Stumbling from the start

As we saw in the last article, India’s GDP growth in the fourth five-year plan was only 3.3 per cent against the target of 5.5 per cent and inflationary pressures were surging. Several external shocks such as the massive rise in oil prices, the disruptions in the economy due to the Indo-Pak war of 1971, the outfall of the nuclear test etc. were mainly responsible for the failure of the fourth plan. The fifth plan was launched against this backdrop.

Key features

The fifth plan had objectives which were very similar to the earlier Plans, namely: removal of poverty (inspired by the ‘garibi hatao’ slogan of Indira Gandhi), self-reliance in agriculture and industry, high economic growth, improved distribution of income and higher domestic savings which could be used for greater investment. One difference from the earlier plans was that there was a greater emphasis on achieving greater equality in the standard of living of the people. There was a realization that growth alone was not enough and that more employment opportunities were needed to reduce inequality. In the Approach document to the fifth plan, this was highlighted and emphasis was given to fulfilling the minimum needs of the people, implementing special employment programs and achieving greater equalization of consumption to reduce poverty.

DP Dhar, the Kashmiri diplomat, who was one of Indira Gandhi’s main advisors during the 1971 war, was the main architect of the fifth plan. The growth target was kept at a modest 4.4 per cent per annum.

Some of the specific programs launched during the fifth plan were:

* Minimum Needs Program (MNP): The objective was to improve the living standards of the people by providing them with basic needs such as clean water, rural roads, rural electrification, education, health and nutrition;

* Hill Area Development Program: It included central assistance to hill areas for their development, keeping in mind their ecological sensitivity;

* Special Livestock Production Program: It began in 1975-76 with the objective of assisting farmers in livestock breeding, providing good quality animal feeds, medicines and vaccination and insurance cover to the cattle at subsidized rates;

* Food for Work Program: It began in 1977, wherein the government gave food grains instead of wages for rural development work;

* Desert Development Program: It began in 1977 and was intended to reduce the adverse effects of drought and control desertification by afforestation, groundwater development, and rural electrification to energize pump sets and also raise the standard of living of the people living in desert areas;

* Command Area Development Programme (CADP): It began in 1974 to include 47 irrigation projects under 37 command area development authorities in 102 districts of 12 states. The objective was to improve irrigation and drainage, which, in turn, would raise productivity in agriculture;

* Twenty-Point Program: This was launched in 1975 with the basic aim to help the poor by raising their incomes and providing them with jobs.

Some of the other noteworthy initiatives in the fifth plan were the introduction of the national highway system under which many national roads were widened and the amendment of the Indian Electricity Act in 1975, enabling the Central Government to get into power generation and transmission.

The total financial outlay for the draft Fifth Plan was about Rs 51,165 crore, which included Rs 29,745 crore for public investment (later revised to Rs 31,400 crore), Rs 5,850 crore for current development outlay and Rs 15,570 crore for private investment. Out of the public investment outlay, Rs 8,080 crore was allotted for agriculture development and irrigation, Rs 7,000 crore for transport and communications, Rs 9,000 crore for industry and mining, Rs 6,200 crore for power and Rs 5,000 crore for social and community services. The financing of the

plan by domestic budgetary resources rose to 91 per cent, while external assistance would contribute 6 per cent and deficit financing would contribute 3 per cent.

The investment outlays would lead to a 4 per cent growth in agriculture and 8-10 per cent growth in the industry, with the overall target growth rate at 4.4 per cent. Import substitution and export promotion would lead to a manageable balance of payments situation. The economy ended up growing at 4.8 per cent.

At the technical level, the model used was a mix of the Harrod-Domar one-sector model and the Leontief inter-sectoral transactions model. The investment requirement was estimated by using an incremental capital output ratio (ICOR) and applying this to the projected GDP. Similarly, other GDP components such as consumption and exports were assigned values exogenously and levels of foreign capital inflow and gross domestic savings were estimated.

An analysis

The fifth plan faced headwinds in the first year of implementation itself. Inflationary pressures which had been building up since 1972-73, worsened in 1974, primarily on account of high energy and fuel prices. The rise in the money supply due to continued deficit financing also fed into the inflationary pressures. The balance of payments situation also worsened because of the steep rise in the price of imported fuel. Power shortages and high costs of inputs also led to industrial stagnation.

To make matters worse, the political situation in the country was on the boil. In 1974, the popular leader from Bihar, Jayaprakash Narayan was calling for a ‘Total Revolution’ to transform Indian society. Indira Gandhi was disqualified as a Member of Parliament for indulging in fraudulent electoral practices by the Allahabad High Court, in response to a petition filed by Raj Narain in 1971. Indira Gandhi appealed to the Supreme Court but lost again. These developments led Indira Gandhi to declare an emergency on grounds of internal disturbances on June 25, 1975. The Emergency lasted until March 21, 1977.

A more fundamental critique was that, even though the plan recognized the need to reduce inequality by creating more employment, it failed to tell us how to do so. Moreover, the employment created should be a qualitatively better one. Logically, this is only possible when jobs are created in sectors where productivity is high. While the fifth plan managed to raise average productivity, this did not extend to rural areas where the masses worked and lived.

Conclusion

As we saw above, the fifth plan was faced with economic challenges right from the start. The political situation only compounded the problems. Even with the challenging environment, many area-specific development schemes and sector-specific schemes were launched along with schemes to address the basic needs of the people. Many of these schemes were modified and adapted in later plans and some continue even today. On the whole, though, the climate of uncertainty continued and after the fifth plan was prematurely shut down, a rolling plan was announced in 1978 by the new government.

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