ECONOMIC DEVELOPMENT IN INDIA

Under a series of five-year plans through 2000, the government became a participant in many industrial fields and increased its regulation of existing private commerce and industry. Long the owner-operator of most railway facilities, all radio broadcasting, post, and telegraph facilities, arms and ammunition factories, and river development programs, the government reserved for itself the right to nationalize any industries it deemed necessary. Yet the government’s socialist approach was pragmatic, not doctrinaire; agriculture and large segments of trade, finance, and industry remained in private hands. Planning is supervised by an eightmember planning commission, established in 1950 and chaired by the prime minister. India’s first four five-year plans entailed a total public sector outlay of R314.1 billion. The first plan (1951–56) accorded top priority to agriculture, especially irrigation and power projects. The second plan (1956–61) was designed to implement the new industrial policy and to achieve a “socialist pattern of society.” The plan stressed rapid industrialization, a 25% increase in national income (in fact, the achieved increase was only 20%), and reduction of inequalities in wealth and income. The focus of the third plan (1961–66) was industrialization, with 24.6% spent on transportation and communications and 20.1% on industry and minerals. Drought, inflation, and war with Pakistan made this plan a major disappointment; although considerable industrial diversification was achieved and national income rose, per capita income did not increase (because of population growth), and harvests were disastrously low. Because of the unsettled domestic situation, the fourth five-year plan did not take effect until 1969. The 1969–74 plan sought to control fluctuations in agricultural output and to promote equality and social justice. Agriculture and allied sectors received 16.9%, more than in any previous plan, while industry and minerals received 18.5%, transportation and communications 18.4%, and power development 17.8%, also more than in any previous plan. The fifth plan (1974–79) aimed at the removal of poverty and the attainment of self-reliance. A total outlay of R393.2 billion was allocated (26% less than originally envisaged), and actual expenditures totaled R394.2 billion. Once again, the emphasis was on industry, with mining and manufacturing taking 22.5%, electric power 18.7%, transportation and communications 17.2%, and agriculture 12.1%. The fifth plan was cut short a year early, in 1978, and, with India enmeshed in recession and political turmoil, work began on the sixth development plan (1980–85). Its goal, like that of the fifth, was the removal of poverty, although the planners recognized that this gigantic task could not be accomplished within five years. The plan aimed to strengthen the agricultural and industrial infrastructure in order to accelerate the growth of investments and exports. Projected outlays totaled R975 billion, of which electric power received 27.1%, industry and mining 15.4%, transportation and communications 12.7%, and agriculture 12.2%. The main target was a GDP growth rate of 5.2% annually. The seventh development plan (1985–90) projected 5% overall GDP growth (which was largely achieved and even exceeded) based on increases of 4% and 8% in agricultural and industrial output, respectively. Outlays were to total R1,800 billion. The eighth development plan (for 1992–97), drafted in response to the country’s looming debt crisis in 1990–91, laid the groundwork for long-term structural adjustment. The plan’s overall thrust was to stimulate industrial growth by the private sector, and thereby free government resources for greater investment in basic infrastructure and human resources development. In addition to liberalized conditions for private and foreign investment, the foreign exchange system was reformed, the currency devalued, the maximum tariff reduced from 350% to 85%, import barriers generally loosened, and those for key intermediate goods removed altogether. Reform of the tax system, reduction of subsidies, and restructuring of public enterprises were also targeted. While the eighth plan generally supported expansion of private enterprise, unlike structural adjustment programs in other developing countries, it did not stipulate a large-scale privatization of the public sector. As the eighth plan came to an end in 1997 most analysts proclaimed it a success; economic growth averaged 6% a year, employment rose, poverty was reduced, exports increased, and inflation declined. The ninth development plan (1997–2002) focused on the redistribution of wealth and alleviation of poverty, the further privatization of the economy and attraction of foreign investment, and the reduction of the deficit. Overall there were improvements in the reform era including an increase in the GDP growth rate from an average of about 5.7% to about 6.1% in the Eighth and Ninth Plan periods, a reduction of the percent in poverty from a third of the population to a fourth, increased literacy from 52% in 1991 to 65% in 2001, and India’s emergence as a competitor in state-of-the-art technologies of the new information age economy. However, persistent inefficiencies—unemployment and underemployment, and welfare deficiencies—remained. Moreover, since 1998 a series of domestic and international shocks have brought a disturbing deceleration to India’s economic growth. In the tenth five-year plan, 2002–2007, the government set the ambitious target of achieving an average 8% growth, above the level achieved during the ninth plan and well ahead of the 5% to 5.5% growth forecast for 2002/03. Other monitorable economic targets include a reduction of the poverty rate by 5% by 2007, and by 15% by 2012; providing gainful and high-quality employment at least equal to the projected increases in the labor force; increase in forest and tree cover to 25%, in 2007 and to 33% by 2012; all villages with sustained access to potable water by 2007; and cleaning of all major polluted rivers by 2007. Agricultural development is viewed as the core element of the tenth plan with attention to sectors most likely to create employment opportunities. These include agriculture in its extended sense, construction, tourism, transport, small-scale industries (SSI), retailing, IT, and communications enabling services. Industrial policy includes continued emphasis on privatization and deregulation. The ambitious 8% annual growth of the tenth plan is considered achievable because of the inefficiencies that have traditionally plagued Indian agriculture and industry. Because the scope for improvement is so wide, both in the public sector and it the private sector, strong growth can be expected from efficiency enhancing policies.