The draft outline of the Third Five-Year Plan released in the last month for eliciting public opinion clearly shows that our half-baked leaders, on whom Marxism has a considerable influence, have not learnt any lesson from the mistakes made in the past, i.e., in the First and Second Five-Year Plans. The Plan envisages a total investment of Rs. 10,200 crores—Rs. 6,200 crores in the public sector and Rs. 4,000 crores in the private sector over the five-year period (1961–66).
The main objects of the Third Plan are to secure a rise in national income of over 5% per annum, to achieve self-sufficiency in foodgrains, to expand basic industries like steel, fuel and power, to make the best use of the manpower resources and to bring about a reduction of inequalities in income and wealth and a more even distribution of economic power. In other words, the main objective of the Third Plan is to secure a marked advance towards self-sustaining growth and to accelerate the momentum of the effort which has got into the first and second plans.
It is estimated by the Planning Commission that the ratio of domestic savings to national income is to be raised to 8 per cent in 1961 and 11 per cent in 1966, and that the ratio of investment to national income will be higher, i.e. 11 per cent in 1961 and 14 per cent in 1966. According to Prof. Rostow and others, self-sustaining growth can be achieved only when a country starts to save a steady 10 to 12 per cent of national income and invest a steady 12 to 14 per cent of national income. But the real issue is whether the people in our country are able to save under the present conditions when the prices of necessities are rising every day. Under inflationary pressure, it has become impossible for the large majority of the people to make both ends meet.
In such a condition, to rely more and more on domestic savings for the implementation of Plan is to live in Fool’s Paradise. In order to increase domestic savings, price line should be held in check not by economic controls but by more and more production of consumer goods. This can be achieved by giving full scope to the private enterprise, instead of strangling it at every stage.
The criticism levelled against private enterprise by Mr. Nehru that it leads to monopoly is out of date. In modern democracies, the State has ample powers to break such arrangements by proper legislation. So far as our country is concerned, there are no monopolies formed deliberately in the private sector. It is true that there is not enough competition in some industries but this is mainly due to import restrictions and other economic controls imposed by the Government.
At present our Government is using powers to check monopolies in the private sector by fixing prices, regulating production and distribution of goods, licensing of industries and supervising the persons appointed as managers, secretaries, etc. As a matter of fact, it is in the public sector that we find the monopolies of an undesirable kind and they are growing day by day under the very nose of Mr. Nehru. They are detrimental, but the citizens are helpless because they have no effective means to check the evil effects of concentration of economic power in the hands of politicians and bureaucrats. As long as this policy continues all talk of prosperity and economic progress is a mockery.
In the Draft of the Third Five-Year Plan, it is assumed that the private sector cannot be relied upon to achieve spectacular results and that the public sector should be pushed forward to a position of increasing dominance in the economy. This attitude cannot be justified on economic grounds because the private sector has not only fulfilled its targets but even exceeded them. It can be justified on the ground of political ideology propounded by the ruling party. It is an incontrovertible fact that the public sector has not been able to invest as much as it ought to have done, because it has been wasting a good deal of its money on welfare schemes which have not produced desired results.
On the contrary, these schemes have only enabled the Ministers to exploit the poor people and squeeze the private sector by imposing confiscatory patterns of taxation on the recommendations of Dr. Kaldor. In spite of heavy taxation, the private sector was able to achieve substantial results, and if the Government had created a proper atmosphere for smooth functioning of the private sector, the “take-off” stage would have been reached in the Second Plan itself. So far our country has not reached that stage and this is mainly due to muddle-headed fiscal and monetary policies adopted by the ruling party during the Second Five-Year Plan.
“Full employment and prosperity do not depend upon overambitious plans, but on whether the people of our country work hard, accept sacrifices and complement the large inflow of foreign aid with the adoption of rational economic policies at home.”
During the Second Five-Year Plan, the taxation policy adopted by the ruling party has had a major impact on the funds available to the private sector. The draft outline of the Third Plan indicates that the process of milking the private cows to nurse the State-owned calves is to continue with renewed vigour. This impact would have been less adverse if the Government had concentrated on mopping up the funds which are not accessible to private enterprise. In such a case the total savings would have increased but at present they are transferred from one sector of the economy to the other. The present system of taxation hits directly those parts of the economy where voluntary savings would normally be the greatest, whereas it leaves practically untouched the numerous other parts which are not in the habit of saving and which, if they do save, merely accentuate inflation by putting their money in foodgrain, commodity and bullion hoards.
In the Draft Outline it is assumed that additional taxes to the tune of Rs. 1,650 crores can be raised in five years, i.e. Rs. 330 crores per annum, but this Herculean task can be achieved only by aggravating the inflationary pressures. These additional taxes, it must be remembered, are to be on top of those that have been imposed in the Second Plan and which have caused great damage to our economy. In other words, the private sector will be asked to bear more and more burden to milk the public sector. This will result in more and more unemployment. There will be less propensity to invest and there is every possibility that domestic capital may take refuge in foreign countries.
In any non-communist, democratic society, the private sector will always be bigger. It is said that our country is a bastion of democracy but it must be borne in mind that democracy and socialism cannot go hand in hand because “Democracy extends the individual freedom. Socialism restricts it. Democracy attaches all possible value to each man. Socialism makes each man a mere agent, a mere number. Democracy and Socialism have nothing in common but one word: equality.
At least Rs. 5000 crores should be earmarked for the private sector. The Third Plan is over-officialised by the public sector, covering agriculture, community development, small industries and road transport. This will lead to confusion and overlapping.
“It must be generally recognised now that purely ideological considerations have lost in weight during recent years. Not only is there any special virtue in public ownership but there is positive danger in it for a popular government in that it will become a mere party whenever a trade dispute arises in nationalised undertakings. Forms of economic organisation must be suited to the resources of managerial ability and their distribution among the people. Our democratic ministers have enough on their hands not to take on more from nebulous ideas of social ideology.”
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The Third Plan proposals envisage the extension of community projects and cooperative movement to cover all the villages in the country; free and compulsory education for all children in the 6–11 years age group and the provision of minimum amenities to all rural areas, including drinking water, roads linking each village to the nearest main road or railway station and a village school building which may also serve as a community centre and provide facilities for the village library. But this is mere wishful thinking and it should have no place in the technique of planning. At present our food problem is no better than during the Second Plan period, which depended very greatly upon imports from America and other foreign countries. In spite of this our Food Minister, Mr. S. K. Patil, is very dogmatic when he says that the country would be self-sufficient in foodgrains by 1965–66.
Our country can achieve the “take-off” stage only when a free scope is given to private enterprise. “There has to be a rise of nearly 40 per cent in the rate of domestic savings, assuming that 21.5 per cent of the investment contemplated will be met by external assistance. In order to bring about such a sharp rise in savings, there will have to be considerable restraint on consumption. This will be possible only if the wholehearted cooperation of the public, especially industrial and agricultural workers, is forthcoming in a spirit of understanding and appreciation.
The feeling of restlessness that we now see among the middle class and working class is a grim pointer which cannot be overlooked or lightly dismissed as a temporary aberration. Realism therefore demands that adequate provision is made in the Plan for the plentiful supply of food, cloth, sugar and housing at prices which will not add any further to the cost of living. This is an essential prerequisite for the ‘take-off’ stage for a democratic economy.”
This can be achieved by enabling the private sector to play its proper role in the economic development of our country. Empty stomachs of poor people will not be filled by empty slogans and by drafting overambitious plans.
This essay is taken from the Economic Supplement of the Indian Libertarian with the title “Private Sector and Third Plan” published on August 15, 1960. The original version can be accessed here.