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defining the objectives, priorities and techniques of planning in India,
it is necessary to bear in mind the scale and dimensions of the problem
as outlined in the preceding chapter as well as the basic values which
must find expression in the economic and social pattern to be evolved.
It is no longer possible to think of development as a process merely of
increasing the available supplies of material goods ; it is necessary
to ensure that simultaneously a steady advance is made towards the realisation
of wider objectives such as full employment and the removal of economic
inequalities. Maximum production, full employment, the attainment of economic
equality and social justice which constitute the accepted objectives of
planning under present-day conditions are not really so many different
ideas but a series of related aims which the country must work for. None
of these objectives can be pursued to the exclusion of others ; a plan
of development must place balanced emphasis on all of these. For instance,
even the limited objective of increased production cannot be attained
unless the wider objectives of social policy are constantly kept in mind
and steadily pursued. On the other hand, equality and social justice will
have little content unless the production potential of the community is
substantially raised. Development, thus conceived, is a process which
calls for effort and sacrifice on the part of the entire body of citizens.
For such effort and sacrifice to come forth psychological conditions have
to be created which provide an incentive for all to give of their best.
2. Reference has been made in the previous chapter to the limited and partial development which the Indian economy has registered during the last few decades. Judged in terms of per capita incomes and standards of well-being, the economy has, on the whole, remained more or less stagnant. This is primarily because the basic conditions under which an economy can continuously expand have been lacking. The impact of modern industrialism in the latter half of the 19th century was felt in this country initially through imports of machine-made goods from abroad which reacted adversely on the traditional patterns of economic life, but did not create the impulse for development along new lines. The transition that followed was characterised not by expansion of industry and a diversification of the economic structure but by a decay of India's traditional arts, crafts and industries, and by an increasing pressure of population on the land. This retrogression led to a decline in productivity per person engaged in agriculture, the adverse effects of which were perhaps softened to some extent by the shock-absorbing capacity of the old institution of the joint family. The result was a continuous increase in under-employment and the growth of an attitude of "pathetic contentmen " on the part of the people. In such an environment there could be little economic or social progress. Whatever surpluses might have been available in the system under these conditions were directed to the purchase of imports, partly of better finished products from abroad and partly of equipment for the new transportation system designed primarily in the interests of foreign commerce. The responsibility for promoting modern commerce and industry came to be concentrated in the hands of certain classes in the urban areas, and up to the end of the nineteenth century the only major large-scale industries which had taken root in the country were cotton and jute textiles. Little attention was paid to improvement of agriculture or to the needs of the rural areas. After the turn of the century and especially after World War I, it came to be recognised that without rapid industrialisation significant economic advance was not possible. The inter-war period witnessed the establishment and growth of several industries in the country. A more positive policy on the part of the Government and a change in the terms of trade in favour of the producers of manufactured goods and against the primary producer in the period of the depression materially assisted capital formation in the industrial sector. There was, however, little overall economic improvement as conditions in the agricultural sector deteriorated sharply.
3. The backwardness of the Indian economy is reflected in its unbalanced occupational structure. About 68 per cent of the working population is engaged in agriculture, about 14 per cent in industry (large and small scale), some 8 per cent in trade and transport and the remaining 10 per cent in professions and services including domestic service. Even with this large proportion of the population engaged in agriculture, the country is not self-sufficient in food and raw materials for industry. Productivity per worker in organised industry, commerce and transport is about three times that in agriculture, but this sector of the economy has not been expanding rapidly enough to absorb the surplus population on the land. The large-scale underemployment in the rural areas which these conditions have given rise to constitutes a big economic and social problem. A change in the occupational pattern in the direction of greater employment in the industrial sector and in services is clearly necessary if the associated phenomena of mass poverty and unemployment are to be tackled effectively.
4. It follows from all this that the problem is not merely one of making the existing economic institutions work more efficiently, or making small adjustments in them. What is needed is a transformation of the system so as to secure greater efficiency as well as equality and justice. The central objective of planning is to create conditions in which living standards are reasonably high and all citizens, men and women have full and equal opportunity for growth and service. We have not only to build up a big productive machinethough this is no doubt a necessary condition of developmentwe have at the same time to improve health, sanitation and education and create social conditions for vigorous cultural advance. Planning must mean coordinated development in all these fields.
In this task of securing simultaneous advance along several fronts, it
would be unrealistic to hold out the hope that rapid and spectacular progress
can be made in the initial period of planning. Within a limited period,
there is always a measure of conflict betweenone objective and another
and, in the formulation of a Plan for a given period, it is necessary
to proceed in terms of priorities as between these objectives themselves
laying more stress on some and less on others. This problem of balancing
competing objectives is implicit in all planning and the quality of a
plan depends upon the soundness of its judgments regarding the relative
emphasis on the various objectives. Only to the extent that the Plan succeeds
in striking a right balance can consistent policies be formulated and
pursued. There is, to begin with, the problem of choosing, on the one
hand, between a moderate increase in the standard of life in the near
future with relatively small additions to capital equipment and, on the
other, a substantially higher standard of life perhaps for the next generation
at the cost of continued austerity and privation to the present generation
in the interests of rapid capital formation. The implications of this
choice have already been discussed in the previous chapter.
8. The decisions that have to be taken in regard to the reduction of economic inequalities within a given period also involve a weighing of diverse considerations. While it would be wrong in this sphere to think in static terms and to condone the existence or accentuation of sectional privileges, it is no less important to ensure a continuity of development without which, in fact, whatever measures, fiscal or other, might be adopted for promoting economic equality might only end up in dislocating production and even jeopardizing the prospects of ordered growth.
There are risks in going too far or too fast in these matters, but the
risks of not moving fast enough are no less serious. The decision as to
the measure of risk to be undertaken must turn primarily on an appraisal
of the capacity of the community to hold together under the stress of
major structural changes and of its various sections to maintain a high
standard of discipline and restraint while the necessary adjustments are
10. The question of the techniques to be adopted for planning is linked up with the basic approach that a community decides to adopt for the realisation of its objectives. It is possible to have a plan based on regime.itation and on immediate measures for levelling down in the hope ultimately of being able to level up. It is possible to take the view that mass enthusiasm cannot be created except on the basis of reprisals against those classes which have come to be associated in the public mind with the inequities and deficiencies of the old order. But the basic premise of democratic planning is that society can develop as an integral whole and that the position which particular classes occupy at any given timea product of various historical forces for which no individual or class as such can be held responsiblecan be altered without reliance on class hatreds or the use of violence. The need is to secure that the change is effected quickly and it is the positive duty of the State to promote this through all the measures at its command. The success of such planning no doubt depends on the classes in positions of power and privilege respecting the democratic system and appreciating the rapid changes it calls for It is clear that in the transformation of the economy that is called for the State will have to play the crucial role. Whether one thinks of the problem of capital formation or of the introduction of new techniques or of the extension of social services or of the over-all re-alignment of the productive forces and class relationships within society, one comes inevitably to the conclusion that a rapid expansion of the economic and social responsibilities of the State will alone be capable of satisfying the legitimate expectations of the people. This need not involve complete nationalisation of the means of production or elimination of private agencies in agriculture or business and industry. It does mean, however, a progressive widening of the public sector and a re-orientation of the private sector to the needs of a planned economy.
Relative Shares Of The Public And Private Sectors In Ownership Of Productive Capital
We should like to emphasise here that, as far as the ownership of productive
capital assets (other than in agriculture, small-scale industry and transport,
and in residential housing) is concerned, the share of the public sector
is already large. The book value of gross fixed assets owned by the Central
and State Governments, together with the working capital in the enterprises
concerned, amounted to over Rs. 1,200 crores at the end of 1950-51 (as
compared to about Rs. 875 crores at the end of 1947-48). The distribution
of these was roughly as follows :
The above estimate excludes the investment in motor transport. Strictly speaking, account should also be taken of the productive capital assets owned by port trusts, municipalities and other semi-public agencies which probably amounted to well over Rs. 1000 crores.
The value of productive capital assets in the private sector (again excluding
agriculture, small-scale industry and transport, and residential housing)
in 1950 was not perhaps more than about Rs. 1500 crores. According to
the Census of Manufactures for 1949 the net productive capital employed
in twenty-nine groups of factory industries amounted to only about Rs.
510 crores ; for the factory industries not covered by the Census, as
well as to allow for depreciation (so as to make the estimates comparable
with those for the public sector which give the gross value), an additional
provision of Rs. 600 crores might be made. The break down of the estimate
of the value of total productive capital in the private sector, referred
to above, would thus roughly be as follows :
14. These estimates are necessarily rough, and relate to historical and not replacement value, which will be considerably higher in both cases, but they show that in the building up and maintenance of basic services essential for organised industry, and to some extent in industrial development itself, the State has already been playing a not insignificant part. It also suggests that the productive capital in industry and in services essential to it is so small compared to the needs of the country that, in the furthe. accumulation of it, the two sectors can well supplement each other and need not necessarily expand at the expense of the one or the other.
Relations Between The Public And The Private Sector
15. In the industrial sphere, the respective roles of the State and of private enterprise have been enunciated in the Industrial Policy Statement of 1948. In terms of this Resolution, the principle of Government ownership and control has been accepted in regard to a segment of the economy comprising arms and ammunition, atomic energy and railways. It has also been stated that in regard to certain key industries like coal, iron and steel, aircraft manufacture, ship-building, manufacture of telephone, telegraph and wireless apparatus, etc., the State is to be responsible for further expansion except to the extent that it considers the cooperation of private enterprise necessary for the purpose. In the rest of the industrial field the initiative for development and the responsibility for management will rest on private enterprise. Government have, however, the right to acquire any undertaking in the public interest and to intervene in cases where the conduct of industry under private enterprise is not satisfactory.
The distinction between the public and the private sector is, it will
be observed, one of relative emphasis ; private enterprise should have
a public purpose and there is no such thing under present conditions as
completely unregulated and free private enterprise. Private enterprise
functions within the conditions created largely by the State. Apart from
the general protection that the State gives by way of the maintenance
of law and order and the preservation of the sanctity of contracts, there
are various devices by which private enterprise derives support from the
Government through general or special assistance by way of tariffs, fiscal
concessions, and other direct assistance, the incidence of which is on
the community at large. In fact, as the experience of recent years has
shown, major extensions of private enterprise can rarely be undertaken
except through the assistance of the State in one form or another. The
concept of private enterprise, as, indeed, of private property, is undergoing
rapid change, and the view that private enterprise can function only on
the basis of unregulated profits is already an anachronism. The process
of reorientation should and is certain to continue and gather speed, and
the problem is to see that the transition is smooth and orderly. Already,
in certain spheres of industry, units owned publicly and units under private
enterprise are functioning side by side. The points of interaction between
private and public enterprise are multiplying rapidly. In the maintenance
of industrial peace and the promotion of a cooperative outlook between
capital and labour, the State has necessarily to play a vital role. All
these are indications that the private and the public sectors cannot be
looked upon as anything like two separate entities ; they are and must
function as parts of a single organism.
Aspects Of Economic Change
21. In the development of countries like the United Kingdom, trade and banking played a great part in mobilising resources for development. Mercantile profits, in fact, were the main source of funds for industrial expansion, while the growth of commercial banks provided the necessary working capital. Apart from the fact that there were special historical circumstances which favoured the accumulation of large profits from commerce in the initial stages of economic development in many of these countries, these means of promoting capital formation are not consistent with our other objectives. The expansion of trade has, under our conditions, to be regarded as ancillary to agricultural and industrial development rather than as an initiating impulse in itself. In fact, in view of the urgent needs for investment in basic development, diversion of investment on any large scale to trade must be viewed as a misdirection of resources. Similarly, banking development and provision of credit facilities in an under-developed country raise special problems. To these we shall return presently.
The distributive- system needs special attention under planning. In an
economy subsisting on small commodity surpluses scattered widely, there
is a tendency for capital to flow into trade in preference to production.
Apart from the opportunities which a loosely-knit economic organisation
gives for small trading establishments to spread themselves over extended
lines of distribution, investment of capital in speculative trade gives
better returns than in almost any other sector. The former may be regarded
as another manifestation of under-employment but the latter is apt to
become an obstacle to development. From the larger point of view of controlling
relative prices and profitability as also for gaining control over the
economy at strategic points, state trading at the wholesale level in respect
of selected commodities could be used as a potent instrument of planning.
In a system in which profits from production are closely linked to marketability
of the product government operation of the distributive system at selected
points is, prima facie, capable of producing even better results than
direct control over production. The cost of living of the large majority
of the people depends, for instance, on a relatively few commodities like
foodgrains, cloth, sugar, kerosene and salt. Through state trading in
these commodities, it would be possible to operate directly on the cost
of living and to aim at a rate of development which would otherwise be
difficult. Public enterprise in the field of distributive trades, is however,
likely to raise complex organisational problems. Our knowledge of the
present distributive mechanism, its composition and structure and the
way the various links in the system are related is atpresent inadequate,
and it is therefore difficult to visualise fully the administrative problems
involved. But the direction in which we have to move is clear, and a beginning
has to be made during the period of the Plan. Before decisions can be
taken, there is need for clearing up the factual position regarding the
amount of capital-involved, the profit margins, costs of operation, the
number of people employed, and related aspects of the question. A Census
of Distribution designed to throw light on these crucial aspects and covering
a few selected commodities in the first instance would be of value in
25. Over a longer period, and particularly in a period of rapid development, the structure of prices is bound to change. Even the level of prices is likely to go up. But such changes must as far as possible keep in step with improvement in the level of incomes as well as with shifts in their distribution ; if they move in advance, they are likely to cause considerable hardships and lead to results which are the negation of our objectives.
26. Price policy, being partly a problem of allocation of resources and partly a question of ensuring reasonable equality of sacrifice among the different sections of the people, requires financial as well as physical controls. In the early stages, a development plan necessarily increases money incomes more rapidly than production. If these incomes are allowed to raise current consumption expenditures, they act immediately on prices, especially of articles like food which are in short supply. Such price inflation distorts the relationship between sectional price levels and encourages a diversion of productive resources to purposes which militate against the requirements of development. If continued for a long time, it generates economic instability and social unrest. To the extent that idle manpower and other resources can be used productively without any significant generation of additional money incomes, the inflation potential of a development programme can be minimised at the very start. But, to the extent that money incomes rise, the problem of holding inflationary pressures in check has to be faced.
27. Monetary and credit policy is a powerful instrument for securing the desired result. using the war and in the years immediately following, credit policy as an instrument of over all economic control had fallen into the background, but in recent years there has been a general tendency to revive its use. That credit control can exercise a healthy restraining influence on speculation and can assist in bringing about a better balance between aggregate demand and aggregate supply has been demonstrated by the distinct improvement in the price situation in the country since the raising of the bank rate and the adoption of a tighter credit policy by the Reserve Bank in November, 1951. The downward trend in prices in India had started before the announcement of this new policy, and it is evident that international factors have also greatly influenced the course of domestic prices. Nevertheless the credit and financial policy of the Government have been a significant factor in the situation. About the middle of 1951, the index of wholesale prices was around 450 ; it went down to 367 in May, 1952, and has, of late, been around 390. The cost-of-living indices have not shown a comparable fall, and it cannot be said that the fall in wholesale prices warrants any relaxation of vigilance and caution in the matter of overall price policy. Effective credit control must therefore remain an essential instrument for regulation of investment and business activity.
Working Capital Requirements And Organisation Of The Credit System
Having emphasized the role of credit policy in keeping the economy on
an even level we should like to refer also to another, somewhat different
and more long-range, aspect of the matter in relation to developmental
planning. A persistent upward trend in production and trade cannot be
sustained without an expansion in the supply of money and credit. Over
a period, therefore, it will be found necessary to expand money supply
in the country in response to the increased volume of transactions in
the economy. This must come about through extension of credit institutions
which will impart the necessary elasticity to money supply without generating
inflationary pressures. The large credit needs of agriculture and of industry,
especially of cottage and small scale industries, cannot be met except
through a network of credit institutions which will mobilise savings in
the rural areas and disburse credit on a large scale to productive enterprises,
individual, cooperative or joint-stock. In this process of development,
the encouragement of larger savings from current income and of a productive
use of them in place of mere hoarding will have to play the major part.
But, at the same time, judicious credit creation somewhat in anticipation
of the increase in production and the availability of genuine savings
has also a part to play, for it is conceivable that without this kind
of an initial push, the upward process may not start at all or may fail
to gather momentum. The overall credit policy to be followed by the central
bank in an under developed country launching upon a process of development
has, therefore, to be adapted to these requirements.
Fiscal Policy As An. Instrument Of Planning
31. Allied to the problem of credit policy is the question of fiscal policy in relation to planning. With the continuous expansion of Government functions and the increase in public expenditure this necessitates, fiscal policy may be said to be of even greater significance for influencing the volume^and direction of economic activity. In the U. K., for instance, Government's total expenditure amounts to about 40 per cent of aggregate national expenditure ; in the U. S. A. and in Canada, it works out at about 25 per cent ; and, in Australia it is about 30 per cent. These high proportions are, of course, a reflection of the large transfers from the public to the private sector through social insurance schemes and servicing of public debt. In India, the corresponding figure is at present of the order of 7 or 8 per cent, and this will inevitably rise rapidly as development proceeds. The process of development has always inflationary possibilities, and it is necessary, if development is to be orderly and its incidence not unfair to those classes whose incomes are relatively fixed, that the accent of fiscal policy must throughout be on minimising inflationary pressures.
32. This ''vital consideration has been given due weight in determining the over-all target of development expenditure in the first Five Year Plan. At this level of expenditure, it has not been possible to provide finance for several projects which, on a longer view, must be taken up for execution. There is , of course, no way of expanding the size of the Plan except by increasing the resources available to the public sector. It is necessary also at the same time to see that the level of expenditure in the public sector and the devices used for finding the needed resourcess are not such as to react too adversely on the private sector, the development plans of which are of equal significance from the point of view of the community's interests. To mention this limitation on our present effort is, however, only to underline the need for a bolder policy in the future. The investment expenditure which, in the last analysis, a community can undertake depends, apart from whatever external resources may become available, upon the rate at which it can step up its savings; for, the problem is not just one of diverting investment from the private to the public sector, but of increasing the total.
33. An increase in aggregate investment implies, as stated earlier, a postponement in increases in the standard of living to the maximum extent possible, and fiscal policy is a major device for bringing about this result. Fiscal policy has at the same time to aim at a reduction in inequalities of income and wealth. There is clearly far more scope for cutting down consumption expenditure in the higher income groups than for tightening of the belt in the lower income ranges. The common man has, undoubtedly, to play his part in financing development, but, on grounds of economic as well as social policy, the more well-to-do classes have to contribute in proportion to their capacity to pay. The question is how this result is to be secured. Direct taxation of the rich is likely to impinge more on their savings than on their consumption. There is need for balancing the advantages of a greater equality of incomes and wealth against the disadvantage of a possible fall in private savings and capital formation. This consideration has special reference to the problem of the immediate future but granted the basic assumptions of a planned economy, it cannot, over a period, be allowed to come in the way either of a progressive reduction of inequalities of income and wealth or of rapid capital formation.
34. The reasoning that direct taxes are apt to reduce savings rather than consumption expenditure and hence detrimental to capital formation is also valid only upto a point. In a system in which public investment has to play an active role, it is of secondary importance whether resources are transferred to the State in the form of taxes (in which case it would add to the savings of the State available for investment) or in the form of loans out of private savings provided there is agreement on the priorities attached to the investment on public account. The real issue which affects both direct and indirect taxes equally is whether taxation is so high as to affect adversely the incentive to produce. Indirect taxation which increases costs of living could also be a disincentive. In this respect, an economy geared to rapid development calls for changes in the traditional attitude to reward for work. It is not without significance that forms of direct taxation which are today considered as the minimum essential in a modern society were in the initial stages regarded as inimical to progress. Similarly, though indirect taxation is generally regarded as regressive and somewhat unfair, the trend in countries which have moved rapidly towards greater equality of incomes has been for the share of indirect taxation to grow. In part, therefore, the problem is^one of psychological adaptation to the changing needs of the times and in part a question of whether alternative institutional arrangements can be made quickly enough to compensate for loss of incentive in certain strata of society.
35. The link-up between inequalities of income and capital formation in the early stages of modern economic development in countries like_Britain was due to a combination of circumstances in which the promotional and managerial abilities of a particular class had a direct part to play in initiating innovations, evolving new techniques of production and applying them on a commercial scale. The pioneers in the field of development had relatively few avenues open to them for luxurious living. A large proportion of the high incomes they received was thus ploughed back into industry thereby providing the basis for further expansion of the economy. Conspicuous consumption is a later phenomenon, and while it may have a place in rich countries where rapid expansion of consumption in all directions is in a way essential to the maintenance of a high level of economic activity, it is seriously detrimental in the conditions of an underdeveloped country. Though the resources which such consumption directly diverts away from capital formation may be small, it not only creates discontent in the community but also indirectly discourages saving in the economy as a whole by initiating a process of wasteful emulation. It is evident that in a planned economy in which the public sector takes over progressively the promotional and managerial functions necessary for development, neither large inequalities of income nor higher consumption standards for particular classes can be justified.
Death duties are an important equaliser of incomes and wealth. They are
a levy on capital which does not have the same adverse psychological effects
as other capital levies. They are capable, over a period, of reducing
inequalities to an extent that only a violent upset of the system can
achieve if the elimination of inequalities of income and wealth is made
an immediate objective. Death duties are now an integral part of the system
of taxation in advanced countries and they are levied in several underdeveloped
countries as well. The rates of death duty in the U. K. are as high as
50 per cent and over on estates above /j 00,000 and they go up to 80 per
cent on estates valued at over 1,000,000. The efficacy of death duties
for correcting inequalities will depend, apart from the rates charged,
the limit of exemption, the extent of evasion, etc., on the extent to
which checks are placed on individuals earning large incomes and accumulating
wealth between successive capital transfers. With a high rate of progression
in income tax rates and a structure of controls to regulate relative prices
and profits, death duties can make a significant contribution towards
reduction of inequalities.
37. There are at present three main sources of savings: savings by private individuals (that is, personal savings), savings by corporations, and public savings (or surpluses in the public sector). In countries like the U. K. and U. S. A., the role of personal savings as a source of finance for development is no longer as important as it was in the early stages of development. Corporate savings provide in these countries a considerable part of the finance needed; in the U.K. public savings, i.e., surpluses from taxation and from the receipts of commercial enterprises owned by Government, are an important source for financing investment. Corporate savings come ultimately from profits; they represent a ploughing back of the funds that would otherwise have gone into the hands of the shareholders. To a certain extent, this is a desirable line of development, and it is proper to encourage capital formation in the private sector through differential taxation of distributed and undistributed profits. The limitation of this approach, however, is that it leads in the long run to a concentration.of economic power in the hands of these corporations,'and, through them, in the hands of a few people v/ho happen to have a controlling interest in them. In a country like the United States, a country of corporations par excellence, it has been found difficult in practice to curb the monopoly pov/er of these corporations in spite of anti-trust laws. In the pattern of development we envisage for India, it will, therefore, be necessary to lay more stress on cooperative rather than corporate savings. The cooperative form of organisation is capable of yielding the advantages of corporate enterprise without some of its disadvantages. It is a form of organisation capable of attracting the small man, and members of cooperatives are likely to see easily the benefits that would accrue to them by devoting a substantial part of their current surpluses to investment. The encouragement of the cooperative form of enterprise in all fields of activity, in agriculture, in trade, in finance, in marketing and in industry must, therefore, become a prime objective of Government policy.
And, finally, the State must itself raise, to the extent possible, through
taxation, through loans and through surpluses earned on State enterprises
a considerable proportion of the savings needed. In other words, public
savings, as distinguished from private savings,personal or corporate,
must be developed steadily. The financing of investment through public
savings would help to ensure a pattern of development in consonance with
accepted social criteria.
39. Prices are a resultant of all the varied forces acting on the economy from within as well as from without, and there is almost no aspect of governmental policy which does not, in one way or another react on prices. Export-and-import policy, for instance, has a direct bearing on relative prices and profitability. Control and regulation of exports and imports, and in the case of certain select commodities state trading, are necessary not only from the point of view of utilising to the best advantage the limited foreign exchange resources available but also for securing an allocation of the productive resources of the country in line with the targets defined in the Plan.
40. Increase in output, through fuller utilisation of capacity, through improvement in technical and managerial efficiency or through harder and more sustained work all round is basically the answer to inflationary pressures, and this would be a far better way of bringing supply and demand into equilibrium than some of the other devices which, while doing good, have also a somewhat depressing effect on the economy. But since, in the short period, there are limits to the increase in output that can be secured, there is need for making appropriate use of the other devices also.
41. A major problem in this connection is the role of controls in a planned economy. This is a subject which has many aspects and it is possible in this field to fall into a doctrinaire approach which, however sound on abstract theoretical considerations, may prove unworkable in practice. On the other hand, an excessive elasticity of approach to this question may lead to a negation of planning itself. To some extent, over-all controls through fiscal, monetary and commercial policy can influence the allocation of resources, but physical controls are also necessary. Given the fact that, in the initial stages of development it is the excessive pressure on a few commodities which tend to limit the rate of progress, the extent to which physical controls are needed to supplement financial controls may even be regarded as a measure of the utilisation that is being made of surplus resources (like manpower) in the system. The targets of production defined in a plan cannot also be achieved unless a structure of relative prices favouring the desired allocation of resources is maintained. The working of controls during and since the war has demonstrated clearly that if production in a particular line, say, foodgrains, has to be increased, the necessary incentive for the producer cannot be created unless the prices of alternative crops are controlled. In an economy which starts from a low level of output, increases in several lines of production will be found necessary. A simultaneous increase in production in all lines is not possible by merely raising the money reward for work. In the case of certain key commodities, it may be necessary to keep down their prices in order to obviate the need for price rises in several industries which use these commodities. To make this policy effective, controls on production and on movement and physical allocations to consumers become inescapable.
42. Controls in a word are the means by which Government maintains a balance between various sectional interests. Under certain circumstances the accent may be on the maintenance of certain price ceilings, and through these of the real purchasing power of the incomes accruing to certain classes. Under other conditions, the enforcement of minimum prices might be a necessary corollary to a policy of ensuring a reasonable rate of return on effort in certain lines of economic activity. Viewed in the proper perspective, controls are but another aspect of the problem of incentives, for to the extent that controls limit the freedom of action on the part of certain classes, they provide correspondingly an incentive to certain others and the practical problem is always to balance the loss of satisfaction in one case against the gain in the other. For one to ask for fuller employment and more rapid development and at the same time to object to controls is obviously to support two contradictory objectives.
43. Most of the opposition to controls comes, however, from dissatisfaction with the working of particular controls. It must be recognised that controls ineffectively or inefficiently administered may do harm rather than good. It is also true that so long as the public regards controls as so many hindrances to be circumvented if possible, to be put up with otherwise, there will be resentment against controls. To a great exent this is a question of creating the right atmosphere by explaining to the public the relationship between controls and the rate of economic progress that the country can achieve. From this point of view it is an essential condition that the rationale of each control is made clear to the public and the rights and obligations of the parties affected defined in a manner which leaves little scope for doubt as to what is expected of the public and where redress can be had in case of any grievance. It is also vital to the success of controls to make the necessary adjustments in their working from time to time as the conditions governing the supply and demand of the commodities in question change. But, here again, whatever changes are made must accord with the objectives in view and should not throw in doubt the basis of the entire policy.
44. The difficulties of administering an extensive system of controls in an economy organised by and large in small units cannot be under-rated. Methods adopted successfully in other countries are not directly applicable to India. Effectiveness of controls under these conditions can be ensured only through control at strategic points and through encouraging producers' and consumers' organisations which will help to make the actual operation of controls smoother, less irksome and more efficient.
The Pattern Of Priorities
45. It will be seen from the above that the priorities in planning and the relative emphasis as between objectives are conditioned to a great extent by the techniques that can be used within a given period for attaining the objectives, and the techniques to be chosen are, in turn, influenced by the objectives in view. Once the decisions in regard to these are taken, the question arises as to priorities as between the different lines of expenditure to be undertaken. Given, in other words, the investment outlay to be undertaken on a consideration of the relative weights to be attached to the various competing objectives and of the techniques to be employed, the task before the planning authority is to determine the pattern of investment for the period in view. The demands of the economy for development are so large and so pressing that great care has to be taken in allocating the limited resources available. When one views development as a process over a period of years, there is no sector of the economy in which a large increase in investment would not be justified, in fact, it would be inescapable. Within a limited time horizon, however, the problem assumes a different aspect; first things have to come first. It follows that the conception of priorities over a period has to be a dynamic one, the emphasis as between different sectors shifting as development in those taken up initially prepares the ground for development in others.
46. por the immediate five year period, agriculture, including irrigation and power, must in our view have the topmost priority. For one thing, this emphasis is indicated by the need to complete projects in hand. But, further, we are convinced that without a substantial increase in the production of food and of raw materials needed for industry, it would be impossible to sustain a higher tempo of industrial development. In an under developed economy with low yields in agriculture, there is of course no real conflict between agricultural and industrial development. One cannot go far without the other ; the two are complementary. It is necessary, however, on economic as well as on other grovnds, first of all to strengthen the economy at the base and to create conditions of sufficiency and even plenitude in respect of food and raw materials. These are the wherewithals for further development. Japan, for instance, increased its agricultural production by -80 per cent in a generation and still required large scale imports of food and raw materials. Britain, which in the earlier stages of development was in a strong position because of the earlier revolution that had taken place in farming practices and techniques, also emerged at the end of the process an importer of food and raw materials. Countries which start the process of development at this stage must as far as possible look for sources of supply of the necessary food and raw materials within their own borders. In India, with its varied resources, conditions are favourable for securing a balanced pattern of development. The creation of a sizeable surplus in the agricultural sector and mobilization of the same for sustaining increased employment in other sectors is fundamental to development as the experience of the U.S.S.R. in the twenties and thirties shows.
47. The high priority given in the investment programme of the public sector to the improvement of agriculture limits inevitably the investment which the State can itself undertake in industries, especially large scale industries. Progress in this field would, therefore, at this stage depend to a great extent on effort in the private sector. The State in this initial period has to concentrate on the provision of basic services like power and transportation. The State has also special responsibility for developing key industries like iron and steel, heavy chemicals, manufacture of electrical equipment and the like, without which in the modern world continued development is impossible. In these fields it is necessary to anticipate to some extent the nature of the demands that will be made on them over a fairly long period ; in fact, in these cases supply must come first for demand itself to develop at the required rate. The initial investment necessary for the development of such enterprises is large and the period of construction fairly long. A beginning in these directions has therefore to be made from the very 'art.
48. To the extent that the accent of the plan is on increasing production, the limitation of resources available would restrict the scope for expanding social services. And yet, it is obvious that no plan can succeed unless it "invests" in the improvement of the human material. Even from the point of view of increasing production, social services like education, technical training and health bring in significant returns. Considerable advance in these directions can be made if the necessary urge to improvement is created among the people. The problem is partly psychological. There is also large scope in this field for direct community effort. The spread of literacy among the rural people, for example, can be secured by the literates in the community volunteering their services for carrying through a mass campaign for liquidation of illiteracy. The improvement of public health is often a matter of imparting elementary knowledge regarding sanitation and hygiene. Technical training is vital not only for the process of development itself but also for correcting the present bias in education which is responsible for unemployment in certain sections. In this respect, adequate provision for the finance needed must be made in the plan. At the same time, means must be found for stimulating among the people widespread interest in the application of modern technology to the many small problems familiar to them in ordinary life.
49. In viev of the large unutilised and under-utilized resources in the system, schemes for mobilising local effort for local development have to receive high priority. It is schemes of this type spread all over the country, more than major development projects, which are likely to activise these resources. Their contribution to ths improvement of living conditions, small though it might appear at first, would in the aggregate and in terms of their cumulative psychological effects be more than proportionate to the initial investment involved. Programmes of community development based on this principle and aiming at an intensive all-round development of selected areas are of special value from this point of view.
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