Economic Planning Series: Aiming at 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 rose by 43 per cent and per capita income by 17 per cent between 1951 and 1961. There was a substantial increase in agricultural output (41 per cent) and industrial output (100 per cent). 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 base of national income from where we began, much remained to be done.

In this article, we will look at the key features of the third Five-Year Plan, its major achievements and alternative strategies that could have been pursued.

Key features

In drawing up the third plan, India’s leaders had the achievements and the experience of the first two plans as a guide. The intent of the planners was clearly to scale up in all areas, namely agriculture and irrigation, industry, power, transport and communication. But the focus was clearly on self-sufficiency in the agriculture sector. To quote paras 3 and 4 from the Approach to the third plan:

The general pattern of development followed in the Third Plan necessarily flows, in large part, from the basic approach and experience of the Second Plan. However, in some important respects it represents a wider view of the problems of development and calls both for more intensive effort and a greater sense of urgency. In particular, the Third Plan will be directed towards strengthening the agricultural economy, developing industry, power and transport and hastening the process of industrial and technological change, achieving marked progress towards equality of opportunity and the socialist pattern of society, and providing employment for the entire addition to the labour force. Inevitably, a plan of development with these aims will make far reaching demands on the nation. It is essential that the burdens of development during the Third Plan should be equitably distributed, and, at each stage, the economic, fiscal and other policies adopted should bring about improvements in the welfare and living standards of the bulk of the people.

In the scheme of development during the Third Plan the first priority necessarily belongs to agriculture. Experience in the first two Plans, and especially in the Second, has shown that the rate of growth in agricultural production is one of the main limiting factors in the progress of the Indian economy. Agricultural production has, therefore, to be increased to the largest extent feasible, and adequate resources have to be provided under the Third Plan for realising the agricultural targets. The rural economy has to be diversified and the proportion of the population dependent on agriculture gradually diminished. These are essential aims if the incomes and levels of living of the rural population are to rise steadily and to keep pace with incomes in other sectors. Both in formulating and in implementing programmes for the development of agriculture and the rural economy during the Third Plan, the guiding consideration is that whatever is physically practicable should be made financially possible, and the potential of each area should be developed to the utmost extent possible.

With the establishment of democratic institutions at the district and block levels and the advent of Panchayati Raj, there was a push towards decentralised planning as well.

The main objectives of the Third Plan were to:

⁕ Raise national income at five per cent per annum

⁕ Achieve self-sufficiency in food grains and increase agricultural production to meet the requirements of industry and exports

⁕ Expand basic industries like steel, chemicals, fuel and power, and establish machine-building capacity to make a sound industrial base for the future

⁕ Utilise the manpower resources with an objective to expand employment opportunities

⁕ Ensure greater equality of opportunity and reduce income inequality

The importance of the first objective, i.e., raising national income at the rate of five per cent per annum or more is self-evident. Having averaged about 3.5 per cent in the first two plans, the planners wanted to improve the growth trajectory. The fact that the last few years saw a bumper harvest, even in years when the rainfall was not favourable, indicated that the agriculture sector was becoming relatively weatherproof. Further, the growth target is linked to the savings and investment functions. Since, both savings and investment were expected to increase over the third plan, a higher growth target was justified. Also, the incremental capital-output ratio (ICOR) turned out to be 2.1 in the first plan and 3 in the second plan (meaning that capital was less efficient in the second plan; this was mainly because of capital intensive investments in heavy industry, which have long gestation periods). In the third plan, the assumption for ICOR was 2.3, which was based on the reasonable expectation of the industrial investments of the second plan bearing fruit.

The second objective of self-sufficiency in food grain production was driven by two main considerations: one, to boost overall growth and two, 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 a large proportion of consumption was in basic food. This objective was also linked to keeping food prices low and ensuring that the surplus manpower in the rural areas is more gainfully employed. Finally, India would have to depend on traditional exports of cotton textiles, jute manufactures, and tea, as well as minor agricultural products, for foreign exchange: hence, highlighting the importance of non-food agricultural production as well.

The third objective of expanding industry was a continuation of the second plan strategy so that India could continue to build its industrial base and lessen the dependence of the Indian economy on agriculture.

The fourth objective was expanding employment opportunities in India. This was undoubtedly a difficult objective and happens with a lag — once the development process has kicked in and a certain level of growth has been attained. The third plan, therefore, set a target of absorbing a bulk of additional entrants to the labour force. While this was not realised in the first two plans, the third plan set a target of providing jobs to 14 million people (against the 17 million expected to join the workforce). Interestingly, of this, 10.5 million were to be in non-agricultural occupations. Strategies to expand employment included a large programme of rural industrialisation and providing wage employment for 100 days in a year — a version of earlier MNREGA.

The fifth objective of providing equal opportunities and reducing income inequalities was essentially a continuation of efforts to attain a socialist pattern of 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 widespread public participation, development along socialist lines will secure rapid economic growth and expansion of employment, reduction of disparities in income and wealth, prevention of concentration of economic power, and creation of the values and attitudes of a free and equal society…. economic activity must be “so organised that the tests of production and growth and those of equitable distribution are equally met. … 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 principal means for effecting the transition towards socialism”.

There was a great deal of emphasis on the use of 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 call for improved methods and machinery for planning and execution, better statistical and economic intelligence, greater appreciation of technological and other developments occurring in different fields, fuller knowledge of the country’s potential resources and, generally, for more systematic analysis and research. For every large programme and every major project or group of allied projects, there is need for careful evaluation of progress. This is being provided for under the Third Plan. Along with it, over a wide area, improvements in statistical data must be secured, notably in the estimation of national income and of capital formation, in the statistics of agricultural and industrial production, distribution and employment, in vital statistics, and in the collection and study of data relating to consumer expenditure, costs of living and the distribution of income.

The programme of economic and social studies undertaken during the first two Plans, the results of which are now becoming available, was devoted in the main to investigations of conditions of migration and employment in cities, studies of land reform and farm management, surveys of cottage and small-scale industries and evaluation of irrigation benefits, and to selected problems of social welfare and administration. To a limited extent, analytical studies on the broader aspects of the economy were also taken in hand. In the programme of research for the Third Plan, to be undertaken through universities and leading research institutions as well as by the Planning Commission and other agencies, a great deal of attention will need to be given to problems such as efficiency of investment in different sectors of the economy, pricing policies and techniques, foreign trade and the balance of payments, problems of organisation and administration in relation to planned development, problems of social change and social conflict, studies bearing on regional and urban development, and investigations into the working of programmes for land reform, cooperation, community development, rural electrification, small scale industries and others. Many of these studies will be of considerable value in the preparation of plans for long-term development. They will also greatly facilitate the realisation of the specific aims of the Third Plan and provide useful criteria for evaluating performance and shifting the lessons to be drawn from experience in different parts of the country.

To be continued…

The writer is an IAS officer, working as Pr. Secretary, Technical Education, Training & Skill Development, Government of West Bengal. Views expressed are personal