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Structure of Output
3.6.1 The output profile in the Eighth Five Year Plan in respect of important commodities and services, which are relevant on considerations of investment, long term growth or trade balance, is presented in Table 3.20. The targets are indicative, and are based on 60 sector consistency model. The following considerations have been broadly kept in view while preparing the indicative output profile for the next five years:
a) The progressive elimination of protection to domestic industries, particularly in the organised sector, and its ultimate reflection in improved competitive efficiency should be reflected in larger foreign trade of the bulk commodities. It should he desirable to import as well as to export the bulk commodities so as to bring the domestic production structure in line with the external levels of productive efficiency.
b) Even in the case of commodities where domestic production has a strong base, it would be prudent to plan for imports to meet the fluctuating component of the demand, so that the domestic capacity utilisation is maximised. Fertiliser is an example.
c) It is recognised that the indigenous technology cannot immediately adjust to the international levels particularly in village and small industries, where also the wage component of value added is high. Therefore, a fair measure of protection to this segment of the domestic industry will have to be ensured for a few years.
3.6.2 The Eighth Plan for agricultural development aims at generating surplus for exports in foodgrains and attaining self-sufficiency in respect of pulses and oilseeds. The agricultural sector is expected to grow at an average annual rate of little more than 4 per cent in terms of gross value of output and 3 per cent in terms of value added.
3.6.3 In order to attain the desired growth in agriculture, special efforts will he made for enhancing the productivity and reducing the instability in production. Since two-third of the cultivated area is still unirrigated and largely rainfed, a greater emphasis will be laid on dry land farming. Efforts will be made to spread the benefits of Green Revolution to other parts of the country particularly to the eastern region which has adequate rainfall and fertile soil. In order to provide assured and regulated water supply there is need to develop large number of tubewells in this region. Investments will be made in expansion of irrigation in general, with emphasis on the completion of on-going irrigation projects and reducing time and cost overruns in all major and medium irrigation projects. Attention will be paid to improving irrigation efficiency and reducing wastages of water and damages to land. Appropriate pricing of water, quantitative control on water application to land and better institutional arrangements for efficient and equitable distribution of water are some of the important measures stipulated in order to achieve efficiency and equity in irrigation sector. Targets for agricultural production in respect of foodgrains and some other important crops are presented in table 3.22.
3.6.4 The output in the mining and manufacturing sector during the Eighth Plan period is estimated to grow at about 8 per cent per annum. Details of material balances in respect of coal and electricity and details of demand in respect of petroleum products and railway traffic are presented in tables 3.23 to 3.26 These commodities being either in the nature of infrastructure or crucial inputs, are at the very base of industrial growth. Achievements of targets in these sectors is very important. Though the scarcity of resources during the Eighth Plan is likely to cause some concern regarding the performance of these sectors, the proposed entry of private sector in sectors like power, energy and steel is likely to ease the investment problem to some extent. Measures like improved capacity utilisation, efficiency in use of inputs, particularly energy, sensitiveness to market signals, etc. will help improve the performance in these sectors. The recent policy changes and the liberalised environment created for increased foreign investments are likely to help further in achieving the desired results in the industrial sector.
3.6.5 Power, iron and steel, cement and railways account for over 80 per cent of the total consumption of coal (Table 3.23). In power
Table - 3.21 Material Balance For Selected Commodities
The closing stock of sugar as on 31.1.92 was 4.93 million tonnes.
3.22 Estimates of Area and Output for 1991-92 ang target for 1996-97
MB(170) = Million Bales of 170 kg.; MB(180) = Million Bales of 180 kg.; * Compound
sector about 30538 MW of capacity addition is anticipated during the Eighth Plan. With this, the total generating capacity by 1996-97 in utilities will be 99620 MW. The share of thermal generation would continue to be higher, even though, gas based generation will replace coal based generation to some extent. The total electricity generation from utiliaround ties is estimated to be of the order of 418 Bkwh, of which coal based generation will be around 65 per cent. Inspite of improvement in heat rate, specific consumption of coal is increasing due to deteriorating calorific value of coal supplied to power plants. Taking into account future development, demand for coal in power utilities works out to 185 million tonnes in addition to about 5.0 million tonnes ofwashery middlings. Demands from captive power plants will be 15 million tonnes of coal. There is a declining trend in the coal to hot metal ratio in steel plants. With more efficiency, modernisation in steel plants and improvement in coal quality, the coal to hot metal ratio is expected to go down further. As per modernisation programme taken up in the coal washeries, the washery yield is likely to go up and accordingly the total coal demand for steel plants works out to 40.00 million tonnes.
3.6.6 The demand of petroleum products will continue to surpass the indigenous production (Table 3.24). The rate of growth during the Seventh Plan was 6.87 per cent per annum and with the continuing shift towards road transport and depletion of fuel wood for use as household fuel in rural areas, it is likely to grow at the same level during the Eighth Plan. The growth in consumption of petroleum products will have to be restricted without affecting the overall economic growth. Oil conservation and demand management would be given priority.
3.6.7 Oil production in 1989-90 was 34.10 million tonnes which declined to 33.02 million tonnes and 30.34 million tonnes in 1990-91 and 1991-92 respectively. The decline may^continue into the early years of Eighth Plan. The fall in
- 3.23 Demand-Supply Balance, Coal (1996-97)
Figures in bracket indicate washery middlings.
oil production has come at a time when the balance of payments position is under severe strain. The higher oil imports will reduce the availability of resources for investment needed for growth in the post Eighth Plan period. It is planned to develop western offshore oil fields during the Eighth Plan,which may raise the production to a level of 50.00 million tonnes by 1996-97. Bombay high will contribute about 60-65 per cent and the rest would be from Krishna-Godavari basin, Cambay basin and Upper Assam oil fields. In order to maintain the Reserve-to-Production ratio with respect to crude oil at a resonable level, it will be necessary to lay emphasis on oil exploration and development of wells for accretion of additional reserves. Recent changes in trade and industry policies are likely to encourage foreign investments. Production of natural gas is progressively increasing. In 1989-90 the production of natural gas was 16.99 billion cubic metres and is envisaged to be 30.00 billion cubic metres in 1996-97. Natural gas would serve as the substitute for petroleum products during the Eighth Plan in fertilizer, petrochemicals, power and domestic sectors. The compressed natural gas (CNG) in transport sector would cut imports of USD to a limited extent.
3.6.8 The consumption of fertilizers has increased from 5.52 million tonnes in 1980-81 to an estimated 12.57 million tonnes in 1990-91 registering a growth rate of 8.6 per cent per annum during the period. The demand for fertilizer nutrients during the terminal year of the Eighth Plan (1996-97) has been estimated at 18.3 million tonnes. The capacity for the production of fertilisers has not been increasing at the same pace, leading to increased dependence on imports. The installed capacity in 1990 was 8.15 million tonnes and 2.72 million tonnes respectively for nitrogenous (N) and phosphatic (P) fertilizers. There has been no significant addition to the capacity in the last three years. However, capacity utilisation during the Seventh Plan has improved. While projecting the production for fertilizer during the Eighth Plan, a capacity utilisation of 90 per cent is assumed in respect ofN and P fertilizers. The entire demand of potassic fertilizer is met through imports as there has been no indigenous production. In order to sustain agricultural growth, it is necessary to provide for expansion of the industry further in order to reduce dependence on imported fertiliser.
3.6.9 The production of cement during 1990-91 has touched an all time high of 48.70 million tonnes against an earlier high of 45.80 million tonnes achieved during the terminal year of the Seventh Plan. The private sector accounts for 84 per cent of the total cement production. The industry's capacity utilisation is showing a gradual improvement over the previous years. In projecting the target for production of cement during the Eighth Plan, an average of 80 per cent capacity utilisation is assumed. This would iy-ply the need for an additional capacity of 29.3
- 3.24 Sectorwise Demand of Petroleum Product in 1996-97
(1) Includes demand for captive power generation and certain transportation needs.
million tonnes during the Eighth Plan. In the recent years considerable investment, finaced by foreign aid, has been made for modernisation of cement industry in the private sector. This has improved the efficiency of operations in the industry. Cement industry should start contributing to earning of foreign exchange by exports during the Eighth Plan.
3.6.10 The success of planning in steel sector can be seen from not only the efficiency of integrated steel plants like Bhilai and Bokaro in public sector and TISCO in private sector but also from the timely entry of secondary steel producers to complement the role of integrated steel plants. With the liberalisation of economy a new boost has been given to the inflow of international capital, technology and capital goods. The steel sector has been delicensed and the units which satisfy international norms in terms of costs and quality can find new investment opportunities in India. Prices of steel products are not administered now, which had been the practice for many decades in India. The share of public sector in production of steel is expected to decline from the present 54 per cent to below 50 per cent by the end of the Eighth Plan and simultaneously, its share will be replaced by the production from the private sector in organised and unorganised sectors. The advent of sponge iron making in India using non-coking coal and natural gas will reduce the dependencies of secondary steel sector on imported scrap as their raw-material. New technologies will dominate the steel sectors activity in the Eighth Plan and beyond, particularly in the organised sector.
3.6.11 The estimated demand for finished steel is about 21 million tonnes by 1996-97. The whole demand for finished steel will be met through domestic production. However, imports oi'one million tonnes is envisaged for those items which are either in short supply or are of qualities which are not manufactured in India due to reasons of economies of scale. Like the cement industry, large investments have been made in the Seventh Plan for modernisation of steel plants. An export of about three million tonnes would be feasible.
3.6.12 Growth in electricity generation from utilities and non-utilities was 8.44 per cent per annum in the Sixth Plan and 9.46 per cent per annum in the Seventh plan. Gross electricity generation in 1989-90 was 266 billion kwh. The consumption of electricity at consumer's end was about 196 Bkwh in 1989-90.
3.6.13 The demand for electricity at consumers' end is placed at 336 Bkwh in 1996-97, indicating a growth of 8.21 per cent during the Eighth Plan. Demand of power is rising consistently because of its easy availability and relatively lower price. Non-utilities are expected to generate about 30.0 Bkwh. If the T and D losses and auxiliary losses are contained at the level of 21.0 per cent and 7.0 per cent respectively, the generation from utilities will be around 418 Bkwh (Table 3.25). For achieving the targetted generation of electricity additional capacity required to be set up during the Eighth Plan will be about 30538 MW. There have been continuous increases in outlays for this sector over the Plan periods. The Central sector is emerging as a major contributor since the last decade. Centre's share now stands at about 26 per cent of the total installed generating capacity. The Eighth Plan envisages giving larger role in electricity generation to the private sector. This sector's share in capacity at present is only 2.4 per cent. Separate industrial or consumption zones can be created for private sector so that they can have their own generation and evacuation structures. Terms of private sector participation need to be clearly spelt out.
3.6.14 A project-wise analysis indicates that it may be possible to achive a capacity addition of 30538 MW during the plan period. This includes a capacity of 2810 MW which will be added in the private sector. A further addition of about 2000-3000 MW in private sector will help in improving the power supply position further during the course of the Eighth Plan. About Rs. 67000 crores will be available for investment in the Central and State sectors for the projects likely to yield benefit around the end of the Eighth Plan. Priorities should also he given to new starts and advance action should be taken on hydro projects to improve its share during the subsequent Plan. There is great need to check the pilferages and curb the transmission and distribution losses by way of adopting separate metering systems. There is need for further improvement in the integrated operation of regional grids and creation of a national grid for better load management. Hence a higher provi-
3.25 Demand - Supply Balance, Electricity
sion of Rs. 79,589 crores in Public Sector Plan has been made for power sector development. There is also the need to pay attention to demand management by suitably spreading out the load of energy intensive economic activities over the 24 hours of the day. Hour specitictariffs and such other measures may be necessary.
3.6.15 The projected demand for railway transportation in 1996-97 is presented in table 3.26. The railway system are expected to carry a load of about 443 million tonnes (originating) in 1996-97 as against 363 million tonnes in 1991-92. Thus the growth rate during Eighth Plan in the originating traffic will be 4.1 per cent against 4.77 per cent achieved during the Seventh Plan. The Plan envisages that the growth in passenger traffic will be about 5.0 per cent per annum.
3.26 Demand for Railway Traffic 1996-97
Balance of Payments
3.7.1 The balance of payments situation has been continuously under strain for the past several years. During the Seventh Plan period the current account deficit averaged at around Rs. 8457 crores per annum as against an average of Rs. 2616 crores during the Sixth Plan period. The BoP situation remained under pressure due mainly to large trade deficit and fall in the surplus on invisible account. The already difficult balance of payments situation was aggravated by the rise in oil price in 1990.
3.7.2 The immediate response to the BoP crisis was a severe curtailment of imports and raising exports through exchange rate adjustment. This strategy produced a drop in the current account deficit from 2.6 per cent in 1990-91 to around 1.6 per cent in 1991-92. The adverse effect of a severe curtailment of imports on economic growth and more particularly industrial production is strong as already seen in 1991-92. Particularly alarming is the sharp drop (by about Rs.4765 crores) in the import of capital goods. The solution of the BoP problem, if the economic growth is to be sustained, lies not in sacrificing the foreign trade, but in pursuing structural adjustment policy which makes exports more attractive and the imports more sensitive to the price signals. In the longer term, exports of bulk commodities in contrast to traditional exports, which are the mainstay of exports at present will have to be aimed at. Therefore, the projected material balances of sugar, steel, cement, etc., provide for a greater share of foreign trade in their supplies.
3.7.3 A pre-condition for the beneficial effect of devaluation on balance of payments is that the gains from devaluation are not offset by domestic inflation. As already outlined earlier, the fiscal deficit of the Government is being controlled which should bring about a moderation in money supply growth. Additional measures like containment of Government consumption expenditure and ensuring adequate supplies of food and other wage goods are necessary.
3.7.4 Table 3.27 shows the evolution of key BoP indicators for the Eighties and the projections for the Eighth Plan (1992-97).
3.7.5 During the Seventh Plan period, the ratio of current deficit to GDP averaged 2.4 per cent, i.e., far above the figure of 1.6 per cent projected for this period in the plan document. This deterioration in the balance of payments occurred despite a robust growth in exports in the last three years of the plan. But the net receipts from invisibles declined significantly during this period. The already difficult balance of payments situation was accentuated in 1990-91 by a sharp rise in oil prices and by other effects of Gulf War. With access to commercial borrowings going down and non-resident deposits showing no improvement, it was found difficult in 1991-92 to finance the current account deficit. The current account deficit during 1991-92 is estimated to be around Rs.7000 crores as against Rs. 13942 crores in the previous year. The reduction in current account deficit during 1991-92 was mainly due to the
3.27 Key Indicators of India's Balance of Payments
severe import curtailment measures in the wake of the precarious balance of payments situation. Import curbs affected the growth rate ofG.D.P. and also the exports.
3.7.6 The significant changes in the industry and trade policies and exchange rate adjustments made during the year 1991-92, will have their implications on the functioning of Indian Economy and the BoP situation during the Eighth Five Year Plan. It is imperative that during the Eighth Plan, steps are taken to correct the fundamental weaknesses in India's external situation, so that the external imbalance does not cause serious disruption to the economy. It is, therefore, necessary to plan for a drastically reduced inflow of resources from outside. It is assumed that foreign savings would be 1.6 per cent of GDP in the Eighth Plan. This is a level of deficit that can be sustained by normal capital flows. This also implies high expectations about growth in exports. In absolute terms the foreign savings requirements are projected at around Rs. 55,000 crores. The projected balance of payments position during the Eighth Plan is given in Table 3.28. Steps will have to be taken to realize a healthier pattern of financing this order of current account deficit.
3.7.7 The manner of financing of the current account deficit during the Seventh Plan was such that 25 per cent of the financing need was met by way of external assistance from multilateral and bylateral donors, 25 per cent by way of commercial borrowings, 24 per cent through non-resident deposits under Foreign Currency Non-Resident Accounts Scheme (F.C.N.R.A.)
3.28 Balance of Payments Position During the Eighth Five Year Plan (1992-97)
* These are normalised projections for the base year. Actuals during 1991-92 are lower than these, as indicated in brackets and explained later. and Non-Resident External Rupee Account Scheme (NR (E) R.A.), about 14 per cent from other capital transactions and the remaining by the draw-down of reserves (Table 3.29).
3.7.8 The pattern of financing of CAD is expected to change in the Eighth Plan. The component of commercial borrowings will go down while that of direct foreign investment is expected to go up. Supportive policies have already been announced.
3.7.9 On examination of long-term trends and taking into account special needs of imports particularly in respect of bulk commodities, an
Table 3.29 Financing the Current Account Deficit
* Net of repayments
to IMF and others.
import to GDP elasticity of 1.5 was assessed to be reasonable for the period of the Eighth Plan. This would project an import growth of 8.4 per cent per annum, on a normal base. However, the base year 1991-92 turned out to be a very exceptional year in respect of imports due to severe curbs on imports, and hence this is not the appropriate- base on which imports could be projected. For the purposes of projecting the growth rate, imports have been assumed at Rs. 62345 crores for the year 1991-92 whereas the actual in that year turned out to be only Rs.51700 crores. The total import bill during the plan period has been estimated at Rs. 5,99,650 crores at 1991-92 prices.
3.7.10 Import requirements of major export oriented commodities have been worked out on the basis of the import intensity of the items and their export targets for the Eighth Plan. The import requirements of iron and steel scrap have been worked out on the basis of production profile of mini steel plants and the availability of scrap within the country and its requirement during the plan period. In case of some commodities, possibilities of import substitution have also been kept in view. Import requirements of other groups have been projected on the basis of import elasticities with respect to G.D.P. Past relationship of imports with respect to gross domestic capital formation, gross value added, industrial production, etc., have also been taken into account while making the projections of capital goods imports. Commodity-wise import projections are presented in table 3.30.
3.7.11 The decline in domestic production of crude oil in the initial years of the Plan coupled with the slower build up of the crude oil refining capacity makes it necessary to provide adequately for import of oil and petroleum products. One-fifth of the projected provision for imports during the Plan will be for these commodities. This will require a restraint on the import of other commodities, particularly of capital goods and transport equipment. Projections of fertilizers imports are based on demand-supply balances. Adequate provision has been made for export related imports, particularly of the gems and precious stones. Contingency imports of cereals and edible oils are also provided for in the projections. The investment profile, particularly of projects requiring capital goods, and the commodity- specific trade policies in the Plan period will have to conform to the projected import profile. Provision ofRs. 7000 crores has been made for the imports of edible oils, food-grains and pulses as contingency imports. The item "statistical adjustment" accounts for the difference between trade figures reported by Directorate General of Commercial Intelligence and Statistics (DGCI and S) and the one reported by the Reserve Bank of India.
3.7.12 Boosting exports is a key element of the foreign trade strategy during the Eighth Five Year Plan. Exports are expected to grow at 13.6 per cent per annum in volume terms. Commodity-wise details of export projections are set out in table 3.31.
3.7.13 The primary commodities would constitute 19 per cent of exports while the manufactured commodities would account for 76 'per cent. Amongst primary commodities a large proportions of earnings from incremental exports during the Eighth Plan will be from the exports of marine products, oil cakes, rice, cashew kernel, fruits, vegetables, miscellaneous processed foods, sugar and spices. Since market is not a big problem for the exports of these commodities, surplus availability for exports has been the main consideration in making projections. Among the manufactured products the promising ones will be the products of handicrafts, gems and jewellery, readymade garments, engineering goods, basic chemicals, leather and manufatures, cotton yarn and fabrics. Large investments have been made in capacity creation and modernisation of certain industries particularly sugar, cement and steel. It is high time a beginning in the exports of these commodities is also made.
3.7.14 A part of the gap in the merchandise trade has been covered by invisibles. The balance of invisibles has been positive. However, there is declining trend in the balance in the recent periods. Fifty Seven per cent of the trade gap during the Sixth Plan was covered by invisibles. This component declined to 24 per cent during the Seventh Plan. The situation has been worsening during the last 2-3 years and the balance of invisibles has been reduced to almost a negligible figure. The main reasons are that interest payments have gone up and earnings from foreign travel and private transfers have remained static. The Eighth Five Year Plan is expected to reverse this trend and take specific measures to raise earnings from tourism and services. Invisibles are projected to amount to 14600 crores of rupees, which will cover about 27 per cent of the gap in merchandise trade during the Eighth Five Year Plan.
* Represents notional amount.
Export Projections for the Eighth Plan
P : Provisional;
* Since actual exports are nearly Rs. 400 crores more than the assumed
exports, the residual works out to this amount which oterwise should be
around Rs. 450 crores.
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