As a student of public affairs, and not as an economist, I see three good points in Indian planning during the last 11 years. First, while its methodology and contents give room to disagreements, at the same time it is an attempt to raise the standard of living of the masses who live in abject poverty. Secondly, it has aroused a consciousness in the country — the extent of this consciousness is debatable and vigorously debated — to improve economic conditions, mainly through industrialisation. Thirdly, planning efforts have, by and large, respected democratic institutions, although a serious dent is made in some institutions like private property through measures like nationalisation and amendment to Article 31 of the Constitution (whereby compensation to state-acquired property is made non-justiciable in a court of law).
The need for planning in India is conceded on all hands. Disagreements arise over the techniques and contents of the Plans, and their implementation. The present plans aim at providing a strong industrial base and promoting a socialist basis by vesting the bulk of the economy, eventually, in the State. This emphasis is disputed by another school of thought which feels that agriculture should receive priority so that a viable industrial economy might emerge on the basis of a prosperous agricultural sector; further, all economic activities, while subject to overall planning of direction, targets and control should be allowed to be carried on by private citizens, state participation being limited to fields where private effort is incapable of delivering the goods or reluctant to take risks. This article will not examine the merits and demerits of these views. But I shall examine what seems to me to be an important aspect of planning, viz., the balancing of economic and political considerations in the operation of Indian planning.
The major objective of planning is rapid and large-scale economic development by mobilising scarce resources and putting them to the best possible use to yield the highest returns in terms of increasing national wealth in the least possible time. Planning in India has failed in this direction in several ways. This failure is due to predominance of political factors over purely economic factors. A few illustrations, with reference only to one sector of the planned economy, state enterprises, are given here.
The first aspect is with regard to return on investment in state enterprises. It is to be remembered that the investments are made from the savings of the people drawn involuntarily by way of taxes, direct and indirect. Therefore, these scarce resources should be put to the best use to increase national wealth. Otherwise, it would be tantamount to a drag on the national economy since those savings in private hands would have fructified to a much larger extent. The facts, as gleaned from a statement made by the Finance Minister, confirm these fears. On an investment of Rs. 709 crores, in 73 state enterprises, the return was 0.3 per cent in 1961-62. The performance is not expected to improve during 1962-63. There is no doubt that many of these enterprises were set up for purely political considerations. In the bargain, economic considerations have been ignored, and thus the major objective of planning — rapid economic development — has suffered.
The operation of a state-owned bicycle factory highlights the gross neglect of the cost factor — a major economic consideration. This factory owned by Mysore Government produced only 18 bicycles in about 2 1⁄2 years. The cost on each bicycle worked up to Rs. 16,000. The plant capacity is 72,000 bicycles a year. Thus, against the use of resources to produce about 1,80,000 bicycles, only 18 have been produced — 1/10,000 of the installed capacity. All talk of planning for economic progress in the light of these figures becomes embarrassing.
Another aspect is the monopoly nature of some state enterprises, such as the Life Insurance Corporation of India and the Indian Airlines Corporation. The crisis in air travel during 1961 tourist season, when tickets could not be obtained for weeks, not only highlights the plight of the hapless consumer but also the loss to the economy by depriving people easy availability of one of the essential service needed in an industrial economy. The monopoly element introduces distortions in the economies of operation. There is no yardstick of efficiency to judge the performance of monopoly services like IAC and LIC. Were it not for the preponderance of political considerations, these services would not have been established on a monopoly basis thus ignoring economic considerations.
The third aspect, arising from the first two, is equally important. In the economical operation of any enterprise, one of the cardinal principles is to locate accountability. Apparently, this principle is completely ignored in state enterprises as well as other spheres of planning. Even where there is gross mismanagement and losses to the national exchequer, there is no location of responsibility for the lapses and misdoings and consequently no disciplinary action is taken against the guilty. The 42nd Report of the Public Accounts Committee of Parliament bears this point when it observes that “despite their repeated emphasis on prompt action in disciplinary cases, the position is still far from satisfactory.”
This deficiency needs to be rectified immediately before the public is overcome by a feeling of frustration and gets reconciled to the thought that how rather than what is done in Government matters most.
The fourth aspect is that of political appointments. Unfortunately, chairmanships of state enterprises are used to provide berths to politicians without the necessary background. However good these persons may be as individuals, to put them in charge of commercial enterprises not merely violates economic considerations but also goes against social justice. Political influence rather than talent becomes the prime consideration of securing a place in public which is against social justice.
I have cited only a few aspects of our planned economy where political considerations predominate and overwhelm economic factors, thus defeating the objectives of planning, viz., rapid and large-scale economic development through mobilisation and proper employment of scarce resources. More instances, in fields other than state enterprises, can also be cited, but that is not necessary to prove the point. Therefore, the sooner the distortion in Indian planning is set right, the better it is for fulfilling the major objectives of planning.
This essay is part of the Indian Liberals archive series by the Centre for Civil Society, available at Indian Liberals. It is excerpted from the September 1962 issue of Freedom First, under the title Predominance of the Economic Factor. The original version of the essay can be accessed here.