Resources for the Third Plan

By M. A. Master

Summary

M. A. Master’s “Resources for the Third Plan” is the printed text of a speech delivered at the Forum of Free Enterprise in Bombay on 25 October 1960, six months before the Third Five-Year Plan was to begin on 1 April 1961. Master sets aside the Plan’s wider socialistic objectives — a “socialistic pattern of society,” removal of income inequality, full employment, higher living standards — to confront a single question: how is the Plan to be financed, both internally and externally? He frames the inquiry as a sober audit of what the Second Plan actually taught India about resource-raising under planning.

The core of the booklet is a tabulation of five “lessons” from the Second Plan, each one a gap between estimate and outcome. The three steel plants estimated at Rs. 300 crores rose past Rs. 620; foodgrain imports planned at Rs. 144 crores reached Rs. 4,694 crores; the adverse balance of trade swelled from an estimated Rs. 700 crores to Rs. 1,500; withdrawals from the Sterling Balances overshot estimates by more than 100 per cent; and revenue raised by additional taxation in the name of the Plan — about Rs. 604 crores — was absorbed instead by non-Plan expenditure. Master leans on the Economic Survey of 1958-59 and the Estimates Committee’s 92nd Report to argue that this “frittering away” of Plan revenues is now a settled administrative habit, and he warns that without sustained public vigilance the Third Plan will see the same diversion.

Master then walks source by source through the Draft Outline’s announced financing — Rs. 350 crores from existing taxation; Rs. 1,696 crores of additional taxation; Rs. 1,650 crores of “surpluses of public enterprises” raised by lifting administered prices; Rs. 850 crores of loans; Rs. 550 crores of small savings; Rs. 510 crores from Provident Funds; Rs. 2,200 crores of external assistance; and only Rs. 550 crores of deficit financing — and finds every estimate optimistic. His structural argument is that the Public Sector now draws from a pool fed by both general taxation and deficit financing, while the Private Sector has access to neither: “the path of the Public Sector is strewn… with a bed of roses which can never be available to the Private Sector.” Worse, the Planners assume Rs. 547 crores of profit from State industrial undertakings whose actual return runs at roughly 1½ per cent. The booklet closes by invoking T. T. Krishnamachari’s own concession that the Plan must be trimmed to what is “manageable,” and ends with the warning that “economic laws do not respect ethical or ideological aspirations.”

PDF page 10 (printed pages 16–17) was not in the rendered set, so a short stretch of the argument between the analysis of Provident Funds / external assistance and the concluding section on deficit financing and dear-money policy is not covered above.

Key points

• Booklet is the text of a Forum of Free Enterprise speech delivered in Bombay on 25 October 1960, on the eve of the Third Five-Year Plan starting 1 April 1961.

• Author brackets the Plan’s wider socialistic objectives to focus on one question — how its resources are to be raised, internally and externally.

• Five “lessons” from the Second Plan: wide cost overruns on steel; foodgrain imports vastly exceeding estimates; an adverse trade balance roughly double the estimate; Sterling Balance withdrawals overshooting by more than 100 per cent; and roughly Rs. 604 crores of Plan-purpose revenue absorbed by non-Plan expenditure.

• Master cites the Economic Survey 1958-59 and the Estimates Committee’s 92nd Report to argue that fresh taxation levied “specifically for financing the projects of the Plan” has been routinely diverted to non-Plan objects.

• Taxation and deficit financing during the Second Plan (Rs. 575 crores deficit, Rs. 531 crores fresh tax) financed the Public Sector while the Private Sector had access to neither pool.

• Indirect taxation and higher administered prices of public-sector goods are explicitly treated by the Planners as “a part of the calculated sacrifices that have to be made,” turning a negation of democracy into Plan financing.

• The Draft Outline projects Rs. 1,650 crores from “surpluses of public enterprises,” but Master notes that the Rs. 547 crores invested in State industrial undertakings during the Second Plan returned roughly 1½ per cent — making the Third Plan estimate implausible.

• External assistance assumed at Rs. 2,200 crores rests partly on continued use of Sterling Balances, which have already been drawn down; private-sector foreign-exchange needs of about Rs. 300 crores are not in this total.

• Master quotes T. T. Krishnamachari’s admission that the Plan, originally Rs. 5,600 crores, had to be cut to Rs. 4,500 crores, and argues the same logic of paring un-urgent projects still applies.

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