and slow-growing States) showed that between the 1951 and 1961 censuses the number of days worked per year by rural laborers decreased quite substantially (by 50 days - to 150 - in U.P., and by 20 days - to 220 - in the Punjab), suggesting that the volume of work was being shared out amongst growing numbers of people. 1/ 282. The evidence on rural livina standards is very diverse. Since 1950/51 total agricultural output has grown by roughly 3% per year; but the great bulk of this growth has taken place in about one-quarter of India's 330-odd districts; and within districts, the larger holdings have had bigger gains than the smaller. During the last 10 years, while wage rates have risen, prices (particularly the price of food which accounts for between 60-80% of low-income budgets) have risen faster. Observa- tion suggests that except in some districts of Punjab and other States the level of livina of those who depend on wages for the malor part of their incomes has not improved in recent years, and in some places may well have deteriorated. (The wholly or nartly wage-denendent section of the rural labor force has been estimated to be of the order of 80% or mnrp- in Andhra Prqdeh_ Madran And U.P_. and anut 507- in Puniah/Harvana 71 283A. One might nak hnw. it in nnRnihlp that rhP working ye-ar ensildI shrink, or that large sections of the public could become even worse off. The 10A1 rnnav aooeted that fnr many npnnp the wnrking year wn Alronti extremely short. There are a variety of possibilities. Firstly, the data -may not be accurate..v Scond!-Al, it4 is vnot k.vnown to, wha1t extent labrersv can make up in off-farm employment what is lost in farm employment. 3/ A 141,-ely explaatio - i,.. w. .hat. might bee4 ha*-,.A tka lf4"^- 1 ^ Tv.A4 w-ell - _ - .7 - U .-s i m..i .. . , . ~ a , . s U fSa - - - - - - - -nd i a . _ _ 5 _ The caloric requirement for a working day is considerably higher than that ora sedentary ucay. TM&us when.. le.- ork issE ava.lable,~ t.e- work,.ar j-at JL it may also ue L[uaL Oums ULLpa.LU LUM..y LftUWL to Cx2itiug Lurm the laoor force. 2/ Data from 1961 Census. 3/ Presumably not much, if the reason for the shrinkage of the working year was the increased supply of labor. - 95 - stretches out the period during which he survives on the sedentary require- ment. 1/ 284. As far as urban and/or manufacturing employment is concerned, the only "hard" figures are for public sector establishments and non- agricultural establishments in the private sector employing 10 or more workers (including services). These show an expansion of numbers employed from 12.09 million in 1961 to 16.33 million in 1968. 2/ Since some of these establishments are not in cities, and the labor force in urban areas is of the order of 60 million, this simply means that nothing is known of the extent of employment in small-scale industry, commerce, domestic service, and all the other large variety of occupations by means of which men and women in India make a living. The Uncertain Future 285. About future trends in employment it is extremely hard even to hazard a uaess. Evidence on man-hour inputs suegests that a rate of a2ri- cultural growth of 5 - 6% per year could allow direct agricultural employ- ment to grow at a rate similar to that of the aaricultural labor force: direct employment in the organized sector has been growing by some 3% a year and t-hprp in no reason why thin growth should not continue or even increase - but the organized sector is scarcely 10% of the total labor fnvraa An for InArAIV anrated *mnlnvment_ the amall-neAli Mprrnrt commerce, services - next to nothing can be said; one should beware both of alarm4s anA asoth4n foeaat - - a4,ninly An not knw_ One rAn nnint to trends in production and distribution which create or displace employ- ment on- can ay that muc-h lhmr do need uananaaAhrmly h Y nhm say whether future growth will make more intensive use of labor or multiply growth in agricgltural and manufacturing output to employment directly anu iuuirectly genurae', tne magnitues O.C ax 1.uw1n 1- . un wu -va UU ~L U.LLILL ~ULLU, "I UI~LL~ L LA.e.LY gro5wth in W&=~ UWV LlL sectors are themselves unknown. 286. Certainly any doubt about the rate of growth of agriculture would nU.~aA AoU UouL awoul. mvlymun prwtams-e Mn .L.L V&WMmuA.AL.y %&& rural problem of the future will be a continued maldistribution of growth, and in Lhe regLus WLUL agAriULULal pLUpWecL ar reLaively oJ UULI aC of opportunity for work will become acute. Perhaps one can tentatively 1/ The difference between the sedentary and the working caloric require- ment is the cost of working, it is therefore the absolute xMunmuUm wage. This somewhat grim observation affords, amongst other things, a proof that the shadow price or labor cannot be zero. 2/ Fourth Plan Draft. Some of this increase is due to an increase in coverage - the 1961 figure included only private sector establish- ments employing 25 or more workers. - 96 - conclude that the assumptions one would have to make to believe in an im- provement of the employment situation generally in the next ten years are less credible than those which imply a deterioration. But forecasts of a catastrophically dark future have no intellectual basis. Labor-Capital Alternatives 287. One or two topics have aroused especial interest of late. Concern has been expressed about the mechanization of agriculture. But the in- fluence of changes in technology, particularly mechanization, is complex. Pump sets release labor; tractors both substitute for labor (and particularly for hired labor, as owners may not trust hired labor with expensive equip- ment) and,where they permit multiple cropping which was otherwise impossible, may create demand for more labor than they displace. New wheat varieties have required both more labor and more machinery. The main source of demand for labor (and its seasonality) is harvesting operations; the greatest threat to employment is from mechanical reapers and threshers, which will be introduced wherever the price of labor, or the sheer need to harvest large crop volumes at speed, makes them economical. It really is not possible to say at present what the net effect of all these factors on employment will be. 288. Then there is the question of capital intensity. It has been observed that a good deal of prospective investment in the near future is in highly capital intensive projects such as fertilizers and petrochemicals, which provide very little employment. Others have made estimates of the "cost per work place" multiplied by the additions to the labor force, and come out with figures for a rate of investment needed for full emDloVment far beyond any attainable level. Such considerations often rest on un- AnnhiRtiratd Pennmirm. Tn the first nlar-. thp erenation of canital with which labor will work itself creates employment; even when the capital annda arp imnrrad_ nttPnrinn anhmld hp nAid not onlv to thp ranital-lnbor ratios in the plant which uses the imported capital, but to the employment in tho am nvf- 111f-Utima WJh4ch payr for it. VFurther, Whila a pImtAl- intensive plant may create relatively little direct employment, the total efec on k emlymn might be highly beneficial ~. Thus an impot-relain synthetic fiber plant in India might employ directly a small number of peo- pi e rith a .rae., high il nvesmntr. cost. But- 4 fthere werem a cnsemunt.. raduc-.. tion in the price of synthetic fibers, the growth in demand (domestic and ~~ A.J. 0. &LL &IS JLLA. F& %%4 6 ILU0. .LAXA.L.LCU 6L9. W .L.L far more employment - especially when the induced demand for domestically equipment for some other purpose. And who would argue against fertilizer plaus after seeing tme effects or fertilizer? LU general, i can rarely be a good argument against a high-return capital-intensive investment that investment In something else would create more employment. There is a good argument against such an investment when a less capital-intensive invest- ment would produce the same product at lower cost. 289. There are unfortunately two features of economic practice which do lead to investment decisions more capital intensive than pure factor- - 97 - cost considerations might indicate. One is the question of labor manage- ment and labor discipline. Even in agricultural employment, it is often said that a reason for mechanization is not so much the cost of labor but the sheer difficulty of collecting, organizing, and supervising a large labor force. 1/ Experience on construction projects has led to the feeling in some quarters that the length of time taken by labor-intensive methods severely reduces any other economic advantages these methods possess. And in areas where labor discipline and highly political trade-unionism create problems for manufacturing industries, there is a tendency on the part of employers to minimize the amount of labor they have to hire. The other feature is the preference of aid-givers for financing capital goods imports, which in some cases leads to a higher capital intensity than might other- wise be desirable. Social Cushions and Rising Burdens 290. Two further points should be added - one somewhat comforting and the other not at all. The one is the observation that unemployment does not have at all the same meaning in Indian life as it does in the West: a man is not a social outcast when he works or earns very little - not only in the sense that the family is likely to cushion him against the harsh- ness of physical reality, but also in the sense that society at large is tolerant of many forms of life that do not appear "productive" in the Western economic view. As Clifford Geertz 2/ has said, looking at Indian labor in terms of the rational allocation of resources hinders rather than helps understanding; given the difficulties of progress, it is to India's advantage that people can remain "outside the work force but inside society". The less comforting observation is that we have spoken so far only of the labor force and not the population. The labor force is growing less fast than the population; in other words the "burden of dependency" - the ratio of people in the non-working to those in the working age groups - is rising. 3/ Thus wherever increasing employment means only jobs for more workers at the same return, the level of living of the population is actually falling. When one looks at the lower percentiles of the income distribution, or the poor regions of the country, the vision of a future in which tens if not hundreds of millions of people will live in the direst poverty is inescapable. 1 / 'This should no~t be e=grated;*n fo i.. nsance, som newt varieties d.---A a precision of planting which can only be achieved with tractors. Aerial cro sprnn ayi.a.~ng be prefera ab.le to aq ..fhA. -4 mn . o...4 f CW~~ __T . &5~ - P A.- -- - A. carrying portable sprays where speed of spraying is at a premium. 2/ Reviewing Myrdal's "Asian Drama" in Encounter, July 1969. 3/ And will go on doing so until the birthrate falls, while the death rate continues to decline. - 98 - 47A Ln1 genera'~ one~ can se L41 16 LAA LEJi 5UL.LL IAIPC .LLICU .L& "-LU- nomic growth. But for the most acute poverty there will be little relief Wit:hout delierate meaaures. IL LL&L " LU VC UnLscUUn CLULL at employment creation, it should be economically justifiable as far as possible. Wnere are the opportunities? (1) Land reform; Inere is evidence of higher yields on more intensively worked smaller acreages; but the evidence is on the whole pre-1966 and may not be universally reliable, particularly with regard to new wheat varieties. Land reform may be more valuable in promoting higher output by making tenancies more secure and giving tenants more in- centive for land improvement. Nevertheless, land reform, if carried out, would have a beneficial effect on employ- ment, though not perhaps a very large one. The same could be said of land consolidation. (2) Improved farming practices: The spread of multiple crop- ping does give promise of significant increases in em- ployment. It requires mainly the further spread of irrigation and greatly improved water control, as well as improved techniques of cultivation. It has come about so far in the wheat areas, and in a few paddy areas. The rate of labor input per unit of area in Japan is considerably higher than in India and so are yields per acre; though this is accompanied by a degree of sophistication in the use and timing of appropriate inputs which may be a long time off for the Indian farmer. Nevertheless, a move in the direction of Japanese levels of attainment should be possible. (3) Small-scale manufacturing employment: This is a field in which it is most important to distinguish between the economic and non-economic. Examples of the latter are well known - the cottage spinning industry or "ambar charka", the hand-pounding of rice. There are also less well known examples. But the prejudice against the small-scale sector is not all well founded. Much of it is obviously competitive, even if profits are not very high, 1/ and demonstrates this by survival over lone periods. Research to distinguish the more from the less profitable is needed; to the extent that 1/ Some incomplete data for the small-scale sector in Gujarat indicate remkrknhli h4h nrnfItn141tv iin nm rnnan* nap RRT Ruillat-in e .---------- December 1969. - 99 - this is known, the encouragement of small-scale manu- facturing - particularly in rural areas where off-season farm labor can be employed - is obviously desirable. (4) The improvement of project design: As suggested above, there may be non-economic factors favoring capital- intensive projects. There are however one or two measures which could mitigate their influence. The first is the development of a more efficient labor contracting service, especially for construction work. This is an urgent need, not least if donors are to be persuaded to give local currency finance for domestic construction contracts. As for project design, some avoidance of unnecessary capital intensity might be achieved by taking economic factors into account at thme time of project identification and selection and at the early stages of project design. All too often the econo- mist is called in to give or deny an economic "thumbs up" to a project fundamentally designed by engineers. Graduate Employment 292. A particular problem which has not yet been referred to is araduate unemployment. This has arisen as a conseauence of India's unusually large complement of universities, with liberal admission noliciam and extremely low fees. The problem is not wholly one of inappropriate specialisms - virtually all categories of graduates suffer unemnloyment. including those of engineerine and aericultural colleges, though arts graduates suffer most. Two particular features of the mituntion deserve anntion: one iA the shvamally low auality of a great deal of graduate education - in a large number of cases possession of a doora& 4* mnrm A AtAtuS AVmhnl than an indleation of ability. Seaondlv. a great deal of observed graduate unemployment is what might be called the "nineline". Graduates find that once having accented a low initial salary or a low-grade job, it is very difficult to move up. It may there- fEre he In their interest to soend anvthina from one to three vears seek- ing their first post. 293. Nevertheless this is a problem of the utmost seriousness, not laMAt haraa it invnlvOa an artiA11tO MetPtinn nf the ntn1At1on At9i- content amongst whom can have troublesome political consequences. It is unanhmadlA a enatea of the franntAnt nutheas of "lanenAne Aeitatio,"_ The Government is by far the largest single employer of graduates (the publc vector hnwh Ahntlt' t..hiAs f all fradAAnnSM1 and therefcr the language requirements for entry into Government service are a conten- tlo06 4mess us.. fh & 0001P.40n 4- n aa"Iftla A nw Auw 11 an..anma Phat * - -----*0 . nss- -P------ - -- St-r-y * - -- - s ugge--s t Lne4- TLA4. M RI.-n Lane, London 1969. - 100 - ~YWw4 LuseUvanu LUL LuW t uhVassibly UL W ug unwmylUyw L am wUrt h school leaver's while to pay for a university education; though the study asoU suggwests tu primary Wo1U..sLWU MMKOW A ULNgWL pOLIZUU6nag UJLLWLWU%= to earning power than higher education, and that a shift of educational eayonLLIue uAue Lo paLmary ouuem.'n wouau uf huigheruw. L.Junu- mica suggests that the fees for higher education be raised so that the S uunt wouu at least pay tue full Ust u tue eoucation which urngs nLM his advantages, and that some discouragement be given to the out-turn of an excess supply of 8 ------n --m-m r- - _ tw-u M~UUftU=U UL. WLM 15-00 4..UIU A.06HO U& V%;11W.LMLN11.LV5 WVUuJ have to be given on a merit basis to the children of lower-income families. o-iticaly, hwever, the raising of fees - except peraeye by the moUt gradual amounts - seems virtually impossible in today's conditions. Indeed, even a Less aggressive policy, of simply keeping the present numer of university places constant, and gradually raising the standards of entry, has little chance of acceptance. And only with such a policy would there be much hope of improving the quality of education. 294. The problems of graduate education are akin to those of education as a whole. Like most developing countries, India cannot resolve the dilemma: education at all levels is essential for most forms of progress, including such things as family planning or agricultural innovations; and it either is, or is widely regarded, as a human right. At the same time, the country cannot make adequate financial provision to satisfy the demand; nor can,it satisfy the employment expectations of those who manage to achieve educational qualifications. The Fourth Plan 295. The Fourth Plan has abandoned as unrealistic the custom of past plans of giving a figure for the backlog of unemployment and a target of employment to be created by the Plan. The state of information does not permit it. The planners are hopeful that expansion of agriculture and manufacturing and a large allocation to labor-intensive projects, will absorb a good deal of new labor-force entrants and of the existing unem- ployed. "There will be a step-up of the outlays under labor-intensive schemes in the Fourth Plan as compared to the average annual level of investments on such schemes in the three annual plans 1966-69 and the Third Five Year Plan 1961-66. In addition, investment loans of this type given by public financial institutions are expected to average Rs 2.9 billion per annum during the Plan period as against the annual average of Rs one billion during the last three years." The chapter of the Plan on employment concludes: "The principal means of enlarging employment opportunities is to get the economy to move as fast as possible with the maximum dispersal of productive activity throughout the country". 296. As far as araduate employment is concerned, it is mainly on this growth that the Plan relies. It projects a considerable increase in the number of graduates and universitv places. Only in engineering does the Plan conclude that "existing facilities" will suffice for the Fourth and Fifth Plans. It is sad. thoueh understandable. that the Plan does not appear to be the place to look for solutions to these serious nrnblama- r -- - - - 101 - Conclusions 297. It is doubtful that the likely pattern of economic growth will asbaorh thp ornwth in the lAbor forea in the next ton veara. To a minor extent deliberate policies to foster employment will be necessary; and whilp thaga ahmuld ho dirprted tnwardawa I nvItip with A hfah ecnomir return, some employment creation in less profitable activities may be unav4Aale. Tf th4 muast take Inac a plea shAuld be mnA fn?. Anin, an by means other than adding unnecessary complements of labor to large ind-u-strial n.te=ri4ses - if for gn- other .n rason thman * w.n, .rho distortions of the cost structure in addition to those caused by the use %& .&AWW UMCZ&O J6" &.169 jO&06. Ihe grLUL.L ts Cu, Ma& L LUW 6LI UUVAVUM UUW JUL uLC ULUVWAL. growth, is the need for more information. Without some knowledge of the exteut auu 'Lucation u unempluymeut (-part%AU.L&y LU KULU.L ULCU Laum Fourth Plan's indicated proposals for employment creation do not carry much conviction. A serious program would identify both the areas where unemployment is most rife, and the economically viable tasks in those areas which could absorb the unemployed. There is little evidence of such a program, or of much to show that the lessons of the Third Plan have been learnt - allocations were made in that Plan for Rural Works Projects wUich would provide employment for well over 2 million people; less than one- fifth of that target was actually reached. Tackling this could be a use- ful function for State planners in the future. Since this may be one of the most valuable forms of employment creation, it deserves mucn greater attention. 299. There are costs in an economic strategy which emphasizes employ- ment; typically such a strategy would increase overall consumption at the expense of savings. But there are also compensations of such a strategy; higher consumption raises productivity, at least among those whose consump- tion levels are very low; employment teaches skills, and the value of the learning process may be considerable; and the creation or employment can help to reduce social unrest, which is often very expensive itself. There need not, in fact, be much of a conflict between employment and growth. Perhaps there is truth too in the view that income flows upwards but not downwards - that if the lowest income classes are made better off, the less poor will find ways of enriching themselves, while the reverse may not be the case. But in the end only with a decrease in labor force growth can there be a move towards a high-wage, high-productivity economy. IX. INTERNAL RESOURCES The Experience of the 1960's 300. The task of investing an increasing proportion of national income has become more and more difficult during the past decade. India's poverty and slow growth, combined with rising administrative and defense needs and aggravated by two wars, two successive years of exceptionally severe drought, - 102 - and a prolonged industrial recession, have limited resource generation with- in hnth tha uhlic and the nrivate srtArn Vat, finannially the deada ha- gan rather favorably. The worst of the exchange crisis of the late fifties annared to have pnaand with ineased lev oae nF forioon aid. Wnwaav thg3. Sino-Indian conflict broke out in 1962. Thenceforth, defense expenditures had n v4a sharn-:1 thw traied wthin the ThivA Plan nar4nd (10AA/1r - 1965/66), thus greatly helping to boost the growth of current expenditures to an annual rate of 17%, as against 10% in the preceding five years. Tax rates were raised substantially, and tax receipts also rose by an annual ave rage f 1 7%, but .th investment effort u.ld be lfinancedA onl, hrug. continued high budget deficits. The manufacturing sector, in which income wasnr risng. na- 4AIn , ."A #-I- -,o a" .ln4a lkam t-l- -.n f 4--w.-A taxation. Revenue from income and corporation tax doubled during the Plan period an a reveuue rvose from LO tov 14% of nattionall iuncmme. However, some of this taxation appears to have been at the expense of private savings, J 1 J. ,L. Inf- > - a - as.. O AIl1 -32 TOfC/ft - -- - -- - espcillyL L LIC ULuLCL. 5LLUL. M=LW==LL 17UU/JL aiHU A7UJJUV LVLFVULCLC savings seem to have fallen both in absolute value and as a percentage of national Iicome. JVL A.UA .JL IavLug W&AJLu su &a %A u L.L u AL LW 6a La.LJ. LWO= steadily in the early sixties and reached a peak of about 11% of national LUcLU nLL1 Juu. LUWCVWL, LLC LuJLUe CVuumJ_ problems facing tue cuun- try were then brought into sharp relief by two successive droughts in 1965 ad 1700, Lhe Wr With Pakstan, anH the subsequent inUU5LLLa LC%CULUR. Estimates of recent trends in savings and investment are necessarily tenta- tive; also, pre and post-1966 estimates are not strictly comparaUle, var- ious factors tending to exaggerate the apparent decline in the savings rate. l/ nowever, tne draft rourtn ran suggests that net savings hau UC- clined to 8% of national income in 1967/68 and only recovered marginally to 9% in 1968/69. it appears that during 1969/70 the proportionate rise of net investment was less than that of national income, and the ratio of 1/ Devaluation instantaneously raised by 57% the rupee value of the balance of payments deficit, i.e. the foreign contribution to the financing of domestic investment. The rupee value of investment did not rise in the same proportion and, indeed, tended to rise very little; as the devaluation was combined with a significant liberalization of imports, a large proportion of the increased costs of imports was absorbed by the importers' and processors' scarcity profits. Thus, even if real investment had not been falling, the rupee value of domestic savings would have appeared to fall purely as an accounting consequence of devaluation; for savings are equal to domestic investment minus the net capital inflow from abroad. There was an additional, and different, factor too. Led by agricultural products, the price of consumer goods rose much more rapidly than that of investment goods. This would also have depressed the apparent share of investment in rupee terms in national income even if all real flows had remained constant. In fact, of course, real investment also fell. - 103 - investment to income may well have been only 9 or 10%, as against a peak level of 12 or 13% in 1965/66. If so, despite the falling balance of pay- ments deficit during the last two years, the savings ratio may have risen no higher or might even have slipped back. 302. GNP per capita at constant prices had still not quite returned to the 1964/65 level by 1969/70. At its nadir in 1966/67, real income per cap- ita was 10% below that level. If the earlier consumption level was to be maintained, the rate of savings had to fall. Nevertheless, a longer-term view of the problem would suRaest that part of the difficulty lay in the neglect of private savings generation by public policy. On the whole it would seem that the eovernment has Riven insufficient attention to this matter, and this neglect has been aggravated by the lethargy of much of the banking system in adontine imaginative savings schemes and spreading rural banking. Regarding interest rates, the attitude appears to have been that low interest rates encouraged investment but did not deter savings. Thus, the rate structure was marginally lowered in 1968, resulting in de- nosit rates of 4% or less. In a situation where nrices were rising more than twice as fast, this clearly offered limited attraction. 303. In other aspects policy has been ambivalent as between encourage- ment of navina And nt-he-r nh4artivtpas Tnuotmpnt hmm heAn ancouramed in sectors which are deemed "essential" or "priority", but other areas which naht CAnrjh21t tn fntur1nV onsuadur 4nenman fnv rpinveament have been neglected. Along with the neglect of private saving there was also the lIm1tA AnnAh14iy nf the MnIh1l1if- a5m-fn- f-en 0MOns rainIreea irtlf- de- spite the fact that in recent years, public sector investment has accounted for one-third of total manufacturing investment in the or.fl9anie Seqtor. The problems of public sector undertakings are discussed at length in Chapter 17T prices in 1965/66 to about 12.5% in 1969/70. Only about 8.5% of the addi- tional mon- icom_, f..aa aaa, . ^^, f a. "k. Vaa , f%' the government in the form of additional tax revenue. In each of the past four years --r-*. - I k. the Cenra -oer-..n ha raised ove I~ AflA -.4 1 14 ^n ^fnow taxation, while the State Governments have added a further Ra 200 million. Nw Central taxes are expected to add another M 1, 700 4114-n 4- 1070/71 The cumulative effect of these new tax measures, plus important additional revnue eA.. 14-L JUA ---1 m0Pml JLJ.d.. LA U asU7 U Lanam savoum sw uALng from tu- - w H rep a - pronu"ItlAU by many whst- ad aes for practically all of the increase of Re 10 billion in Central and State ea reveunes n 69u= CLOU &MUL Y=OLO. 10 nwac bACCIrf. -Ca f. se- yOaLn.LOA LWVULM0O au. .L Iuawv &=U= W ation appear to have been quite inelastic in relation to the growth of na- JuA. in1s -1- expda1u by mhe particular combiuation o agricu"tura" shortfall, inflation and industrial recession which overtook India in 1965- 66. The first element was the profit squeeze on industry produced by rising costs of raw materials, of post-devaluation imports and of wages linked to the cost-of-living Index. In The context or slack demand during the recession, industry was unable to compensate with higher prices. The result was the - 104 - stagnation of income and corporation tax receipts. Collections from corpor- ate taxation were lower in 1969/70 than in 1965/66. At the same time, a structural change took place in the terms of trade in favor of agriculture. The price of agricultural products rose steeply between 1964/65 and 1966/67. In the subsequent period there was substantial increase in production, which has been absorbed at this high price level. Thus both real and money incomes have risen much more rapidly in the agricultural sector than in the non-agri- cultural sector, where both prices and production were relatively staenant. Direct taxation misses out the agricultural sector almost entirely, (with the exception of land revenue which is fixed at specific rates, and there- fore not responsive to changing incomes). Moreover, the pattern of agri- cultural consumption tends to favor more liahtly taxed or untaxed commodi- ties, such as non-processed food items, cottage industry and handicrafts products, cheaper varieties of cloth and gold. Rural retail outlets are frequently not subject to sales tax because they fall below the minimum turnover requirement. In addition, money has circulated more slowly since 1967 and though this has reduced the inflationary effect of government cred- it creation. it has meant a smaller tax base. 306. The snecific nature of many excise duties constituted another im- portant factor of tax inelasticity in an inflationary period. Some of the additional resource mobilization of the nant few vears has been simnly a revision of these specific rates. This was remedied in the 1969/70 budget with the conversion of most rates to an ad valorem baais. Palling imnorts since the devaluation have also played their part, as in practice import qtthqritutPn have hppn taxed at lower rat-n than imnorts. RAnntrnep and the Pnirth Plan 307 The cuvrant Fnrth Plan for the narind 196/70 - 1971/74 wtuld require total financing of nearly Rs 250 billion of which about Rs 160 4 114.n uuld ha F^rv 1nh14t. aotv vnanAfen,.a an1 aban a QA h4ll4^n for the private sector. About Rs 71 billion of these sums would come from- the excess of revenues ovrer nonr-p1la" expndiurs of th Cea *a-~1 .- State Governments and of public enterprises. Private saving would amount o D0- 1 A I u411 4 on, t4A gr . Tu Ce s pe aart wi.. L o w/ih fD-1 1, U114 ,-1 WUI A be expected from household and other non-corporate sources and only about r%.3 4U U.L.LA..LU LLom LcUoLrpoDt srL L.L LULOVL FL.LVa6= WV.LA4 L.LULC (Rs 142 billion) about Rs 53 billion would be transferred to public plan expeniture van government borrowJlug from L.L[LLL.L1. LLULLUL.ALuWs, Uc. Foreign financing of public expenditure (net of repayment) would come to Rs 46- bi.1."Lon. - 105 - 11 Summary Fourth Plan Financing - (Pa hillianal Publ4 Private TortL Sector Sector Public Revenue Surplus 71 71. Private Saving 142 Transfer of Private saving to Public Sector533 Foreign Financing Less Repayment 26 2o Deficit Financing 159 89 48 /1 As revised March 1969 308. These are not particularly high figures, as indicated earlier, in comparison with the past. In real terms they are only about a third higher than the Third Plan period of 1961/62 - 1965/66, and in per capita terms only about 10%. The proportionate increase in the public sector pro- gram is even less, and its austere provision over many fields of economic and social development has also been noted. 309. Nevertheless, the mobilization of domestic resources on the scale required presents a formidable task indeed. An important theme of this Report has been that substantial improvement in the domestic availability of development resources can only be expected in a more dynamic economic situation. This is also the assumption of the Fourth Plan in which inter- nal resource mobilization is considered in the context of rapidly rising domestic production at an average annual rate of 5.5%. Given this context, none of the elements of the financing plan seem out of bounds although some press the boundaries of credibility fairly hard. Savings 310. Even in an economy growing at 5.5% a year, the assumption is that savings would absorb about one-fourth of the addition to national income, or, taking into account population growth at 2.5%, about 45% of additional per capita income. This is not an unheard of marginal saving rate in India. Limited data on savings suggest that a rate this high or perhaps somewhat higher was reached in the four-year period 1960/61 to 1964/65. However, this was a period when money income went up by more than 11% a year, be- cause of a marked rise in the real national product at nearly 5% a year, - 106 - and a further 5% annual rise in money incomes attributable to price increas- es. In a period of price stability, for a 5.5% increase in incomes to en- gender a marginal saving rate nearly as high as occurred in a period when money incomes were rising twice as fast may be possible but certainly dif- ficult. 311. A repetition of the pre-1968 inflationary pattern of financing as a fillip for saving has been ruled out on political grounds, whatever the economic arguments that are adduced in some quarters in its favor. In view of policy commitments to limit financial expansion consistent with only moderate price advances, an inflationary route to higher savings is not a probable nolicv Rtarter- which is not to say that it could not hannan in- advertently. The past year's 10% monetary expansion seems to be crowding thp ArArnrsh1P inflaitnairv bnundaris. indaina by reent nricea hhavior. And it may be noted that prices take more of the brunt of expansionary fi- nnncin& in TnAin thnn rhov An in morp ann aernmipa whpre thpre in vraAter scope for import responses to monetary expansion than in India with its 117 The othebr neanti rnwrd hicher navine ratin p a thronah offirial ------- ---- -- --- --- - -- --- ---- o - --- - - -- - -------- efforts to expand saving facilities and incentives. The Plan expectation is hat instttions.. nd induc,aeents will beadequateI- to, stimulatean channel the necessary savings flows for both public and private investment requireme4nfts fo r whh savers ..aa nd 4ines trs are nt thels s--e. Stepare being taken to this end. The latest budget has exempted from income tax I- .co-- u-. a in AfV -1A-- A a nA in-trest 4-me A-, _f,n,i.,ym~ s LUt4 LUL L%. * ,Ww - ,'fl. 'JL I. ~L.t. --A -*l~L . - -. U. - IO -~n ~ L b - t - --- - - - bank nationalization is a program for a large rural expansion of banking tive service arrangements for depositors. The Life Insurance Corporation LLC% aJ.OU UWWH FLC .LLi5 &1 U AJL %AU.LLIa 1. 0 DOC.L=W CCLLA%& LLuA. F_ 1u be continued. Rules of the countrywide Agricultural Refinance Corporation have been set to draft largwer coatributions from tue pcesna.L reourse o. farmers to their medium-term investments in farm improvements. Such mea- sures as tuese snould help u eunanCe rura saviUg rates. nUW=VrL, k.. resources mobilized in this manner would not be net additions to savings. Much would merely correspond to a speed up in the circulation of money in the countryside, which would require correspondingly greater restraint on monetary expansion to avoid an inriationary impact. In a context of more rapid industrial growth the fiscal restraint on still higher corporate tax- ation in this year's budget should also contribute to a revival of corporate saving which seems to have lagged badly in the slow-moving, profit-squeezed industrial context of the last few years. 313. With these saving efforts, it is difficult to be categorical about the prospects for a 25% marginal savings rate if agriculture were growing at 5%, industry by 10% and the economy by 5.5%. The desired marginal rate would still be high enough to evoke some skepticism in the light of the past record, but it might be managed. - 107 - 314. Greater skepticism arises if savings prospects are considered in the more slowly growing economic context that seems more probable, for rea- sons indicated elsewhere, during the remaining years of the Fourth Plan. Briefly, a sustained 5% growth pattern in agriculture may be feasible as the large potentials are realized but this seems too much to expect over the next four years. Similarly. an industrial production average of nearly 10% a year for this and the next three years, which the Plan targets would now require, seems somewhat doubtful considerine the current 7% pace, the sluggish investment sector, the shortages of steel and other raw materials, and the fact that the highest rate ever realized for an extended period in the past, in the years 1961 through 1965, was slightly below 9%. Yet that was a neriod of heavy amnhaais and exnanditure. both nublic and nrivate on rapid industrialization. More importantly, that was a period when many past inventment prointa were maturina nnthlv In hanle metals- chemian and power. Relatively few investment projects were started in the past few vars- anA thnah thera in areapa Pnn-itV in mAny fields it in Aif- ficult to see industrial production increasing by more than 45% in four vanva wtmithnue -riin",wo nt,^ &-ynnetv rn af*vninta auin 4f all tho n1ainidd investment was carried out henceforth. If one assumes a growth rate of 4insts of 5.5 fo th -" ---#- pla p"eriod, then the margintal savrings rate required to reach the plan-saving target soars to heights over 50%, wh4h nulA seem unatta4nable in the TnA4n an4n nA n l 44cal frama work. The Fiscal Plan 315. Leaving these macro-economic speculations to consider the fiscal ft#4 L.LAACU LL1 L41C EULHLI & CLUmu ULI .* aaL.&A LWWLMOCU WA.LL Lle UALLA.L.U.LLy of reaching the Plan magnitudes. First, there are the very large transfers o private savings "O LUeLIC puVL.Lc taccurLU Lu M ULcOLCU. LL Lu1C r.u LIa- gets for private saving were reached, these tranfers might not be so for- mia-le. The Plan figure for private saving is Re 1942 billion of which about Rs 20 billion would be corporate, and the balance of Ra 122 non- cupurte saving. Pes patternu, U tuC limiteu extet tuey are kanown, suggest that perhpas Ra 55 billion of the latter might be savings in physical forms, i.e. saved anu xvesLd by the same non-Curporate inU- viduals or entities. Rs 67 billion would then be liquid non-corporate saving. If Re 53 billion of this were borrowed for tne public sector, the balance of Ra 14 billion together with corporate savings of Ra 20 billion, or Ra 34 billion in total would still allow for very large in- creases in private investment out of liquid and corporate saving. This would not be tne case, however, if tnese private savings fell short or the targets by say 10%, which seems itself still optimistic. If in that case the transfer to the public sector were to remain at its Plan level of Rs 53 billion, the consequences would be severe financial constraints on anything like the targeted private investment objectives of the Plan. In this likely event the desirability or even the feasibility of the planned public draft on liquid private savings seems questionable at the levels contemplated. - 108 - 316. This is one aspect of the difficulty of the fiscal task set in the Fourth Plan. Actually. as a result of a very impressive fiscal effort as put forth in the 1970/71 budget, plan financing can be considered to be on the Fourth Plan track after four years of stagnation in plan spending. Last year, the first year of the Plan, the total plan outlay of the Cen- tral and State Governments was Ra 22.4 billion - about the same as the average of the three preceding years and less in real terms. This year, however. plan orovisions have been boosted to Rs 26.4 billion or by about 18%. This is budgeted with only a moderate central deficit as a result of nearly a 157 innrpane in budoet revenuen- attributable in nart to ex- pected buoyant revenue effects of economic revival and also to a large measure of midtinnal trvatinn Tt in alan the rpault of tiaht hudaet- ing for non-plan expenditures with only a 4% increase in defense expen- diture And allahtlv InW&r riVil nAn-nlAn ornmndiviran And non-nlan trnn- fers to the States. This austere budget has its uncertainties, the main onea hine whether the haA line on Anfan and other non-nlan enanA4itt11 can be held, whether the call on the Center to cover State overdrafts can be kept weleb1 that of last year, and hether disaster relief require- ments of the States will actually be Rs 650 million less as budgeted than last year's us 1 h4llfnn fieure portedly do make provision for their Rs 2 billion share of the Rs 4 billilon~ inra Ln public4, sector. plan. exe e .A -4. -a44-1% AaV4,4. which are more or less in line with the Central budget provision for de- J.~~ Age..A 4P '.J I.~ -A Iti JJ.Li * tH Dummary U L tesC L U%A uugU OL LAle C=untr a.L humanb ofu o parisons with recent years is as follows: - 109 - Budgetary Operations of the Central Government (in Rs millions) Percent Increase 1966/67 1967/68 1968/69 1969/70 1970/71 1966/67-70/71 (Revised)(Budget) Defense 9090 9680 11030 11040 11520 26.7 Other Non-Plan 20240 19060 18460 23900 22820 12.7 Plan: a) Central, Departmen- tal undertakings. Centrally sponsored and Budgetary sources 10740 10470 10740 11230 12710 18.3 b) Central Assistance for State Plans 6170 5900 6150 6150 6350 2.9 Total: /624O 6S110 6O380 92120 93400 1955 Vinanced by: Revenue Recei-tn 25000 25850n 27930 29650 3920 31.7 Receipts (net) 11270 10250 11750 13700 12920 14.6 External Capital Receipts (ne 7020 690 A70 6060 5320 - 24 . Deficit 2950 2060 2630 2900 9A0 - 2..1 rTPnAT. .)LA A11A .42aQA n10 C.AA T q Source: Ministry of Finance 319. If this year's budgeted rate of increase in plan expenditure couul w achieWVed and maintaiUcM UUL.LL&S LAU DUWuIL L yearms U Lhe plan it would bring the total to just about the Fourth Plan target. This seems, however, a mu-st--- optim -- ---- Jm11mn w - 11 -u seems,UW ULLL ; WAW6L 6.1,WF C.MLL W.L6H AAA L&I uncertainty surrounding the economic growth targets of the Plan. The markcu LULnUaU LU LL IV LLULAVu rN.LaUrC Oi UUWWOULIc Z2UUUUv LULAML than foreign, as compared with the past patterns, is indicated in the following table. It reflects the stated policy or reducing dependence on foreign aid, net of repayments, by 50% during the plan period. - 110 - Plan Financing (percentage of total) Annual Plans Second Third 1966/67 & 1968/69 & Draft Fourth Plan Plan 1967/68 1969/70 Plan Actual Actual Rev. Est. Est. Est. Revenue Surplus 22.7 28.8 14.5 22.2 30.6 Suroluses of Public sector Enternrimes 3.6 5.1 5.5 8.3 14-0 Tn tarinal Borrowing 30.8 24.7 29.5 22.9 33.5 Deficit financing thronah Ner Credit 20.4 13.2 9.6 12.2 5.4 TOTAL DOMESTIC 77.5 71.8 59.1 65.6 83.5 External Assistane (net of re- payments) 25 2. 09341. Ir' Tinn inn inn i nn inn A.J. WA'' J.rL LSJ'J WWL V W Source: Fourth Five Year Plan Draft and Annual Plans. 320. It is difficult to say much more about the feasibility of the fiscal effort implied in the above table than that it Loo"t difficult indeed, and probably unduly optimistic if the economy proves less buoyant than the planners assume. Voubts about the internal borrowing figures in circumstances of slower growth and smaller private saving have already been indicated. The likelihood of generating the surpluses planned from fiscal revenues and from public enterprises is also hardly evident. Budget Surpluses 321. It is planned that Center and State revenues at pre-plan rates of taxation would exceed non-plan expenditure over the plan period by Rs 16.7 billion. Since the comparable figure in the first year of the plan was in deficit, the surplus for the remaining four years would have to be about Rs 19.5 billion, or close to Rs 5 billion a year on the aver- age. The comparable figure currently and in recent years has been in - 111 - deficit as often as in surplus, and the surpluses amounted only to Rs 240 million in 1966/67 and to Rs 1.35 billion in 1968/69. State budgets for 1970/71 are not yet available, but the current year's budget for the Cen- ter is again in deficit as between revenues and non-plan expenditure. It seems doubtful that this deficit would be offset by comparable surpluses in this year's State budgets. This suggests that if the planned revenue surplus at pre-plan taxation is to be reached, the last three years of the Plan would have to have budgets bountiful enough to produce not only the five-year surplus in three years but also make up for the fact that the first two years were deficits rather than surpluses. Considering that this year's central budget still has non-plan expenditures in excess of current revenues in spite of the favorable expectations about revenue growth and the heavy pressure on non-plan expenditure, it is difficult to see the basis for the remarkable reversal excected for the remainder of the Plan. This, at pre-plan taxation, would indeed require revenue buovancv and exnenditure austerity. 322. Conmin to the contribution from new taxation- the Rs 21 bIllion expected from new central levies over the five years seems reasonable enough and nprhana Pvn ennaervAtiva. (Tt in well to kepn in mind hwr- ever, the difficulty of maintaining the Center's record for major fiscal effort yar after yanr) T.ann nhwintia a tho 14kal4hend nf naw Stat taxation on a scale to produce additional revenue over the plan period nf De 11 bl4l4n. Taken tnothe, the CStna hae ot follwad thn Center's example in their tax effort. In 1969/70 the States introduced ne tna4nn expectaA en ielA n a f..11 yena knb4a hn D R AA m4114on 1/ It would appear that their new taxing effort would have to be increased by 33n or 14.ime .te 196O9/70 examp.le -If #4--n --l O-U- -I.n.- -U4l- tives. Neither the State record nor the political climate suggest the I-le'l of su- ..an . ettom .L.LM .LJ.LIIU J U 11 UL .A L . U. JJo U LULLhe rLLWUL t L ALHUgJ. PACHI WIHACUL eUW UUUULALA AU the surpluses of public enterprises. The amount is more than Rs. 20 bil- 14-io Sor tke CJ..e_year period comare - A .a t Ln D, -u 0 )7 8114-do Jin 104,0 AAVuJL ALVJ 6LL5 LALVW-as jJAAu JU pa1u WAU ouvk LO & I U...L.U L A.JU7 /70. The presumption is an average increase of about 20% a year. This may ue posUule, %u;LLO.LUWL.LU6 L=UL AUUWftO=U Lu LU.Lway LULJaLO, Lua.L and steel prices and pressures on the State Electricity Boards and other pulic enterprises to improve earuings. %.Ua. aUu OLUCL wiLl, nowever, De handicapped by production difficulties in the steel industry. It will be a very impresuive acuevement if tnese funcxaL LargeLa LOX. Lne publice enterprises are reached. 324. The allowance for deficit financing in the Plan could probably be somewhat above the plan figure of KS 0.3 D111ion without any real threat to financial stability. Such deficits in terms of their monetaxy 1/ How this amount, growing and accumulating over 5 years could reach Rs 4.14 billion as stated in the revised financial plan is hardly clear. - 112 - impact for the first two plan years are estimated at about Ra 4.25 bil- lion. At this or a Romewhat higher rnte the five-vear totAl miaht on beyond the plan figure. But this is far from a possible offset to what RAm likely shortfalls on other counts. P I jn Vnrpian Aid nnA qtalf Rplinnc-p 39 r. nn halAnep- rho VnItrth PlA"nI finAnt-inD hArAly MAiCRs A rini4nf-infr case that even this rather modest public development program is feasible Wi t-h Ohnit RqT ^f the oVanoturea tn ha d^f"oQt nnmona4 ?"lly A Mnly Ohntt 15% from abroad. Even with a greater effort by the States, for which chan- ce-a are no v.ros4aig anA, ar lnraaam 4" thdb ..1 ovw A Aafj4.- t-h- -4- ture would not be greatly improved. And a still greater fiscal effort from the Cnecnotrl . oa.atA*A- w4kth -omn f TndA.1 -----4-c difficulties, the best way to improve the resource situation would be to get-~ 4,e -W1-4e' o.f te econom tunn faGtr T.- U-,- 4..A4,_.d.A 4 a.o different contexts the possibilities for this but also the likelihood that mUuum wAL VU..LU up muoe slwly th&oun tue rourth p1yaLULero oeem to think for various reasons - among them the insufficiency of resources. 326. This is the setting for considering the implications of the cur- reut sate oU fureign aiu - tne waing aid supprUt in tue wealthier coun- tries and the increasing attachment to self-reliance in India for a mixture of reasons of realistic pessimism, pride, frustration aUU oUmeUcL protec- tion. There is one contention, a by-product or perhaps a rationalization of so-called aiu Ltigue," wiLu some curreucy in Inulia as wel± as abroad, that aid may be "counter-productive" by easing pressures for improved economic performance in India and presumably other developing countries. Although there is hardly much support in evidence or logic that economies, or economic policy makers, behave better the more pinched their resources, this "counter-productive" contention about aid could not be thoughtfully advanced after any careful examination of India's resource difficulties and, on balance, its fiscal efforts. 327. Actually the Fourth Plan figure for foreign assistance amounts, on an annual average, to somewhat less than the actual average aid dis- bursements of last year and expected this year. There is, therefore, no presumption in the Plan for some additional boost to the economy from an increase in aid. In fact it may be difficult even to sustain the current flow of aid resources. Food aid, even though not eliminated in the next year or so, as seems to be the official aim ( despite the lagging buffer stock in a period of good harvests), may nevertheless continue to decline as it has in the last two years. This would have to be compensated by increased non-food aid which, whatever the willingness, would be constrained by all the difficulties, discussed subsequently, of the rules of aid trans- fer fixed by both sides in aid transactions. Finally, there is the simple fact that non-food aid disbursements will have to decline if the present level of new aid commitments continues to be well below aid disbursements with a consequent rundown of the aid pipeline. The magnitude of the additional aid needed to supplement domestic resources is not easily - 113 - defined in precise terms. Development financing difficulties would, how- ever, be considerably less than they are now if the additional domestic resources mobilized in recent years had been available for financing addi- tional development rather than being offset in large part by falling aid receipts. In other words, a return to something near the net aid levels of the mid-sixties would seem a reasonable oblective. This would involve a rise of Rs 2 or 3 billion a year above present aid disbursements, or say an additional $300 or $400 million a year. It would mean a larger rise than this in new commitments of non-food aid as food import requirements decline. Additional aid rasourcea of auch amounts. if provided under lenient trans- fer arrangements on both sides, would, in combination with further effort at dnmanti ranurea mohilIAtion- gratly enhane thp nrnann.rn fnr awq- taining the Rs 4 billion a year increase in public plan expenditure needed to reach tho nnthlir iaptnr nhia-rva nf thq Rntirth Plan. Tr would ialcn help considerably in speeding up the momentum of the economy and, in the process, cor,ibting to further domesti rsorc a~n" enarat-In- X. INDUSTRIAL STRATEGY AND FOREIGN TRADE n99a's A velopmen -14olicy as k--aen bnae ono *.U- __MO m4n of A. L~J F L ~.jP IL ~ .J.LL- L&CL J.W"5 V~. .JL W& Va. L~ ~ ~ import-substitution, a strategy which has great intuitive appeal in the con- tet of the potentiaLLy huge Indian maLAet, and whiCh has recorded a large measure of success in building up a broad and diversified industrial base. TVWritui he broU strategic framework, appropriat pue4Icy &u4pLaL.LU wt: made time and again. In the early sixties, when the high profitability of import-based production of highly protected final goods was distorting the investment pattern, administrative measures were taken to reduce import: content. In 1966, to ease the strains on the interconnected import control and export-subsidy systems, the rupee was devalued by more than 50% and import controls were substantially eased. Subsequently, as the Government was becoming increasingly export conscious and export promotion acquired iAcreased Importance in economic policy, a oroad spectrum of export in- centives were provided. It is now time for an even more fundamental re- examination of the implications of the basic strategy. To anticipate the conclusions of this chapter, India's broad option in favor of industrializa- tion as the engine of development was evidently well justified. However, if future industrialization continues to be based essentially on import- substituting production for the domestic market, its pace would be slower and its cost higher than need be. A preferable alternative is open in which the domestic market would continue to play a role commensurate with its size and potential, but in which the major impetus to accelerated growth would come from increasing specialization and export-orientation of industry. Imports and Import Substitution 329. Contrary to our expectations of a small rise, non-food imports in fact fell by about 10% (and total imports by about 14%) in 1969/70, despite continued revival of the economy. Several broad explanations of this fall in import content are conceivable. Lags in the economy may be - 114 - longer than previously thought and the current low level of imports may reflect decisions taken in 1967 or early 1968, at the bottom of the re- cession. A second explanation would lie in the unevenness of the recovery; not only is investment still below its previous peak, but within the over- all magnitude certain fields are particularly depressed, notably investment in heavy mechanical industries and in basic infrastructure projects. The import content (both direct and indirect) of the lagging activities might be above the average. Finally. it can be argued that import-substitution has now proceeded further than had been thought, and the import content of domestic production has fallen unexnectedly low. 330. The nrpcinp wpichtp of these three exnlanationa cannot he ascertained. It is true that in 1969/70 certain imports were well below nat-ual rPnnirPmPntr even a nnenned by the currPnt nrotectionist standqrda- Such is notably the case of several types of steel, in which there is al- -randu ntt a-wrio Tmn-rt 14ainong for thin rnmmodity hna now hean much liberalized but arrivals are likely to be delayed by the current Arld shartaea of seanl the hrnt of which is necessarily hrne hy Ve- gular purchasers such as Indian firms. To a lesser extent, this was also true fn- 7ine ane tin, 4mnort licensinv of whirh had hppn drantirally cnt last year. Aluminium imports were also geared to the temporary surplus of the recession period, not to. t-ha defici e - emerging wi th theexpected in crease of investment in power transmission. 331. The second type of explanation has only limited validity, for, by nd l are the mportn. - cnent o-f4-~ 4n 4-vsmnt 4- nha c-.rnt 4- monreac-tive sectors - notably the whole chemical and petro-chemical sector, and also &1-1., --,.1.. ~ j ~activities4 - sem rat-her hig.her tan.. %LLL L4=W .Ly e&WALJUW6=U U4jJ L J4 L~ L 4. ~ ue L &~ft 46 . that of more traditional types of investment in heavy engineering, steel, railways, pJowerad te 1 nfrasL truLL cture-.LU J3. ToweVer, uu Lu-u may well ue tue mos ImportOn Lactor, tvn- import content of most investments has fallen. Imports of finished equip- ment continue to arrive for projects ustUUar eULJrLU, unw LaveLLmLn is undertaken with a much reduced dependence on finished equipment imports. Domestic capacity to produce many types of equipment now exceeds demand; its use is promoted by the continued impact of the 1966 devaluation and the favorable subsequent evolution of the relative price of some types of domestic equipment. More important still, the relentless pressure of administrative controls allows imports only if they can receive "clearance from the indigenous angle" i.e. if it is certified that they fill a need that cannot be filled by goods produced in India, usually in practice, regardless of cost, and with only moderate regard (except to some extent for export and, presumably, defense needs) either to quality or to delivery schedules. The effectiveness of this administrative pressure is greatly enhanced by the overwhelming support of the business community for such extreme protectionism. 333. There is a wide range of goods, notably important raw materials, for which there is little or no possibility for import substitution. But the increasingly broad and complex Indian industrial structure is now - 115 - technically capable of producing most industrial goods and items of equip- ment - though of course at a cost (narticularly hiah in some new fields) in terms of price, quality and delays in delivery. This is equally true for onsunmer annds thnuah somewhat irrelevant. beeause their innort -I in any case banned. This increase in potential self-sufficiency proves that Tndin'Q nar ffnrts at indimn,riliantion wprp not in uAin- Hanvpr this development has important implications for import control policy and math4a 334. 'PT criterionn -of physical ~t.41ct 4t..cAf-t 1a".- f,-en - the indigenous angle, never satisfactory from an economic point of view, .h-as a.o, become.. all k.ut mennls , becas j e.1...-1ng. A. 1--a of the economy broaden and India is getting close to being technically able angle" bans would tend to reduce to a mere trickle the inflow of finished eqUyment n LumpunsuE, anuA affect even Imorus of raw materials. 'Such autarchic tendencies bear a real cost, not merely a nominal price difference UCL.WCCIL ULnUCZOP_LUA 4U. JVL=.Lj5U 6UVU1. I LIM dUUULL* VL LP5tL UULLLPL1 and investment are limited; engaging in some relatively unproductive and costly activities necessarily means that more worthwhie or less costly ones are neglected. This applies to broad fields whose comparative advantages depend on general factor endowments, and to speciLic secLorS wiLhin such fields. A priori, several or all such sectors may be equally well suited to India; but if they all develop simultaneously, primarily for and within the growth limits of the domestic market, and at the relatively slow rate forced on them by the need to spread around widely India's meager investment resources, they may all be bound to operate on inefficiently low scales, with relatively high capital, labor and management costs, and will long re- main technically backward. 335. Both comparative advantage and economies of scale are well-known concepts, much discussed in economic literature. Such is not the case for the idea that fast growth is, by itself, a factor of efficiency. It is difficult to substantiate this contention, not for lack of evidence that fast growth and efficiency, including efficiency in the use of capital in- vestment, are associated, but because the evidence, plentiful and widespread as it is, is capable of divergent interpretation. The naked data themselves do not show to what extent an industry grows rapidly because it is efficient or is efficient because it grows rapidly. However, there are good a priori reasons for thinking that the process works both ways. 336. With a 30% rate of growth - in many countries not an exceptional one for individual firms or industries - the average age of the capital stock is well below three years; even without amortization, less than one- fourth of the capital stock is above five years old. With 10% growth, the average age is 7 years, and 62% is more than five years old; with 3% growth, the corresponding figures are more than 20 years and 93%. Fast growth practically eliminates the problems of obsolescence and thus tends to protect and accentuate acquired advances. A dynamic industry can also more easily attract better management and solve income distribution problems with its fast growing total revenue. This facilitates industrial peace and efficiency, - 116 - as does also the fact that productivity increases need not endanger anyone's 4^k an"A nn 4nAOA nr-e-11 1nnont-,l w t-h an 4nvoran 4, 4ho In vlkxb laah ja-ad ---------------------------..- ---------------_-- -- 31 which further enhances possibilities for promotion. 337. For a country like India, with a sizeable and potentially very huge domestic market, there --re gnne o 4 ff4^n..1t-4= 4 n A4 e-a,na4 *4 l-a proper balance between production for the domestic market and for exports. Of course, *4.4 1- . an A - - a- - nA. l. 0-1 +-h. a- .4z a o4n 4-ha A--n.ac.4 n market and the possibility of starting with new units not hopelessly below Le 4 E al.na.lly effIJnM siz. U -..s -1W , 4hE p kflOA.E -1 -T-L %.u& inu =LC L4..LW&un .L4Y GL AM su u6 -u vav &, .aw ys yw v au e s a nw largely determined by the desirability of fast growth for the new industry. A.&1e expJecte e asbl g-~.U L ,OWLth. .L= J-D AA&1 6UL11 U= L=LLUAA=%LE Y L.LL= uJ .L6.LLia. ZS0 & of the industry relative to effective domestic demand, i.e. the leeway for growth through sheer import displacement; by the income-elasticity of demand for particular industries, in the home and world markets; and by the overall growth rate or efective UUmesic udemanu, waRCn in turn depenus neavily on investment possibilities. 338. The speed of growth is particularly important for industries which start with a disadvantage due to small relative size or LecRnca VaCwara- ness. 1/ Unless such industries grow as fast as most of their foreign equiv- alents, their disadvantages are likely to grow worse. Growth or domestic demand can conceivably provide the impetus for such fast growth, though in fact even in the case of Japan - whose GNP grew at an annual rate or 10. in the past fifteen years - the share of export demand in GNP increased from 10 to almost 16% during that period, and even within manufacturing industry, which grew at an average rate of 15%, the share of export demand increased. India can hope to achieve no such overall rates of growth in the foreseeable future. Therefore her industries must either lag well behind the pace-setter in each field, and thus become increasingly outdated and handicapped or - like most European manufacturing industries depend for a large part of their growth on specialization and exports, which tautologically involves greater reliance on imports in other lines. 1/ Thare may naer ton bo a Confict betwee.Jn tho avantesoaf size andA those of growth combined with continued modernization. Units established - as...ann44.11w 4n 4ho Anaa4- me4 ava anmcatr-4m.san h,4 a I n-I a scale much larger than the current market to take advantage of economies of scal, -a Lecome tenic-4ally, o-bkolle- L.y the tme A eman A has 'r4sen enough to allow full capacity production. To some extent, this conflict is real; and the advantague uf sheesze must be very carefully weigheu against the double disadvantage of first having underutilized capacity, and then being locked into obsolete technology. However, LC LeLcaU is partly false; it can be bypassed by producing for exports as well as for the home market and by realizing that some comparative advantage lies in fields where economies of scale are not too important. - 117 - 339. Twenty years ago, the simple displacement of imports was expected to give Indian industry the opportunity for rapid growth in many fields. Several sectors indeed grew quite fast, and are now showing in the export market that they contain remarkable elements of dynamism. Nevertheless. even in purely import-displacing activities growth was limited by feasible investment- which was less than planned. It was occasionally held un by temporary imbalances, accentuated by the relatively closed character of the Tndian Pnnnnmy. It was also distorted and hindered by extraneous factors. such as the long persistent over-valuation of the rupee, inadequately com- nannant&A hu n m nrttirp nf Ad hne anhaiidian- and drntir imnort and Awrhanap restrictions. Some individual units might still have grown very fast if they hmA ham" nllnwad tn antisfy all Anmeart needs. Hnwever_ thin wan prevented by geographical dispersion of the market and, even more, by industrial licensng' aiming to. conter* concentatiorn off er-nnom c poe n encourage the regional spread of industry. Thus, even when import displace- ment would Ae ~ proide adequte iMpetuse for- the -i-r4rolm irymant21M theA: opportunity was often lost, and very few firms or industries seem yet to have fl acque aselEp-&o tat ing* A, ---4- ns~u ~a%&..~. S imports, production for the domestic market can grow faster than domestic uWWLau AUL LIHW yBLLM.aWL L.LIUM J.uLALWe H UWtVELg A UVtL@.J..LLAA M AukmsAu!utAawu grow but slowly, the concentration of investment on such import-displacing activities soon 'eaves few 'urge import groups to dusplae. n. n ua, must relatively much-used products are now manufactured domestically, and further import displacement will largely have to be limited to fields where produc- tion merely for the domestic market must take place on a very inefficiently small scale, 1/ and wnere auvance is necessarily going to be cOstXy. Uf course, plentiful opportunities remain for import-substitution, for exam- pie in foodstuffs, minerals, agricultural inputs; and also in the broader sense of production for emerging domestic needs, but only at the slower pace - determined by the growth of particular demands and, ultimately, of the economy - at which such needs are transformed into effective demand. For instance, the combination of the new technology and new strategy in agricul- ture created a huge import need for fertilizers. Import-displacing produc- tion of fertilizer, petrochemicals and chemical machinery did indeed become 1/ Ball and roller bearings provide an interesting illustration. According to the earlier draft Fourth Plan (Draft Fourth Plan, Material and Fi- nancial Balances, Planning Commission, Government of India, September 1966) in 1970/71, 86% and by 1975//b, 100% of domestic needs were to be satisfied by domestic production. Even the first of these self- sufficiency ratios is higher than that of Sweden, the world leader in this industry, and would involve production of some types of bearLgs on a very small scale, under technically tremendously difficult and enormously costly conditions; unless it had been planned - but such was not the case - to also turn India into the world's largest ex- porter of bearings. The 100% self-sufficiency ratio is patently unattainable. - 118 - growth leaders of the Indian economy. However, though production grew less fast than planned, the pure import displacement phase now seems almost over. Further growth of fertilizer demand now depends increasingly on investment (notably in irrigation) whose generation is in turn determined by the overall growth of the economy. Industrial Export Strategy 341. The previous section aims at showing that imports are not just an inescapable necessity (much less still an escapable indulgence) and ex- ports the unpleasant but sole way of paying for them. Both are irreplace- able parts of a process of specialization. which could give Indian industry the impetus for fast growth of leading sectors, with all the advantages such arowth involveR in terms of technical oroaresn modernization- and general dynamism. Production and export growth through specialization need not involve a nrinri aplorrinn of linpq of grnwth. True it miahr he desir- able if it were practically feasible, to emphasize pre-existing advantages thrnah nalart4va cahaian and nther anrnrinte ansintnnea (whila mat current Indian export subsidies aim at offsetting them). Yet, however dpairahlp nuih nrp-apltinn miahr hp- in fact not nnuah isa known Ahoit the characteristics of latent dynamic exporters to identify them with any 342. Nor is such identification really indispensable.* Though selec- tivity is necessary, it need not be a priori. Provided adequate export adequately recompensed, provided growth itself is stimulated and stagnation The argument, often heard in the past, that Indian industry is unable and unwAAA14g LU CA_ A-- HA..1- EugiuceAAug pouucrs--ave L L .±±±A& LU =2IJVL F_, .L L&VJ ALV&AZSL L=LL CUJ~ . £A6.L&==L .LL16, FLJU L %Afl&A achieved remarkable success in switching to export markets; the subsequent periLsLene U a fiL LL UL gLUWLh UdspL the paLal evi LValVao he domestic market and increasing steel shortages is most encouraging. Like the Indian Farmer in the past few years, the Indian industrialist has shuwn that he is willing and able to respond to adequate incentives. 343. The attribution of the role of growth-leader to industrial exports would have far-reaching policy implications. The framework or policy to- wards industrial exports is still too much influenced by the idea that it would be best if each and every producer did his bit of exporting. This is antithetical to specialization along lines of comparative advantage; it implies that exports are simply an oftshoot of import substitution. Pure import-substitution policy aimed at developing production in every field to meet all the needs of the domestic market. Now it is said that production should be developed a little further and ultimately aim at making a small surplus available in every line for exports in addition. The major instru- ments used for implementing this policy are export obligations, determined in a fairly arbitrary manner, and incentives which still aim at offsetting the specific cost disadvantage of each industry. One special form of compulsion is the subjection of industrial licensing to the undertaking to export a specified proportion of the production of the new plant or - 119 - product. As the domestic market is fully protected, new products are often very remunerative, however high their cost; and would-be manufacturers can be persuaded to enter such export commitments. However, it is really doubt- ful that the compulsory export of a fraction of small-scale hiRh cost produc- tion is a good basis for dynamic export growth. 344. The mixture of incentives and compulsion now given to engineering exports was enough to nromote exports of producer goods. for which domestic demand is still well below capacity. They have had little impact on exports of light Pnoineering consumer products. for which the domestic market has remained buoyant and ready to accept shoddy and out-moded goods. India may have t-riilv AntirpA a arenter enamnArAtive advantaoe in thp nrnduction of certain kinds of industrial equipment than in consumer goods. However, tho fn4iiva ^f nnrm%tion anntia Pvnnoa n Tnrp likelv t^ man that the present incentives, though sufficient where domestic demand is depressed, are not enough t offse t hee pu-11 of a he alt-hy domsctIc aret In view of this, the incentives should be rapidly and energetically read- 4US*.eA 4 4 the over.al1 growth - n -n4 - - 4-e -- ortr* saems to n -Rad-. J tA A & i - & us U... - , - .. . . . -r.-~ - 0 5 L adjustments based on overall performance and uniformly affecting all ex- pot,WOUld be quite different from the prtacti-e of ad ho I-4.a ments of individual incentives in response to problems affecting individual J. uutsLU LJuC Lgiu1LLUg OaLLVL alU LLUL aLIu OL-CL., mUOL LULU%KLd.L exports still receive either much lower incentives or none. 1/ This in U3LLcult to understana ur such exports would unei± e iuaun economy at least as much as those of engineering goods. World trade in made-up clothing, plastic goods, toys, etc., has Long been booming; underdeveloped countries have acquired a large share of it, but India, with no obvious natural disadvantage, has barely entered it. Inere is no reason to doubt that such exports would respond to proper facilities and incentives as well as did engineering goods. Certainly, there is little risk involved in trying; for the costs of such a policy, applied to fields where exports are now very low indeed, would become substantial only if the policy is successful. 346. What we are suggesting is that, whatever the considerable merits and the drawbacks of the import-sustitution strategy in the past, it can no longer provide sufficient impulse to fast and efficient industrialization. The recent shift towards greater attention to exports should be amplitted 1/ Cotton textiles (other than handspun) receive fairly modest cash in- centives, and natural and artificial silks get import entitlemenz:. Gem and jewelry exports receive import entitlements to raw gems. There is a sizeable premium on these entitlements, which exceed tih1e physical import content of exports, though to what extent is not clear to us. Chemicals also receive incentives and are often subject to export obligations, but their costs are generally so much out of line with world prices that this has a limited impact. - 120 - into a strategy of bold overall export promotion, not merely as a means to ea.. freg eange bu*t.tS A..y.. ta -F.. 4"A,-- - f--41- -Is.a~.* The tactical implementation of this strategy would require the provision of --am . mne acos-t~he-boa rd unifo Fassistane too exportsn,fl, tn he! inhe. m brelak out of their high-cost, inefficient, highly protected domestic environment and into. the prmisingc ma nd rew.ardi n, but al--o hard and competitive world market. Though there is also much in favor of a big push to force reluctant firms i.n forein wat-n, 4.. +-1,- - nlri., .n-n.n . 4A A- -n -- -in.4- a.A- on a major commitment by prosperous firms, for which exports are a profitable elent.a..,~ ~ of lon..-... statg . Ita1 wouldao thrfr see unesrbla---. much on compulsion. Reluctant firms may well be prompted to go into exports if te %G V eer-M.Cet r a . l.y hLe pCJ -D u CCU S ~0 JE U xIJ0r #I-=- L-5 LI -- -U V -IU --.. __ port problems, but also those facing them in general. The huge public sec- tor and the major role played by ad hoc Licensing decisions give a large scope for such Government help. By ensuring profitability, such measures are likely to Lead to enhanced export-orientation of attitudes and Invest- ment in the private sector. This should be complemented by the formulation of consciously export-oriented public sector investment targets, and a general effort at promoting exports by giving them real priority in licens- ing and creats. Sucn an export orientea investment pattern snouja or1er vastly increased scope for foreign project aid and private investment, for export projects are likely to have higher than average needs for foreign equipment and, even more, for technical (including commercial and managerial) advice. Experience of other countries, and of India in the engineering field, suggest that such tactics would promote a swift rise in exports; and ultimately a substantial acceleration of overall economic growth. None of this is suggested as a panacea; resources will always be needed for devel- opment, and resources would still be scarce. But the proposed strategy aims at using them more efficiently and therefore ultimately at enhancing their growth-producing impact. 347. Export policy cannot long be divorced from the overall problems of industrial policy. No firm wants to expand its exports at the expense of its share of the domestic market, especially if the domestic market is protected and profitable. Thus for continued competitiveness and efficiency, the production of successful exporters should be allowed to increase if need be through the displacement of other firms. The growth of the market shares of large individual firms, even if they are the most efficient, seems to run counter to social goals strongly reasserted in recent months. Though the direct economic cost of some socially motivated measures may be far outweighed by the benefits they bring in terms of stability and increased commitment to common goals, one can express the hope that this particular conflict of objectives is resolved in a manner compatible with fast growth. 348. In summary, the past all-out import-substitution strategy has undeniably achieved considerable results, though it also had serious draw- backs. Now. there are very few fields left where there remain substantial product imports to displace. In most fields, import substitution can mean no more than arowth of production in step with the growth of domestic demand, which itself is bound to be slow because of limited resource avail- abilities. Thusq In futurn- it is unlikely that imnort substitution will - 121 - be able to provide sufficient impulse for self-sustaining dynamism to many setor of Tndian indnustry However, Tndinn firma havu ahnwn thnt thou are willing and able to respond to adequate export incentives. Provided furt.oheapproiate aaptatio,ns of$ poicy ,~ are carried ou it A-Znnvto ^nIld provide the desired growth leadership. Such strategy implies encouragement the conflict between economic dynamism and social opposition to bigness AnL& a maU-L n L notmilan . to gruwth. TIM seion on LLA%%OsyLY nSO OUjp=L=U that such a reconciliation is feasible. Al. EPARU PERFURMNr, rALDLVWLwO a rAOrrII0 Industrial Exports 349. Last year's Economic Report noted that, for engineering exports, the combination of export obligations and subsidies at last provided adequate short-run incentives for growth. This judgment still seems valid. Despite continued recovery of domestic demand and increasingly stringent shortages of steel, engineering exports increased by about 30% in 1969/70, on top of the 100% increase in 1968/69, itself following a 40% increase in 1967/68. They now form the fourth largest category of exports, after jute goods, tea and iron ore; their contribution to export growth is the greatest both in relative terms and in absolute value. 350. The emergence of a few truly dynamic export firms within the engineering sector has been the most encouraging feature of recent trade developments. They were engaged in the production of often low-qualtiy, outmoded equipment, sold on the domestic market routinely, without any merchandising effort, often to the Government. They suddenly discovered the true measure of their inferiority and they started to remedy their deficiencies by raising the technological level of their products and improving their finish and quality, by going out to find customers and responding to their tastes and specifications. That several firms both in the private and the public sector not only succeeded in this struggle but came actually to thrive on it, is a very good sign indeed. - 122 - COMPOSITION OF EXPORTS ($ millions) 1960/61 1964/65 1966/67 1968/69 1969/70 (estimated) Jute manufactures 284 353 333 291 300 Tea 259 262 211 209 180 Other primary exports 513 735 634 736 743 of which: iron ore 36 79 QA 118 125 marine products 10 14 23 30 40 64hers A67 AA? 517 588 57A Industria1 exports 330 364 364 577 627 of which* engineering goods 18 30 31 90 116 iro an -seel 2 33 0 1 other 292 311 300 382 402 Total 1386 1714 1542 1813 1875/1 /1 This estimate of total exports is more recent than, and independent - ---1---------------1, J_ f UL, LLIC aVUL±.LCWL UCL.L.Led estLimates, CL&U JLW 8LWa.L6=LI than ther sum. J_J.L. ILLe four-lu rise in eugineeriug expors from tu IVW P4w p06=U of the mid-sixties could not have taken place without very substantial improvements in policy. The 1966 devaluation itself, and the subsequent provision of export incentives and rebates to a broad selection of engineer- ing exports were indispensable preconditions. A multitude or other measures were also needed to solve concrete problems. To list but a few: port facilities had to be adapted to the loading of bulky items. Shipping had to be provided to ports previously not linked to India. Banking and credit mechanisms engaged in financing activities like tea exports to Britain had to be harnessed to needs like those of electric transmission equipment ex- ports to Iran. Administrations with long-ingrained proclivity to the lengthy and detailed scrutiny of each individual travel request had to gear them- selves to the peripatetic habits of modern international businessmen. The practical implementation of incentive and rebate policies had to be stream- lined. Though none of these problems has been definitely solved, all have been alleviated; none of them was allowed actually to block the progress of exports. The Government, particularly the Ministry of Foreign Trade, is now making genuine efforts at helping industry, and cooperates with it, notably through the channel of a remarkably active and effective Engineering Export Promotion Council. - 123 - 352. One problem was particularly acute in the past year: the shortage of steel. Steel is allocated to users through two interrelated administrative mechanisms. So-called scarce categories (essentially flat products) are allocated by the Government's Steel Priority Committee and the Joint Plant Committee (JPC) of the steel plants, the railways and the Government; other categories by the JPC alone. Export orders are supposed to get priority second only to defense. In fact, until recently, that priority has been ill-defined and has had "only limited practical significance unless the indentor is in a position to apply pressure and persuasion at a number of points within the chain of agencies associated with the production and distribution of steel". 1/ The shortage of steel has not only affected exports of the current year but also those of 1970/71. because exporters were cautious in accepting new orders, both out of their own volition and on the Government's advice. However, a crash program to help engineering exports was undertaken in December. Its main element was to grant exporters "out of turn prioritv": the expression is itself adequate comment on the meaning of ordinary, or not out of turn, priority. It is to be hoped that mechanisms for nrovidine effective nrioritv to exnorts will be established on a durable basis, for steel shortages are likely to persist and other shortages to emerge from time to time. 1%1- Another nrnhlam whit-h moy well becoma mairinisa in the lng& run in that of credit. India has now created medium and long-term credit mechanisms anate z enn neAa Tdian ninearino ertrs do nt appear hand- capped in their ability to extend credits. As yet, given the composition nf Tna % ana4nn*4ne avat and ale tha at2n^aaa ^f aaorn1 f4rms in hid- ding for World Bank projects, only a small proportion of engineering exports has been financed by Indian credits, .h4k A- ^ nt yet cnst4tute a s 4ekle financial burden. Nevertheless, one must note that an increasing spectrum of 4-A-4-44.1 --- A- 4. - a sm n -. 4 1 -11. - a awVm -kw --4 . A-,.-lan-A m n e 4a on ever-improving tied aid or credit terms. Neither trend is showing any sign of reeral1 Wh...s sooner or later, Tnda .-IITT n. 84-A JAds kT :8r-1 e Lgest Lovesses.. A g o.1nAAL Lu Ach, L%A.Lu WA.LA &L U LL "AL aUl tU finance such exports on an increasing scale, or to exclude herself from se, othkweua prof4table m bs ,qL Preferential or lil-e -A .DS* .. &.W%L multilateral tr_ Le Olh. pay7ment arrngmet. may provide a partial solution to this dilemma. Such arrangements are yet to evo , tnugh recun Inuo-Iranian tae and payment unegotiatons may well be a step in that direction. A solution preferable in every respect Wou.u LJ 6U L1ukL%UU= L amount us fiumuCiug availaule fur thiL FiuL pLLy transactions. Debt relief responds to this need; by freeing free foreign eChNge15, it enabDles the recp------l akeAArger cahpurChaSeS from, third countries like India. Multilateral financing - such as World Bank and IDA I/ Report on Steel Control, GOI, Ministry of Steel and Heavy Industries, October 1963, p. A2. Though the steel allocation system has been formally thoroughly modified since 1963, the comments of the Comnittee, presided over by K.N. Raj, still apply. - 124 - loans to third countries - also cover part of this need. 1/ The settina u of specialized multilateral facilities for refinancing bilateral export credits granted by underdeveloped countries has also been sugRested by the Pearson Commission. Perhaps a way can be found to combine all these fea- tures; some of the work on regional trade and payments agreements now underway in ECAFE may be helpful in meeting these problems. 355. Iron and mild steel exports responded even faster to the recession, devaluation and export incentives than engineering goods. From $26 million in 1965/66 and $32 million in 1966/67 they rose to $73 million in 1967/68, and increased by a further 50 percent in 1968/69. However, a shortage emerged in India about the same time as on the world market, and it is likely that in 1969/70 exports Just about managed to hold their own in volume terms. At the same time, the cash incentive was eliminated, presumably because of the domestic scarcity and the relative rise in foreign nrices: another illustra- tion of the way in which incentives are meant to compensate individual dis- avanteAo. not- to Anmnhasiz& advantane. An nart of tha currant nhinmenta are largely based on earlier contracts, the worldwide price-rise is only now startina to affect India's exoort earnings. In future. the volume of exports will be constrained by the domestic scarcity of iron and steel through its Imnnat on the anort of nig iron and of billats. Tn roll d stee1, the short- age is mainly in flat products which were not exported anyway. Though world damand wll rpmnin annd fnr anmp timp t-hp unnlmi nf TnMIn'a Atpl Annrta is likely to decline, though in value terms there may at first be a rise, as contracts ,nn AA e h a of the nfrrant honm matura 356. Pearls and precious stanes -n-a hnef4t from ralubla 4-mort entitlements, and rose from $30 million in the mid-sixties to $60 million. with occasional peaks due to particular combinations of relative import scrite a.A 0. n.4 port- *4.l ~ 0-1 2 The cotto -4...41- gru has,~ -411 not regained the export levels reached earlier. Within it, there has been a O!.nJ.LtL LUwatue Lut P ya&5uA G. V A uaJu £ woo L WS MULmLAL. yd UAL.A.A.A.UL in 1967/68 (and $12 - 13 million in earlier years) to $17 million in 1968/69 reached $121 million in 1964/65, fell to $85 million in 1966/67, and was probably beLow LUat value in 19670V. Though cUtton textile expOre would .1 Tne greater the general creait prolIem, tne greater toe aesiraniIity of inducing Indian suppliers to bid for such multilaterally financed projects, and of supplying them with timely information on opportunities for bidding, procedural requirements, etc. Such information is not yet disseminated with sufficient energy. 2/ This is not strictly true for chemicals, which receive incentives comparable to those given to engineering exports, but suffer much greater cost disadvantages. - 125 - obviously benefit from a steady domestic supply of cheap good quality cotton, which is not yet in sight, the availability of a raw material which can be imported should not, and by and large is not, allowed to stand directly in the way of exports. Cotton piecegoods do not enjoy very buoyant markets anywhere, and in addition to all the ills of cotton textile industries elsewhere. including restrictive practices in the importing countries, the Indian industry also suffers from price controls and restraints placed on the more efficient mills in their competition with others and. even more. with the small-scale sector. It is also burdened by the high prices, and occasional technical backwardness and low quality, of machinery and other inputs. 357. Under current policies, assuming a few minimal ad hoc adaptations, Pnaineerina evnrts are likely to knp their htinvanrv for at least anotiher year or two. If a uniformly high level of assistance is extended to those indt ri 1 exrts1e-4ttIng anne or lIttle nw there r n to evnort many such exports also to become similarly buoyant. Over the long run, however, to maintain such rap4A gowth of indatrial enrts, ~ao4rhl both in order to expand overall export earnings and to impart buoyancy to indus trial production, a more thorough change 4" po1Ic would be desirable, along the lines discussed in Chapter X. Primary and Quasi-Primary Exports 358. The latest draft Fourth Plan reflects the now general realization that Lum MLUWLh U Lo LuALAudional primay eApots s bounu to ueslJuggi,O and that manufacturing exports must, and are well able to, provide the main im- pulse LU grUWLh. A., AL LheiL peki H7U"IuJ jute an%-A ta eArts Logeth accounted for about $615 million, or 37 percent of Indian exports. Since then, tuey have fallen oy aUout 9A.JV MIJL.L.UL. uLAuML JJLIma4LY mUU nU,iti,EZ_ also fared poorly. They accounted for exports worth $735 million in 1964/65, and $736 million in 1968/69. Tauing out iron ore and marine products 1Auose exports grew respectively from $79 million to $118 million, and from $14 milion to $30 M'llion, the rest of the primary commodity group fLL from $648 million in 1964/65 to $517 million in 1966/67, recovered to only $588 million in 1968/69, and probably fell again marginaly in 1769/u. InLs trend cannot be attributed to any single cause. Several commodities faced good international demand, but their supply lagged, because of the general problems of Indian agriculture and because specifically export-oriented projects had not been promoted and carried out with sufficient speed. The Government's determination to obtain the best possible price - enforced through State trading and export taxes - often also depressed the volume of exports, to the benefit of competitors. And, of course, several of India's main exports truly face inelastic world demand. 1/ The revised Plan's export targets reflect a much more realistic ap- preciation of the world situation than did the old 1966 Draft. Also, while there still occur instances of uncoordinated export and pro- duction targets, the approach to exports is increasingly integrated within the overall planning framework. - 126 - 359. The declining trend of earnings from exports of primary commodities is not necessarily permanent and irreversible, but neither can it be attributed to transitory circumstances like the disruptions due to devaluation or the vagaries of weather. Efforts must be made to investigate, clarify and surmount the problems facing these exports, and to exploit better the opportunities open to some of them. 360. Tea exports fared excevtionallv badly in 1969/70. Prices on the London market fell by about 15 percent, from levels which were already de- pressed in dollar terms since the 1967 devaluation of the pound sterling. The volume of imports into the United Kingdom also fell, and within it India's share. Despite some increase in exports to the USSR and the UAR, the overall volume of Indian tea exports is likely to be the lowest since 1948/49, and about ten nercent short of last year's figure of 200,000 tons. Despite a partial recovery of prices in December-January, the shortfall in value terms will be even areater, and leave tea ernorts at less than SISO million - down by $80 million from their 1964/65 peak. 361. The fall in U.K. imports seems due to inventory adjustments rather than to a fall in dometin British consumntinn. A marainal fall in Indian tea production in 1969 contributed to the fall of India's share in the Rritish market, hit- t-hin ra nwavrthalana mumntnmatid-F f n Inno-ateAhlinhe trend. Over the years, world import demand for tea has been increasing only slnly. W4 hin 4t f-hav waa nteaynA inevasa In the shara nf REat Afrln where bushes are younger, and costs and taxes seem to be lower. In the f4fl-i0a Emalt Afrcas xp sor wacs cr, mmvaa%aA 1%% t-hm fall 4" av-pnvto from various minor producers. In the early sixties, mainland China's ex- ports to the IUSSD fell dastic4ally, and Tnda4 f411-A that gep thou-Wh partly at the expense of her exports to traditional markets. Soviet pur- faster than production (with about 20 percent of total world consumption, Inua La LeL "ULarumL cIsLme L afte Ut.e U..1 U U aDAUcc Aal =.%FV&6 AgL . LAW have helped to protect the price of Indian teas. As a result, for Western u)'L U. Llj tL~ L LLV L LJLUU LC4 iLY at LCb.UU&r.L UUF.L.LWL WU vyes, Iuuia seems to have uecome Iuncowux rer Inguua Iuyw w-- main function is to make up the gaps between overall demand and the supplies expected from other producers. J36. In the 1970/71 budget, India has removed the duty on tea exports, while enhancing the excise duty borne essentially by domestic consumption. Both measures of course tend to raise the domestic price of tea quite con- siderably, while the export price is lowered. This should help to boost India's exports, though perhaps not quite up to the 210 million kg ceiling allotted to her under the Mauritius agreement of August 1969, which sought to stabilize prices by withholding 90 million pounds of tea from projected world exports in 1970. Prices may indeed remain close to the somewhat firmer levels prevailing in recent months. On the other hand, in the short run, the volume of exports from India can be expected to pick up only modest- ly. Therefore, except for temporary fluctuations due to inventory adjust- ments or oscillations in the sizes of crops here or there, the outlook for the value of Indian tea exports is, at best, a recovery to around $210 million and slow rise thereafter. - 127 - 363. Despite a much improved jute crop, 1/ jute goods exports have not recovered substantially from their 1968/69 level, which was the lowest since 1961 both in value and in volume. Exports of sacking and ordinary hessian continue to fare poorly and the increase in carpet-backing exports has slowed down. The Government has now recognized the threat of competition from onlynrlnv1n and from the Pakintani iute industry and on December 10, 1969 reduced the duty on carpet-backing exports from Rs600 - (earlier 900 -1 tn Ro-In - per ten; 71 thin radtrrinn wn matched hv a eithnrl in producer prices by Rs 700, to the levels prevailing in early 1968. Though th rho m n.-ha -4- V^ fo%"o.,4mtn 4M"^"-,ova hoo thst ,mga..t 1.j%a k%, Do Ann per ton since early 1968 (i.e. by the full extent of the reduction in duty), ffseachl wand 4ninS.=WC n tIne roductio.~4n of a.tl-u ti4tut.e.a h-eve nowl p,r ceeded too far to be halted, and it is inevitable that jute's share of the carpet- bacin 114- SU UI A------- However, "AfY at market Is 1 -- .-AM A-_ enough to accommodate several materials, and with a modicum of good luck anu goud management, Jute cantsuanug exporsso uldx continue to grow in the long run. As exports of sacking and coarser hessians are fast vanunug, whe continueu markct potential fu carpet uackig kanU tna possible development of other uses) may lead to a resumption of overall growth of Jute goods exports, albeit at a so ae o30. For ts potentia to De realized, asequate suppies or good quality raw jute are needed. Natural conditions are less well suited for the production of raw jute, particularly of high quality raw jute, in India than in Pakistan. An appropriate policy approach promoting such production is all the more urgent, but it cannot be said that it has yet been formulated, let alone applied. Continued modernization of the jute mills is also needed, and increased and more functional research into new uses of jute is desirable. For the industry to undertake this, it is necessary, though not sufficient, that it should be reasonably profitable - which it was not in the past few years. Hence the importance of a sympa- thetic fiscal policy. 365. There is no room here for examining commodity by commodity the position of all other primary and quasi-primary exports. Indian export policy was long characterized by attempts at protecting old exports ratler than developing new opportunities; and by a preoccupation with high price rather than growing volume. Thus, in too many fields, supply constraints limit Indian participation in world markets - iron ore and cashew are but two of the many that come to mind - while in others, a long-drawn-out 1/ The improvement, however, was not quite as big as expected, despite good weather. Possibly, some cultivators have begun to notice that the enthusiastic response to high prices in years of scarcity causes prices to fall in the following year, when the crop is good. 2/ The duty on most coarser types of jute cloth has been reduced even further or eliminated, albeit generally only after these exports had already greatly suffered. - 128 - battle has been fought on two losing fronts against shrinking markets and declining prices. 366. The single most important consideration which should guide policy towards primary exports is that there is no commodity (except possibly lemon- grass oil) for whose supply India has a monopoly; no demand at all which can- not be satisfied by a substitute source or a substitute good. The active development of supplies of goods for which there is likely to be good world demand is therefore the only path to export growth. There are welcome signs that the Government has now come to realize these needs. The Fourth Plan lays great stress on the priority to be given to exports, the need to develop specific export supplies and, if necessary, occasionally to restrict domestic consumption in order to protect export markets. These general principles must now be translated into practical measures and detailed programs of steps to be implemented. A new realism has also shown up in the adjustment - albeit reluctant and tardy - of export taxes. Also recently, the Government, in contravention of the normal "indigenous angle" policy, authorized in prin- ciple the import of fishing boats and equipment to promote the development of prawn supplies for exports. Hopefully, this will be followed by other instances where export needs override the priority given to import substi- tution. 367. Markets must be known in order to be penetrated and problems un- derstood in order to be solved. Primary producers are often too diffuse and small to gather the required information unaided. It is all the more neces- sary for the Government to inform itself that it gets closely involved in these exports, through taxation, through its responsibility for investment, and through the increasinu scone of State trading. Though there is a good deal of research into export markets in India, some of it is not well directed and much relevant information ranche the policy makers too late or not at all. Efforts at establishing channels between sources of intelligence and policy maker-q need to he mirmiad and hrnand. 14A. Inany .axe mi ni nnt-imni &mvvrvj n^4.-ion were raal l franade sand implemented, the best the middle group of primary and quasi-primary exports £ nu1 . 4-2-- --JS na nd ta) can be expectedA to don4. t1e next few "ears - - - - -..5 J__ 5-- -_ ... - - - - - - - - - -- -5* Jl - is to contribute two or three points to the overall seven percent annual the past five years. TT rMIV 1 DAT ABfLl e% " TbAVMT1J1 The Recent Past: 1969/70 369. We must once again note that economic analysis is not helped by tne quality of statistics available in India. Tnis year, customs data on the composition of imports appear with an 18-week lag; until the Septem- ber data became available in mid-February, we had to base our work on the August figures. Customs statistics appearing in February, and purporting - 129 - to relate to August, do not really include all imports landed, or even cleared through cues-o- 9~ by the end of that month. S- ^f A-mtjot-l 4m.. ports are recorded with those of September; a substantial portion are lpeA"wihl dloaeofM r* ch*~O t-U -aal t 041A. ll ll * U 4- AS - de AWa4 f all. Such is the case for up to one-third of fertilizer imports, say of about $60 million, in the first half of 1969/70) of crude petroleum uLLOe WC UU 1UL. HLLUW 11UW IULl UCLACL CAPULL ZLLC&ULAN are. Dalaru of Payments data prepared by the Reserve Bank are delayed even longer and are not nearly as iufrmative as policy woulu Kquire. AU Lur L"uLLuMa tion on import licensing which should in principle provide a good basis for estimating future imports and payments, in fact it can be reconciled neither with import nor with balance of payments statistics. 370. We have often discussed these defects in the past. The specific fact that both fertilizer and petroleum imports are strongly underrecorded has been known for at least three years; yet if any remedial action was taken its impact cannot be observed. The delay with which import stati3- tics appear has increased in 1969/70; so also has the underrecording of at least crude petroleum imports. Though Indian statistics are not worse man those of many other countries, including more highly developed ones, they are probably unique in that they continue to include long identified, well- known, and in some instances precisely quantified, deficiencies. This 1i- tuation is not due to any lack of excellent economists and statisticians; it cannot be remedied by any amount of foreign technical assistance. What is needed is power for those who use the statistics - or who would use them if they were reasonably timely and reliable - to influence the methods of those who compile them and to override interests vested in continuing de- fective procedures. 371. In our last report 1/ we had noted that the export forecast we made in the previous year was "likely to be within three per cent of ac- tual exports, but our import forecast was probably excessive by about 18%." Our forecast was again quite accurate for exports and far too high for imports. The pace of economic activity has continued to expand roughly in conformity with our short-run expectations, but instead of recording a moderate rise of about 5%, as we had expected, it now appears that non- food imports 2/ actually fell in absolute value; for the full fiscal year they may amount to only about $1830 million, their lowest level for a decade. 372. Though unexpected, certain elements of the decline are easy to un- derstand. Thus, imports of finished fertilizers have fallen by about 25%, or $50 million, because the growth of consumption fell even more behind 1/ "Economic Situation and Prospects of India", April 18, 1969 (para 178). 2/ According to the general practice, "non-food" when applied to imports or aid refers loosely but conveniently to items other than foodarains. - 130 - targets than that of production. The fall in imports of fertilizer raw ma- tp-riala ran he Pr1ained hv erratic imnnrt nattprna- and the nvortnkinoP nf these materials in the previous period. There has probably been some real fall in narn1pum prnduct inn hut% %hh 1s millhn 1nn (43 nor cont) fall in volume, and the corresponding $19 million fall in the value of crude pe- tvloim 4mnnrt in th nPrind Ar1l-.ntomhwr anam whlly due to increaned underrecording by the Customs. BALANCE OF PAYMENTS SUMMARY 1966/67 1967/68 1968/69 1969/70 1970/71 T a t April's Current Foecst Esimt -Forecast t&SJ of which: Foodgrains 868 691 449 400 330 330 A&U_k o 3 oa. In00 TOO 911 1)19 I I1n I incat V.L&=L A.J .,J W&J.J G &V A W.JJ V .7~JI Exports 1542 1596 1813 1875 1875 1975 de BC31ance _11Yo _l1SZ1 990 A A. Io, Inr Capital and invisible /f - -L-1 -- -4 - 11 TO _ 1 T ?G kexl. U=UL asLVL%A/L 4U L A. L.Lf I Debt service - 365 - 444 - 500 - 548 - 549 - 550 IBD Special Deposit 45 - 30 - 15 - 15 - Net IMF 130 33 - 78 -169 -167 -205 Change in eserves - I - O1 - 51 - - 4v3" - o0/4 Gross Aid 1494 1575 1211 1397 1217 1140 of which: Food Aid Jo 441 20u 20 23U 230 Project Aid/3 497 380 368 400 300 280 Non-project Aid (incl. debt relief) 424 672 548 682 620 590/5 Non-food PL48U 35 76 35 35 67 40 /1 Including Errors and Omissions. /2 Does not take into account debt relief, which is included with non-oroject aid. /3 Rrpakdown between nroiect and non-nroiect aid in to some extent arbitrary. /4 Not including accretion or use of SDR's. 15 On th- hanin of rurrant &YlrtationR for future rommitmenta. N.B. Our current estimate for 1969/70 is still based on incomplete figures. The forecast for 1970/71 is affected by even greater uncertainties, as noted in paras. 377-379. - 131 - NET AID AND NET AID USE 1966/67 1967/68 1968/69 1969/70 1970/71 (estimate)(forecast) Gross Aid 1,494 1,575 1,211 1,217 1,140 Debt Service 365 444 500 549 550 Net Aid 1.129 1,131 711 668 590 Chanees in Reserves and in IMF position /1 + 118 - 3 - 158 - 385 - 285 NAt aid tAd by economy 1,247 1,128 553 283 305 /1 Tnclda alan amall Aanf%a4fa nr%A witthdrAW9110 nf TRRI- aid figures from the Ministry of Finance. No adjustment is made fo h - - -.* -. *-. 4-% v - .6- --4-'* . . . . . . . . data. This presentation of the Balance of Payments is consistent w.4 O-U .1 ..--.A Inou rece4.n ,4 report 4u 40- A44$&a.ers maerially. WA. WA LAIO Ca U Lam L _U %4 L . .'. ... .L S .&.a . from the Balance of Payments prepared by the Reserve Bank, and aloA from tu- nujunhou 1a0-1 k --- - a4 ous 5 -p-n4- U.. the Gvvro a~~~DU9 ZLIR LI %UJ UO& =U L#".CLL%_= W'A. L OJIU4.&L.O Lu L.U UY LA= %7%J Ll ment in the Economic Survey. 373. The most unexpected fall, was, however, in the categories related to investment and the engineering indutries. macuhnery and cmUUpoUen1, transport equipment, nonferrous metals and iron and steel. The total of 611ese has ULcline Ua UUUL JUif. UL .AVV 1"AU.LLL Ln AU;, V U * U L LLt, are precisely the items which were expected to rise with the economic rec-very. n"tiary mp_ may n u _us pur1 - --uu L~LV~y rA.±L~y LWpYLLO EMY ULUULAL LUL PtI&L Ul. L41C Lft.L.L L11 LIEU$ category but they cannot explain the whole movement. Nor can underrecord- ing by the Customs; for the movement of reserves confirms a steep overall fall in imports. The causes of this fall - mainly faster than expected import-substitution - were discussed in Cnapter X. 374. Foodgrain imports fell short of our - or rather, tne Govern- ment's - expectations by about $70 million. This is due in part to the early arrival of some imports expected only in April 1969 (reflected in larger 1968/69 food imports and aid than estimated in our 1969 report); it is also the genuine consequence of growing self-sufficiency in food, though one must note that the target for buffer stock accumulation of foodgrains has not been met. In absolute level, foodgrain imports are now estimated at $330 million for the full year - one-third of their 1966/67 level and lower than ever since 1961. With exports close to - 132 - our forecast of $1,875 million (despite the unexpectedly bad perform- ance of tea), the trade deficit fell below $300 million, less than half of last year's actual deficit or of the deficit then forecast for the current year, and the smallest for fifteen years. 1/ 375. Project aid disbursements have probably amounted to only about $300 million, a fall of about $100 million, though non-project aid disbursements actually rose (partly because 1968/69 disbursements were much reduced by procedural problems and delays in commitments). Food aid fell by about $30 million and non-food PL 480 receipts rose by about the same amount. Debt service rose by about 10%, to an estimated $548 million from the revised estimate of $500 million for 1968/69. 376. The fall in aid was smaller than the fall in the trade deficit. and India was able to add about $200 million to her foreign exchange re- serves in addition to repavin2 $167 million to the IMF. 2/ Though India has now experienced three straight years of reserve growth, these came after seven vears In which cumulative reserve losses (including net IMF drawings) totalled $290 million. Only this year did net reserves ex- ceed their March 1961 level. In 1967 they had reached a low of $155 million, less than one-tenth of current imports (see Appendix, Table 23). Forecast for 1970/71 377. The Government now estimates that foodgrain imports will re- main nt Ahmnr $330 Tnillinn and fnnd aid at Ahmit 821O million. One can be reasonably certain that a further fall in machinery and component imnpryt will he mnva than nffaat hv higher raw matariAl innrt-a thnah the total non-food import level is unlikely to be higher than about <1,r) t-- %n47,OnA m4114 n Unless e-ort -onlic- is subshntically revised in the near future (notably by extension of incentives to all exports may well fall short of even that figure. The likely trade deficit is in U114k akwA a m CA 4 1 > t- &~ e n e14 9 a woir o oA oJ.f , sa ay , .3 AwJ0 JL&J.in. 70TLf/TA --- -----. .JA Ad-L.....y.... J0.n.1..A.A 60,7 -.84114 . _JU* U0 UML L JL U RJJ AmL. LUke ALU U4. Vi u dedu y,s wilAlin from the previous years IDA industrial imports credit (as against $75 million expected in the current year), aIdU an amoun ou exeApoUnal - and exceptionally easy to use - British aid (in part an advance on ,n A - - _Jt__ 1-Jj 1 i9u7i , in part a special non-recurring contriUutu0n%. 1auougu uuurse- ments of US aid are likely to be faster in 1970/71, the overall level of non-project aid disbursements may well fall somewhat, say to about $590 million. Despite the expectation of a few fairly fast-disbursing 1/ Trade deficit in the official trade statistics. If, as we suspect, the undervaluation of imports is greater than that of exports, the actual trade deficit may be higher by about $100 million. 2/ Not including the accretion of $126 million in Special Drawing Rights. - 133 - new project loans, project aid disbursements are also likely to decline, say to about $280 million. Thus total gross aid disbursements in 1970/71 are likely to fall once again, to about $1.14 billion, about 30% below the peak reached in 1967/68 (assuming that present expectations about commitment of US and IDA non-project aid before mid-1970 actually ma- terialize). In net aid terms, the fall is truly drastic: from more than $1,100 million to $300 million of net aid transfers, after deduct- ing repayments to the IMF and increases in reserves; net aid received, still on a disbursement basis but without deducting reserve changes and repayments to the IMF, is likely to be about $300 million higher, but still only about half of the 1966/67 level. In terms of aid utiliza- tion by the economy, the Fourth Plan's target of reducing net aid by half will already be fulfilled. I/ 379. These projections are mainly illustrative, and we are by no means firmly confident that they will be realized. Nevertheless, it seems most unlikely that there can be a deviation of a magnitude capable of creating any serious balance of payments problem in 1970/71, given the constraint of import licensing policy. This does rest on the as- sumption. however, that US and IDA non-project aid will be committed soon, and that the aid figures mentioned above will actually be trans- ferred, which in turn implies that the broad lines of the rules eovern-- ing the use of non-project aid will not be changed; and may well imply continued debt refinancina of about $100 million. Aid RannirPmPntn and thp TrannfAr Problem IRO-. Tn 1QAA/AQ_ t-ho Inat Ha~ral vpar fnr whit-h fitll darn arp AvA-11- I-_------- ------------I--- ------ --- --- ---- - - able, gross aid disbursements amounted to about $1,210 million. Net aid utilzation by the Indian economy -a only about $560 mllion offer tnlnco into account debt service, repurchases from the IMF, and short-term re-- serv T- 1OAG / 71, .0- n-^me n4A A4ac.ra,n4 f4ft..ra 4. 141b-1" -I- )the~ p--- --- --4usmn iuei -_ to have remained roughly stable; net aid utilization is likely to have been aot $300 m4114n, tho nat for more than ffteen years. Cm- mitments have fallen even further, to about $500 million (excluding foodA na nd PL 480), t~wn. -h., at- r,, 4mda 4, a iAmpaAa oarmn- Aii.r4fnq the "aid pause" following the Indo-Pakistani border conflict. Even if below $800 million, once again more than $100 million short of disburse- .,v.e jnau M L Wu UIse &bmouse U wo u b wMwa 1 vu w 4wabwU. LsumA mouZ eL, uy7 drawing down the aid pipeline. This is especially true if there is a 1/ One must distinguish between net aid given by the creditors, which we erfine as gross aid disbursements minus debt service, and net aid or net resource transfers actually used by the Indian economy which is the former amount minus repayments to the IBT and increase in reserve holdings. - 134 - shift back towards project aid, which takes longer to disburse even under ontimal cronditiong. Alreadv in 1970/71 we foracant that aid diahiramnnra (excluding food aid and non-food PL 480) will fall below $900 million, rinap to th re^mmitmPnt Ioval nf thp pant few yeara. Cntiniation of such commitment levels of non-food aid, as food aid dwindles and debt service mo u ant ,wold nermit mnet renore tranaferS I"tn the Tia4n" A.- r- omy at less than the 1969/70 level of about $300 million, even if reserve aowth -;.re to halt omln1ely. T other terma one could . that h low level of investment and imports experienced by India in 1969/70 rep- resents en advanced aA4 usO--t- f-^ A^..I.,+. _atl i-,wn .4 to a real- istic view of actual and probable new aid commitments, and the recent stimulation of investment in a declining aid situation with uncertain exports. Given expctatios and intentions about food aid, a sustained rise of net resource transfers above the $300 million forecast for 1970/ ±1 wuuu require au equal riec n un-fouu ai n ummimenus aove Lue past few years' level of about $800 million. 382. As indicated, non-food aid commitments at this level have been YLuuu d.LO I. &UU loL.LvLw aid use, with a L inUgL.u LunLuUWwn in the aid pipeline. This, if continued, would mean of course that actual LU M.LUULMt=1LrJ WVULU k4LV L LU L ULCLLACL, LLAUL% u . UUV. LUil India's development standpoint, the need is rather to reverse this trend as explaine in Chapter IX, for new aid commitments to exceed current disbursements in order to replenish the pipeline and permit subsequent disbursements to rise rather than fall. The estimate for gross aid use this year (1970/71) is $1,140 million including $230 million of food aid, $40 million of non-food PL 480, and less than $900 million of non-food aid. Net non-food aid after deducting debt service comes to $360 mil- lion. For an early increase in this figure to say $500 million, after taking account of rising debt service, gross non-food aid commitments should be raised to about $1,100 million, i.e. about $200 million more than this year's expected non-food aid disbursements. This is the fig- ure accepted last year as a reasonable assessment of India's aid re- quirements by the Consortium. It seems as valid an immediate aim now as then, especially considering that another year has passed of aid dis- bursements in excess of new commitments. Last year's division into $700 million of non-project aid and $400 million of project aid again seems reasonable. Looking further ahead, we have indicated the basis in India's development needs for returning within the next few years to levels of net aid transfer of about $1 billion - about the same as in the mid-sixties. With the large increase in debt service since the mid-sixties this would require further increases in gross aid commitments over the near term to about $1.6 billion. 383. Though the low level equilibrium of 1969/70 corresponds to an advanced adjustment to aid commitments received, that adjustment was in part involuntary. Had the Government known the course of the economy and the evolution of reserves, it might have utilized somewhat more expansionary economic policies. This does not refer to internal finan- cial policies: there was probably little if any leeway for greater ex- pansion in that field, as seems to be indicated by the fact that the - 135 - wholesale price index rose by about 7% in 1969/70, a year when the recovery of industrial production and of investment were still modest, and agricultural production was good for the third successive year. However, there is a field where restrictive policies are both a hindrance to production and a stimulus to price rises: that of import licensing. 384. Licensing policy for imports for current production was rather restrictive in 1969/70. Import licensing is related to actual past con- sumption of imports; this tends to delay the rise in imports when cur- rent requirements rise. Moreover, the availability of several raw ma- terials, notably of steel and zinc, was overestimated, and their imports restricted with undue severity. Corrective measures have since been taken; in recent months the value of licenses issued has risen consider- ably (though it is likely that not all these licenses will be utilized, notably because of the world shortage of steel). However, the extremes of protectionist policy leave relatively little room for reduced restric- tiveness. Domestic shortages show up through increased delays in delivery, which have very limited influence on licensing decisions, and through price rises, which have practically no such influence; thus the indigenous angle clearance policy tends to delay, hinder, and in part to prevent the re- sponse of imports to domestic shortages, except for some delayed response to acute shortages of key raw materials. Imports are prevented from play- ing a major role in reducing temporary inter-sectoral disequilibria by channeling real resource inflows where they are needed. When the ecoromy needs real resources, in overall terms and for particular sectors, the import control mechanism tends to prevent the timely actual transfer of these real resources even if the means to pay for them happen to be avail- ablA. There In a genuine transfer problem over a broad front. 385. Th4n of rntirna dna not man that India'n halanre of ayments will henceforth always automatically be in surplus, and that trade and. payments nrnhleam will An1V VelAte to the trnAfPV intn Tnin of fnrajan resources freely available for use. Originally, balance of payments dif- firntia wre a mainr motive for the increaningly t1aht imnort retrlr- tions, and the fear of future difficulties is still an important reason fn- enntinniina thmn The rnat of kenlna Aowin imnorta of raw mAterials and of components is particularly visible in terms of unused capacities; ao there is a tenAn-w to let thne 4mnorta rI 4, 141nm w4th nAoaeA needs, and they could indeed rise rapidly if industrial production heame huo,ant Thn v4oa Jim 4mnn%rt nlvma wnl%O& harnma v%nr1-iili1ln-% large if the production of oilseeds, cotton and other commercial crops - ,not tn meantin food-anS - Ci-nt4v%ti&A tn Ing- Vtivt avmnvae avtreea inr- port restrictions are likely to be self-defeating in the long run, by hindering the rise of expors. Finally, debt serv4i oiations wil1 continue to mount; so that the transfer problem does not concern only net -.&-oucs, anna woul fA't WC IT . E, -- pr &w rQ t- s d Mn to the level of exports; there is an additional problem of transferring gross capJ"a" J-n lo.s ast a s .J. Ta W Ak nmw n P4 la , gAUDD L-L AHLAUWW GL JDL -L ULV AL LU U=U &- AV=00 L- =LJ&a& #a-wu=uL will soon absorb $600 million each year. - 136 - 386. The transfer problem is particularly serious for aid financed imports, because limitations on the type of goods creditors are willing to send to India often clash with limitations placed by India on the type of goods she wants to admit. 1/ Most bilateral aid (excluding aid in the form of debt relief) is tied to procurement in the creditor coun- try. Given the industrialized character of most aid-giving countries, country tying alone, even if it were not accompanied by other restrictions (which in fact it is), would tend to make aid available mainly for manu- factured capital and intermediate goods, although foodgrains are an im- portant exception and some raw materials are also possible. The World Bank Group does not tie aid by country but does prefer financing the capital requirements of projects, including in exceptional cases local expenditures, with the supplier of capital goods to be decided whenever feasible on the basis of international competitive bidding. 2/ These policies tend to reduce the availability of raw materials under aid, since raw material imports are overwhelmingly from non-aid sources, and favor the supply of imported capital goods under aid financing. The malor exception was food2rains which, for a long time India needed to import and aid-givers were willing to provide. However, food aid receipts have already fallen from $538 million in 1966/67 to $260 million in 1968/69, and a likely $230 million in 1969/70. A further decline is to be expected. even if there is a delay in implementing the Government's proclaimed aim of eliminating food aid in the next year or so. 387. In other fields, the types of goods favored by creditors are precisely those where the greatest effort at import-substitution has been made by India. 3/ We have noted that the emphasis placed on import substitution has been excessive. and this aggravates the transfer prob- lem. Nevertheless, it is clear that for a country of India's size and resources. develonment necessarily involves the fosterine of a broadly 1/ One coulA iiae the analoa of narrw rlnnhlp tnn-ri n1 nred not nirp opposite each other. 2/ The Bank Group has also been financing imported material and com- been to reduce sharply this element in the Group's financing. The suppliers over foreign suppliers on c.i.f. comparison excluding duty. Ll %UV=L&LULA Uf La cnULends uha in stu case the preeArnce is insufficient to ensure effective Indian competition. 3/ This is true even for fertilizer, the major aid financed commodity arter foodgrains. However, Qomestic demand is also expectea Lo continue growing steeply and as the import-substitution effort has to surmount serious financial and technical problems, there will for some time remain a fertilizer gap to be filled by im- ports, though probably much less than, say, in 9oolo/. - 137 - based Inoustry and or tne skils that go with It. If fne forms o1 aio do not change in line with the progress of these efforts, the difficulty of transferring aid must necessarily increase. Of course, the magnitude of the transfer problem is a direct function of the volume of resources to be transferred and until now, the difficulty in transferring aid has been partly alleviated through debt refinancing, which involves no trans- fer problem; and eluded through a considerable decrease in new aid com- mitments. 1/ Were the creditors to try to reverse this trend, and also make up through non-food aid for the expected decline of food aid (there has, of course, been little indication of any such desire on their part), it would be quite impossible to transfer the corresponding imports into India within the conflicting framework of India's growing needs for raw materials and the creditors' desire to supply industrial products, often preferably in the shape of complete projects. This conflicting framework is reflected and amplified by the restrictions now applied to aid by the creditors and to imports by India. The relaxation of one set of restric- tions alone would not be enough to remove this transfer problem. Only a limited and, ceteris paribus, decreasing proportion of India's real im- port needs will take the form of finished capital goods, and only a de- creasing proportion of that will go into identifiably large investment projects; but whatever the nature of creditor policies, it is also true that if the current extremely protectionist practices continue to be followed, then, as the Indian economy diversifies, only a limited and decreasing amount of real resources would be capable of being transferred into it from abroad. 388. Indian efforts to ease the aid transfer problem would appear more rewarding if they were likely to result in a substantial increase in the volume of aid, rather than in a tightening of the restrictions placed by the creditors on an unchanged volume of aid. There is little to indicate that such a favorable response is likely, and for the Indian authorities. preoccupied with the many political and economic management problems pressing on them, it appears difficult and a priori unrewarding to focus malor attention on the measures needed to facilitate the trans- fer of more aid in a situation where there is considerable doubt about: the continuation of even the current levels. 389. Aid requirements cannot be determined with any great precision, and then only if meaningfully related to a set of investment targets - for instance, those of the Fourth Plan. As discussed in our last report, and elsewhere in this one, that volume of investment is, even under 1/ To a large extent, the transfer problem emerges at the aid commit:- ment stage, which is when the broad character of the goods to be imported is decided. Current aid disbursements still reflect im-- ports authorized in the past - sometimes the remote past. However, as against annual disbursements of about $900 to $1,100 million, only about $800 million non-food aid has been committed in each of the past two years (and only $650 million in 1967/68), and of this $100 million was in the form of debt relief. - 138 - op1umisCic assumpulous, Lne miulmum requirea to maintain tne economy on a 4 to 5% growth path, and may well be insufficient even for that. That rate of growth, is in turn the bare minimum needed for the savings rate also to move upwards and thus, ultimately, to accelerate growth to a rate which would provide some perceptible improvement for most of Indiaas population within a visible time horizon. 390. It seems extremely difficult to achieve the planned level of investment without substantially higher net resource inflows than have been committed in the past few years, or are provided for in the Fourth Plan document. What would seem to be needed is an increase now of net aid disbursement to $500-600 million (gross aid at $1.1 million) as a step toward a return within the next few years to the previously reached annual net aid disbursement levels of about $1 billion, after deducting debt service, or gross aid of about $1.5-1.6 billion. In net terms, that would still be well below 2 dollars per capita; for each Indian adult it would provide less than 5 dollars. Yet, small though this amount be in relation to the size of India (or the means of developed countries), it may well be the straw that props up the camel's back on the way to sustained economic progress rather than economic stagna- tion. 391. This is not to say that we could precisely forecast the con- sequences of any marginal shortfall from the proposed aid figure. We cannot even forecast precisely what would happen if the proposed aid was, in fact, made available and if the creditors and India both made the policy changes necessary to allow that aid to be utilized. Much depends on unforeseeable random events; there would be a tremendous difference between four years of rather good weather out of five, as compared to four years of rather bad weather. Nor can we foresee all the non-random events which, in principle, are foreseeable; nor prescribe optimal policies with confidence; nor say whether they will be followed. But we can say that without the proposed level of aid, successful devel- opment would be much more difficult to achieve, and would require a disproportionately more unlikely combination of favorable circumstances, efficient policies, and sacrifice. Conversely, around and above that proposed level, additional aid transfers would make a disproportionately large contribution to successful development. They would directly fa- cilitate the indispensable lifting of the investment rate; they would also make it easier to take necessary but difficult economic policy decisions with confidence. LIST OF APPENDIX TABLES Table 1: Ponulation Tahl 2! ntinnal Prndinet Table I: Not Nava2tab1 PrlA± t h%y C e nf nv4a ..-- 7 IT -- - - - ---1s . T-- -- - - - - Auas fe. UDC UL. ASALMAiULULMA AUpULW sas . ~LucA n1umurU~L u LanuscrIaJ. rrouuncGou Table 9: Proucion of Selected Iuoustries Table 10: WholeURle Price Index Table I].: Factors Affecting Money Supply Tanle 12: Consoiduated Finances of Central and State Governments Table 13: Central Government Finances Table 14: Economic Clasitication of Central Government Finances Table 15: Current Expenditures - Center and State Table 16: Tax Revenue Table 17: Public Sector Plan Outlay - Past Actuals and Fourth Plan Table 18: Balance of Payments Summary Table 19: Imports Table 20: Exports Table 21: Import Component - Selected Engineering Industries Table 22: Export Duties Table 23: Gold and Foreign Exchange Reserves Table 24: Total Investment in Public Sector Industry (Cumulative) by Branch of yndus try Table 25: Capital Employed Sales and Inventory in the Public Sector Table 26: Gross and Net Profit in the Public Sector Table 27: Utilization of Capacity in Selected Enterprises (Public Sector) Table 28: Exports by Selected Manufacturing Undertakings (Public Sector) TABLE 1 POPULATION (in millions) A. Census Data (March 1) TOTAL UR BAN RURAL Annual Average % % of Increase % Sub-total Increase Total 1901 238 - 25.9 - 10.9 212 1911 252 0.6 25.9 - 10.3 226 1921 251 - 28.1 8.5 11.2 223; 1931 279 1.0 33.5 19.2 12.2 2L6 1941 319 1.3 44.2 31.9 13.9 275 19 1 361 1.3 58.1 1/ bl.2 1/ 16.1 301 1961 h39 1.95 78.9 35.8 18.0 360 URBAN POPULATION BY CITY/TOWN SIZE Over 50,000- 20,000- 10,000- 5,000- less than 1oon0 l00-000 q0.000 20.000 10.000 q_000 1911 6.7 2.5 h.9 5.8 5.2 1. 1921 A 3 5.1 o 5.L 211 1931 8.2 4.2 6.6 6.6 6.0 1.9 10Qi11 1) 1 7A 7 7 7 0 I 1951 23.7 7.6 11.1 9.4 8.5 2.1 1961 35.1 9O 15 7 11 * A ? n 3 B. Mid-year Estimates TOTAL Increase % 1965 487 ) 10oAA 1oo 0 1967 511 ) SOAR ff0). 12.5 1969 537 ) n ill ne ±yui census a 1-1o-re -rigorous aefinition of 11uroan" population was adopted. The 1951 census figure for urban population, which in fact was or_ MLxil"'on, bas been adjusted in accordance with this definition so as to give a truer picture of the urbanisation trend of the 1950's, though it has not been possible to do the same for the urban population data by size of city/town. Neither has it been possible to adjust the figures for earlier years; hence the 62. million figure is the relevant one for calculating the rate of increase of urban population in the 1940's, and has been used as such. Source: Census of India, 1961; Government of India, Registrar-General; and Planning Commission. GROSS NATIONAL PRODUCT AND NET NATIONAL PRODUCT (i.e. NATIONAL INCOME) (Revised Series) Gross National Net National Per Capita net Index number of net Index number of Product Product National Product National Product per Capita net (Rs. crores) (Rs. crores) (Rs.) (1960-61 Base) National Product -11960-61 Basel_ Years At At At At At At At At At At Current 1960-61 Current 1960-61 Current 1960-61 Current 1960-61 Current 1960-61 Prices Prices Prices Prices Prices Prices Prices Prices Prices Prices 1 2 3 4 5 6 7 8 9 10 11 1960-61 1404h o4044 13308 13308 306.7 306.7 100.0 100.0 100.0 100.0 1961-62 14874 14579 14063 13795 316.7 310.7 105.7 103.7 103.3 101.3 1962-63 15821 14952 14891 14067 326.8 308.8 111.9 105.7 106.6 100.7 1963-64 18113 15803 17119 14889 367.0 319.2 128.6 111.9 119.7 104.1 1964-65 21198 16930 20080 15945 420.2 333.6 150.9 119.8 137.0 108.8 1965-66* 21799 16053 20586 15045 420.5 307.3 154.7 113.1 137.1 100.2 1966-67* 25002 16233 23647 15173 471.2 302.4 177.7 11W.0 153.6 98.6 1967-68* 29377 17622 27922 16525 542.9 321.3 209.8 124.2 177.0 104.8 1968-69** n.a. n.a. n.a. 16830 n.a. 319.3 n.a. 126.5 n.a. 104.1 Provisional. Quick Estimates. Our,ee: Government of India, Econonic SurvE1, 1969-70, p.62. ESTIMATES OF NET NATIONAL PROD[CT BY INDUSTRY ORIGIN - PERCENTAGE DISTRIBUTION (At 1960-61 prices) (Revised Series) Industry Groups 1960-61 1965-66 1966-67 1967-68 1968-69* 1 2 3 4 5 6 1. Agriculture, Forestry, Fishing etc. 51.3 42.7 42.2 45.7 44.4 2. Mining, Industry, Construction and Electricity etc. 20.2 24.2 24.2 22.3 23.0 3. Transport & Cormunications, Trade, Storage etc. 14.1 16.5 16.7 15.8 16.1 4. Banking & Insurance, Real Estate and Ownership of dwellings, Public Admin. & Defense, Other services etc. 14.9 17.6 18.0 17.2 17.6 5. Net domestic product at factor cost 100.5 101.0 101.1 101.0 101.1 6. Net factor incone from abroad (-)0.5 (-)1.0 (-)1.1 (-)1.0 (-)].1 7. Net natimal. product at factor cost 100.0 100.0 100.0 100.0 100.0 * Quick Estimates. Source: Government of India, Economic Survey, 1969-70, p. 64. Édl 1/ PRODU CT I ON OK P iINCIPAL, CrOPS Unit 1950-51 1955-56 1960-61 1964-65 1965-66 1966-67 1967-68 1968-69 Foo-rairis MLi11i on tons 54.92 69.22 82.OZ 89.36 72.03 74.23 95.05 94.01 a) Cereals it 45.74 57.53 69.31 76.94 62.23 65.88 82.95 85.59 Rice " 22.07 28.67 34.57 39.31 30.66 30.44 37.61 59.76 Wheat " 6.83 8.87 11.00 12.26 10.42 11.59 16.54 18.65 Jowar 6.25 6.73 9.81 9.68 7.53 9.22 10.05 9.80 Bajra " 2.67 3.46 3.28 4.52 3.66 4.47 5.19 3.80 Other Cereals 7.92 9.80 10.65 11.17 9.96 10.36 13.56 11.58 b) Pulses " 9.18 11.69 12.71 12.42 9.80 8.55 12.10 10.42 of which: Gram h 3.82 5,41 6.25 5.78 4,21 3.62 5.97 4.51 Non-Foodgains a) Oilseeds 5.09 5.63 6.98 8.56 6.35 6.43 8.50 6.95 of which: Groundnuts " 3.43 3.81 4.81 6.00 4.23 4.41 5.75 4.48 Rapeseed and Mustard U 0.77 0.86 1.35 1.47 1.28 1.25 1.57 1.57 b) Sugarcane (in terms of gur) 4 6.92 7.29 11.20 12.49 12.10 9.50 9.79 12.00 4/ c) Cotton (lint) Million bales 2.90 4.03 5.29 5.68 4.76 4.97 5.45 5.27 d) Jute 3.51 4.48 4.15 6.01 4.47 5.56 6.32 3.05 e) Mesta 0.67 1.17 1.13 1.60 1.29 1.22 1.27 0.91 1 / Figures for 1950-51 to 1959-60 are adjusted with 1960-61 Fully Revised fttimAte.s base. Figures up to 1964-85 are Fully Revised Estimates, those for 1965-66 to 1967-68 are Partially Revised Estimates and those for 1968-69 are "Final" Estimates of Production. 2 / Include groundnuts, rapeseed and mustard, sesamum, linseed and castorseed. 5 / Adjusted on the basis of 1961-62 (Fully Revised) data. 4/ Bale - 180 kgs. Source: Ministry of Finance, Economic Survey 1969-70. iA /AILAbIIfT__ul CRE AL.' v.- F S! r,ercal Pulses (liillion tons) (M1illion tons) Net Availability Per Person Per day. Ye ar Wi thdrawals (In grams;) Ending (-) from Ne t June Production Net ,Imports Govt.Stocks Availability AvailabilLity Cereals Pulses Total -L954 53.44 0.83 (+)o.20 54.07 9.72 386.9 69.5 456.4 1956 50.34 l.39 (-)0.60 52.33 10.21 359.4 70.1 429.5 -1958 49.36 3.22 (-)0.27 52.85 8.83 349.5 58.4 407.9 1960 56.77 5.13 (+)'1.40 60.50 10.33 382.0 65.2 47.2 L961 6o.65 3.49 (-)o.17 64.31 LL.11 398.0 68.8 466.8 1962 62.08 3.64 (-)o.36 66.08 10.28 399.6 62.2 461.8 1963 60.05 4.55 (-)0.02 64.62 10,07 381.6 59.5 bjl.1 1964 61.75 6.26 (-)1.24 69.25 8.20 398.2 50.6 44 8.8 -1965 67.32 7.45 (+)1.06 73.71 10.86 414.8 61.1 475.9 1966 * 54.45 10.34 (+)0. 14 64.65 8.55 355.0 47.0 402.0 1967 * 57.65 8.67 (-)o.28 66.60 7.30 356.9 39.1 396.o -1968 * 72.58 5.69 (+)1.99 76.28 10.58 397.7 55.2 452.9 1969 * 73.15 3.87 (+)o.26 76.76 9.12 391.5 46.5 438.0 * Provisional Notes: 1. Net production has been taken as 87.5% of the gross :production, 12.5' being provided for feed, seed require.- ments and wastage. 2. Figures in respect of change in stockcs with traders and producers over a year are not known. The estimates of net avai'Lability given above should not therefore be taken to be strictly equivalent to consumption. 3. Net Avai"Labi'ity - Net Production + Net Imports + Change in Government Stocks Source: Ministry of Finance, Economic Survey 1969-70. PUBLIC S&CTOR FOJYRAIN STATISTICS (000 tons) 1965 1966 1967 1968 1969 Opening Stocks 1,016 2,079 2,216 1,934 3,815 Procurement 4,031 b,009 ,462 6,782 8,173 Imports 7,L462 10,344 8,672 5,96L 3,872 Issues 10,430 1h,216 13, 416 10,595 9,h61 Closing Stocks 2,079 2,216 1,934 3,815 4,399 Source: Reports of the Agricultural Prices Comidssion. 0' TABLE 7 USE OF AGRICULTURAL INPUTS 1966-67 1967-68 1968-69 1969-70 I. High Yielding Varieties (Million Anres) 4.6 14.9 22.8 27.7 Paddy 2.2 4.4 6.5 9.7 Maize 0.5 0.7 1.0 1.1 Jowar 0.5 1.5 1.7 1.5 BaJra ^0 .7 Wheat 1.3 7.5 11,8 12.7 II. Plant Protection (Million Acres) 60 90 100 120 III. Fertilizer Consumption (000 tons) N 740 1035 1210 1400 P 200 300 380 430 K 116 170 170 200 Est. Total IV. Increase in Tractor Stock End 1969-70 I, oo) 11 15 19S3 142 V. Increase in Minor Irrigation Open wells ('000) 179.5 191.1 218.1 190.0 5889.0 Private tubewells ('000) 44.6 59.9 67.5 90.0 376.0 'tat.Le tuewe s± ' UU\ a.z U ~ . Z Pumpsets ('000) 204.1 275.2 322.4 330.0 2100.0 of which electric 137.9 200.4 239.1 240.0 1327.0 Diesel 66.2 72.8 83.3 90.0 773.0 .B. nThese data, particularly acreage data, are indicative rather than precise magnitudes.  PERCENTAGE CHANGE IN INDEX NUMBERS OF INDUSTRIAL PROEUCTION (Base 1960= 1~00) Weight 1961 1962 1963 196h 1965 1966 1967 1968 1969 (Jan-Aug) 2 3 5 6 7 8 9 10 11 I. Mining and Quarri 9.72 +5.h +9.3 +6.9 -3.1 +10.3 +3.3 -0.2 +6.2 +1.6 of which: Coal 6.71 +6.6 +9.8 +8.7 -44 +8.6 +1.5 +0.9 +5.3 +3.6 Iron ore 2/ 0.59 +14.9 +9.0 +11.7 -0.1 +13.3 +18.2 -5.3 +8.8 +5.9 II. Manufacturing 8h.91 +9.1 +9.5 +8.0 +9.5 +8.8 -2.0 -2.7 +5.5 +7.2 (a) Consumr goods 32.78 +7.1 +2.0 +:L.6 +6.8 +4.2 +h.9 -5.1 +6.1 +12.9 of which: Food nanufacturing -32 -. 2. ind ntries 12.09 +8.6 +1.5 -1.5 +8.9 +3.3 +5.3 -13.2 -3.0 +26.1 Tea - 5.12 +11.6 -3.0 +0.1 +8.9 -3.4 -0.5 +2.7 -10.0 -5.6 Vanaspati 1.09 +0.4 +9.0 +3.8 +6.5 +19.7 -16. +9.4 +20.8 +0.1 Sugar 3.58 +10.0 -1.7 -17.5 +13.7 +23.0 +4.1 -35.3 +0.6 +90.2 Cotton cloth 9.39 +0.3 -2.1 -2.4 +5.3 -0.9 -7.1 -3.0 +6.8 -3.3 Matches 0.50 -2.9 +6.0 +5.9 +1.4 +27.3 -14.5 -5.7 +9.5 -4.o Radio receivers 0.61 +21.6 +5.2 +21.8 +13.1 +23.h +22.2 +19.8 +60.3 +37.0 Motor cycles and scooters 0.11 +.-8 +5.1 +7.4 +36.5 +23.8 +8.8 +18.5 +23.1 +23.6 Bicycles 0.51 -0.1 +6.h +h.4 +18.4 +11.6 +6.0 +4.4 +12.6 +1.9 (b) Intermediate goods 35.27 +8.6 +10.8 +12.4 +5.8 +5.5 -0.3 +1.6 +6.8 +5.1 of which: Cotton yarn 11.78 +8.h +0.8 +3.6 +8.0 -1.1 -3.0 -0.5 +6.3 +0.7 Juite mnufactures 3.97 -10.? +26.h. +7.2 -3.1 +4.5 +16.5 +3.7 -7. -28.6 Tyres and tubes 1.48 +11.2 +9.0 +1T.1 +9.3 +1:1.8 +0.3 +6.5 +22.8 +20.0 Basic industrial chemicals 2.20 +13.9 +13.h +9.1 +18,8 +8.4 +6.8 +6.8 +10.1 +17.5 Fertilizers 0.46 +38.9 +20.8 +33. +7.9 +4.5 +10.1 +23.1 +31.3 +21.6 Petroleum refinery products 1.34 +6.0 +8.1 +16.1 +10.3 +8.2 +23.4 +19.6 +11.1 +8.7 Electric cables and C wires 0.68 +1.2 +26.0 +15.1 +13.7 +15.4 -1.2 +5.5 +7.4 +3.0 PERCENTAGE CHANGE IN INDEX NUMBERS OF INDSTRIAL PRODUCTION (Continued) (E--- ase 1960 7100) Weight 1961 1962 1963 1964 1965 1966 1967 1968 1969 ______________ __________ -_ __ Jan-Aug) 1 2 3 4 5 6 7 8 9 10 11 Cement 1.17 +5.1 +4.2 +8.9 +3.5 +9.1 +4.6 +2.1 +5.8 +13.9 Basic metals 7.38 +18.7 +20.5 +20.1 +1.6 +3.3 +5-3 +Q.1 +6.5 +40.3 Paper and paper prodacts 1.61 +5.8 +3.4 +19.0 +5.5 +7.2 +8.7 +4.4 +10.7 +8.2 (c) Capital goods 10.93 +17.3 +28.2 +10.3 +20.7 +17.6 -13.8 -6.2 +0.6 +2.4 of which: Diesel engines (vehicular) 0.10 -7.2 -14.8 +8.1 +8.9 +5.4 -19.0 -53.2 -26.0 +19.8 Diesel engines (stationary) 0.14 +5.5 -4.2 +30.3 +26.3 +25.6 +21.6 +7.2 +2.8 +19.4 Industrial machinery 0.93 +11.0 +15.0 +15.5 +7.2 -2.4 -11.6 -7.5 +19.1 -14.4 Power transformers 0.38 +40.2 +28.4 +13.9 +6.0 +30.3 +11.0 +9.6 -8.1 +2.4 Electric motors 0.27 +19.3 +19.0 +20.4 +10.6 +29.3 +17.1 44.3 -7.8 +0.4 Railroad equipment 3.50 +26.2 +06.0 +10.1 +29.8 +6.6 +29.8 -21.4 -8.5 -3.3 Automobiles (motor vehicles) 2.51 +4.2 +4.8 -9.7 +27.4 +8.3 +0.1 -3.2 +13.4 +3.2 III. Electricity generated 5.37 +16.3 +12.4 +15.5 +15.0 +10.0 +8.9 +11.0 +15.6 +12.5 IV. All industries 100.00 +9.1 +9.7 +8.3 +8.6 +9.1 -0.8 -0.7 +6.4 +7.2 1/ Provisional. 2/ Figures exclude the production in Goa. 3/ Indices up to 1964 are based on total production figures of tea as furnished by the United Planters Association of Southern India and Indian Tea Association and the rest are based on those furnished by Tea Board. 4/ In respect of Railway wagons the Index up to 1964 is based on production figures relating to the private sector only. Thereafter both public and private sectors are included. NOTE: The weight shown against each of the categories Consumer goods, Intermediate goods and Capital goods covers about 90% of the total weight which could be attributed to that category. The three categories together cover more than 90% of the weight of the Manufacturing group. SOURCE: Government of India, Ecnomic_Survy., 1969-70 PRODUCTION OF SELECTED INDUSTRIES April-Sept. 1968-69 1969-70A 1950- 1955- 1960- 1965- 1966- 1967- 1968- 15 8-19 9- 1st 2nd 3rd 4th 1st 2nd Unit 51 56 61 66 67 68 69 69 706 Qr. Qr. Qr. Qr.Y Qr. Qr. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 .I. MINNG 1. Coal (including lignite) Million tonnes 32.8 39.0 55.5 70.3 70.9 72.0 75.3 36.6 38.9 18.8 17.8 19.0 19.7 19.9 19.0 2. Iron ore 2/ Million tonnes 3.0 4.3 11.0 18.1 19.3 19.1 21.2 10.2 10.4 5.1 5.1 5.4 5.6 5.3 5.1 II. METALLURGICAL INDUSIRIES 3. Pig iron Million tonnes 1.69 1.95 4.31 7.09 7.01 6.89 7.17 3.41 3.55 1.70 1.71 1.86 1.90 1.78 1.77 4. Steel ingots Million tonnes 1.47 1.73 3.42 6.53 6.61 6.32 6.50 3.09 3.13 1.51 1.58 1.71 1.70 1.57 1.56 5. Finished steel Million tonnes 1.04 1.30 2.39 4.51 4.3 4.05 4.70 2.13 2.33 1.05 1.08 1.25 1.32 1.16 1.17 6. Steel castings '000 tonnes - 15 3 57 53 51 48 23 22 11 12 13 12 10 12 7. Aluminum (virgin metal) '000 tonnes 4.0 7.4 18.3 62.1 72.9 100.4 125.3 58.9 64.7 28.9 30.0 33.3 33.1 33.0 :31.7 8. Copper (virgin metal) '000 tonnes 7.1 7.6, 8.5 9.h 9.1 9.3 9.4 4.7 4.9 2.2 2.5 2.6 2.1 2.4 2.5 II. MECHANICAL ENGINEERING INDUSTRIES 9. Machine tools Million rupees 3 8 70 294 354 285 247 113 131 51 62 63 71 58 73 10. Cotton textile machinery Million rupees n.a. 40 104 216 169 158 138 64 80 32 32 37 37 36 4h 1.1. Sugar mill machinery Million rupees n.a. 2 LL 77 94 85 115 59 57 24 35 27 29 21 36 PRODUCTION OF SELECTED INDUSTRIES (Continued) Aril-Se2t. 1968-69 1969-70-1/ 1950- 195- 1960- 1965- 1966- 1967- 1968- 191st 2nd 3rd 1st 2n Unit 51 56 61 66 67 68 69 69 70- Qr. Qr. Qr. Qr.- Qr. Qr. 1 2 3 b 5 6 7 8 9 10 11 12 13 14 15 16 17 II. MECHANICAL ENGINEERING INDUSTRIES 12. Cement machinery Million rupees - 4 6 49 64 79 74 41 35 22 19 15 18 15 20 13. Railway wagons 2 000 numbers 2.9 15.3 11.9 33.5 21.2 17.6 16.5 7.4 7.7 3.5 3.9 4.9 4.2 4.0 3.7 1)4. Automobiles (total) '000 numbers 16.5 25.3 55.0 70.7 75.2 69.5 79.2 38.1 38.9 17.5 20.6 20.2 20.9 19.0 19.9 (L) Comercial vehicles '000 numbers 8.6 9.9 28.4 35.3 35.6 30.8 35.6 16.7 17.2 7.4 9.3 9.0 9.9 8.9 8.3 (ii) Passenger cars, etc. '000 numbers 7.9 15.4 26.6 35.4 39.6 38.7 43.6 21.4 21.7 10.1 11.3 11.2 11.0 10.1 11.6 15. Motor cycles and scooters '000 numbers - 0.9 4/19.4 40.7 47.8 56.9 70.8 33.8 41.9 15.8 18.0 17.2 19.8 20.1 21.8 16. Power driven pumrps '000 numbers 35 37 109 244 311 288 307 127 180 52 75 88 92 88 92 17. Diesel engines (stationary) '000 numbers 5.5 10.4 44.7 93.1 112.2 114.0 121.5 56.0 70.2 27.5 28.5 32.4 33.1 33.0 37.2 18. Diesel engines (vehicular) '000 numbers - - 10.8 8.1 6.7 2.3 2.5 1.2 1.3 0.4 0.8 0.6 0.7 0.7 0.6 19. Bicycles '000 numbers 99 513 1071 1574 1719 1684 1954 943 933 488 455 532 479 504 429 20. Sewing mach:Lnes '000 numbers 33 111 303 430 400 370 427 209 203 105 104 110 108 101 102 > t1 W0 PRODUCTION OF SELECTED INDUSTRIES (Continued) Ã… tj2rlii - e1/ Api-Spt. 1968-69 1969-70 - 1950- 1955- 1960- 1965- 1966-- 1967- 1968- 9 1st 2nd 3rd h st 2nd Unit 51 56 61 66 67 68 69 69 70 -O r. Qr. Qr. Qr.- Qr. Qr. 2 3 5 6 7 8 9 10 11 12 13 iL4 15 16 17 IV. ELECTRICAL ENGINEERING IDUSTRIES 21. Power transformers '000 c.v.a. 179 625 1413 4458 1949 5329 4729 2006 2182 1030 976 1370 1353 1240 942 22. Electric motors '000 h.p. 99 272 728 1753 2095 2028 1861 928 997 486 442 456 477 487 510 23. Electric fans '000 nos. 199 287 1059 1358 1364 1376 1481 742 823 395 347 372 367 437 386 24. Electric lamps Million nos. 14.0 25.0 43.5 72.1 83.3 73.9 97.9 45.2 49.5 20.7 24.5 26.0 26.7 25.7 23.8 25. Radio receivers '000 nos. 54 102 282 606 761 929 1456 677 863 290 387 387 392 437 426 26. Electric cables and wires (i) Aliuninium conductors '000 tonnes 1.7 9.h 23.6 h0.6 52.9 72.6 56.0 25.4 27.7 15.0 10.4 13.3 17.3 13.2 14.5 (ii) Bare copper conductors '000 tonnes 5.0 8.7 10.1 3.1 1.7 0.8 1.0 0.6 1.0 0.3 0.3 0.2 . 0.2 0.4 0.6 V. CHEMICAL AND ALLIED INDUSTRIES 27. Nitrogeneous fertilizers (N) '000 tonnes 9 80 101 232 308 354 5h1 234 315 108 1:26 156 151 143 172 28. Phosphatic fer- tilizers (P205) '000 tonnes 9 12 53 123 145 191 210 96 106 49 47 59 55 49 57 PRODUCTqON OF SELECTED IDUSTRIES (Continued) i-S 1968-69 1969-70 1950- 1955- 1960- 1965- 1966- 1967- 1968- 197- 197T 1st 2nd 3rd 4th1/ 1st 2nd Unit 51 56 61 66 67 68 69 69 70- Qr. Qr. Qr. Qr.- Qr. Qr. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 V. CHEMICAL AND ALLIED INDUSTRIES 29. Sulphuric acid '000 tonnes 101 167 368 662 702 858 1024 h78 570 226 252 263 283 285 285 30. Soda ash '000 tonnes 4S 82 152 331 348 371 399 193 201 92 101 104 102 101 100 31. Caustic soda '000 tonnes 12 36 101 218 233 278 313 149 173 69 80 83 81 82 91 32. Paper and paperboard '000 tonnes 116 190 350 558 580 660 660 318 342 159 159 169 173 169 173 33. Rubber tyres and tubes (i) Automobile tyres Million nos. n.a. 0.90 1.44 2.31 2.43 2.47 3.42 1.60 1.71 0.76 o.84 0.91 0.91 0.88 0.83 (ii) Automobile tubes Million nos. n.a. 0.80 1.35 2.27 2.40 2.77 3.04 1.51 1.49 0.72 0.79 0.77 0.76 0.69 0.80 (iii) Bicycle tyres Million nos. n.a. 5.80 11.15 18.46 20.34 22.79 23.58 12.36 10.82 6.11 6.25 5.51 5.71 5.37 5.45 (iv) Bicycle tubes Million nos. n.a. 5.69 13.27 18.62 20.75 18.63 17.72 9.03 8.91 4.54 4.49 4.63 .06 .22 4.69 34. Cement Million tonnes 2.7 4.7 8.0 10.8 11.1 11.5 12.2 5.7 6.6 2.9 2.8 3.2 3.3 3.4 3.2 35. Refractories '000 tonnes 237 293 567 695 730 749 629 319 304 167 152 156 154 149 155 36. Refined petroleum products Million tonnes 0.2 3.4 5.8 P.4 11.9 13.8 15.4 7.6 8.1 3.9 3.7 3.8 4.0 4.0 4.1 '0 PRODUCTION OF SEUCTED INDUSTRIES (Continued) Apri-Sept. 1968-69 1969-70 1950- 1955- 1960- 1965- 1966- 1967- 1?68- 1968- 1961 lst 2nd 3rd th1 ist 2nd Unit 51 56 61 66 67 68 69 69 70- gr. Qr. Qr. Qr.- Qr. Qr. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 VI. TEXTILE INDUSTRIES 37. Jute textiles '000 tonnes 837 1071 1097 1302 1117 1156 998 555 432 286 269 233 210 219 213 38. Cttan yarn Million kgs. 534 7h 801 907 902 926 959 485 473 238 247 239 235 235 238 39. Cotton cloth (total) illion metres 4215 6260 6738 7440 7303 7511 7902 1s025 3829 1969 2056 1941 1936 1905 1924. (i) Mill sector Million metres 3401 4665 )659 401 202 4258 4297 221h 2102 1094 1120 1051 1032 1049 1053 (ii) Decentralised sector MiLlion metres 814 1595 2089 3039 3101 3253 3605 1811 1727 875 936 890 904 856 871 40. Ray,n yarn '000 tonnes 2.1 13.5 43.8 75.6 80.6 92.2 98.8 48.0 43.4 23.4 24.6 26.2 24.6 22.9 20.5 4l. Art, silk fabrics Million metres 287' 331kg 5h47' 878 862 917 1004 76 434 231 245 277 251 226 208 42. Woollen manu.factu:res: (1) Woollen/Wdorsted yarn Million kgs. 8.7 9.8 13.0 17.0 16.9 16.8 19.1 9.3 9.3 h.4 4.9 5.1 4.7 4.6 4.7 (ii) Woollen/Worsted fabrics (wearalble) Million metres 6.12/ 6.8- 8.4 9.2 9.5 9.2 12.6 5.5 6.1 2.3 3.2 h.1 3.0 2.7 3.h PRODUCTION OF SELECTED INDUSTRIES (Continued) April-Sept. 1968-69 1969-70 1/ 1950- 1955- 1960- 1965- 1966- 1967- 1968- 196--1969- 1st 2nd 3rd th 1st 2nd Unit a1 56 61 66 67 68 69 69 701 r_. Qr.r Q. _ tYr_ r. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 VII. FOOD INDUSTRIES 43. Sugar 7/ '000 tonnes 1134 1890 3029 3510 2147 2249 3559 175 914 123 52 647 1968 865 98 41. Tea Million kgs. 277 308 322 376 369 387 397 276 274 102 17 105 16 110 164 45. Coffee '000 tones 21.0 29.0 54.1 62.1 71.0 72.6 66.0 28.3 34.4 22.4 5.9 6.3 31.4 26.0 8.4 46. Vanaspati '000 tonnes 170 280 340 401 366 423 467 221 232 119 102 123 123 115 117 VIII. ELECTRICITY a (GENEMATID) - Billion k.w.h. 5.3 8.8 17.0 32.0 35.0 39.4 44.9 22.0 24.9 10.9 11.1 11.4 11.5 12.4 12.5 1/ Proviaional. 2/ Excludes output in Gca. 3/ Figurea for 1950-51 and 1955-56 exclude output in Railway Warkshops. 4/ Relates to calendar year. I/ Relates to calendar year 1951. 6/ Includes viscose yarn, staple fibre and acetate yarn. 1/ The annual figures relate to the sugar season, which was November to October up to 1966-67 and October to September thereafter. 5/ Relates to public utilities only. SOURCE: Government of India, Economic Survey, 1969-70. ÿþINDEX NUMBERS 0F U1OLESALE PRICES (1961-62 = 100) Agricul- Food Articles Liquor Fuel, Indus- Chemi- Machinery Manufactures All tural and Power, trial cals and Commod- Com- Total Food- Tobacco Light Raw Transport Total Inter- Finished ities modities- grains and Mater- Fquipment mediate products Lubri - ials products can ts Weight 33.0 41.3 14.8 2.5 6.1 12.1 0.7 7.9 29.4 5.7 23.7 100.0 1 2 3 4 5 6 7 8 9 0 11 12 13 Average of Weeks 1962-63 102 106 105 103 103 98 112 10h 103 102 103 103.8 1963-614 108 115 115 121 118 100 11h 108 105 105 105 110.2 1964-65 131 135 1h6 131 120 116 117 112 109 112 108 122.3 1965-66 142 145 154 133 121 133 126 118 118 125 116 131.6 1966-67 167 171 183 134 134 158 144 126 128 140 124 149.9 1967-68 188 208 228 152 142 156 157 132 131 147 127 167.3 1968-69 179 197 201 192 149 157 169 133 134 145 132 165.4 Last Wee< of 1966- Decenber 170 176 194 132 136 163 148 129 129 144 126 153.1 1967- December 186 201 218 158 143 156 160 132 130 145 127 164.4 1968- December 178 184 192 2:20 149 164 172 133 137 147 134 162.5 H2 P INDEX NUMBERS OF WHOLESALE PRICES (Continued) (1961-62 100 ) 1 2 3 4 5 6 7 8 9 10 11 12 13 Last Week of 1969- January 179 184 191 220 149 164 176 133 137 147 134 162.3 February 177 183 190 221 149 166 176 133 138 148 136 162.7 March 182 186 193 216 153 172 177 133 139 149 136 165.1 April 182 186 191 204 153 170 178 133 140 152 137 164.7 May 183 193 202 199 153 177 178 134 141 155 137 168.7 June L97 202 210 202 153 186 179 134 141 155 137 173.4 July 201 204 214 199 155 190 176 134 14:1 156 138 175.2 August 201 202 214 198 154 184 177 135 14:2 156 138 173.5 September 199 200 211. 197 155 184 190 135 143 157 139 173.1 October 193 1914 205 196 155 170 190 135 143 156 140 169.0 November 188 191 202 187 156 170 190 138 145 161 141 168.3 December 191 195 206 187 156 181 186 139 146 163 142 171.8 1970- January - 197 - 185 156 183 187 139 147 170 141 173.1 February 21st - 197 - 185 156 185 187 139 1418 172 142 173.6 1/ Derived series; weighted average of the indices of rice, wheat, jowar, bajra, barley, maize, ragi, gram, arhar, mung, masur, urad, potatoes onions, oranges, bananas, cashewnuts, tea, coffee, spices and condiments, betelnuts, tobacco raw, cotton raw, jute raw, mesta, hemp raw, groundnuts, linseed, carstorseed, gingelly seed, rapeseed, cotton seed, copra, tanning materials, sugarcane, rubber, logs and timber and bamboos. Figures given under this head against last week of the years are for the month of March of every year, and those against last week of the months are for the respective months. SOURCE: Reserve Bank of India, Bulletin. NOTE: Earlier Economic Reports have reproduced price series based onthe old index (1952-53 = 100). O FACTORS AFFECTING MONEY SUPPLY (Rs. crores) 1960/61 .965/66 1966/67 1967/68 1968/69 Dec. 1969 Money Supply 1/ 869 LL 29 4,95o 5,350 5,779 6,017 of which: Currency 2,098 3,034 3,197 3,376 3,682 3,765 Deposits 771 1,495 1,753 1,974 2,097 2,252 Percentage Increase 7.5 11.0 9.3 8.1 8.0 11.7 Annual Variation + 199 + 449 + 2.1 + 400 + 429 + 628 of whicht Net Bank Credit to Government Sector - 17 + 467 + 199 + 2h6 + 443 + 218 Net Bank Credit to Private Sector + 253 + 100 + 225 + 178 + 86 + 191 Net Foreign Exchange 2/ 3/ Assets of Banks - 63 - 24 + 78 + 12 + 156 + 319 Other + 26 - 9k - 81 - 36 - 256 -100- 1/ As of last Friday of period. 2/ Change over preceding 12 months. 3/ Both these items include Rs. 67 crores on account of revaluation of gold reserves. Source: Reserve Bank of India.  CONSOLIDATED 1INANCES OF CENTRE AD STATE GUVFRNMITS (In Rs. Croje) Annual Average 1955/56 1960/61 1965/66 1966/67 1967/68 1968/69 1969/70 Growth (%) 19601-959 A. TAX REVENUE 767 1343 2903 3240 3410 3630 3898 13.2 Centre 485 895 2061 2307 2353 2490 2719 13.6 State 282 hh8 82 933 1057 ilo 1179 12.4 B. NON-TAX REVENUE 197 313 786 788 816 949 962 l.9 Centre 52 89 384 355 417 Ã¥89 513 23.7 State h5 22 402 433 .399 46o 449 9.4 C. TOTAL REVENUE 964 1656 3689 4028 4226 h579 4860 13.6 Centre 3~ 3¯7 R2 77 29'ry 2377 IT State 427 672 12h 1366 1456 1600 1628 11.5 D. NON-DEVELOPEENT CURRENT EXPENDITUREc 553 829 2073 2369 2572 2927 3105 17.1 Centre 305 h3 1h36 1l572 1714 1909 1995 21.1 State 248 416 637 797 858 1018 1110 11.8 E. DEVELOPMENT CURRENT EXPENDITURE 421 752 1338 .1488 1559 1759 2007 11.2 Centre 83 236 235 275 283 327 373 4.2 State 338 516 1103 1213 1276 1432 1634 13.6 F. TOTAL CURRENT EXPENDITURE 974 1581 3h11 3857 4131 4686 5112 14.5 Centre w8B - T6Ti T'197 7 236 237 T6~7 State 586 932 17Jko 2010 2134 2450 274 12.8 G. CURRENT SURPLUS (C-F) -10 75 278 171 95 -107 - 252 - Centre 1.49 335 77 815 773 743 864 State -159 -260 -496 -6hh -678 -850 -1116 H. CAPITAL RECEIPTS 382 1285 1913 2187 2370 2326 2516 7.7 Centre 262 1051 1420 2181 1880 1667 1780 5.9 State 120 234 493 306 j90 659 '736 13.8 I. TOTAL FIN1ANCINGAAILE ~ +372 1360 2191 2658 2L6 2219 226 6.3 Centre l 13b 2299~ ~ lö 26 7.2 State -39 -26 -3 -338 -188 -191 -330 - J. CAPITAL OUTIAY 326 724 1266 1654 1301 106h 124o 4.9 Centre 127 Lo6 776 1296 817 551 770 3.9 State 199 318 490 358 h8h 513 h70 6.2 K. DEBT PAYMENTS 87 118 264 399 527 515 756 16.9 Centre 72 127 235 345 5 L12 605 15.8 State 15 21 29 51 92 103 151 21.9 L. IANS AND ADVANCES 114 340 915 943 962 1040 820 15.0 Centre 17 160 395 01 506 573 466 17.3 State 97 180 520 142 L56 467 35$ 12.7 m. TOTAL CAPITAL DISBURSE- MENTS (J+K+L) 527 1212 2445 2996 2790 2619 2816 10.1 Centr e 216 693 1606 IT T6 TT. State 311 519 1039 854 1022 1083 975 9.6 N. OVERALL DEFICIT (I-M) -155 1W8 -25L -338 -325 --400 -552 - SuxpLus of Gentre 195 693 788 854 885 874 803 3.0 Deficit of States -350 -5h5 -10h2 -1192 -1210 -1274 -1355 - 0. NET TRANSFRS FROM CENTRE TO STATE 345 $16 985 1212 1156 1127 ioo 10.3 Centre Surplus less transf ers -150 177 -197 -358 -271 -253 -237 - State deficit plus tr ans f ers -5 -29 -57 20 -5 --1147 -315 - OVERALL DEFICIT -155 +18 -254 -338 -325 --400 -552 This table has been prepared by netting out 5 kinds of transfers between Centre and States government. These are tax shares, grants and loans made by the Centre tc the States and repayment and interest of loans paid by the States to the Centre. The figure given in Centre and States Budget in these transfers are not the same and in each case one set of figures has been used and the other's accounts adjusted accordingly. Interest payments to the Centre and the State's share of Central Taxes have been those from the Central Budget which the other figures have been taken from State Budget. Source: Reserve Bank of India, Report on Currency and Iinance 1967/68 anct 1968/69. nn r, i n CENTRAL GOVERNMENT FINANCES (Rs. Crores) 1yo/OO IYOo/of lyotloo Lyco/oy lyo>y/tu _1ul/ (l Accounts Revised Budget REVENUE Tax Revenue 1784 1934 1937 2019 2110 2392 Non-tax revenue 560 566 648 774 855 900 Total 2344 2500 2585 2793 2965 3292 CURRENT EXPENDITURE Developmental 258 300 324 343 398 468 Defense 762 798 862 929 979 1018 Other 681 768 822 904 1007 1030 Grants to States 32k 406 473 536 592 636 Total 2025 2272 2481 2712 2976 3152 SURPLUS ON CURRENT ACCOUNTS 319 228 104 81 -11 140 CAPITAL RECEIPTS Internal Sources (net) 788 1127 102q 117q 1170 1292 External Sources (net) 615 702 695 407 606 532 Total 1403 1829 1720 1582 1976 1824 TOTAL FINANCING AVAILABLE 1722 2057 1824 1663 1965 1964 CAPITAL DISBURSEMENTS Capital Outlay 696 945 666 428 775 843 Assistance to States 829 931 892 915 1056 878 Other Loans 371 476 472 583 424 467 Total 1896 2352 2030 1926 2255 2188 OVERALL DEFICIT 174 295 206 263 290 244 SOURCE: Budget 1970/71 TABLE 14 CONOnMTC TeSTTIATTNM OW TR CE.NTRAT. GOVERMNT FTNAM.ES (Re Crores) 1960/61 1961/62 1962/63 1983/64 1964/65 1965/66 1966/67 1967/68 1968/69 1969/70 Revised Budget 4. REVENU: 926.8 1115.1 1331.4 1716.5 1672.0 2215.9 2367.6 2427.5 2550.1 2799.3 Tax Peceints 729.1 874.0 1060.0 1372.8 1561.9 1782.6 1930.5 1929.4 1986.3 2189.7 Income from property and enterprise 165.3 200.5 209.1 273.2 261.7 375.6 368.4 422.3 484.6 530.8 ees and misc. receiTts 32 4 40,6 62,3 70.5 48.4 59.7 68.9 75.8 79.2 5.8 r r1677oSC A 0 110 1 Cfl C T.9 C 1025 9902 OO 9 2480.3Z 2639.5 ansumption expenditure 433.0 477.8 660.2 1002.8 1006.1 1109.1 1212.1 1279.8 1398.1 1471.7 Transfer payments 1/ 426.5 457.1 532.9 567.7 611.4 753.8 1053.9 112.1 1082.2 1167.8 C. SAVINGS DIN CUR(ENT AC)OUNI (A-B) 67.3 180.2 138.5 146.0 194.5 353.0 101.8 35.6, 69.8 159.8 + Retained profits and depreciation provision of railways, posts, etc. i0.1 ii.i .49.3 108.9 O 1.o 15.6 0550.9 i39.0 iu.± .41.9 10<. (9ross Savings 167.4 297.3 281.6 314.9 340.1 509.9 241.4 239.0 211.7 322.2 * apital Transfers 38.8 40.0 78.9 85.2 140.4 79.5 L15.4 52.z 72.5 40.3 + Loan -erayments 2/ 121.0 197.2 169,9 213.2 293.0 373.1 416.1 491.5 683.2 686.6 D. = TCTAL SAVIN3S RY,CI?TS 327.2 534.5 530.4 613.3 771.0 962.5 762.9 662.7 967.4 1042.1 CAPITAL XFELTIllLi 1073.1 :307,2 1568.9 1867.2 2069.2 2b4.0 <537.3 2551.5 26542 .46.I Direct investment 307.4 343.1 432.1 551.8 597.7 520.4 500.2 467.1 394.8 507.5 "ross fixed capital formation 302.0 331.4 424.9 498.7 551.3 549.1 506.5 455.4 494.2 527.0 Increase in inventories 5.4 11.7 7.2 53.1 46.4 -26.7 -6.Z 11.7 -29.4 -3.7 Indirect investment E/ 638.7 761.2 907.3 1084.3 1213.7 1610.3 1680.4 1658.2 1844.3 1725.2 rC;B.? 74- 88' 'A0 07 97,0 107. ? 13i.0 1,1.' P 37.1 1z0 .0 1c5.R Investnent in shares 76.9 85.4 141.4 169.3 154.9 139.9 129.9 150.2 209.7 326.6 Loans for capital formation 426.2 474.8 536.9 725.8 843.0 1031.5 1039.1 939.6 1123.9 861.4 Other Loans 60.7 120.5 128.7 81.5 116.4 227.9 372.6 404. 3R " Z.i 6 ther 6.2 6.5 9.6 10.9 -9.9 79.1 8.9 7.0 13.2 9.9 Imortization of foreivn debt 17.6 65.1 46.9 ;_ 1 Ir 80.5 1621 I878 1Q26 207.6 cTn-r, 'erm pee debt 109.4 137.8 182.6 176.0 189.C 173.4 182.8 ?58.4 24E.C 400, UV&9L L IUiT 745.9 772.7 1038.5 1253.9 1298.2 1422.1 1774.4 1888.8 1687.5 1791.0 Financed by: Parket borrowings 196.3 206.0 286.6 376.4 298.7 283.9 278.5 351.9 320.9 500.0 Forein debt: PL 480 290.5 10R. 127 15 3. 6i.8 2 13 1 37. 37 180. 41 23 1 Gther 183.9 261.3 287.2 362.8 416.4 482.4 516.1 508.4 628.5 675.0 1.u 1 0. - 075.0 120.3 1527.4 I5O.2 118. 2.1 125.10 135.0 Other unfunded debt 43.2 39.1 43.3 80.1 91.0 90.5 74.8 109.5 45.0 32.5 Noaral Defense -und - - 41.4 -7.2 1.0 - - - Other debt 39.0 -47.4 -16.7 -10.3 20.4 -25.4 2.2 214,9 229.5 -18.0 . TARY DEFICIT -115.1 118.0 159.7 170.4 174.5 226.4 437.4 206.8 258.0 251.4 reaOury 0115 -179.6 122.2 178.1 16C.9 114.2 7?1.9 499.8 165.4 244.Z 251.5 bhange in CasB Balances 24.5 -4.2 -18.4 9.5 60.3 -45.5 -62.4 41.4 13.7 -0.1 -oj muzuxe, aiueres payments and grants to States. 2/ Mainly from State 7overnments. / iainly grants or loans for capital formation by State Governments and Government enterprises. Source: Ministry of Finance: Economic Classification of the Central Government Budget, 1968/69 TABLE 15 CURRENT EXPENDITURS - CENTRE AND STATE (Re. Crores) Average Annu,l 1955/56 1 1960/61 1965/66 1966/67 1967/68 1968/69 1969/70 Growth (%) 1960/61-196'69 Central Government A. Development 83 236 235 275 283 327 373 L.2 B. Non-Development (a) Tax Collection 13 22 30 32 35 40 h5 7.8 (b) Civil Administration 34 59 95 123 136 153 165 12.6 (c) Defence 172 248 762 798 862 944 966 18.1 (d) Debt Service L3 77 371 463 501 528 569 27.5 (e) Other 143 7 178 156 180 244 230 - Sub-Total 305 413 1436 1572 171 1909 1995 21.1 C. Grants to States 3 53 177 330 397 453 475 553 13.1 (A+B+C) Total 441 826 2001 2244 2450 2711 2921 16.0 State fGnvernments D. Development (a) Education 104 195 373 1,20 512 596 687 15 0 (b) Public Health 47 80 149 171 201 231 286 1L.2 (c) Agriculture 39 63 156 178 186 201 21B 15.6 (d) Rural and Community Development 27 48 86 75 70 72 7U 5.2 e) nav1 Works 68 64 135 157 150 155 175 11.7 Mf Industry 14 23 29 22 32 35 39 5.L (g) Other 49 43 175 190 125 1L2 155 - Sub-Total 338 516 1103 1213 1276 132 163h 13.6 Non De vvelupment (a) Tax Collection 46 56 81 92 101 119 135 9.9 (b) civil Adminatnn 1-2 188 2731 29 328 3a 390 0 14 (c) Famine 17 21 17 78 87 9h 57 20.8 (d) Debt Service 1 70 117 172 176 2L9 287 17.2 (e) uther 62 81 i49 160 166 198 233 - Sub-Total 218 416 637 797 858 1018 1110 11.8 F. Interest Payments to Centre / 18 58 152 184 200 227 2A9 1P.6 Total 266 474 789 981 1058 125 1359 12.8 G. Total State (DE+; zr UL 77S J.892 22.91 233'" 2677 2993 13.2 H. Total Centre and State (Net) (A+B+D+E) 974 1581 3411 3857 4131 4686 5112 14.5 figures for these years are not strictly comparable, the differences are small. 2/ The accounts for 1960/61 were not prepared on a comparable basis and there is a small overlap in these three catergories. 3/ Figures for grants to States were taken from State government and are not identical with those of the Centre. the "other" category is a residual. 1/ Figures for interest payments to the Centre are taken from the Centre's data and are not the same as those provided by the States. The "other" category is again a residual. Source: Reserve Bank of India. Report on Currency and Finance. 1967/68 and 1968/69. TABLE 16 TAX REVENUE - CENTRE AND STATES (Rs. Crores) Average Annual 1955/56 1960/61 1965/66 1966/67 1967/68 1968/69 1969/70 Growth (%) 1941 (Revised) (Budget) to 1968/69 Central Tax Revenues Income Tax 131 167 272 309 326 338 362 10.6 -/ 1. , Corporation Tax 37 111 305 329 310 322 Customs Duties 167 170 539 585 513 405 035 12.8 Excise Duties 15 416 898 1034 1149 1320 1526 15.5 Other 5 31 47 50 55 65 70 9.7 A. Total: 485 895 2061 2307 2353 2490 2719 13.6 Less: State's share of: 55 87 123 137 Income Tax 558 .31717h 195 185 10.5 Excise Duties 17 75 !6 231 235 291 327 1 Other 2 3 7 5 7 5 7 Sub-Totals 7 165 276 373 416 091 519 1O, o. Tax Revenue Retained hy Centre 0l1 730 1785 1934 1937 1999 2200 State Tax Revenues 1/ Land Revenue 78 9o 112 90 96 102 100 1.8 Stamps and Registration 29 4-h 74 81 98 58 104 io.5 state Flxcise b5 53 96 109 131 153 159 10.2 State Tax 82 159 368 093 509 555 582 16.9 Motor Vehicles Tax 16 36 6U.0 Entertainment Tax 7 10 29 35 26 28 31 13.7 Electricity Duty 6 13 35 03 08 53 56 20.0 other 19 45 60 63 73 67 5 - Total: 282 008 82 933 1057 1140 1179 12.h Add State's Share of: Central Taxes 74 165 276 373 016 491 519 1L.6 D. Tax Revenue Retained 2/ by States 5 613 111 1306 1T? TOTAL CENTRE AND STATE (B + D) or (A + C) 767 1303 2903 320 3410 3630 3898 13.2 1/ Certain taxes which are earmarked for local authorities are deleted from the figures for state taxation for 1960/61, and 1967/68 - on. Since the Report on Currency and Finance does not provide a full series, other years are taken from earlier issues and still include these amounts. The only instance in which the diiierence is significant is entertainment tax. 2/ The figure for State's share of Central Taxes differs in the aggregated State budgets from that included in the Centre budget. For this table the Centre's figures adjusted by treating "other taxes" as a residual categ'ory. Source: Report on Currency and Finance, Reserve Bank of India, 1967/68 and 1968/69. PUBLIC SECTOR PLAN OUTLAYS AND THEIR FINANCING (Rs. Crores) Third Plan . N N U A L P L A N S Faurth Plan 1961-66 196f7-167-68 -1966-69 1969-70 -1969-74 Actual Per- Actual Per- Actual Per- Estimated Pet- Frovi.sion Per- Provision Per- centage centage centage Actual centage centage centage 1. AgricuIlture and allied 1/ 1 sectors 1,089.0 12.7 534.3 15.4 317.9 15.2 455.8 19.3 352.2 14.6 2,719.6 17.1 2. Irrigation and flood control 663ir 7.7 149.4 6.9 144.7 6.9 163.2 6.9 155.6 6.9 1,097.1 6.9 3. Power 1,252.3 14.6 403.7 18.7 391.7 18.7 389.2 16.5 367.1 16.2 2,455.8 15.4 4. Village and small ind. 240.8 2.8 43.0 2.0 43.8 2.1 44.4 1.9 38.5 1.7 298,5 1.9 5. Industry and minerals 1,726.3 20.1 514.2 23.7 472.2 22.6 494.9 21.0 579.6 25.5 3,338.5 21.0 6. Transport and Commmi- cations 2,111.7 24.6 423.9 19.6 393.6 18.8 428.5 18.2 447.7 19.7 3,245.2 20.4 7. Education 588.7 6.9 89.3 4.1 103.1 4.9 129.1 5.5 96.8 4*3 828.8 5.2 8. Scientific research 71.4 0.8 14.5 0.7 15.8 0.8 20.1 0.8 21.6 0.9 140.3 0.9 9. Health 225.9 2.6 43.7 2.0 45.0 2.2 55.0 2.3 55.3 2.4 436.5 2.7 10. Family Planning 24.9 0.3 14.5 0.7 28.4 1.4 33.4 1.4 41.9 1.8 315.0 2.0 11. Water supply and sanitation 105.7 1.2 28.9 1.3 53.3 1.6 38.2 1.6 45.7 2.0 392.0 2.5 12. Rousing, urban and regional development 127*5 1.5 26.6 1.2 23.4 1.1 22.0 0.9 24.1 1.1 218.6 1.4 13. Welfare of backward classes 99.1 1.2 23.8 1*1 23.8 1.1 25.9 1.1 19.3 0.9 142.4 0.9 14. Social welfare 19.4 0.2 5*0 0*2 5.7 0.2 4.7 0.2 4.4 0.2 41.4 003 15. Labour welfare and erafta- men training 55.8 0.7 10.8 0.5 11.5 0.6 13.3 0.6 6.3 0.3 40.0 0.3 16. Other programmes 175.0 2.1 40.6 1.9 37.9 1.8 42.8 1.8 544 1.5 192.6 1.2 TOTAL outlays 8,577.2 100.0 2,164.5 100.0 2,089.8 100.0 2,360.5 100.0 2,270.5 100.0 15,902.3 100.0 Includes buffer stocks--Rs.130 crores in 1968-69 ard Ra. 25 crores in 1969-70. Source: Economic survey 1969-70, and Pourith Five Year Plan (Revised Outlay 1969-74), March 1970. BALANCE OF PAYMENTS SUMMARY (US $ million) 1961/62 1962/63 1963/64 1964/65 1965/66 1966/67 1967/68 1968/69 1969/70 1970/71 Estimate Forecast 1. Imports 2 292 2,36 2,568 2 833 2,958 2 771 2 677 2,482 2160 2280 of which: Foodgrains 303 37B 6f2 Z 77 W91 _g 330 330 Others 2,046 2,073 2,190 2,241 2,282 1,903 1,986 2,033 1,830 1,950 2. Exports 1,387 1,439 1,666 1,714 1,692 1,542 1,596 1,813 1,875 1,975 3. Trade Balance -905 -937 -902 -1,119 -1,266 -1,229 -1,081 -669 -285 -305 4. Debt Service -191 -182 -209 -255 -315 -365 -h" -500 -5t9 -550 5. Other Capital and Invisibles 29 156 -55 -263 -3 -18 -11 117 2 - 6. IBRD Special Deposit - - - - - - 5-30 -15 - 7. Net IMF 123 25 -50 - 62 130 33 -78 -167 -.205 8. Change in Reserves (-=increase) +13 +5 -23 +118 -101 -12 -81 -51 -203 -80 9. Gross Aid Disbursements 711 933 1,239 1 519 1 623 1 494 1,575 1 21 217 1,140 of which: Food Aid _77 227 3C0 tT 0 t 44 - 0 2230 230 Project Aid 2 262 383 548 701 684 497 380 368 300 280 Non-Project Aid 31 257 292 301 352 421 424 672 548 620 590 (including debt relief) Non-Food PL 480 48 31 90 20 42 35 76 35 67 40 1/ Doed not take into account debt relief which is included in non-project aid disbursements. Debt service payments from 1961/62 to 1966/67 include only part of service on suppliers' credits. 2/ Includes errors and omissions. / Breakdown between project and non-project aid is to sore extent arbitrary. I/ On the basis of current expectations for future commitments. N.B. Trade figures are obtained from Customs Data, and debt service and aid figures from the Ministry of Finance. No adjustment is made for the W likely underestimation of Government imports in the Customs Data. This presentation of' the Balance of Payments is consistent with that used in our last report but it differs materially from the Balance of Payments prepared by the Reserve Bank, and also from the Adjusted Balance of Payments presented by the Government in the Economic Survey. PRINCIPAL ImPoRTS (In post devaluation rupees) 11ri - Septemeber oodity 1960-61 1966-67 1967-68 1968-69 Ra. $ Rs. $ Rs. $ Rs. $ Ra. $ Rs. $ crores million crores million crores million crores million crores million crores millior i 2 3 4 5 6 7 8 9 10 n1 12 13 I. Consuer Ooods 285.7 380.9 651.0 867.8 518.2 690.8 336.6 448.7 222.5 296.6 160.9 214.5 Cereal and ~ereal preparations 285.7 380.9 651.0 867.8 518.2 690.8 336.6 448.7 222.5 296.6 160.9 214.5 II. Rav Material and Interdiate Manufacturea 776.1 1034.5 704.1 941.4 801.5 1068.5 837.2 116.1 1428.9 571.8 332.3 443.0 (a) CaEshev Nuta (unprocessed) 15.1 20.1 23.0 30.7 25.1 33.5 31.4 41.9 10.2 13.6 14.1 18.B (b) Copra 18.3 24.4 4.2 5.6 4.4 5.9 2.6 3.5 0.6 0.8 1.6 2.1 (c) Crude Rabber (including synthetic and reclaimed) 17.0 22.7 11.7 15.6 4.4 5.9 4.9 6.5 1.0 1.3 6.2 8.3 (d) Fibres 159.6 212.7 128.5 171.3 105.3 140.4 121.8 162.4. 72.5 96.6 59.6 79.0 of i*hich: (i) Ra wool 16.-4 21.9 11.8 15.7 n.8 15.7 10.,4 13.9 5.6 7.5 9.3 12.4 (li) Ra cotton 128.8 171.7 56.5 75.3 83.0 110.6 90.2 120.2 64.9 86.5 42.0 56.o (iii) RAV jute 12.0 16.0 20.6 27.5 1.8 2.14 9.3 12.h 0.1 0.1 1.1 1.5 (') Petroleum Oils and Lubricants 109.1 145.4 63.1 84.1 74.8 99.7 83.7 111.6 49.6 66.2 32.0 42.7 (f) )mima] and Vegetable Oils and Fata 7.2 9.6 14.8 19.7 34.4 45.9 19.3 25.7 7.7 10.3 19.8 26.4 PRINCIPAL DIPORTS (Continued) (In post cevaluation rupees) Apr. - Septeber Caodity _1960-41 1966-67 1967-68 1968-69 16 96-7 - Ra. $ Ra. $ Rs. $ Ra. $ Re. $ Re. $ erores mllion Croreig million crores miI1lon crores million crores M1l.on crorew i.llion 1 2 3 - 5 6 7 8 9 10 11 12 13 (g) Fertilisers and Chemical Product-s lh0.9 187.8 221.4 295.1 312.1 416.0 337.3 449.6 171.2 228.2 94.0 125.3 of idiich: (i) Fertilisers and fertiliser materials 23.4 31.2 124.9 166.5 209.5 279.3 198.1 264.1 113.4 151.2 46.6 62.1 (ii) Chemical Eents and coT>ounds 61.8 82.4 44.9 59.9 53.5 71.3 52.5 69.9 27.5 92.0 22.1 50.8 (iii) Dyeing, Tanning atd Ccilouring material 20,3 27.1 8.9 11.9 7.8 10.4 8.9 11.9 5.1 6.8 3.4 4.5 (Uv) Medicinal and PhaLrnacutical productA 16-5 22.0 17.h 23.2 17.5 23.3 17.5 23.3 7.9 10.5 9.h 12.5 (v) Plastic aterials, Regenerated cellulose and Artificial Resins 9.0 12..0 7.5 10.0 13.2 17.6 14.4 19.2 7.6 10.1 4.2 5.6 (h) Pulp and vaste paeer 1,6 lh.1 9.7 12.9 10.3 13.7 10.4 13.9 3.3 4. 6.9 9.2 (i) Paper, paper board and wanJ'wtures thereof 19.1 25.5 21.7 28.9 17.7 23.6 18.3 24.4 10.8 14.4 12.2 16.3 (j) Non-Metallic mineral mnufacturs 11.7 15.6 13.2 :17.6 17.8 23.7 32.3 43.1 11.4 15.2 15.6 20.8 (k') Iron and Steel 193.0 257.3 97.9 130.5 106.3 141.7 86.2 11I.9 4,5.5 60.7 36.6 h8.8 (1) Non-ferrous metals 74.5 99.3 85.7 L14.2 88.9 118.5 89.0 118.6 45.1 60.1 33.7 44.9 PRINCIPAL IMPORTS (Continued) (In post devaluation rupees) April - Se!ptember Commodity 1960-61 1966-67 1967-68 1968-69 196l-69 1969-0 Ra. $ Rs. $ Rs. $ Ra. $ Re. $ Rs. $ crores million crores million crores million crores million crores million crores million 2 3 4 5 6 7 8 9 10 i 12 13 - III. CaRital-Go2d9 560.5 747.6 593.4 791.2 517.3 689.5 530.0 706.5 277.2 369.6 200.1 266.8 (a) Hanufactures of Netals 36.1 48.1 17.3 23.1 14.2 18.9 13.5 18.0 7.0 9-3 3.9 5.2 (b) Non-KLectrical Xachinery Apparatns and Appliances 320.3 427.2 408.0 54.0 336.6 4148.7 370.0 h93.2 190.5 254.0 1U4.6 192.8 (c) Klectrical Hachinery Apparatus and Appliamces 90.1 120.2 105.9 11.2 85.6 11l.1 81.1 108.1 65.1 60.2 29.!5 39.3 (d) Transport Eqaint 114.0 152.1 62.2 82.9 80.9 107.8 65.4 87.2 34.6 46.1 22.1 29.5 IV. Otherg: UnLassifled 172.7 230.3 129.9 173.1 170.6 227.3 157.8 210.2 51.4 68.3 80.1 :106.6 TOTAL 1795.0 2393.3 2078.4 2770.5 2007.6 2676.1 1861.6 2481.5 980.0 1306.3 773.J4 1030.6 SOURCE: Government of India, EconomLc Suzvey, 1969-70. '0 EXPORTS (In Gmillions) First Six Months 1960/61 1964/65 1965/66 1966/67 1967/68 1968/69 1967/68 1968/69"1969/70 Jute Manufactures 283.18 353.3 384.0 332.6 312.1 290.7 163.4 141.0 144.5 Tea 259.15 261.8 241.2 211.1 240.2 208.7 96.5 111.4 83.0 011 Cakes 30.0 83.5 72.7 66.7 60.7 66.0 26.7 32.4 24.5 Cashew Kernels 39.7 61.0 57,5 60.7 57.3 81.2 28.4 44.1 41.4 Tobacco 35.1 51.2 41.1 30.0 47.5 45.0 31.9 55.3 52.8 Coffee 15.12 28.2 27.2 21.1 24.5 23.9 17.5 18.9 21.5 Sugar 5.1 37.7 22.0 21.5 21.2 13.5 11.1 10.2 6.0 Black Pepper 17.9 14.2 23.3 16.9 17.5 13.0 6.9 5.5 5.6 Raw Cotton 18.3 22.2 20.4 15.7 19.7 14.8 10.8 8.5 10.0 Veagetable Ols 26.5 21.7 13.5 8.8 10.5 21.5 5.7 14.8 6.7 Raw Hides and Skins 19.9 19.0 20.7 22.0 10.1 7.1 7.2 2.9 7.0 Iron Ore 35.7 178.5 88.4 93.7 99.7 117.9 58.0 51.1 51.5 Kanganese Oro 29,5 27.6 22.7 18.9 14.8 17.9 7.1 8.7 7.2 mica 21.13 20.4 23.7 18.9 20.0 17.9 9.7 9.5 11.4 Fish and Fish Preparations 9.,7 14.2 14.5 25.3 24.0 50.3 11.5 12.3 21.5 Leather and Leather Hamfacturea 52.4 57.4 59.8 82.8 71.5 96.9 56.9 47.2 57.2 Footwear 6.5 8.8 11.0 L1.7 12.1 12.1 4,0 5.5 5.7 Cotton PiecegoodB 101.0 121.0 116.0 B4.7 86.9 95.8 n.a. 45.5 42.7 Cotton Yarn n.a. n.a. 13.9 13,0 9.2 17.1 n.a. 8.6 19.5 Cotton apparel and other Marmfactures n.a. 9.0 23.0 18.2 19.3 24.0 n.a. 12.0 12.6 Art Silk Fabrics 6.7 13.7 10.3 4.5 1.9 4.6 0.8 2,4 2.5 Chemical and Allied Producta 7.2 14.6 17.4 14.5 15.9 23.5 6.4 11.5 .14.0 Mineral Fuel, Lubricants 15.6 25.7 19.6 16.9 12.3 16.1 6.1 8.9 7.5' Iron and Steel 11.6 9.2 17.0 31.6 69.2 99.3 51.6 49.9 50.4 Ebgin.eering Goods 17.9 30.1 35.5 30.7 43.6 89.9 18.4 41.6 56.1 Pearls and Precious Stones n.a. 27.5 31.0 30,1 40.5 59.7 n.a. 27.9 29.7 Other Handicrafte n.a. n.a. 24.4 20.7 24.9 33.7 n.a. 15.9 18.4 Others 322.3 302.7 240.9 220.4 211.5 273.5 188.7 117.5 140.6 TOTAL: 1,386.4 1~714¯2 1,692.5 1>541.6 1,598.0 l1,13.4 763.1 896.4 -gw-"9 0 TABLE '2 PERCENTAGE OF IMPORT COMPONENT FOR SOME ENGINEERING INDUSTRIES Percentage of import Item component 1/ 1. Trucks and Buses 4.0 2. Cars (Fiat) 1.0 3. Jeeps 3.0 4. 3-Wheelers 5.0 5. Cars (Ambassador) 1.5 6. Vespa Scooter 5.0 7. Lambretta Scooter 6.0 8. Railway Warons 1.0 9. Passenger and Goods Lifts 1.0 10. Trn4miasinn Lina Tower h.0 11- Pownr Dlriven Pumn 1.0 12- Ilanal W.nWnApt othar +hay% vahinn"ia"4. 14 gay Mill Mahnery 8.0 Ti. Cement Manhnary R- 1A_ 14?- levneiievnne aiel Ra?v%4ryo+4rm~1~ 17# Radio Receivers 2.0 Ty R4nwa. D a 4A W L w Nil 19. Sewing Machines Do. At L.LA Va.U= VL UAuUWHU JAWLu0 MO JWULUMAAU U. L.A04. VU.LUW of production. Sources Import substitution and its imacts (a review by the Directorate General of Technical Development for 1960-67).  TABLE 22 EXPORT DUTIES As on June 6 As on Nov. 1 As on Aprill As on March 1 1966 1966 1962 1970 Jute Manufactures (a) Hessians other than carpet Re. 900 Re. 500 Rs. 200 200 backing and jute speciali- ties. (per ton) kb) arpet backing (per ton) YVu ouu ovU jUU ItLu; ~u's casunva, 'ute wwuoA, we' InU e^^ -UU jute tarpaulin cloth and ton) (d) Jute specialities 900 Nil Nil Nil (e) Sacking (cloth, bags twist 600 250 150 150 yarn. rooe and twine (ner ton) (f) Cotton bagging (per ton) 600 200 Nil Nil (g) All other descriptions of jute manufactures falling 600 250 150 150 under sub-item (iii) to item 2 to the Second Sohe- dule to the Indian Tariff Act, 1934 (per ton) Tea (a) Tea other than package tea Rs.2 per Kg. 20% reduced 15% reduced by Nil covered by (b) and (c) by 35 paise 55 paise per eUow per Kg. or g., or Rs.1.?O Re. 2.65 per per Kg., which- Kg. whichever ever is less is lose (b) Tea in consumer pack, Re. 2 perkg. 10% orRe 2.76 Nil Nil the aggregate weight not whiohever is exceedina one kilo 1 mAnyn' (c) Tea in consumer pack, Re. 2 per kg. 35% orR 2.76 5 percent or Nil p-ked in no~~~trpr ka-whinh- Ra 1-70prrca than of metal,the aggre- ever is less whichever is one kilo Coffee Rs.0.50 50 Paige 50 Paigse 50 Paige Der kg. per kr. ker k1. or k2. Black PeDper (a) Light black pepper Rs.1.25 90 poise Nil Nil per kg. per kg. (b) Pinhead black pepper Rh.1.25 50 Paise per kg. per kg. Nil. Nil (c) Others Rs. 1.25 1.25 paie 1.25 paie 1.25 paise per kg. per kg. per kg. per kg. Tobacco (unmanufactured) 75 Pai e per 20 per kg. 20% per kg. 2iper kg. kg. 20% per pe kg. perk.il (c)W Others Ra..1.2UL 1..25' paiseUU ~ 1.25pisJ.5 as (o) Rengai naain4 tt%e on) 'R . ,000 Ra- 700 R 700 Pe 700 Ch) Lntpr. RF. 1.000 2c; marent PC narnnt nA nnnt (n) Amsam Commilla/vellow Rs. 1.000 Rs. 550 Re. qq0 RR. qqO pickings/Zoda cotton Ta. 7501/ pickings and sweepings (per ton) Cotton Waste (a) Cotton waste other than 30 ateep2r 1.40 percent 40 percent 40 percent soft cotton waste 40 percent / (b) Soft cotton waste 30paiseperg. 25 percent 25 percent 25 percent 40 percent 1/ Mica (except micanite) Mica (except micanite) 50paiseperk%. 40 percent 40 percent 40 percent 40 percent 1/ Mica, loose splittings 50 paise per kg. 20 percent 20 percent 20 percent Processed Mica 50paiseperkg. 20 percent 20 percent 20 percent 1/ Subsequently revised rate which became effective retrospectively from 6. 6. 1966. Hides. skins and leather 10 percent 10 Deroent 10 peroent 10 percent tanned and untanned all sorts but not including snake skins and manufactures of leather Snake Skins 10 percent 25 percent 25 percent 25 percent Coirs and coir manufactures (a) Coir yarn 10 percent 15 percent 15 percent 15 percent (b) Coir manufactures 10 percent Nil Nil Nil Groundnut oil cake and ground- Rs. 125 Re. 125 Rs. 125 Rs. 125 nut meal (both deoiled) (per ton) Manganese Ore kai More than LAo parcet, of na. CU to R. Kw a. CU ne. ev manganese (per ton) (b) 10 percent or more and up Rs. 20 @ Rs. 12.50 Rs. 12.50 Rs. 12.50 bv 4_ penfa of ng anwase (per ton) (c) Less than 10 percent of Re. 10 @ Re. 7 Rs. 7 Rs. 7 manganese (pAr txn) Manzanese Dioxide 20 nercent @ 20 nercent 20 nercent 20 percent Lumpy Iron Ore (W) 63 percent iron content Rs. 10 @ Rs. 10.50 Rs. 10.50 Rs. 10.50 and above (per ton) (b) 60 to 63 percent iron Re. 10 a Re. 6 Rs. 6 Rs. 6 content (per ton) (c) 58 to 60 percent iron Re. 10 @ Rs. 5 Rs. 5 Rs. 5 content (per ton) (d) Less than 58 percent iron Re. 10 0 Re. 4 Re. 4 Rs. 4 content (per ton) iron Ore (Fines) (a) More than 62 percent iron Re. 5 @ Re. 4 Re. 4 Rs. 4 (b) Other (T%Rr f.n)Ru QRe3R.3R.3 TAB!Z 22 Stetit (alcO2 percent 0 O percent 20prcn 20 per cent KvnnitA (pr ton) Ri. )O a Rp. LO Rp. hO Rq. ho Chrome Concentrates (ner ton) Ra. l 6 Ra. 15 Ra. 1q Rs. 1 Notes: Some of the duties were quite frequently readjusted between June 1966 and the present time. The rates prevailing in November 1968 are given here because the Government has calculated the rough ad valorem incidents of the schedule effective at that date. These are as follows: Hessians other than carpet backing and 22.2% Jute specialities (per ton) Carpet backing (per ton) 15.5% Sacking (cloth, bags, twist, yarn, rope and twine) 14.2% (per ton) roffee 7. n(f Blackl Pepnrta: T.i&h. blhk1 perI 3na9IOc Pinhead black pepper Othpirs Raw Cotton: Bengal Deshi (per ton) 22.2% Assam Commilla/yellow pickings/soda cotton pickings and sweepings 11.9% Manganese Ore: More than 48 percent of manganese 11.0% 27% or more and up to 48 percent of manganese 8 to 20 % Lumpy Iron Ore: 63 to 65 percent iron content 14.6% 66 to 67 percent iron content 13.7% @ With effect from 2. 8. 1966 Tons are metric tons. TABLE 23 INDIA'S GOLD AND FOREIGN EXCHANGE RESERVES WS-- ;P Milin ff4~ f &4srtleiA anw N14..ft"M a forsig Exgc%g Drawings IMF Not SDR 1951 1944 100 1844 19 5 2 17965 100 logo 1953 1862 100 1762 19 5 4 .1867 531814 1955 1881 13 1868 1956 1463 - 1463 1957 942 200 742 1958 722 200 522 1959 814 200 614 1960 670 128 542 1961 665 250 415 1962 512 275 237 1963 601 250 357 1964 498 200 298 1965 599 325 274 1966 608 425 183 1967 662 508 154 1968 March 704 450 254 June 720 450 270 September 753 450 303 December 700 410 290 1969 March 777 372 405 June 848 322 526 September 900 322 578 December 928 262 666 1970 7Tanuary 895 212 683 126 February 903 212 691 126 Source: IMF International Financial Statistics TOTAL INVESTENT IN PUBLIC SECTOR INDUSTRY (CUMULATIVE) BY BRANCH OF INDUSTRY as of March 31 each year (Ra. in crores) 1961 1962 1963 1964 1965 1966 1967 1968 1969 Steel 618 675 724 804 890 981 1,067 1,179 1,305 Engineering - :198 269 355 490 622 833 938 Chemicals - -135 172 198 220 282 350 421 Petroleum - 110 170 241 295 337 378 403 Mining and Minerals - -106 130 158 181 234 273 299 Aviation and Shipping 47 75 81 92 101 120 139 143 155 Building and ReparIng Ships - 9 9 110 11 13 18 22 Trading 25- 71 268 - 44 134 84 117 Others 122 88 91 OTAOL 973 1,133 1,407 1,780 2,037 2,415 2,841 3,333 3,902 NOTE: This breakdown of investment in indus try onsists of equity participations and loans disbursed from the Central and State Governments and from private parties both local and foreign. On March 31, 1968 the Central Government accounted for over 91% of total investment. Excluded from the totals are working capital (generally financed by the State Bank of India) and investnent financed by the enterprises out of their own net earnings (generally negligible). For the earlier years detailed breakdown is not available. SOURCE: hgjnual Reports on the Workn Industrial and Comercial UndertakinR aof the Central Government, Ministry of Finance, Bureau of Public Enterprises. CAPITAL EXPIDTE SAI2 An INVE!NTORY IN E PUBLIC SECTOR (in Rupees Orores) 196_5-66 1966-67 1967-68 1968-69 1969-70 1970-71 Capi tal Inven- Capital Inven- Capital Inven- öapitay Inven- Capita.l - Öpta Name of undertaking Implo ales tory l Sales t Emlo ea tor oyed Sales to Enployed Sales EPloyed Sla Steel & ering 1. findustan Steel 636.8 238.8 121.1 6932 235.1 148.7 756.9 257.3 175.3 858.9 320.4 179.7 885.0 384.0 923.0 477.1 1. 2. Heavy Enineering Corporation - 1.0 20.2 - 3.6 20.6 74.0 6.4 24.6 144.9 10.6 28.5 136.0 14.5 141.8 18.5 2. 3. Rinduatan mchie Tool2 21.9 12.5 8.4 30,8 15.0 12.2 35.5 14.6 13.9 37.2 15.4 12.8 38.6 16.9 40.0 19. 3. 4. Minin & Allied Machinery Corp. - - - - - - - o.8 6.4 27.0 4.4 7.5 30.0 6.6/ 31.3 4.8- 4. 5. Ini~i Telephone Industries 11.9 12.5 13.2 16.7 16.0 16.7 17.6 20.3 18.2 17.3 21.2 15.5 17.4 21.0 18.1 26.5 5. 6. Rindstan Aeronautics 22.0 16.5 64.7 26,3 28.2 95.3 70.2 40.9 128.0 96-9 52.3 161.3 137.9 57.1 163.8 76.6 6. 7. Bharat Earth Movera 6.2 5.3 3.5 6.6 5.6 4.6 7.3 13.8 10.2 13.6 21.5 10.3 17.7 24.2 18.5 31.6 7. 8. Ebart Electrcnics 10.0 9.1 13.1 11.5 13.7 17.9 14.5 19.5 20.0 16.9 27.0 22.0 18.8 26.8 19.6 31.6 8. 9. Ebarat Heavy leactricals - - 22.2 - 0.2 22.6 31.2 0.9 67.0 35.7 21.9 54.4 99.0 46.7 103.2 57.2 9. 10. eavy Klactricala 64.4 7.6 18.4 53.2 11.0 26.7 69.2 1.8 38.0 65.7 23.9 50.0 62.6 27.1 65.3 36.5 10. Gbed ca la 11. Pär.mre & CheImical Travancare 8.9 6.2 3.9 9.1 10.6 6.8 21.8 15.2 11.6 26.4 20.0 12.3 31.0 28.6 32.3 kO.4 11. 12. Fertillier Corporation of ndia 49.5 25.2 13.1 79.5 31.2 14.7 91.5 39.2 17.2 87.9 J8.8 25-8 145.5 76.0 151.8 84.0 12. 13. HIn~ntn Photofilm - - - - - - 10.8 0.9 2.4 10.7 2.6 3.3 11.0 5.1 1.5 8.6 13. 16. Imdan Drugo & Pharamceutical - - 1.2 4.3 2.7 1.2 5.2 0.1 6.5 38.3 1.0 8.7 69.8 8.5 51.9 20.6 16. Miningo&r dinal 15. tD Corwp. C62.6 28.6 17.0 77.19 24.8 19.2 126.0 .30.0 18.4 136.9 10.3 20.9 169.9 61.0 156.3 79.7 15. 16. Emyreli igtnite Corp. 80.8 13.5 8.0 110.6 17.6 10.5 126.4 26.8 12.3 136.0 30.4 13.7 127.9 35.5 133.6 39.9 16. 17. Matioanll Im al Develoaet Corp. 4.1 1.5 0.7 8.6 8.5 1.5 8.6 13.3 3.7 24.) 22.5 5.6 31.2 33.9 32.5 4.4 17. 18. Hinuatan Zine - - - - 2.6 2.7 10.0 1.4 3.7 10.9 6.2 2.5 n.9 3.6 12.6 3.6 18. Potrolmum 19. s iWafrai a Cami~im - 12.4 - - 28.3 37.0 135.6 35.2 36.0 155.7 34.8 33.4 176.4 35.6 L84.o 36.2 19. 20. Innan 011 Corparatin 53.5 220.0 20.9 110. 338.7 29.2 163.0 631.3 35.9 152.6 528.0 60.0 183.5 654.5 191.4 760.9 20 21. 0o~n REfine~ - - - - - - 13.3 25.5 3.6 26.8 1.7 6.2 26.8 30.1 7.9 32.2 21. Irading 22. State Traing Corporation 10.6 62.0 8.9 17.9 106.3 22.8 33.9 143.6 60.8 37.7 168.0 30.6 30.8 248.1 32.1 232 9 22. 23. Minerals & Metals Trading Corp. 9.4 69.0 13.8 18.5 89.3 18.3 23.3 1o0.0 3.5 16.5 n2.6 9.3 20.1 109.3 21.0 120.0W 23. 26. Food Corporation of :IMia - 131.3 - - 251.2 48.6 62.8 386.2 126.8 140.8 56.0 280.0 372.6 696.5 388.6 658.0 24. T2. portation 25. Aghul Lines 2.6 2.2 - 2.4 .7 - 3.8 3.1 - 10.2 3.6 - 10.0 3.6 10.4 3.6 25. 26. Air India 46.4 27.7 6.7 0.00 2.5 7.2 57.6 50.9 8.0 53.6 59.5 7.9 56.5 63.1 58.9 63.1 26. 27. Indin Airlines 20.7 22.7 5.2 27.6 26.3 6.9 60.6 33.9 7.9 43.7 60.1 8.5 66.7 k5.5 68.7 69.5 27. 28. Shipping Corporation of India 35.3 17.5 0.1 61.7 28.5 0.1 51.6 35.0 0.2 57.3 61.6 0.3 72.2 47.3 75.3 56.1 2. 29. Total (for 28 concerms) 138.6 942.9 366.3 1386,3 1336.2 591.6 2018.0 1754.9 820.1 2676.1 2286.1 1031.5 2996.8 2804.6 3131.2 3126..9 29. Source: Annual Reports of the Bureau of Public Enterprise and departmental papers for estimates of sales and inventory for the year ending 1969-70 (bate:i on nine months actuals) and enterp:rise projections for 1970-71. Figures are in crores (10 iillions). Capital employed is fixed assets less depreciation, plus working capital, not including Items under construc- tion or expansion. Capital employed is as at the beginning of the year. Projection for 1Q70-71 has been made on a basis of 6.3% increase for each of the 28 companies as the total capital employed in the public sector is expected tn increase at roughly that rate. 1/ Predicted figures not available fer enterprise and year indicated. For indicated totals, last available figure is used with a no.minal increa3e. GROSS PROFIT AJD NET PROFIT IN 'MlE PUBLIC SECMR (Value in Rs. .rores) Year ending 31st March 65-66 66-67 67- 3 68-69 69-70 70-71 Year Gross GP as I Net Name of undertaking ncorporated Proft UE' Profil, G. 1. bi. P, G. p. % N. P. G. P. % N. P. G. P. % N. P. G. P. % N. P. 1. Hindustan Steel 1953 20.6 3.2 2.3 1.8 0.25 -19.7 -12.5 -1.7 -38.0 -11.9 -1.4 -39-b 4.2 0.5 -25.7 38.6 4.2 9.0 2. Heavy Eng. Corporation 1958 - - - -4.9 - -6.1 -9.3 -12.6 -13.0 -8.9 -6.4 -14.1 -10.5 -7.2 -16.7 -8.4 -5.9 -15.9 3. Hindustan Machine Tools 1953 2.4 11.0 1.3 2.2 7.1 1.4 0.2 0.6 -0.7 0.3 0.6 0.8 0.1 0.0 -1.0 -0.2 -0.5 -1.4 4. Mining & Allied Machinery 1965 - - - - - - -3.8 - -5.4 -4.4 -16.3 -6.4 -3.0 -10.0 -5.3 -1.6 -5.1 -4.2 5. Indian Telephone Industry. 1950 2.8 23.5 1.1 2.9 19.7 1.3 4.2 24.1 1.6 3.8 21.9 1.5 3.6 20.7 1.3 4.4 24.3 1.6 6. Hindustan Aronautics 1964 1.14 6.4 1.2 2.3 8.7 1.4 4.1 5.5 1.4 5.2 5.3 2.2 6.7 4.9 3.1 9.0 6.2 5.3 7. Bharat Earth Movar 1964 0.4 6.4 0.3 0.4 6.0 0.1 2.4 32.9 1.2 2.5 18.4 1.2 1.9 1CI.7 1.4 2.6 14.0 1.9 8. Barat Eloctronica 1954 1.8 18.0 0.7 2.7 23.5 1.3 4.0 27.6 2.1 4.7 27.8 2.4 3.9 20.7 1.7 4.0 20.4 1.7 9. Bharat Heavy Electricals 1964 - - - -4.8 - -5.7 -1.8 -5.8 -5.2 1.6 4.5 -3.4 4.3 4.3 0.1 5.1 4.9 0.3 10. Heavy Electricals 1956 -3.8 -5.9 -5.7 -3.0 -5.6 -5.2 -2.5 -3.6 -5.6 -2.2 -3.4 -5.9 -2.5 -14.0 4.7 -0.9 -1.4 -5.9 11. Fertilsere & Cseals Travanore 1943- -0.7 -7.9 -1.0 1.0 10.9 0.4 1.3 6.0 0.2 1.0 3.8 0.3 1.1 3.5 0.5 2.4 7.4 1.9 12. Förtilisa Carporatio of India 1961 1.5 3.0 0.4 1.3 1.6 -1.2: 4.4 4. 1.8 6.6 7.5 4.0 3.2 2.2 -0.3 4.9 3.2 0.9 13. Hindustan Photofilmi 1960 - - - - - - -1.1 -10.2 -1.5 -.1.5 -14.0 -2.1 -1.8 -16.4 -2.3 -0.7 -6.1 -1.4 14. Indian Dmgg & Pharomtau- ticala 1956 - - - -0.4 - -o.6 -1.5 -28.8 -2.3 -6. -16.7 -9.1 -4.6 -9.2 -7.8 1.7 3.2 -1.8 15. Nationl Col & Dev. Corp. 1956 2.8 6.6 0.5 0.8 1.0 -0.2 2.0 1.6 -0.12 3.7 2.7 1.5 3.8 2.5 2.5 6.3 4.0 4.4 16. Neyveli Lignite Carporation1956 1.2 1.5 0.0 -4.9 -4.4 -7.9 -1.7 -1.4 4.1 1.9 1.4 -2.4 3.8 2.9 -1.1 6.3 4.7 1.1 17. National naral Dev. Crp.1958 -0.2 -5.0 -0.7 0.3 3.5 -0.3 -0.5 -5.8 -1.0 -0.7 -2.9 -1.8 -1.7 -5.4 -2.8 -0.8 -2.5 -1.8 18. Hinduetan Zlne2 1965 - - - 0. - 0.0 0.3 3.0 -0.1 0.4 3.7 0.1 0.5 4.2' 0.1 0.7 5.6 0.2 19. Oil&Natural Gas Comission 1956 - - - 12.2 - 11.2 14.5 10.7 12.8 15.3 9.8 13.7 13.8 7-8 6.6 11.7 6.4 3.1 20. Indian Oil Corporation 1959 9.4 17.6 5.9 11.4 10.4 7.7 14.9 10.4 11.0 23.8 15.6 19.4 25.2 13.7 21.5 33.8 17.7 30.5 21. Cochin Refineries 1963 - - - - - - 2.3 17.3 1.2 4.6 17.2 3.5 2.9 10.8 2.0 2.5 9.0 1.8 22. State Trading Corporation 1956 4.4 41.5 1.6 4.2 23.4 2.0 7.8 23.0 1.6 11.3 29.9 2.5 11.7 36.0 3.9 9.5 29.6 3.3 23. Minerals & Metala Trading Corporation 1963 1.6 17.0 1.0 8.2 44.3 3.5 1.5 6.4 1.1 -0.6 -3.6 -0.7 0.3 1.5 0.3 0.3 1.4 0.3 24. Food Corporation of India 1964 - - - 4.7 - 1.0 6.0 14.0 0.2 14.3 10.2 0.5 14.0 3.8 0.3 15.3 3.9 0.5 25. Moghul Lines 1938- c.6 23.0 0.4 0.2 8.3 0.2 0.5 13.2 0.5 0.6 5.9 0.3 0.8 E.0 0.5 0.7 6.7 0.4 26. Air India 1953 1.2 2.7 0.8 5.6 114.0 3.8 6.4 Un.1 2.5 5.6 10.5 2.2 6.2 11.0 1.6 6.2 10.5 2.9 27. Indian Airlines 1953 0.0 0.0 0.2 -2.3 -8.3 -3.5 1.6 3.9 -0.4 3.7 8.5 1.6 3.2 6.9 1.0 4.2 8.6 2.3 28. Shipping Corp. of India 1961 2.2 6.2 1.8 5.7 13.7 4.5 6.7 13.0 5.5 6.5 11.3 5.0 6.1 8.4 4.2 7.0 9.3 .4.4 Source: Annual Reports of the Bureau of Public Enterprise and departmental papers fer estimates of Gross Profit and Cet Profit for the year ending 1969-70 (based on nine months actuals) and enterprise projections for 1970-71. Gross Profit represents excess of incme over expenditure after depreciation but before tax and :interest an loans. Net Profit represents Gross Profit minus interest and tax. It is not adjusted tu non orerating ard Drior ueriod receints and exrenses. 1/ Fertilizers and Chemicals 1travar.core was acquired as a Central Government :ndertakir in 1;'63, i:hile Moghul Line was acqui-ed in 196C. UTILISATION OF CAPACITY IN SELTED ENTERPRISES Name of the Project Unita Installed Produotion 1968.69 EAless Ngame of the Project Unit:s Ins;talled Production 1968-69 Excas Capacity Actual percentage Capacity Capacity Aatual Peroentage Capacity 1958/69 utilization 1968-69 Utilization 1. Hinduatan Steel Ltd. 6. Hindustan Nachine Tools Ltd. Rourkela Mil.tonnes 1.8 1.2 64 36 ingot steel Bangalore Unito Durgapur 1.6 0.8 51 49 I&II OG Nog. 2 1.0 48 52 Bhilai" 2.5 1.7 69 31 Pinjore Unit 1 .5 45 55 Kala-asery Unit " 1 .3 32 68 2. Ha rI Hyderabad Unit " 1 .08 8 92 sWatch Factary " 360 300 83 17 Heavy Igachirn 7. Fertilimer R- Building. 000 Tonnes 105 14 137 of India Ltd. Fundr Fore 143 10 7 93 Heavy iaÃ¥i Todle " 10 .3 3 97 Tr-bm AMia 000 Tonnes 115.5 77.8 67 33 3. inn and Allied Nitrio Acid * 105.6 49.2 47 53 OaSE urea 99.0 68.5 69 31 Iachinexy 000 Tonnes 26 4.1 16 84 slir A=naium Sulphate " 355.0 265.8 75 25 4. Beay ILeatricalgDuble Salt " 121,9 49.2 60 I Ltd Urea 23.5 15.5 66 34 Svitbdgear Noe. 2,400 , 1,405 59 41 L.f!al Pawer Transfwre UVA 6,00M 1,534 Callium J~ILn Caacitarg KVAR 108,000 101,113 94 6 NItrate " 314.9 309.2 93 2 Traatia ~t;ro Noe., 2,000 653 33 67 Nitrio Aeid 180.9 178.9 99 1 Ammonia 100.2 100.3 100 - 5. Zharat M Ele~ctrilo 8. I=dian Dru~ Pharmaceuticala Ltd. Heavy Power Hyderabdd Turbo sete 630 180 29 71 S l Istrumets Plant Air blast circuit breakeri Noe. 240 65 27 73 Surgical and Faily Oil circult breakere " 930 59 6 94 Planning Ingtrumente til.Nos. 2.8 -0.18 7 Boiler Plant Trichy _Snthetic Drugl Plant Boiler oæponente 000 Tonnew 30 14.9 50 50 Tablets il.tabe. 570 272 48 52 Fitting 2.5 .4 17 83 Bulk Drugs 000 E&61. 1,073 466 43 57 AntibiotIcs Plant Sodium Procaine Penicillin 000 kga. 64.6 4.2 7 93 Streptonrcine Sulphate 52.5 5.1 10 90 Soo : Annual Reports of the Bureau of Public Entrprise. ' Nna Co l Deve /l W.rL97b-71 -,rt Core. Mi.onø 17.0 12.6 74 26 p2 Capxcity raised to 500 MW with effect from ist April 1969. l-a17 10. Neyveli Lignite Corp. Ltd. Lignite Ril.Tonneø 4.5 4.0 89 11 Power Generation MW 40C2/ 232 58 54 TABLE 28 EXPORTS BY SELECTD MANWACTURIIG UNDETAKINGS (PUBLIC SECTOR) Value of EIports Amount in Rs Crores Name of Undertaking 1966/67 1967/68 1968/69 1. Hindustan Steel Ltd. 9.35 30.96 41.55 2. National Mineral Development Corp. 8.65 13.25 22.26 3. Indian Oil Corporation - 3.83 2.46 4. Indian Rare Earths .89 1.18 1.01 5. Hindustan Machine Tools .32 .43 1.01 6. Indian Telephone Industries .81 .51 .72 7. Hindustan Zinc - - .11 8. Hindustan Aeronautics .20 .06 .11 9. Bharat Electronics - - .05 10. Indian Drugs & Pharmaceuticals - - .05 11. Neyveli Lignite Corporation - - .05 12. Fertilizers & Chemicals Travancore - - .03 13. Hindustan Teleprinters - - .02 1. National Instruments .01 .01 .02 15. Heavy Electricals - - .01 16. Fertilizer Corporation of India - - .01 17. Hindustan Photofilm Mannfacturing Co. - .01 20.23 50.23 69.48