India Table of Contents
The government has initiated, sustained, and refined many programs since independence to help the poor attain self sufficiency in food production. Probably the most important initiative has been the supply of basic commodities, particularly food at controlled prices, available throughout the country. The poor spend about 80 percent of their income on food while the rest of the population spends more than 60 percent. The price of food is a major determinant of wage scales. Often when food prices rise sharply, rioting and looting follow. Until the late 1970s, the government frequently had difficulty obtaining adequate grain supplies in years of poor harvests. During those times, states with surpluses of grain were cordoned off to force partial sales to public agencies and to keep private traders from shipping grain to deficit areas to secure very high prices; state governments in surplus-grain areas were often less than cooperative. After the late 1970s, the central government, by holding reserve stocks and importing grain adequately and early, maintained sufficient supplies to meet the increased demand during drought years. It also provided more remunerative prices to farmers.
In rural areas, the government has undertaken programs to mitigate the worst effects of adverse monsoon rainfall, which affects not only farmers but village artisans and traders when the price of grain rises. The government has supplied water by financing well digging and, since the early 1980s, by power-assisted well drilling; rescinded land taxes for drought areas; tried to maintain stable food prices; and provided food through a food-for-work program. The actual work accomplished through food-for-work programs is often a secondary consideration, but useful projects sometimes result. Employment is offered at a low daily wage, usually paid in grain, the rationale being that only the truly needy will take jobs at such low pay.
In the 1980s and early 1990s, Indian government programs attempted to provide basic needs at stable, low prices; to increase income through pricing and regulations, such as supplying water from irrigation works, fertilizer, and other inputs; to foster location of industry in backward areas; to increase access to basic social services, such as education, health, and potable water supply; and to help needy groups and deprived areas. The total money spent on such programs for the poor was not discernible from the budget data, but probably exceeded 10 percent of planned budget outlays.
India has had a number of antipoverty programs since the early 1960s. These include, among others, the National Rural Employment Programme and the Rural Landless Employment Guarantee Programme. The National Rural Employment Programme evolved in FY 1980 from the earlier Food for Work Programme to use unemployed and underemployed workers to build productive community assets. The Rural Landless Employment Guarantee Programme was instituted in FY 1983 to address the plight of the hard-core rural poor by expanding employment opportunities and building the rural infrastructure as a means of encouraging rapid economic growth. There were many problems with the implementation of these and otherschemes, but observers credit them with helping reduce poverty. To improve the effectiveness of the National Rural Employment Programme, in 1989 it was combined with the Rural Landless Employment Guarantee Programme and renamed Jawahar Rozgar Yojana, or Jawahar Employment Plan (see Development Programs, ch. 7).
State governments are important participants in antipoverty programs. The constitution assigns responsibility to the states in a number of matters, including ownership, redistribution, improvement, and taxation of land (see The Constitutional Framework, ch. 8). State governments implement most central government programs concerned with land reform and the situation of small landless farmers. The central government tries to establish programs and norms among the states and union territories, but implementation has often remained at the lower bureaucratic levels. In some matters concerning subsoil rights and irrigation projects, the central government exerts political and financial leverage to obtain its objectives, but the states sometimes modify or retard the impact of central government policies and programs.
Planning in India dates back to the 1930s. Even before independence, the colonial government had established a planning board that lasted from 1944 to 1946. Private industrialists and economists published three development plans in 1944. India's leaders adopted the principle of formal economic planning soon after independence as an effective way to intervene in the economy to foster growth and social justice.
The Planning Commission was established in 1950. Responsible only to the prime minister, the commission is independent of the cabinet. The prime minister is chairperson of the commission, and the minister of state with independent charge for planning and program implementation serves as deputy chairperson. A staff drafts national plans under the guidance of the commission; draft plans are presented for approval to the National Development Council, which consists of the Planning Commission and the chief ministers of the states. The council can make changes in the draft plan. After council approval, the draft is presented to the cabinet and subsequently to Parliament, whose approval makes the plan an operating document for central and state governments (see The Legislature; Local Government, ch. 8).
The First Five-Year Plan (FY 1951-55) attempted to stimulate balanced economic development while correcting imbalances caused by World War II and partition. Agriculture, including projects that combined irrigation and power generation, received priority. By contrast, the Second Five-Year Plan (FY 1956-60) emphasized industrialization, particularly basic, heavy industries in the public sector, and improvement of the economic infrastructure. The plan also stressed social goals, such as more equal distribution of income and extension of the benefits of economic development to the large number of disadvantaged people. The Third Five-Year Plan (FY 1961-65) aimed at a substantial rise in national and per capita income while expanding the industrial base and rectifying the neglect of agriculture in the previous plan. The third plan called for national income to grow at a rate of more than 5 percent a year; self-sufficiency in food grains was anticipated in the mid-1960s.
Economic difficulties disrupted the planning process in the mid-1960s. In 1962, when a brief war was fought with China on the Himalayan frontier, agricultural output was stagnating, industrial production was considerably below expectations, and the economy was growing at about half of the planned rate (see Nehru's Legacy, ch. 1). Defense expenditures increased sharply, and the increased foreign aid needed to maintain development expenditures eventually provided 28 percent of public development spending. Midway through the third plan, it was clear that its goals could not be achieved. Food prices rose in 1963, causing rioting and looting of grain warehouses in 1964. War with Pakistan in 1965 sharply reduced the foreign aid available. Successive severe droughts in 1965 and 1966 further disrupted the economy and planning. Three annual plans guided development between FY 1966 and FY 1968 while plan policies and strategies were reevaluated. Immediate attention centered on increasing agricultural growth, stimulating exports, and searching for efficient uses of industrial assets. Agriculture was to be expanded, largely through the supply of inputs to take advantage of new high-yield seeds becoming available for food grains. The rupee was substantially devalued in 1966, and export incentives were adjusted to promote exports. Controls affecting industry were simplified, and greater reliance was placed on the price mechanism to achieve industrial efficiency.
The Fourth Five-Year Plan (FY 1969-73) called for a 24 percent increase over the third plan in real terms of public development expenditures. The public sector accounted for 60 percent of plan expenditures, and foreign aid contributed 13 percent of plan financing. Agriculture, including irrigation, received 23 percent of public outlays; the rest was mostly spent on electric power, industry, and transportation. Although the plan projected national income growth at 5.7 percent a year, the realized rate was only 3.3 percent.
The Fifth Five-Year Plan (FY 1974-78) was drafted in late 1973 when crude oil prices were rising rapidly; the rising prices quickly forced a series of revisions. The plan was subsequently approved in late 1976 but was terminated at the end of FY 1977 because a new government wanted different priorities and programs. The fifth plan was in effect only one year, although it provided some guidance to investments throughout the five-year period. The economy operated under annual plans in FY 1978 and FY 1979.
The Sixth Five-Year Plan (FY 1980-84) was intended to be flexible and was based on the principle of annual "rolling" plans. It called for development expenditures of nearly Rs1.9 trillion (in FY 1979 prices), of which 90 percent would be financed from domestic sources, 57 percent of which would come from the public sector. Public-sector development spending would be concentrated in energy (29 percent); agriculture and irrigation (24 percent); industry including mining (16 percent); transportation (16 percent); and social services (14 percent). In practice, slightly more was spent on social services at the expense of transportation and energy. The plan called for GDP growth to increase by 5.1 percent a year, a target that was surpassed by 0.3 percent. A major objective of the plan was to increase employment, especially in rural areas, in order to reduce the level of poverty. Poor people were given cows, bullock carts, and handlooms; however, subsequent studies indicated that the income of only about 10 percent of the poor rose above the poverty level.
The Seventh Five-Year Plan (FY 1985-89) envisioned a greater emphasis on the allocation of resources to energy and social spending at the expense of industry and agriculture. In practice, the main increase was in transportation and communications, which took up 17 percent of public-sector expenditure during this period. Total spending was targeted at nearly Rs3.9 trillion, of which 94 percent would be financed from domestic resources, including 48 percent from the public sector. The planners assumed that public savings would increase and help finance government spending. In practice that increase did not occur; instead, the government relied on foreign borrowing for a greater share of resources than expected.
The schedule for the Eighth Five-Year Plan (FY 1992-96) was affected by changes of government and by growing uncertainty over what role planning could usefully perform in a more liberal economy. Two annual plans were in effect in FY 1990 and FY 1991. The eighth plan was finally launched in April 1992 and emphasized market-based policy reform rather than quantitative targets. Total spending was planned at Rs8.7 trillion, of which 94 percent would be financed from domestic resources, 45 percent of which would come from the public sector. The eighth plan included three general goals. First, it sought to cut back the public sector by selling off failing and inessential industries while encouraging private investment in such sectors as power, steel, and transport. Second, it proposed that agriculture and rural development have priority. Third, it sought to renew the assault on illiteracy and improve other aspects of social infrastructure, such as the provision of fresh drinking water. Government documents issued in 1992 indicated that GDP growth was expected to increase from around 5 percent a year during the seventh plan to 5.6 percent a year during the eighth plan. However, in 1994 economists expected annual growth to be around 4 percent during the period of the eighth plan.
Four decades of planning show that India's economy, a mix of public and private enterprise, is too large and diverse to be wholly predictable or responsive to directions of the planning authorities. Actual results usually differ in important respects from plan targets. Major shortcomings include insufficient improvement in income distribution and alleviation of poverty, delayed completions and cost overruns on many public-sector projects, and far too small a return on many public-sector investments. Even though the plans have turned out to be less effective than expected, they help guide investment priorities, policy recommendations, and financial mobilization.
Data as of September 1995
India Table of Contents