India's Third Plan CONTRIBUTIONS TO ECONOMIC GROWTH

Press, Volume C, Issue 29501, 1 May 1961, Page 12

India's Third Plan CONTRIBUTIONS TO ECONOMIC GROWTH

l By

"LYNCEUS"

" of lh» '■Scowomiit”!

(from the Eronomtat Intelligence Unit)

London, April 18.—This , month marks the end of India’s Second Five-Year Plan and the beginning of its third. The event has a significance which extends well beyond India’s own frontiers; the success or failure of this gigantic attempt at democratic planning is bound to have a tremendous effect upon the developing countries, whether they are committed to one of the two power blocs or not. Certainly it can be questioned whether the Third Plan will in fact, even supposing it goes through without major hitches, carry the country from the stage of “transition” to that of “take-off”, to borrow Professor Rostow’s terminology Those who are responsible for framing India’s economic policies have told their fellow-countrymen —who have an average yearly income of about £2s—that by 1965 the country’s economic development will have lifted them to a level which will make them fully confident of the further progress that lies ahead The progress that is envisaged in the plan, when translated into its effect on the incomes of India's teeming population, can hardly be put in more encouraging terms. Even the most prodigious achievements, when related to over 420 million people, can hardly look anything but small. The Third Plan, even if it is carried out

: i-ian. even u it is carried out to the letter, will raise income a head by only a few pounds a -ear. This is the measure of India’s task Need for Capita) But, though the scale of the problem is daunting, the determination is there, as well as an intense anxiety to proceed along the right lines. In five years, if all goes well, investment will be at a rate which absorbs 14 per cent, of the national income—a level very near that of many advanced countries of the West. The rate of domestic savings wil] be around 11 per cent This would be a considerable advance on the position in 1950-51 at the beginning of India's planned development, when savings and investment both stood at about 5 per cent, of national income. Also, by 1965-66 India will have sizeable steel-pro-ducing capacity, rapidly expanding chemical and engineering industries a welldeveloped transport and communication system, and a network of technical institutions and scientific laboratories capable of training personnel to shoulder the responsibilities of economic development. Al] this, however, depends upon finding the capital to finance the development. According to official estimates, the foreign exchange requirements of the Third Plan are around £l5OO million, or about a fifth of the total outlay. These estimates may well go astray, as they did in the Second Plan, since (there are so many variable factors to be taken into account; but it is important to note that nearly 85 per cent of this foreign exchange will be required for industries, power, and transport together. In other words, the great bulk of the foreign exchange is ear-marked for projects which will produce tangible results in the not too distant future.

British AM But where will the money wme fromr As before. India d e E cn £ heavi, y on the World Bank and the United b* hoped “‘her Industrial countries will contribute more. Britain's share of foreign contributions has been perhaps lower than nSL hav ® e’HwetwL Under the Second Plan, of the total foreign assistance of £7BO million, the United Kingdom's share is estimated at £76 million, or little under 10 per cent of the total This figure does not take into consideration India's drawinz on its sterling balances to the tune of about £450 million. The major part of the British assistance consisted of credit for the Durgapur steel project tn addition to certain short-term and med-1

ium-term commercial credits for purchases of goods in Britain. In times of emergency when the balance-of-payments position was difficult, such credits played a valuable role in maintaining the flow of imports of capital goods and by helping India to honour foreign commitments. Under the Third Plan, too, credit assistance of this kind will be important. There will also be considerable scope for larger assistance in the form of long-term credit to develop such industries as engineering and heavy metals. Quite apart from loans on a government level, India will provide substantial opportunities for equity capital. Historically, British capital, in keeping with the traditional position which Britain occupied within the Commonwealth, formed the bulk of toe foreign capital invested m India. Investment was mainly in plantations, trading. transport, and banking. Since 1947, however, the largest part of fresh investment has gone Into manufacturing. Joint investment between British and Indian firms has become especially noticeable in recent years and American capital, too, has been entering India lately on a considerable scale, although it has been largely confined to the petroleum industry.

Tax Incentives Despite the influx of American, German, and Swiss capital, Britain retain* her primary position a* the largest single capital-provid-ing country. Of the total foreign private investment of about £3BO million in 1959 as much a* £330 million (or about 88 per cent.) was British. What is more, British private investment In India has increased 100 per ”ent. between 1948 and 1958 And yet the annual inflow of equity capital during the last few years has only been around £lO million to £l5 million and Is meagre in the context of the needs of the country. India offer* a number of tax incentives to encourage private investment, irrespective of whether the capital is indigenous or foreign, provided the. new Industries fit into the over-all framework of the planned development. The rule regarding 49:51 per cent, ratio of foreign to indigenous capital is also not rigidly applied and each project 1* examined on its own merits. There have been examples recently where the entire investment came from foreign source*. Last, the so-called socialist pattern of India'* economy has been said to deter many potential foreign investors. In fact, India’s economy has a long way to go before tt „u cou! ? h® ca,led socialist although certainly the Government believes in economic planning. Only one in 10 of the Indians who are in employment work in public enterprises, compared with one in seven in the United State*. But the public sector is bound to grow quickly in a country like India which is trying to develop as fast as possible.

Public investment in India during the last decade has been mainly hi baste service* such a* transport communications, power, and irrigations—fields which are essential for economic development but which are unattractive to private investors because of the long periods over which returns on capita! are realised. The only manufacturing Industrie* in which the Government is taking active interest a»* basic industries such engineering and heavy chemical* The*?, by their very nature are capital-intensive and have to oe developed on a large th? 1 * J nake of the latest available tech suc^) are *?*y®" d the of any private investor* in India The freedom that the auto.