Economic Development of Backward Areas

Summary

D. R. Pendse, then Economic Adviser to the House of Tatas, presents a Forum of Free Enterprise booklet drawn from a longer note he wrote for the Financial Express, Bombay. The pamphlet traces how regional-economics theory has shifted from a laissez-faire view — that unrestricted trade and the rising costs of crowded developed regions would in time equalise living standards across the country — to today’s mainstream acceptance of active government policy. The case for intervention, in Pendse’s reading, rests on persistent socio-economic and political pressures, the slowness of percolation, technological obsolescence (he cites Britain’s coal districts and Kolhapur’s diesel-engine industry), and the political reality that democracies cannot wait.

The middle section is a comparative survey. In Britain, “development area” Industrial Development Certificates, capital grants, 100% free depreciation, and government-built factories make Whitehall “the largest industrial landlord in the country”. Yugoslavia funds a Federal Fund out of 1.55% of GNP and lends, rather than grants, to backward republics. Brazil’s “decentralised concentration” — pooling resources around growth centres anchored by SUDENE in the North-East, with the Banco do Nordeste matching diverted federal income-tax — lets a highly rated project ride on as little as 12.5% of the investor’s own funds. Japan, faced not with backwardness but with congestion, surrounds Tokyo, Osaka and Nagoya with “adjustment” and “developing” belts to relocate industry — a parallel Pendse draws explicitly for Bombay.

Turning to India, Pendse reviews how each Plan has recognised regional balance, culminating in the Fourth Plan’s allocation of 77% of Central Industrial Project investment to backward States and the National Development Council’s 10% earmark of Central assistance for States with below-average per-capita income. He then critiques the 1968 Planning Commission exercise: the Pande Working Group’s “very selective” approach (20–30 districts) and the Wanchoo Group’s incentive package were, he writes, “considerably diluted at the hands of the NDC”, which spread subsidies thinly across backward areas in every State. Pendse warns that mechanical statistical criteria can flag uninhabitable areas — the Sahyadri valleys, the deserts of Rajasthan — where rehabilitation, not infrastructure, is the right response; he endorses delicensing in backward areas, concentrated growth centres on the Brazilian model, and selective fiscal incentives. The booklet closes with the reminder that “the focus is, and must always be on the people, and not on the areas”, and that planners must not let “pre-mature enthusiasm get the better of a mature balancing of social costs and social benefits.”

Key points

• Pendse traces the shift in regional-economics theory from a laissez-faire confidence that markets would equalise inter-regional living standards to today’s broad acceptance that democratic governments cannot ignore the political and social pressure for active policy.

• He distinguishes the developed-country problem (acute local unemployment in skilled regions) from the under-developed-country problem, which he describes as one of ‘backwardness itself’ rather than mere under-industrialisation.

• A comparative survey covers Britain’s Industrial Development Certificate regime and grant ladder, Yugoslavia’s Federal Fund financed by 1.55% of GNP, Brazil’s ‘decentralised concentration’ anchored by SUDENE and the Banco do Nordeste, and Japan’s removal-and-relocation belts around Tokyo, Osaka and Nagoya — the last offered as a model for Bombay.

• Indian planning has recognised regional balance from the First Plan onwards; the Fourth Plan put 77% of Central Industrial Project outlays into backward States and the National Development Council set aside 10% of Central assistance for States with below-average per-capita income.

• In 1968 the Planning Commission constituted two working groups — the Pande Group on criteria and the Wanchoo Group on incentives; both were ‘considerably diluted at the hands of the NDC’, which extended financial incentives to backward areas in every State rather than concentrating them.

• Pendse criticises this dilution and warns that purely statistical criteria can throw up uninhabitable areas (Sahyadri valleys, Rajasthan deserts) where a rehabilitation programme for the inhabitants is more sensible than pouring scarce resources into infrastructure.

• Among the corrective measures he favours: delicensing in backward areas, 2–3 selected growth points per State on the Brazilian pattern, attached industrial estates of the Faridabad type, and fiscal incentives such as higher development rebates, transport subsidies, and tax exemptions.

• His closing message is that policy must focus on people rather than areas, that success depends on financial resources and ‘the perseverance and the will of the people’, and that planners must balance social costs against social benefits before yielding to enthusiasm.