Ephemeral prosperity

The seventh plan was launched in 1985 on the back of a successful growth run in the sixth plan. Additionally, there was a move to use more technology to solve intractable policy and governance issues. This was also the first plan to be drafted by the new government led by Prime Minister Rajiv Gandhi, which was elected in 1984.

Key features

The seventh plan outlined a perspective plan for 15 years (1985-2000) as well as for the 5-year period of 1985-90.

In the perspective plan, there was a detailed discussion on all sectors of the economy, and strategies for each sector were outlined. We will touch upon the broad picture and the major sectors here. The perspective plan suggested a 5 per cent target of GDP growth per annum for 15 years. The broad objectives remained the same, as is clear from this passage from page 24 of the seventh plan document:

‘The elimination of poverty and creating conditions of new full employment, the satisfaction of the basic needs of the people in terms of food, clothing and shelter, attainment of universal elementary education, and access to health facilities for all’.

Perhaps for the first time, there was a clear emphasis on technological development and increased productivity. The long-term development strategy included action points on all important aspects of the economy, namely: population control, improving quality of life through better education and health coverage, energy planning, use of science and technology in agriculture and industry, transport and communications, optimal utilisation of human resources, land resources, water resources and forests etc.

In the five years of the seventh plan, the emphasis would be on three main objectives: accelerated growth in food grains production, increased employment, and higher productivity in the economy. All the development strategies in various sectors such as Agriculture, Industry, Export Promotion, Health, Education, Social Development etc. would revolve around these three objectives.

Some of the innovative ideas introduced in the seventh plan were technology missions in various sectors such as oilseeds, pulses, literacy, immunisation, drinking water, dairy development and telecommunications. Another fresh initiative was to spread the green revolution strategies to rainfed areas so as to increase agricultural productivity. Finally, the seventh plan emphasised on the decentralisation of development administration and the important role of voluntary agencies in helping the delivery of various services.

The seventh plan set a target for the growth rate of GDP at 5 per cent, with agriculture expected to grow at 4 per cent, industry at 8.3 per cent, electricity, gas, and water supply at 12 per cent, and transport services at 8 per cent. It is evident that the source of GDP growth was expected from industry and infrastructure.

The outlay for the seventh plan was Rs 3,22,366 crore, out of which the public sector outlay was Rs 1,80,000 crore, and the balance was expected to be the private sector outlay. The bulk of the public sector outlay was planned for energy (30 per cent), agriculture and rural development (22 per cent) and social services (16 per cent). While the savings rate was expected to rise from 23 per cent in 1984-85 to 24.5 per cent in 1989-90, gross investment was expected to rise from 24.5 per cent to 25.9 per cent over the same period. The ICOR (incremental capital-output ratio) was expected to be around 5 during the seventh plan. Most importantly, it was expected that the seventh plan would bring about a growth pattern which, in conjunction with the many anti-poverty and employment generation programmes (such as NREP, RLEGP etc.), would bring down the poverty ratio from 36 per cent in 1984-85 to 25 per cent in 1989-90.

Critical analysis

The seventh plan was the first opportunity presented to the first-time Prime Minister, Rajiv Gandhi, to make long-term economic policies in various sectors as well as for the five-year period. As noted above, a 15-year perspective plan was prepared with a growth target of 5 per cent per annum. A number of Technology Missions were introduced, of which the ones on Telecommunication and Oilseeds were most noteworthy. The first steps of the telecom revolution were taken at the time, and not only did telecom tariffs fall, telephony services were made vastly more accessible through the opening up of the ubiquitous ‘STD’ booths. In Oilseeds, India’s dependence on edible oil imports fell substantially.

On the political front, there was relative stability for the first two years of the plan but, from 1987 onwards, the government was on the backfoot, after the Bofors scandal came to light. The then Defence Minister, VP Singh, resigned from his post as well as from the Congress Party in 1987, and formed a new political party, the Janata Dal in 1988. In 1989, the National Front, a loose coalition of political parties centered around the Janata Dal, formed the government with the help of Bharatiya Janata Party (BJP), and VP Singh became the Prime Minister. VP Singh implemented the recommendations of the Mandal Commission, by reserving 27 per cent of seats in government jobs for the Other Backward Classes (OBCs), in the face of massive protests. His government fell within a year when there were differences with the BJP on various issues and the latter withdrew support. All this was reflected in the implementation of the seventh plan as well.

The period from 1985-90 was also one of internal and external liberalisation. On the domestic front, the process of deregulation and delicensing began in 1985, the items on the Small Scale Industries list were de-reserved, rules under the Monopolies and Restrictive Trade Practices Act MRTP were relaxed, many industries were freed of the Act requirements, price and distribution controls on cement and aluminium were scrapped, and a reformed MODVAT tax was introduced, whereby the multi-point excise duties were converted into a modified value-added tax (MODVAT) in which manufacturers did not have to pay tax on inputs.

On the external front, many of the steps taken in the early 1980s were carried forward. Items on the Open General License list were further expanded (which allowed easier import of the item and was accompanied by a tariff cut), many more non-petroleum imports were decanalised, the real effective exchange rate fell by 30 per cent from 1985 to 1990 — making exports competitive, several export incentives were given such as the Replenishment license, which could be traded in the market and allowed exporters to import even restricted items easily.

The liberalisation of industrial controls and import liberalisation reinforced each other, allowing the firms to take investment decisions faster. The industrial growth during the last years of the seventh plan (1989-90) had touched 10.5 per cent as compared to 4.5 per cent in the initial years. Similarly, exports which grew at 1.2 per cent during the sixth plan grew at 14.4 per cent in the seventh plan. There was a rise in the overall productivity in the economy and the ICOR fell from 6 in the sixth plan to 4.5 in the seventh plan. The economy ended up growing at 6 per cent in the seventh plan as against the target of 5 per cent.

While the reforms had a positive impact on industrial growth and export growth, it also led to unsustainable external borrowings and large fiscal deficits. The external-debt-to-GDP ratio rose from 17.7 per cent in 1984–85 to 24.5 per cent in 1989–90. Over the same period, the debt-service ratio rose from 18 to 27 per cent. Not only that, the proportion of private borrowers rose in this period as did non-concessional debt. The combined fiscal deficit of the states and the central government rose from around 8 per cent in the sixth plan to 10 per cent in the seventh plan. These deficits led to high levels of public debt with interest payments accounting for a large proportion of the government revenues. They also led to a rise in the current account deficits, which kept rising steadily until they reached 3.5 per cent of GDP and 43.8 per cent of exports in 1990–91. The stage for the fiscal crisis of June 1991 was set.

Conclusion

The seventh plan saw a number of initiatives and witnessed an emphasis on technology for the first time. It also took initial steps on liberalisation of the economy by delicensing and deregulating industry and incentivising exports. While it surpassed the 5 per cent growth target and also achieved more efficient utilisation of capital (ICOR fell to 4.5 per cent), all this came at a high cost of unsustainable fiscal deficits, high public debt, and high external borrowings. This was, in part, due to the unstable political environment that developed in the last couple of years of the plan.

The writer is Addl Chief Secretary, Dept of Mass Extension Education and Library Services, Govt of West Bengal.