Relieving ‘holiday’ period

Revisiting my last article, published on March 20, 2022, we can recollect how the third Five-Year Plan ended badly, with agriculture and industry targets not fulfilled and the balance of payments under pressure. The government had to resort to a hefty devaluation in 1966 to address the balance of payments deficit. As a result of this, the government decided to take a break from the Five-Year Plans and in the next three years, there were only annual plans presented.

In this article, we will discuss the ‘no-plan’ years, what transpired therein, how the economy fared and the lessons learnt.

Key features

While the third plan could not meet its objectives in both agriculture and industry, the impact was felt more acutely in the agriculture sector and India was facing food scarcity. The government was also recovering from a morale-busting defeat to China in the 1962 war. The war with Pakistan in 1965 also led to a drain of resources.

This led to a sharper focus on agriculture and a whole new strategy was rolled out: a greater focus on high-yielding varieties, extensive use of fertilisers and greater usage of the irrigation potential. To be sure, the discussions on introducing high-yielding varieties had started a few years earlier by the then Food Minister CS Subramaniam and the Agriculture scientist MS Swaminathan. Norman Borlaug, the American scientist, had introduced a high-yielding, disease-resistant variant of wheat in Mexico in the early 1960s, which had shown impressive results. Borlaug was invited to India in 1963, after which there was a lot of discussion on ways to introduce such varieties in India. With a steady water supply from the Bhakra Nangal and the efforts of the Punjab Agricultural University, the high-yielding variety was introduced in Punjab. This was the beginning of the Green Revolution in India.

The HYV was hugely successful and in 1968, the productivity of rice and wheat jumped three-fold. From being a ship-to-mouth shortage economy, India was well on its way to becoming an economy which was self-sufficient in food grains.

To sum up, the salient features of the Annual Plans were:

* A focus on Agriculture, as discussed above;

* Introduction and widespread distribution of High-Yielding Varieties (HYVs) of seeds, widespread use of fertilisers, exploitation of irrigation potential, and soil conservation;

* Getting over the shocks of the Third Five-Year Plan and laying the grounds for planned expansion;

* Boosting exports and tackling the balance of payments crisis, for which a large devaluation of the rupee was undertaken in 1966.

In the first year of the Plan, i.e., 1966-67, the total outlay was Rs 2,165 crore and as noted above, the focus was on a new strategy in agriculture. In addition, the rupee was devalued in 1966 to boost exports. Also, the list of priority industries was expanded. The Indian Tourism Development Corporation (ITDC) and Electronics Corporation of India Ltd. (ECIL) were also started in this period.

In 1967-68, the second year of the Plan, the total outlay was Rs 2,085 crore. The new agricultural strategy was further expanded and more irrigation projects (minor and major) were taken up. The focus was also on the fertiliser and pesticide industry. The National Textile Corporation was set up in 1968.

In 1968-69, the third year of the Plan, the total outlay was Rs 2,376 crore. Some early signs of the new agricultural strategy were visible in the form of higher grain production. There was a greater allocation to Defence in this period. Moreover, there was a focus on the railways and the Iron and Steel industry during this period. The Lead Bank Programme was begun in 1969.

An analysis

Faced with a drought in the mid-60s, and the massive defence expenditures in 1962 and 1965 due to the wars, which were funded by increased deficit financing and promised foreign aid not materialising, India was faced with a balance of payments crisis and inflationary pressures. The Indian rupee, held constant at Rs 4.76 to a US dollar since independence, had to be devalued to Rs 7.5 in 1966 to tackle the balance of payments crisis.

Against this backdrop, the Annual Plans put aside the central objectives of all Plans in India, namely, economic growth, full employment, social justice and equality. This was understandable since these Plans were basically a break from ‘planning’ and were intended to recover from the agricultural crisis, the terrible drought in Eastern India and the overall failure of the Third Plan. As discussed above, the focus was more on self-reliance in food grain production and moving away from the dependence on the US and Europe for aid.

The political environment was also one of restlessness. There was general impatience with the stickiness of poverty and rising inequality, and the Left and the Socialist parties were critical of the government. To address such criticism, the Government enacted the Monopolies and Restrictive Trade Practices (MRTP) Act in 1969 to check the growth of the monopolies and undertook the nationalisation of 14 large commercial banks in the same year. The Patent Act of 1970, the Industrial Licensing Policy of 1970, and the Foreign Exchange Regulation Act (FERA) of 1973 all followed in quick succession to tighten the leash on business. All this was a consequence of the economic forces that had emerged during the Annual Plans.

Conclusion

On the whole, the Annual Plans gave India some breathing space and some significant decisions were taken during this period, namely the launch of the Green Revolution, the steep devaluation of the rupee, the bank nationalisation and the abolition of Privy Purses. Estimates show that the growth rate reached around 6.9 per cent during this plan holiday period whereas it had failed to reach the 5.9 per cent estimated target in the Third Five-Year Plan. Food grain reached 95 million tons by the end of these Plans.

On the political front, the left and socialist parties were a strong influence on the unfolding economic policy. Even within the Congress party, the then Prime Minister was forced to align with the centre-left forces to ward off the challenge. While these decisions laid the foundation of self-sufficiency in food grains and the widespread expansion of bank branches, the Annual Plans also pushed India on the path of industrial licensing and greater State control in industrial policy.

The writer is Addl Chief Secretary,Dept of Mass Extension Educationand Library Services, Government of West Bengal.