Economic Planning Series: Aiming for Holistic Development
The third five-year plan was launched in 1961 on the back of 10 years of achievements made in the first two plans. National income increased by 43% and per capita income by 17% between 1951 and 1961. There was a substantial increase in agricultural production (41%) and industrial production (100%). Similar gains were made in the consumption of food and clothing and in the expansion of education and health services. However, given the population of India and the low national income base from which we started, there was still a lot to be done.
In this article, we will examine the main features of the third five-year plan, its main achievements and the alternative strategies that could have been pursued.
In developing the third plan, Indian leaders drew on the achievements and experience of the first two plans. The intention of the planners was clearly to scale up in all areas, namely agriculture and irrigation, industry, energy, transport and communications. But the emphasis was clearly on self-sufficiency in the agricultural sector. To quote paragraphs 3 and 4 of the third plan approach:
The general pattern of development followed in the Third Plan necessarily stems, in large part, from the basic approach and experience of the Second Plan. However, in some important respects it represents a broader view of development issues and calls for both more intensive efforts and a greater sense of urgency. In particular, the third plan will aim to strengthen the agricultural economy, to develop industry, energy and transport and to accelerate the process of industrial and technological change, to achieve significant progress towards equal opportunities and socialist model of society, and to provide jobs for full addition to the workforce. Inevitably, a development plan with these objectives will place considerable demands on the nation. It is essential that the burdens of development during the Third Plan be equitably distributed and, at each stage, the economic, fiscal and other policies adopted improve the well-being and standard of living of the mass of the population.
In the development scheme of the Third Plan, the first priority necessarily belongs to agriculture. The experience of the first two plans, and especially the second, has shown that the growth rate of agricultural production is one of the main factors limiting the progress of the Indian economy. Agricultural production should therefore be increased as much as possible and adequate resources should be provided under the third plan to achieve the agricultural objectives. The rural economy should be diversified and the proportion of the population dependent on agriculture gradually reduced. These are essential objectives if the incomes and living standards of the rural population are to rise steadily and keep pace with incomes in other sectors. Both in the formulation and in the implementation of programs for the development of agriculture and the rural economy during the Third Plan, the guiding consideration is that whatever is physically practicable must be made financially possible and that the potential of each area should be developed as much as possible. .
With the establishment of democratic institutions at district and block level and the advent of Panchayati Raj, there has also been a push towards decentralized planning.
The main objectives of the Third Plan were to:
⁕ Increase national income by 5% per year
⁕ Achieve self-sufficiency in food grains and increase agricultural production to meet the needs of industry and exports
⁕ Develop core industries like steel, chemicals, fuel and electricity, and establish machinery building capability to create a solid industrial base for the future
⁕ Use labor resources to expand employment opportunities
⁕ Ensuring greater equality of opportunity and reducing income inequalities
The importance of the first objective, namely to increase the national income at the rate of 5% per annum or more, is obvious. Having averaged around 3.5% in the first two plans, the planners wanted to improve the growth trajectory. The fact that recent years have seen a bumper harvest, even in years with unfavorable rainfall, indicated that the agricultural sector was becoming relatively weather-proof. Moreover, the growth objective is related to the saving and investment functions. As savings and investment were expected to increase during the third plan, a higher growth target was justified. Additionally, the incremental capital-output ratio (ICOR) was found to be 2.1 in the first design and 3 in the second design (meaning that capital was less efficient in the second design; this was mainly due to capital-intensive investments in heavy industry, which have long gestation periods). In the third plan, ICOR’s assumption was 2.3, which was based on the reasonable expectation that industrial investments in the second plan would bear fruit.
The second goal of self-sufficiency in the production of food grains was motivated by two main considerations: first, to stimulate overall growth and second, to ensure food for the population and not depend on imports and foreign aid. Again, this was because India was still a low-income country with a high marginal propensity to consume, and much of the consumption was in staple foods. This objective was also linked to keeping food prices low and ensuring more remunerative employment for surplus labor in rural areas. Finally, India is expected to depend on traditional exports of cotton textiles, jute manufactures and tea, as well as minor agricultural products, for foreign currency: hence the importance of non-food agricultural production as well.
The third goal of expanding industry was a continuation of the strategy of the second plan so that India could continue to build its industrial base and reduce the reliance of the Indian economy on agriculture.
The fourth objective was to expand employment opportunities in India. It was undoubtedly a difficult goal and one that comes with a lag — once the development process has started and a certain level of growth has been achieved. The third plan therefore set itself the objective of absorbing a mass of additional entrants to the labor market. While this was not achieved in the first two plans, the third plan set a target of providing jobs for 14 million people (compared to the 17 million expected to join the labor force). Interestingly, of that number, 10.5 million had to be in non-agricultural occupations. Strategies to expand employment included an extensive program of rural industrialization and the provision of wage employment for 100 days a year – a version of the old MNREGA.
The fifth objective of ensuring equal opportunities and reducing income inequalities was essentially part of the continuation of efforts to achieve a model of socialist society, as was the case in the first two plans. To quote from the Plan documents:
It is a basic premise in India’s five-year plans that, through democracy and broad public participation, development along socialist lines will ensure rapid economic growth and expansion of employment, reduction of income and wealth disparities, preventing the concentration of economic power and creating the values and attitudes of a free and egalitarian society…. economic activity must be “organized in such a way that the tests of production and growth and those of equitable distribution are equally satisfied. … In an underdeveloped country, a high rate of economic progress and the development of a large public sector and a cooperative sector are among the main means of effecting the transition to socialism”.
Much emphasis has been placed on using better data analysis and better institutions in the implementation of the third plan. To quote from the plan documents:
To a greater extent than in the past, during the Third Plan, the direction and management of the Indian economy will require improved planning and execution methods and mechanisms, better statistical and economic intelligence, better appreciation technological and other developments occurring in different fields, a better knowledge of the potential resources of the country and, in general, for more systematic analysis and research. For each major program and each major project or group of related projects, it is necessary to carefully assess the progress made. This is foreseen under the Third Plan. At the same time, over a wide area, improvements in statistical data must be ensured, particularly in the estimation of national income and capital formation, in statistics of agricultural and industrial production, distribution and employment, in vital statistics and in the collection and study of data relating to consumption expenditure, the cost of living and the distribution of income.
The program of economic and social studies undertaken during the first two Plans and the results of which are now available, was mainly devoted to surveys on the conditions of migration and employment in towns, studies on agrarian reform and management of agricultural holdings, surveys of small and small industries and the evaluation of the benefits of irrigation, as well as certain problems of social welfare and administration. To some extent, analytical studies on broader aspects of the economy have also been undertaken. In the research program for the Third Plan, which is to be undertaken by universities and leading research institutes as well as by the Planning Commission and other bodies, great attention should be given to issues such as efficiency investments in different sectors of the economy, policies and techniques of prices, foreign trade and balance of payments, problems of organization and administration in relation to planned development, problems of evolution and social conflicts, studies on regional and urban development and surveys on the operation of agrarian reform, cooperation, community development, rural electrification, small industries and other programmes. Many of these studies will be of considerable value in the preparation of long-term development plans. They will also greatly facilitate the achievement of the specific objectives of the Third Plan and will provide useful criteria for evaluating performance and evolving lessons to be learned from the experience of different parts of the country.
To be continued…
The author is an IAS officer, working as Prof. Secretary, Technical Education, Training and Skills Development, Government of West Bengal. Opinions expressed are personal