May 23, 1959 THE ECONOMIC WEEKLY

price level. There are, of course, the foreign exchange considera-tions, w h i c h must be t reated as paramount . Besides, even i f an al together new car is to be i n t r o ­duced in to the marke t , there would appear to be no jus t i f ica t ion for exhaust ing a par t of the ant ic ipated

demand for the car by p e r m i t t i n g the i m p o r t of as m a n y as t w o thousand vehicles. The fact t h a t the product ion of the new car m i g h t have a large i m p o r t content fo r quite some t ime is another reason for not using up v a u a b l e fore ign exchange on the i m p o r t of cars,

when much fo re ign exchange w i l l in any case be required for the i m ­por t of components of the new car.

Whatever the difficulties caused by the n o n a v a i l a b i l i t y of sma l l cars w i t h i n the country, no case can be made out for the i m p o r t of a la rge number of cars at this stage.

Our Delhi Letter

Price Policy in Public Enterprises T H E basis o f p r i c ing for public en­

terprises has received renewed a t t en t ion in the capi ta l owing to a content ion raised by Dr V K R V Rao in his note to the Sub-nommit -tee of the A I C C on the T h i r d F ive Year P lan . There he is said to have rejected the theory of 'no profit , no loss' in public enterprises and suggested the adoption of a 'price and profi t policy for public enter­prises such as w i l l make the State increasingly re l iant on its own re-sources (as dist inguished f rom t a x i n g the personal incomes of i ts citizens). '

This contention, i t m a y be recal­led, is not a b i t different f r o m tha t of the T a x a t i o n E n q u i r y Commis­sion, of wh ich he was a member. The Commission categorical ly stat­ed t h a t the method of f ix ing prices in public under tak ings according to a 'no profit , no loss' bass was a l u x u r y w h i c h only developed coun­tries, w i t h the pr iva te sector t a k i n g the main in i t i a t i ve in economic de­velopment, could afford.

In under-developed countries l ike India , State i n i t i a t i ve and enter­prise has a more dynamic role to play, and it has to break new ground where pr iva te capital is shy, "This suggests an approach to p r i c ing policy for public under takings some­what different f r o m w h a t obtains generally in advanced c o u n t r e s " ( V o l I , p 201.) I t went a step fur ­rier and said tha t though serving he 'public purpose' should be the na in a im of public under takings , he real isat ion of increased prof i t could in itself consti tute public pur-pose.

W i t h Dr Rao, this principle o f c ing perhaps has added impor t -

ince in view of his being concerned with the t r ans i t i on of the present fixed economy to socialist econo-ny, m a k i n g fo r the g radua l exten-tion of 'socialist islands' in the vast ea of p r iva te enterprise. W i t h h im , he extent to w h i c h the public sec-

I t i s being g radua l ly realised t h a t w i t h o u t a very aggressive (and effective) system of t axa t ion and enforcement of other controls and w i t h o u t a realist ic price policy, this change in the saving pa t te rn can­not be achieved. Experts estimate that , as mat te rs stand, the propor­t ion of domestic monetized savings tha t can be mobil ised for the pub­lic sector at the end of the Second P lan w i l l not be much different f r o m w h a t i t was under the F i r s t P lan . I f , w i t h this achievement a t the end of the Second Plan, we are to have a T h i r d P lan of the m a g n i ­tude of Rs 9,000 crores and if the domestic economy is to contr ibute , say, about Rs 6.000 crores as some peop'e are suggesting, w i t h a l ibera l assumption of Rs 3,000 crores com­i n g in as foreign aid, then, in mar-g ina l terms, about 95 per cent of each addi t iona l crore of the domes-t ic monetized savings wou ld need to go to the public sector (see W i l f r e d Mal l enbaum in 'Economic W e e k l y / January, 1959).

The object of quot ing a l l these figures is to show tha t unless the publc sector can Immediate ly b r i n g w i t h i n its fold a greater percentage of domestic savings, then the idea of a g radua l evolut ion of the m i x e d economy towards a socialist econo­my would remain merely a dream. A n d i f the scope for add i t iona l t ax ­a t ion is very l imi t ed and the 'effort a l ready under taken has been large, and the current rates of direct as we l l as indirect t a x a t i o n are h igh , ' (Appra i sa l and Prospects of the Second Plan , p 19), then some other a l te rna t ive has to be chosen. I t seems tha t the T a x a t i o n E n q u i r y Commiss ion had exact ly th i s s i t u ­a t ion in m i n d when I t stated, "We agree tha t , as a f o r m of t axa t ion , prof i t f r o m public enterprise has less to commend i t t h a n direct t ax­a t ion , but we also mus t a f f i rm t h a t it is no less suitable as a means of r a i s n g revenue then m a n y o f the ind i rec t taxes to w h i c h resort is

to r finances both the investment and maintenance expenditure of Government, even more than the propor t ion of public expenditure to t o t a l expenditure, wou ld provide the m a i n index to the country 's m a r c h towards a socialist society. Fo l l ow­i n g the logic of his argument , the u i t ima te goal seems to be a pa t te rn not un l ike t h a t of a collect ivist eco­nomy where the larger par t of pub­lic revenues is derived f r o m non­t a x sources. For example, i n U S S R n o r m a l l y only 10 per cent of the public revenue is derived f rom gene­r a l t axa t ion and loans, and the remainder f r o m the profits of na­t iona l enterprises and the tu rnover t ax on the products of public enter­prise.

Dr Rao's a rgument assumes a good deal of importance against the background of the increasing difficulties faced by Government in rai'sing resources t h rough direct or Indirect t axa t ion . In spite of a l l the efforts t h a t are being made to increase the propor t ion of p u b i c investment expenditure to t o t a l i n ­vestment expenditure, the posi t ion has not improved. Under the F i r s t P lan , the public sector planned to mobilise for its purpose about 40-45 per cent of a l l the domestic savings. Th i s was not fa r f r o m the ac tual achievement in 1950-51. Thus the F i r s t P lan d id not envisage any m a r k e d break in the publ ic-pr ivate expendeiture re la t ion . I t ac tua l ly succeeded in mobi l i s ing 42 per cent of the t o t a l savings. A different conception prevailed in the f r a m i n g of the Second P a n . Whi l e the t o t a l domestic savings were expected to g row by Rs 2,125 crores d u r i n g the prepress of the Second Plan , the savings to be mobil ised for the public sector were to g r o w by Rs 1,150 crores over w h a t was ac tua l ­ly achieved under the F i r s t P lan . Thus I t planned to d r a w w i t h i n i ts fo ld a l i t t l e less than 73 per cent of the ant ic ipated g r o w t h in savings.

T H E E C O N O M I C W E E K L Y M a y 23, 1959

necessary in the a l te rna t ive , " ( V o l I , p 203)

I f the pr inciple o f mob i l i s i ng do­mestic savings t h r o u g h an appro­pr ia te price policy be accepted, then i ts impl ica t ions should also be con­sidered. F i r s t l y , so long as the per­centage of income t h a t is generat­ed in the public sector does not ex­ceed the present 10 per cent, the poss ibi l i ty of mob i l i s ing domestic savings in a large measure Is l i m i t ­ed. Therefore, the propor t ion of i n ­come t h a t is to be generated in the public sector should be on the i n ­crease. Secondly, the most prof i t ­able lines of investment m a y not l i e in the domain t h a t i s being a l ­located to the public sector by the I n d u s t r i a l Pol icy Resolut ion of 1956, namely, the A a n d B Schedule i n ­dustries.

A p a r t f r o m Ra i lways , and Posts and Telegraphs, the t o t a l ou t l ay o f the Cen t ra l and State Governments on e lec t r ic i ty and i r r i g a t i o n , road t ranspor t and i n d u s t r i a l under tak­ings i s no t ve ry ins ignif icant . In spite of the i r en joying a monopol is t ic posi t ion, the income has been very l o w as a propor t ion of the capi ta l invested. E x p e r t committees should be fo rmed to go in to the ra te struc­tu re o f r a i lways , e lec t r ic i ty and i r r i g a t i o n to f ind out ways of ra is­i n g the revenue. U l t i m a t e l y , every­t h i n g depends on public co-oper­a t ion . I t w o u l d be better i f a l l the po l i t i ca l part ies come to an agree­ment about i t . A n intensive dr ive to propagate the necessity of the moves should be launched. W h a t can happen to an a t t empt to raise revenue w i t h o u t public support has been a m p l y demonstra ted in the Pun jab A n t i - B e t t e r m e n t L e v y cam­paign . In fact , under the Second P lan , i t was proposed to raise about Rs 48 crores by w a y of be t te rment levy. N o w i t i s not expected to y ie ld more t h a n Rs 2 crores.

I t redounds to the credi t o f the Congress P a r t y t h a t In the N a g p u r Resolut ion and In subsequent dis­cussions i t has ment ioned profi ts in public enterprises as a po ten t ia l source of revenue. The j a r g o n of 'no prof i t , no loss came to the fore in the context o f State t radi 'ng i n foodgrains . I f D r Rao's a rgu ­ment has been directed agains t t h i s and i f he feels t h a t profits should be realised t h r o u g h State t r a d i n g i n food gra ins , then i t m a y have some other consequences not so enviable.