..

...

Fl .... ~ . ,I;,

No. E-207a

This report is restricted to use within the Bank •

INTERNA TIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

THE FIVE YEAR PLAN OF INDIA AND

Economic Department Prepared by: A. Basch

INDIA'S CREDITWOR TfnNESS

February 14, 1952

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Table of Contents

Page -Basic Statistics

SUD~ary and Conclusions .. • • • • i-vii

I. The Pattern of Investrr2nt and the Production Targets 1

II. Financing of the Five Year Plan. . ..

A. Internal Financing • •• • B. External Financing . . . . . . .,

TIl. Financing of the First Year (1951-52) of the Five Year Plan. ••••••••

A. Internal Financing. . .. . • B. External Financing. . .. .. . ..

IV. Effects of Implementation of the Five Year Plan on India t s Creditworthiness .. • •

Table 1

Table 2-A 2-B

Agricultural Production

Industrial Production Postwar Improvement in Industries

..

•

..

... .. • •

. ..

•

..

•

• ..

..

10

10 15

19

!9 20

23

Table J ... A 3-B

Balance of Payments Deficit During the Five Years of the Plan Balance of Payments Deficit in the First Year 1951-52

Table 4

Table 5

Table 6-A 6-B

Table 7-A 7-B

tt II II I! II Second Year 1952-53

India1s Service on the U.S. V~eat Loan and IB~D Loans

India's Account 1Ni th the ::Testern HemisDhere

Commodity Structure of u.S. Trade vdth India: 1949 and 1950 1950 and 1951

COr.rr:1odity Structure of U. K .. Trade 'with India: 1949 and 1950 1950 and 1951

INDIA

Basic Statistics

Area - 1.2 ~illion sq. miles

Population 1948 - 342.1 million 1951 - 356 million

National Ineome, Official est. 1948/49 I

Total Per Capital

Exchange Rate

Rs. 87,100 million ' Rs. 255 (u. s. $76.5 at the 1948/49 ex­

change rate or $$4 at the present rate)

1 Indian Rupee = C US . 0.21; ~ US 1 s 4.761 Rs. 1 million Rs. = C US 210,000

Principal Crops, 1950/51 (millions) ,

Rice (tons) Wheat (tons) Groundnuts (tons) Other Oilseeds (tons) Sugarcane (tons) Cotton (Bales) Jute (Bales)

Acres'· Production

75.5 24~0 10', , e

·15.5 4.1

13.9 . 1.4

Industrial PrOdl1ction Index (1946 = 100)

1949 .122.2 . 1951 (Jan. - Sept.)

106.3 105.2 115.8

External Trade (million Rs., including Pakistan)

1949 1950 1951 (Jan. - Nov.) - -~orts 4,721 5,564 6,962 Imports 6,804 '5,404 7,674

Balance .. 2,083 .J. 160 - 712

- 2 -

Balance or Payments on Current Account (Year: July 1- June 30) ., ., "

, (In Rs. million)

Exports Imports Invisibles (flet) Balance

Gold and Foreign Assets I

Gold ($ million)

Foreign Exchange holdings of the Reserve Bank: .

(Rs. ~.Iillion)

($ million)

'1948/49

4,744 . 6,730

415 , ;"1,571

End 1949

247

8,263

1,735

Gold and Foreign Assets: (~ million) 1,983

Central Government Budget ( Rs. Million)

Expenditure, total Ordinary Capital

Revenue, ordinarJ SlJ.l'plus, ordinary OVerall Clefici t

Central Government Denosits "-{ith the Reserve Bank of India

1949/50

h,457 3,171 1,286

3,>OLr 333 953

End 1949 . 1.520

1949/50

5,252 0,028

515 -233

End 1950

247

8,.;344

1,752

2,000

(rev. est.) 1950/51

5,282 3,793 1,489

3,872 79

1,410

1950/51

7,080 6,790

440 ;"730

"End 1951

247

7,810

1,640

1,838

(est.) ~951/52

5,349 3,754 1,595

4,010 256

1,339

Feb. 1 1952

247

7,646

1,606

1,853

(Rs. Uillion) Ja!i'4, Feb. 1

End 1950 1952 1952

1,650 2,081 2,108

- 3-

Money Supply (million rupees, end of period)

1949 19,0 1951 -=-- -Currency 12,,070 12,670 12',440' Total (incl. demand ,

deposits) . 18,730 19,540 18,870

v!ho1esa1e Price Index (1945 ;: 100) i

1949 1950 1951 (Dec.) - -103 109 118

Cost of Living Index (1948 ~ 100) i

19u9 19,0 1951 (Nov.) - - -Bombay 101 105 116

INDIA TOTAL EXTERNAL TRADE (MILLIONS OF RUPEES) 1000

1000 ~--------~--------r---------r--------.

2/11 /52 No.43~

MONTHLY 800 AVER AGES

60o1------------1

400 f--. ---~'_F___1

.......... o .-. ... til ••••••••

'38 '41 '44 '47 '50

MONTHLY

~----+-------4-~~--~----~800

~----4~~~~-F~'+---------r-----~400 : .. . . ; ...

---.~:---1-------~200

EXTERNAL TRADE WITH U.S. (MILLIONS OF RUPEES)

200 ~--------~--------r---r-----~--------200 MONTHLY AVERAGES MONTHLY

100 ·100

o 0

EXTERNAL TRADE WITH U.K. (MILLIONS OF RUPEES)

300 ~----~-----~--------~-------~300 MONTHLY AVERAGES

200 f--------~ f----~~----r--------_r--~~----,_------__1200

100

o ~~~~~~~~~~~~~~~~~~~ .. ~~OO '38-'39'46 '49 '50 '52 J J 0 J 0 J YR. END. 1949 1950 1951 1952 MAR.

BALANCE OF PAYMENTS ON CURRENT ACCOUNT (INCLUDING PAKISTAN)

(BILLIONS OF RUPEES) 10 ~-----~---~---~---~----~--~IO

YEARLY

8 8

6 6

4 4

::-::::,......

~ 2 2

o 0 1938-39 1948-49 1949-50 1950-51 1951-52 1952-53 1953-54

(Prov.)

I.B.R.O. - Economic Dept.

2/11/52 No.440

INDIA GOVERNMENT REVENUES AND EXPENDITURES (BILLIONS OF RUPEES)

10r---~--~--~--~-=~---,---.---.---.,---.---,---,---,10 YEARLY

51---.,--- !-----r...,..]--~-_w.:.l-__I,::.r_---___f.,: :t-----{.-.:t--__I :'.I---~ 5

o '39 '42 '43 '44 '45 '46 '47 '48 **

'49 '50

5

4

3

YEAR ENDING MARCH

GOVERNMENT DEPOSITS IN THE RESERVE BANK OF INDIA (BILLIONS OF RUPPEES)

I I

MONTHLY AVERAGES

I i----+----I I

MONTHLY

---

'51 )52 '53 0 (Est.) (Budget)

5

4

3

,...... ,.. 2 /

I I I I ~ ~ --J - 2

'48 '50 '52

YEAR ENDING MARCH

I J

1949 D

I

J

1950 D

OFFICIAL GOLD AND FOREIGN EXCHANGE ASSETS (BILLIONS OF RUPEES)

I

J

1951 o

I J

1952

20 r---------~--------~--------~------~20 LAST FR:DAY

OF PERIOD

15 i------~------~-----r----~15

9:58 '41 '44 '47 '50

See footnotes on following page

I. B. R.D. - Economic Dept.

2/11 /52 NO.441

INDIA MONEY SUPPLY (BILLIONS OF RUPEES)

30, I if r, ill' I I I f I

LAST FRIDAY OF PERIOD

20 f-, ---F.::~=~

OL.....l.Ll~~~~~1..J

'38 '41 '44 '47 '50 o J

1949

WHOLESALE PRICES: INDEXES (YEAR ENOl NG AUGUST 1939 = 100)

o J

1950 o

500 YEARLY FOOO~TUFFS ~ ____

• ... -400

300

200

100 '42 '46 '48 '50 '52

YEAR ENDING MARCH

!It,-... -

I J

1949

INDUSTRIAL PRODUCTION INDEX (1948 = 100)

120 .--r-r ...... "....,r-r-T....,..,...,...., YEARLY

II 01---------1

8 0 I--I--l'-'-'--L-I.-'-'-.J.....i.--'-'-'--'

'38 '41 '44 '47 '50 o

MONTHLY

J

1949

....-

o

o

GENERA~)

1 J

1950

J

1950

o

o

J

1951

----...............

I J

1951

J

1951

0

--

o

0

J

1952

MONTHLY

1

J 1952

J

1952

*Includes expenditures "not met from revenue" which are largely of a capital nature plus net debt repayments.

**Interim budget for 7 1/2. months.

30

20

i 10

DO

500

400

300

200

120

110

100

90

080

tA large part of the decline in Government deposits with the Reserve Bank between August 1947 and July 1948 was due to transfers of about Rs 700 million in deposits to Pakistan.

# The drop in gold and foreign exchange assets in 1948 reflects to a large extent payments arising from the over-all financial settlement with the U.K. and tranfers to Pakistan whiCh together amounted to almost Rs 5 billion.

@New series.

I.B.R.O.- Economic Dept.

Summa~ and Conclusions

1. A Draft OUtline of the Five Year Plan--First Part--prepared by the .Planning Commission was a'1p:."'Oved by the Government of India and i

can be considered as a statement of official policy. The year 19$1-52 j should be regarded as the first year of the Plan.

2. The Plan, which supersedes the Six Year Colombo Program, is divided in two parts. The first involves an expenditure of Rs. 14,930 million W3,135 million) and, as stated in the Draft Outline, will be implemented whether or not addit;onal foreign assistance is forthcoming. The second part involving an investment of Rs o 3,000 million (;.;630 mil­lion) has not yet been prepared in detail. It could be earried out, however, if and when India receives adequate foreign assistance. The first part consists largely of projects already started.

3Q The pattern of investment of the Five Year Plan is similar to that of the Colombo Plan for India. Agriculture,. rural develonment, ir- I rigation, and povrer represent 43% of the total expenditure as compared to 36.2% in the Colombo Plan. Expenditure on transport and communications amoun~s to 26.1% compared to 38.2% in the Colombo Plan. The public ex­penditure on tndustry was reduced from 9.7% to only 6.7% of the total. This is in addition to a substantial industrial investment contemplated in the private sector. The ryercentage of outlay on soeial capital was increased from 15.8% in the Colombo Plan to 24.2% in the Five Yeah Plan. Thus, emphasis on agriculture has been further intensifie(;, whereas the ~ole of industries in the public sector has been reduced.

4. It is hoped that at the end of the Five Year Plan the produc­tion of the various important commodities will be increased as follows:

Food~rains Oilseeds Sugar Cotton Jute

(Base Year 1949-50)

Per Cent

15 7.5

lh 45.6 66.7

Cement Steel Heavy Chemtcals Cotton Textiles

Per Cent I

69 30 80 20-25

The increase in production is to come by stages. Beginning with the third year of the Plan, a larger sunDly of domestic agricultural com­modities as well as industrial goods should be available.

- ii -

5. The pattern of investment f6110ws the economic development in India as it has been taking place since 1948. -In 1949-50 the over-all agricultural production exceeded prewar average. Only the produc-tion of cotton remained below prewar by about one third. Bad harvest in 1950-51 because of poor monsoons, floods, and earthquakes reduced the grain production by about 10%, which necessitated a substantial in­crease in imports of foodgrains. However, the produotion of various commercial cash crops was not much affected. It appears that cultivators have more incentive to increase production of commercial cash crops than the production of foodgrains, the controlled priee of which is substanti­ally below the world market price. It is very urgent to examine the price relationshiD between foodgrains and other agricultural commodities and to remove obstacles to production of grain which might result from dis­torted price relationship, especially in view of the effects of heavy im­ports of foodgrains on the dollar balance of payments of India.

6. The expansion of industrial production will be largely the resoonsibility of the private sector. The Planning Commission established various targets for increased capacity and oroduction in close consulta~ tion with industries. The trend would on the whole fcllow the industrial development which has taken plaee in the last years. Industrial produc­tion has evidenced a strong upward movement in 1951 and has reached a higher level than in 1950 Or in 191+fJ. With improved supply of cotton and especially raw jute, increase in production of these industries might also be expected. This by itself wotlld raise the total index to a level about 15% higher than 1948. But the Government should give more attention than i.1 the past to the nee(ied modernization of the tviO largest industries, namely, cotton textiles and jute manufacturing.

7. A very important event is the signing of agreements with St4nd ... ard Vacuum, and Burma Shell Oil, ~d prQbably also with CALTEX for es­tablishing three oil refineries with a capacity of 3.5 million tons yearly. This may improve the climate for priva.te foreign investment in India.

8. With regard to financing, it is expected that the Central and State governments will be able to nrovide from internal resources a total of R~h 11,210 million (;:\2,354 million) or about 75% as compared to 56% in the Colombo Plan. About $1% of the total investment would be financed from current revenue of Central and State governments and about 24% from borrowing and various capital receipts of the Central Govern­ment and State governments. The present financial situation and the policY of the Central Government justify the expectation that this fin­ancial target inight be obtained. Increasing revenue might be expected as the development program progresses further and first results ;.Lr. obtained.

- iii -

9. It is estimated that private investment, not including direct investment in agriculture and rural constructien, will amount to abO'ut Rs. 2,000 million yearly which is probably net substantially higher than in the last year. Of this amount, a yearly outlay of Rs. 500-600 million is required, according to the Planning Commission, for the exPansien and rr,edernizat:l.on of IB important industries. It is assumed that these in .. dustries 'will be able to' raise RS •. BoO-900 million in the market over the next five years. Recently the rate of new issues has been of the order of Rs. 120-150 million annually but the paid-up capital ef jeint stock conmanies has increased much more. Some assistance will be nroVided frem a refund of • 600 million ef the profit tax deposit now being re­leased. The Industrial Finance CO'rnoration and similar institutiO'ns to' be set up in various States are als~ expected to' previde Rs. 100-150 mi1-lien yearly for financing of industries. Finally, it should be peinted out that in the recent years Indian industry spent yearl;;r Rs. 900 million on capital equipment which was financed to a large extent from back p1O'ughed profits. Thus, considering all factors, favorable and unfavorable, it sheuld be pessib1e to' previde the required annual Rs. 500-600 million needed fer expansion and modernization O'f the IB important industries.

10. In accO'rdance with the stated pelicy that the first part O'f the Plan will be implemented whether er not additional fO'reign assistance is obtained, the Planning Cor~Jissien prepared a tentative estimate of the balance ef payments deficit. Thus, the deficit fer the Five Year Plan weuld ameunt to' Rs. 4,435 millien (O'r $931 million). This deficit appears to' be entirely cevered by foreign aid already extended in the ameunt ef Rs. 1,000 millien (this includes the U. S. Hheat Loan ef $190 mil1ien) and by dravring en the sterling balances to the extent ef Rs. 3,435 mUlien. But as the Planntng Commissien itself explains, this calculation is net realistic. It does not provide for additional imperts of feodgrains of ever 3 rrd1lion tens yearly although an import ef more than 4 millien tons is considered necessary fer 1952-53. Furthermore, nO' previsien is made fer increased imports of manufactured consumer goods. These additional imports are needed to meet the indirect fereign ex­change impact of the development. Until now, India has been able to' keep the increase of prices within limits. Since Korea to the end ef December 1951, the wholesale price index increased by about 9%, which is less than in many other countries. The newly generated income frem the increased rate O'f public and nrivate investment may be estimated at Rs. 1,500-1,800 millien (or less than 2;;~ of national income). If 20:& of it weuld be spent on iIlIOorts, additiO'na1 (induced) imperts weuld ameunt to' Ra. 300-360 million annually (more than 5,-~ ef 1950-51 im;1orts).

- iv -

11. A calculation of planned deficits of the balances of pay­ments,prepared for the annual review of the Colombo Plan for the nur­pose of estimating the required foreign aid, arrived at a total deficit amounting to Rs. 8,050 million ($1$690 million). This includes annual outlays of Rs. 450 million for additional imports of foodgrains, and Rs. 400 million for additional imports of manufactured consumer goods, or a total of Rae 4,250 million for the five years. It is assumed here that these additional imports might be reduced by about Rs. 1,000 mil­lion, declining by stages as domestic production will expand. Their value will still be nearly double the amount of above estimated induced imports ..

Thus, the balance of payments deficit for the five years mig~t be estimated at Rs. 7,000 million U~1,470 million}. Of this deficit, . India could meet the equivalent of ',:;720 million, or about one half from its sterling balances. -As financing has been provided for the first year of the program, the balance of payments deficit for the remaining four years would be about Rs. 5,000 million(;~~1,050 million). Assuming that India could finance about half of it from its sterling balances Cm };. 175-185 million), foreign assistance equivalent to about $520-540 million, or $130-135 million yearly, would be required to fin­ance the remainder. This anpears to be more than could be financed on a regular loan basia.

12. India will have no difficulties in financing the first year of the program during which exPenditure on public development i p estima­ted at Rs. 3,114 million U~654 million), or about one third more than Was spent in 1950-51. The 1950 ... 51 budget an'9arently ended with a sub­stantial surplus on the revenue account as is eviden~ed by the develop­ment of government cash balances, Which at the beginning of the fiscal year 1951-52 stood at Ra.l,574 million against an estimated Rs. 954 million. Sinee April 1, 1951, until the end of December 1951, the cash balances have further increased to Rs. 2t l05 million, mainly as a result of a favorable trend in government revenues. A further increase of the government cash balances might be expected from the rupee counter­part of wheat provided as grant by Canad.a and Australia and from the sale of wheat from the U. S, vrheat Loan, which altogether wouJ,.d supply about Rs. 800 million. Instead of the estimated cash balances of

-v~

Rs. 435 million at the end of the fiscal year 1951-52 (end of March 1952), the cash balances will probably be higher at least by Rs. 1,000 million. Therefore, it should not be difficult to finance the estimated internal expenditure of the second 3~ar of the Plan of Rs. 2,242.8 mil­lion.

13. rIith regard to the external financial situation, it should be noted that, after a substantial balance of payments surplus on current account in 1950-51, amounting to Rs. 790 million ($166 million), the 1951-52 foreign exchange budget, revised by the Ministry of Finance in December 1951, forecast a deficit of Rs. 1,690 million which Will be covered to the extent 9f Rs. 150 million from the proceeds of IBRD loans and Canadian and Australian assistance. The remainder could be met from sterling balances which increased substantially in the period October 1949 until May 1951. It is probable, however~ that the actual deficit will be less, and that only about ~ 80-90 million will be used to meet it. No allowance has been made for external financing from the $50 million U. S. grant.

14. The balance of payments deficit forecast by the Planning Com­mission for 1952~53 amounts to $346 million, or Rs. 1,650 million. It will probably be smaller because the high imports of cotton and other goods, which are needed to replenish the depleted stocks, will decline in the second year. About one half of it could be financed by drawing un the sterling balances, but the financing of the remaining $155 million would depend on external assistance. If, in the second year, India re­ceives grants amounting to $75-85 million, about $70-80 million would have to be provided from other sources. Should, h~lever, the deficit be re­duced to $300 million, the gap would amount to $55 .... 65 million. Should India use up during the first two years the sterling balances carried over on No. 1 Aocount from 1950-51 and the b 35 million released yearly from No. 2 Account, she would have only b 35 million yearly left for the remaining three years.

15. It is clear that, contra~J to the statement in the Draft out­line of the Five Year Plan, India is not in a position to f;:i.nance even the first part of the Plan without additional foreign assistance. Therefore, until a substantial ~art of the first part of the Plan is cOIDuleted, or unless substantial additional grants are provided, the Government of India should delay the implementation of the second part of the program.

- vi -

16. India might base its case for foreign assistance on its per­formance during the last years. Although suffering from the aftermath of the war and partition and burdened with heavy defense expenditure, the country was able to spend substantial amounts on development and rehabilitation. The Government's domestic debt increased by only ~84 million equivalent, and since 1949 the sterling balances have been re­duced by only 10%, of Which part was used for the repatriation of the British capital. Finally, the total amount of foreign assistance which India has· been granted up to now, including the recent :~50 million U.S. grant, is about '>330 million (of which ;;250 million are loans), or less than one dollar per head, In 1950-51 India spent the equivalent of nearly :1~500 million on development in the public sector.

17 ~ The national income of India vrould increase as a result of the expected increased Droduction by at least 10% at the end of the fiv~ year period. The total net investment, including the estimated private t

investment but not private investment in the aFricultural sector, would I amount to about 5% of the national income, which would be around 1% more than during the last years.

18. The implementation of the Plan would result in both saving and earning foreign exchange. A balance of oayments forecast prepared by the Plamn.ng Corrqnission for the neriod at the end of 1955-56 shows a sur­plus of $160 million equivalent at 1950,..51 terms of trade (:::. 117) and a a surplus of ,48 million at 1948-49 terms of trade ( ... 100). This estimate provides for import of Es. 1,000 million Ut210 million) of capital goods necessary for net investment, which equals the value of these imports in 1950-51-

19~ India's conservative fiscal and monetarJ policy should alsp be considered in assessing the countryts creditworthiness. The policy of financing a part ot capital expenditure from current revenue has been firmly established. Moreover 1 the Five Year Plan will be reviewed every year and the Ministry of Finance is determined to reduce the rate of investment and to space the execution of the Plan over a longer perlod should deficit financing jeopardize financial stability of the countr,y. Only few countries can match India's record in monetary policy. Notes in circulation at the end of 1951 are about the same as on the average in 1949-50.

20. In view of substantial improvements in Indiats financial and economic situation, and in anticipation of the effects of some of the projects in the Five Year Plan on India's balance of payments, India~s ability to service foreign loans may be considered higher than in 1949,

- 'Vii -

The improvement in India's balance of trade resulting from the execu­tion of the Plan may be expected more in its relations with the ster­ling area and other non-hard currency countries than vii th the dollar area. A further increase in Indiat·s ability to service dollar loans vl'ill depend on whether the country viill be able to keep its foodgrains and cotton imports from the hard currency area 1N1. thin certain lirrd.ts. Even imports of 3 million tons of foodgrains could be obtained in norFzl years Without substantial T)urchases in Canada and the United States. . Im­proved trade relations vii th Pakistan should make it ')ossible to reduce imports both of cotton and grain from the hard currency area.

21. The present conbined debt service on the IBRn loans and the U.S. V!heat Loan viill reach its highest level - $11.f>2 million - in the period of 1959-64. The IBRD loans ~dll be repaid by 1970. India's gold and sterling balances totalled an equivalent of nearly ~1,900 million at the end of 1951. Assuming the use of t, 260-280 million for financing part of the balance of payments deficit during the Five Year Plan, India will still have left more than $1,000 million equivalent in sterling balances and gold (L 300 million plus gold $247 million).

- 1 -

THE FI VB YEAR P 1AN

I. The Pattern of Investment and the Production Targets

1. A Draft Out~ine of the First Five Year Plan, which was sub­mitted in July 1951 by the Planning CQmmission of the Government of India, was approved by the Government and can be considered as a state­ment of official policy and objectives. This Five Year Plan supersedes for all practical purposes the Six Year Colombo Program, and the year 19,1-,2 should be regarded as the first year of the Plan.

The Plan is divided in two parts. P.s stated in the Draft outline, the first, involving an expenditure of Rs. 14,930 million ($3,135 million), wil..L be implemented whether or not additional ;foreign assistance is forth"" corning. As the report says (p.37), lithe assumption made in formulating the first part of the plan therefore is that, if faced. wi th the choice between the continuance of the existing difficulties for some time and the abandonment of the rate of development implicit in an outlay of Rs. 14,930 million, the country will cho:)Se the former." (See, .however, p. 25 :)f this paper reflecting the attitude of the f1inistry of Finance.) The second part, involving an investment program of Rs. 3,000 million ($630 million), will be carried out only if India receives adequate foreign assistance. The most important projects of the Colombo Plan are in· cl\.;.ded in the first part of the Five Year Plan which consists largely of projects alreaqy started.

Priority was given to schemes Ivpich will deve.i..op material and technical resources and which in particular will increase the production of food and raw materials in a relatively short period. The yearly in­vestment in the first part of the program of Rs. 2,986 million (~627 million) is Rs. 120 million higher than the yearly exp$nditure in the Colombo Plan, after deducting the Rs. 200 million y&arly budgeted far depreciation of railways. The Five Year Plan does not include this

.~~ item in its overall investment. , ~.-

\'''-\ The actual expenditures on development in the public sector were ~ Rs. 2,319 million in 1950-51. They are expected to rise to Rs. 3,114

million in ,~92~:"?~?J and to Rs. 3,449 million in 1952-53, droPI.'ing then to Rs. 2,800 million in the remaining three years of the Five Year Plan. Thus, the increase in the first year of the Plan would be 34% over the 1950-,1 expenditure, in the second year 49%, and in the remaining three years 2l~~. Th,e proposed investment represents mostlY a continuation of development already started in practically every field. The table below

- 2 -

shows the division of expenditure of the Five Year Plan and also of the Colombo Plan:

First Part of the Five Year plan

( In Rs.> milLion)

Pattern of Expenditure AmoUllt

1. 2~

3. 4.' 5. 6., 7.

Agriculture and Rural Development 1,,917 Irrigation and Power 41504

Total of 1. and 2. 6,421

Transport Hnd Communications 3,881 Industry 1,010 Social Services 2,542 Rehabilitation 790 fJiiscellaneou5 285

14,929.2

Colombo Plan (Covering a period of six years)

(In Rs. million)

:pattern of l~xpendi ture Pmount

1 .. Agriculture and Rural Development (including multi-purpose projects) 6,080

2. Fuel and P(:)Wer 591

Total of 1. and 2. 6,67:1.

J. Transport and Communic<:tions 7,027 4 .. Industry 1,785 5. Social Capital 2z913

18,396

% ot Total

12.8 30.2

43.0

26.1 6.7

17.0 5.3 1.9

100.0

d of Total /fl

33 ~.2

36.2

;38.2 9.7

15.8

:1.00 .. 0

Emphasis on agriculture has been further intensified wb~reas the role of industries in the public sector has been reduced.

- 3 -

Expendi ture on agticul ture and rural development together with irrigation and power repreeent 43% of the total compared to 36.2% in the Colombo Plan. If the co.ltempla.ted annual expend! ture to cover the increased depreciation of railways of Rs. 300 million is added, the total on transport and communications would be Rs. 5,381 million as compared to Rs. 7,027 mill~on of the Colombo Plan. The expenditure on industry in the public sector was reduced from Rs. 1~758 million to Rs. 1,010 million. Social services, rehabilitation, and mi~cel~aneous items now total 24,2% as compared to 15,8% of expenditure on social capita~ in the Colombo Plan,

The Planning Commission, in preparing the Plan, had to take in­to consideration various projects which were already started and had to be carried out; the Commission was therefore not entirely free in its decision. Nevertheless, as was pointed out in our Colombo p~per, the program appears to fit well into the over8~l development pattern of India.

The Planning Commission intends to publish tile final text of the First F;i..ve Year Plan in Narch or April 1952. Although tile pf't~ern of the Whole will remain unchanged, some projects might be added and others might be taken out. It is almost certain tnat an expansion of pig iron production by at 16 ast 400,000 tons will be included in the final text of the First Five Year Plan.

As to the second part of the Five Year Plan which would in­volve an investment of Rs. 3,000 million, the plans have not yet reached a final stage, except for an outlay of Ea. 1,000 million for railways. There is a strong demand to include in the second pa.rt a new steel plant.

2~ TarGets,in the .Agricultural Sector. It is hoped that the following increases in prodUction will be acbieved at the end of tne Fi ve Year Plan;

Foodgrains Jute Cotton Oilseeds Sugar (gur)

7,2001000 tOnli3 2,060,000 bales 1,200,000 bales

375,000 tons 690,000 tons

% of increase over 1949-50

15.6 66.7 (about 25% over 1951·52) 45.6 (about 40% over 1951·52) 7.3

14.0

-4-

The increased production of foodgrains should be achieved through the following measures:

Major irrigation projects Minor irrigation schemes Land improvement and reclama-tion schemes

Manure and fertilizer schemes Seed distribution schemes other schemes

Thousand Long Tons

I

1,,900 2,000

1,743 885 53')

.144 7,202

Area (in million acres)

8«>7 7.6

The Plan places great emphasis on irrigation, both on major irri­gation projects, including tube "Jells, and. on various minor irrigation schemes. The area' to be ne111y irrigated ,nll increase the total irrl ... gated area by about one third. The Government has also started a drive to increase yields through a ten-year program lihich is expected to re­sult in the intensive cultivation of 48 million acres of land which are now irrigated.... The experience with the "Grow Hore Food Program" over the past years convinced the Government that the most effective method of increasing agricultural production is to improve irrigation and to increase the wuole cultivable area, Only 't-Jhen the supply of water is assured might an immediate increase of yields be expected, and also an increase of marketable surpluses. .

The program of self-sufficiency in foodgrains in the near future has been abandoned and the P],an calculates that a yearly import of 3 million tons of foodgrains 'tdll be necessary during the five years of the Plan to make possible the raising of the level of conEUmption to about 14i ounces per adult allowing for the increase in population, This amounts to a 10% increase over the ]'3.5 ounces which were avail .. able in 1950.

The expected increase in production of agricultural corn.-nodities and in irrigated or reclaimed areas is anticipated to come by stages. In 1949-50 a land improvement was achieved on 1.27 million acres and the 1950-51 target was 1.46 million acres. About half of this improve­ment was due to clearance and recla'llation of waste land. This figure above does not include areas newly irrigated or areas where irrigation was improved. The total increase in irrigated and improved areas tiTould amount in the first three years to slightly less than 4 million acres, in the last two years to a little more than 5im1llion acres.

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The adotional production of 1.9 million tons of foodgrains to be ach:i.eved by 1955-56 as a result of major irrigation schemes (including tube wells) will also be a year by year improvement, and according to e:lq)ectations an increase of 1.2 million tons should be reached in 1953-54. On the whole beginning wi. th the third year of the program when sorne of the ma~or schemes will be completed, a substantial increase of foodgrains as well as cash crops is expected. !I

Since 1948 India has made substantial efforts·to increase agri­cultural production. In the crop year 19h9-50 overall production of agricultural commodities surpassed the prewar average (See Ta.ble 1.) Pro­dUction of cereals in that year amounted to 46.54 million tons, and of gram to 3.14 million tons as compared to the nrewar average of 43.76 million tons and 6.26 million tons respectively. It is generally conceded that the reported figures on foodgrain production are perhaps 10-15% lower than tl1e actm;l production. In 1949 .... ,0 production of sugar cane, edible oilseeds, non-edible oils~eds, jute, tea and coffee, and probably also pul,ses and potatoes was higher than' on the nrewar average. Only the pro­duction of cotton at 2.6 million bales rewAined below the nrewar nroduction of 4.1 million bales. (See Table 1)

As a result of poor monsoons, floods, and earthquakes, the agri­oultural output was adversely affected in 1950-51. TMs was mostly felt in the prodUction of cereals which declined from h6.54 to 42.78 m:UI::Lon tons. The product~on of grem also decreased from 3.14 million tons to 2.1 million tons. The cron failure created an acute food shortage and necessitated greatly increased imports of foodgrains. However, production of sugar cane, cotton, jute, tea and coffee was again higher than in 1949-50; production of oilseeds deolined only slightly. This develop­ment raises a question of nrice relationship between foodgrains and various cash crops. The price of foodgrains is controlled and substanti~ ally lower than the world market urice. Although the lJrice of cotton is also controlled and the nrice of oil seeds indirectly controlled by e:;~r'01--t

duties, it ar)pears that the incentive to increase production of comr:ercial cash crops is greater than for foodgrains. In the recent months the price of rice was increased in r;adras and West Bengal. It would not be sur­prising if, while maintaining price control, procurement, rationing, it would be necessary to increase '01"ice8 of cereals in other States also, in order to bring them more in line with the ')rice of various competing agrioultural commodities. A prompt examination of this problem is highly desirable.

1/ For details see Annex II: liThe Agricultural Development of India with - Special Reference to the Five Year Pla.n."

,- 6, ...

In this connection it should be pointed, out that the economic situation of cultivators has improved dt:.ring the last years. 'hile prices of agricultural commodities have increased 3 to h times, the land taxes and rents have remained mostly at the prewar level. Moreover, the debt burden has also been reduced compared to prewar, Thus, cultivators have been able to meet their obligations by selling a smaller part of their crops than before the war. It was found that a part ·of the increased production resulting from the "Grow 1'-1ore food Program" was used by the cultivators themselves who apparently consumed more food than before~

This may be only a temporary situation. If production continues to increase and the foodgrain prices are in line ~th the prices of other agricultural commodities, the cultivators may be induced to sell n It'sger part of their crops, especially if cheap consumer goods are available in the market.

>. Industry. Expenditure on industries in the public sector is relatively small. About one third of it is in the form of assistance to private agencies (for steel expansion, shipbuilding, and small Bcale in­dustries). The rest represents expenditure on state-owned enterprises like newsprint, machine tools, and fertilizer factories. The lilaj or items in the Government sector are: Assistance to the steel industries (Rs. 200 million); shipbuilding induat~J (Rso 119.5 million); a new machine tool factory (Rs. 98 million); and a fertilizer factory (Sindri) (Rs. 90 million).

Among the major in0ustrial projects of the Colombo Plan, which are not proposed in the Five Year Plan (First Part), are the construction of a new steel mill at the cost of Rat 600 million and a heav-~ electrical plant factory at the cost of RSe 2C4 million.

The report points out that the main function of the State must be to create conditions suitable for industrial expansion. The Plan provides for huge development of power; the power-generating capacity ~dll increase by the end of the Plan by 1.1 million KW, or by 60% (The Colombo Plan tar.,. get was an increase by 708,000 KlJ). This "Jill help large-scale as well as small-scale and cottage industries. Furthermore, the Plan provides for expanding the availability of ra1-i materials from domestic sources. Nei-1 railway facilities will assist in the production and distribution of goods.

The expansion of industrial production during the period of the Plan i-Tould be largely the responsibility of the private sector which, sub­ject to the overall objectives of the Plan and the controls necessary for their achievement, would be free to pursue its normal activity. "The In­dustries Bill, It recently passed, which requires a Central Governme..'1t li­cense for anY new industrial undertaking involving an amount higher than Ra. 100,000, aims at directing the investment in private industries into

- 7 -

fields which are considered important from an overall point of view. A program of expansion has been compiled on the basis of information received from the industries concerned in consultation With their repre­sentatives.

As a result of this program, the increase in the output of some of the important intermediate products would be of the following order:

Steel Sulphuric Acid Soda Ash Caustic Soda Cement

Thousand Tons

300 78 34 18

2,000

Increase over 1950 in Per Cent

30 77 80

160 69

Consumer goods industries Will also be expanded. In cotton textiles, an increase of 83, million yards (mill made) vd.ll make it pos sible to raise per capita consumption of cloth from about 13.4 yards to about 15 yards in 1955-56 after allowing for exports of about 600-700 million yards. (The export target has recently been increased to 1,000 million yards.) Production of sugar would tncrease by hoo,OOO tons (per capita consumption"would go from about 6.3 pounds at Dresent to about 8.3 pounds in 195,-56). Production of soap is expected to increase by 168,000 tons; paper and paper board by 56,000 tons.

The output of the jute industry can be stepped up by about one third of the present level to 1.1 - 1.2 million tons providing there is an ample supply of raw jute,

As in the case of agricultural Droduction industrial capacity and production would increase in stages year by year so that even during the Five Year Plan a higher output of various industrial products would be available.

The expected increase in industrial output follows on the exoan­sion in production and capacity which has taken place in the last ~~ars. Over fifty industries improved their capacity and Droduction. runong these are manufactured macl'..ine tools, textile machinery, bicycles, se\\'"­inE machines, fertilizers. The home demand for ring frames, carding engi.nes and looms of the textile industry is oeing TIlet by indige:1Ous production as is nearly one third of the countryts requirements of bi­cycles and over So;~ of the domestic demand for sevJinp.- machines. Details are shown in Table 2.

- 8 -

In 1951, industrial production evidenced a strong upward trend. The general index of industrial production for September 1951 stood at 120.6 (1946 = 100) compared to 100.3 for September 1950 and 108.9 for all of 1948 e There can be no dqubt tha~ at present industrial production in India is higher than bef'bre the *ar. With the exception of cotton textiles and jute manufa~~ur~s; a subs~antial tncrease has taken place since 1948~ Production in those two industries was hampered by lack of raw materia.ls~ tn Sentember 1951 the index of the jute industry"ras only 74.2 compared to 100 .. 2 in 1948 and 81.5 in September 1950. W'ith the greatly improved supply of raw jute, higher production by the jute in. dustry might be exPected in 1952. The general index of inuustrial pro­duction might then go up to about 125, which would be about 15% higher than 1948. A good indication of expanding industrial activity is given by the following figures of installed electric power generating canaci ty and production of electric power.

1946 1948 1950 1951 Jan..-Aug.

Installed Electric Power Generating Capacity

1,306,524 Kr: 1,410,966 KH 1,708,025 KrJ

Production O.:il1ion KW)

3,892 4,575 5,088 3,560

In the last years the Government of India attached great impor­tance to various capital and durable consmner goods industries. Sub­stantial amounts were :i.nvested in estab1ishinC two locomotj.ve factories, a telephone factory, and an aircraft industry. More attention should have been given to the needed modernization of the two largest indus­tries, namely, cotton textiles and particularly the jute manufacturing industry. Hore must be done in the near future, and private investnent in these fields must be encouraged.

Addi tiona1 impetus to industri~lization and to a flm'T of private foreign investment may be expected from the establishment of thr.ee new oil- refineries vJi th a yearly canaci ty of 3i m..i..l1ion tons of refined oil. Total investment in these three refineries is estimated at ;':ilo5 million, and it i q assumed that they will be completed before the end r)f 1955. The agreement has been signed for an oil. refinery' in Bombay with Standard Vacuum and also for an oil- refinery in Bombay with Burma Shell. Hegotia­tions with CALTEX for building an oil refinery in Vizagapatam have advanced.

-9-

4. Transport and Communications

(a) Railways", Out of the'total expenditure on x-aihrays of Re. 2,000 rrd.11ion, anamount of Rs. 1,682 million is to be spent on re­habilitation in addition to the yearly amounts to cover depreciation. Because of the greatly improved financial situation of the raihrays, the amount to"cc:ver depreciation has already been increa~ in the fiscal year 19'~'1 from Ra. 200 million to Rs. ,300 million. About one third of the locomotivee and about one fourth of the coaches and freight cars are reported to be over age, and have to be replaced; a scheme for ~~ual replacements over a period of four years is bang carried out.. In addi­tion, considerable renewals in track are necessary.

In the $eCond half of 1951 a t:ransportat::j.on ,::ottleneck has reap-. peared in India slowing dOim production and export especially in sO'Q.th ... ern India. This bottleneck lTlight be explained by rapidly expanding traffic as a result of overall increased economic activity and also by increased imports and movement of foodgrains.

(b) Roads~ Of the 13,400 miles of provisional national high­ways, 11,800 miles exist at present; of the 1,600 miles of linking roads still missing, 750 miles are provided for in the Plan. In addition thex-e ax-e proposals to upgrade 2,200 miles of x-oad sux-face of national higbways (only 4,300 miles have improved surfaces), and to construct 60 major bridges of the 112 missing in the national highway system.

• (c) Shipping n The Plan nrovides for the acquisition of about 80,000 tons of ships for the coastal trade, and about 125,OC*) tons of new shipping are being contemplated for the overseas trade. At pre­sent the total to\lt."1age of Indian ships is 377 ~500 as compared to 245,000 before the waX', of which 205,717 tons represent 71 ships to~ coastal trade. More than half the coastal fleet is over 20 j~ars of age.

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II. Financing of The Five Year Plan

A. Internal Financing

As shown in the table on the following uage, it is expected that India will be able to finance from internal resources Rs. 11,210 million (or nearly 75%) of the total cost (Hs. 14,929 million) of the uubli.c development program. It is assumed that the Central Government \~ill pro­vide Rs. Q,410 million and the State gove~ents Rs. 4,800 million. From the funds available to the Central Goverrnnent, Rs. 2,110 million will be allocated as assistance to the State governments.

Of the total Rs. 11,210 million, it is expected that Rs. 7,240 million will come from current receipts of public authorities. The re­maining Rs. 3,719 million are to be provided from small savings, long­term borrowing, railway develo~rr~nt fund, and various other small items.

1. The resources of the Central Government. The fol1oYving are the main categories fron which the Central Government expects to derive its resources.

(a) A yearly surplus of Rs. 260 million on revenue account (ordi­nary budget). Surpluses were Rs. 508 million in 1948-49 and Rs. 331 mil­lion in 1949-50. The surplus for 1950-51 was estimated at Rs. 79 million but. the actual surplus was substantiallY higher. A surplus higher than estimated might also be expected for the present year. In estimating the future reveI.l.ue surplus a reduction of various export duties was taken into account.

(b) An amount of Rs. 236 million annually represents resources normally set apart for development in the revenue account. They consist of expenditure on development in various fields, of grants to States for agricultural development, and of expenditure for relief and rehabilitation of displaced persons.

(0) An amount of Rs.60 million yearly is exoected from "open line works" expenditure of the railways and an amount of Rs. 180 million yearly from :resources allocated to a railway development fund. The earn­ings record of the Indian railways in the past two years support the ex­pectation that these amounts will be available.

_}.l .. I Financing of the First Part of the Fj.ye Year E..!.&:n for Indj.!L_

.;;:;C,.:;:e~n;.;:t:::.r.;.;:al Go!g_nmsm (Rs, Million) t

1211:.:5.2 ~;[ 1. Su~)lus on Revenue Account 2. Resources normally set apart in the

Revenue Account for d.evelopment J. ResoUrces available from Capital Account

f.r development (net). ~h1ch: Net long-term loans

Small sa.vings & unfunded debt Resources available for devel·­

opment for Railway Fund 4. Resources available for develorment out of

the ordinary revenues of the railways

1,.300 260

1,180 236

l!6)0 726 350 70

2,500 500

900 180

--2QQ 60

Total 6.410 1,282.4 *Non-development expenditure on Capital Ac­

count of Rs. 2.170 have been deducted •.

State Governmentg

1. Surplus on Revenue Account 2. Resources normally set apart in the Revenue

Account for development J. Resources available from Capital Account

for develo'ment: (a) Net long-term loans (b) Resources available through mis­

cellaneous funds and deposits

Total

810 162.4

2,750 S50

790 158

450 90 -4,800 960.4

Total of Oentral plus State Governments 11,210 2,242.8

Expenditure on First Part of the Five Year Program;

Estimated Covered

Not provided for;

Rs. 14.929 million 11,210

Ra. 3.719 million

t 1 I

I

I I

1. Additional taxation

2 •. Reduction in exnenditure

3. Increase in Earnings in Commercial Enterprise (mainly railways)

4. Net Borrowing from the Public

5. Railway Depreciation Fund

Total

Colombo llil!

(Rs. Nillion) 6 Year!! YeB.rly

3.810

1,100

1,800

2,400

1,200

10,,310

635

183.3

)00

400

200

1,718.)

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2. Resources of the State Governments. State goverlli~ents have their own sources of income. They receive a share of the income tax col­lected by the Central Government and obtain loans and grants for develop­ment from the Central Government. The proposed financing assumes a yearly surplus on revenue account of Rs. 162.4 million and also yearly financing of development amounting to Rs. 550 million to be set apart in the revenue account. This compares with a small deficit (Rs" 60 million) in 1950-51 and an estimated deficit of Rs. ~20 million in 1951-52. To provide these amounts, additional resources of Rs. 426 million yearly must be available to the States over the five year neriod. The Planning Conmission pre­pared a statement showing how these additional resources amounttng to Rs. 2,230nillion for the five years are to be obtained:

Additional revenue from land Betterment levies and higher irrigation rates Estate duties Additional yield from sales tax Excise Increased revenue from motor vehicles,

stamps, enterta.j.nment, etc. Increased yields from forests, electricity,

and minerals Economies in a non ... developmental expenditure

Rs. M~llion

340 295 210 250

22.5

Finally, measures have to be agreed upon to obtain additional revenue of Rs. 595 million. Doubts have been expressed, as to whether and "I'iithin what period the State governments will be able to increase their revenues by the indicated su,"Il. The Jiinistry of Finance and the Planning Commission· believe that as the Five Year Plan gathers motlsntum the overall increase of economic activity will make it possible to mobilize these additional revenues of the State governments.

J. Other Internal Resources.

(a) Small SavinF-5. The Central Governw&nt expects to obtain yearly Rs. 500 million from small savinrs and unfunded debt. 11''. the cur­rent year, this target certainly will be achieved. And it is Drobable that the amount of small savings, deposits, and unfunded debt avai~able yearly to the Central Government will be slowly but steadily increasing so that more 11'1111 be available to the Governr::tent than the esti.mated Rs. 500 million annually~

- 13 -

(b) ,Long-term Loans. The Central Government expects yearly net proceeds from long-term loans of Rs. 70 million, and the State govern­ments expect Rs. 158 million yearly. In September 1951, five State governments issued .3~ loans totalling Rs. 107.5 million which were fully subscribed. The estimated yearly net proceeds from long-term loans are Rs. 228 million, which is not considered as high. NeVertheless, it may be difficult to reach this target in the near future. At present the capital market in India has been unsettled as a result of the increased official rate of the Reserve Bank of India from 3% to 3~% and the stonping of open market operations by the Reserve Bank. At present only the 1986 3% conversion loan is supported by the Reserve Bank, and its price has been stabilized around 80.

The Planning Commission nreDared the follo~dng breakdown of public development expenditure and expected domestic resources over the five year period.

(In Rs. Million)

Domestic resources Current resources including borrowing

Develonment to public (the latter at an Expenditure authorities even annual rate) Gap -- -

1951-52 3,110 1,190 1,984 1,126 1952-53 3,450 1,420 2,214 1,236 1953-54 2,800 1,470 2,264 536 1954-55 2,800 1,540 2,334 466 1955-56 2,800 1,620 2,414 384

Total lu,9!}0 7,240 11,210 3,719

The total is Rs. 21 million higher than the sum in the Draft Out-1ihe. Beginning 1953-54, the gaD is substantially smaller than in the first two years because of reduced development expenditure and rising current resources of public authorities. Development eJPenditures financed from current budget revenue would amount to nearly 20% of the total Cen­tral and State governments I current revenues.

The gap of Rs. 3,719 million has been reduced by Rs. 1,000 million because of external assistance already obtained. This includes the U. S. Wheat Loan, Canadats and Australia's contributions to the first part of the Colombo Plan, and the $50 million U. S. grant under the Technical Cooperation Program. The remaining

-14-

deficit of Rs. 2,719 million might be financed by using sterling bal­ances to pay for imports of developmental commodities. In that case little would be left to pay for additional imports of consumer goods or for imports of capital goods needed for development of the private sector.

h. Private :(nvestment. It is estimated that private investrlent outside theprogram(e~eluaing direct investment in agriculture and rural construction) will amount to Rs. 2,000 million annually, which is pro~ ably not substantially more than was invested in the recant years.. Of this amount it is estimated that about Rs, 2,500-3,000 million (or a yearly outlay of Rs. 500-600 million) will be invested in 18 important industries. Projects for expansion are supposed to require about Rs. 1,250 million and from Rs. 1,250-1,150 million are regarded necessary for renovating and modernising the plants of existing industries.

It is envisaged that industry will be able to raise Rs. 800-900 million in the market over the nen five years. This would be in line with the rate of new capital issues which recently has been of the order of Rs. 120-150 million yearly. However, the increase in the paid-up capital of the joint stock companies has been substantially higher. SOrle assistance may be expeeted from a refund on the excess ryrofit tax deryosit amounting to lis .. 600 million, which is now being released by the IIinistry of Finance to cover arrears in depreciation.

The Industrial Finance Corporation, the Industrial Corporation in Madras, apd similar institutions which are likely to be set up in pther States, are expected to supply yearly Rs. 100-150 million for financing industries. Thus, the development of the capital market 1JIrill be directly and indirectly of great importance for the expansion of private industries. In 1951 the capital market took a favorable turn for awhile but then be­came unsettled following the increase of the official rate of the P~serve Bank in November 1951. New issues are unlikely until the new rate of interest on government bonds and industrial debentures is established.

If the positive attitude toward priVate invest~ent ernpbasi~ed in the Five Year Plan is maintained, it may be assumed that the capital mar~ ket will be ready to absorb industrial issues at an increasing rate.

It-should also be noted that the Federation of Indian Ch~~bers of Commerce and Industry in a recent naper entitled liThe Record of Indian Industries 19l.J.6-5l" bas estimated the total investment in induetry in India (excluding investment in c anita! goods of indigenous origin) in the recent years at Rs. 900 million annually, mostly through self-financing, This figure, which corres'Jonds to the value of imported canital goods, proves that despite the not very favorable conditions on the capital

- 15 -

market it has been possible to increase substantially investment in industries ~ The additional rate of depreciation allowance on new machinery permitted in the income tax, and the recently increased depreciation al­lowance for the iron and steel industry should provide incentives in this direction.

Foreign investment in private industry in the form ot equity capi­tal would be welcome. It is possible that the pattern of foreign in­vestment which was established in the special agreements with the oil companies will be followed in other cases also and that a better cli~ate for private investment in India in general will be created,

Thus, considering all factors, favorable and unfavorable, it Sh01Ud be ff;lasible to nrovide the yearly amount of F:s, 500..,.600 million which, according to the Planning Cor,~ssion, is required to expand or modernize the 18 important industries.

B. External Financing ,

1. In accordance with the stated policy of the First Part of the Five Year Plan, namely, that it itill be implemented whether or not ad­ditional foreign assistance is obtained, the Planning Commission prepared a tentative estimate of the balance of payments deficit for the annual review of the Colombo Plan. Thus, the balance of pa~1nents deficit would total Rs. 4,900 million for the Six Year Colombo Program or Es. 4,435 mil­lion for the Five Year Plan, This deficit appears to be entirely cov­ered in the follmving way:

Aid already extended for 1951-53 (This includes the U. S. lifueat Loan.)

Sterling balances undrawn in 1950~5l

Sterling balance releases for 1951-57

Total

Rs. Hillion ;

1,000

1,100

2,335

4,435

The deficit is estimated at Rs. 2,150 million for 1951-52 and Rs. 860 million for 1952-53. This would leave Rs. 1,425 :million-··or only Rs. 411.6 million yearly to meet the deficit of the three remaining years of the Plan.

- 16-

2. The menorandum which was prepared in December 1951 points out, however, that it is necessary to make certain adjustments in these fir-ures. The estimates are based on yearly imports of 3 million tons of foodgrains and Rs. 300-350 million of imports of manufactured consumer goods per an­num~ Over 4 million tons of foodgrains 1\i.ll have to be inported in 1952-53 and "it would appear that a rate of imports of about L. million tons per annum will be desirable in the period 1953-57 for combininr: a high rate of investment with stable prices. 1t It is also stated that "if external assistance is available it would be desirable to release controls on imports of manufactured consumer goods and this, if the allorrance is made for the higher prices prevailing now, would involve a further draft on foreien exchange to the extent of Rs. 1400 million per annum. 1I

Including ann~al outlays of Rs. 1450 million for additional imports of foodgrains and of Rs. 1400 million for addit:i.onal imports of manufac­tured consumer goods, the balance of payments deficit during the Five Year Plan would be increased to Rs .. 8,050 million ($1,690 million). The deficit would be highest, amounting to Rs .. 2,150 million, in the first year •. It would decline gradually and would be reduced to Rs. 1,350 mil­lion in the fifth year (1955-56).

If foreign exchange expenditure of the second part of the Five Year Plan were added, the total balance or payments deficit on current account would reach Rs. 9,h50 million ($1,990 million), This would be about $300 million less than the expected balance of payments deficit in the Colombo Plan.

The Planning Commiseion emphasized the tentative character of the estimates which are to be revised in the light of discussions within the Oommission as well as With the Hinistries and the Reserve Bank. Finally, the memorandum says: Itlf conditions should develop in India1s balance of payments which nake the deficit larger than the finance available to meet them, it will become necessary to make adjustments both on the side of exports and imports for closing the gap."

3. There can be no doubt that India will need increased inports of food grains and manufactured consumer goods to check the inflationary pressure arising from the newl:T generated purchasing power and to cope with the indirect foreign exchange impact of the Development Program. Despite the shortage of various corrmodities, India has been able to keep the increase of prices within limits until now", From June 24, 1950, to the end of December 1951, the wholesale price index increased by about 9%, which is less than in many other countries. The increase was due to a rise of 17% in the index of ipdustria1 raw materials, 12.5% of semi­manufactured, and 15.6% of manufactured. Index

- 17 -

of food articles declined by 1.3%. From mid-April 1951 to the end of October 1951, the wholesale price index declined by 6%, the index of food ar~icles by 3%. The recent decline of price indices has been partly due to increased imports of food and more liberal import control of consumer goods. It is understandable, therefore, that great emnhasis is placed on increased imports of food and consumer goods during the period of high level of development.

In our paper on the Colombo Plan it was assumed that the Develop­ment Program would generate additional income of Rs. 1,500 million yearly, and it was further assumed that 20% of this amount, or Rs. 300 million yearly, would represent required additional imports. Even if the newly generated additional income during the Five Year Plan were estimated as high as Rs. 1,800 million, additional imuorts would amount to Rs. 360 mil­lion annually as compared with Rs. 850 million which is considered nec­essary by the Planning Commission.

These amounts, which were prepared as planned deficits in the bal­ance of payments for the purpose of estimating foreign aid required, seem to be liberal especially because SUbstantial increase in 1)roduction of food, raw materials, and manufactured consumer goods is expected beginning with the third year of the Plan.

If additional imports of foodgrains and manufactured cons~~r goods could be reduced by about Rs, 1,000 million during the next four years (total Rs. 2,400 million instead of Rs. 3,400 million as proposed by the Planning CommiSSion), the balance of payments deficit would then amount to about Rs. 7,000 million 01,470 million) declining gradually as d01:l€S­

tic produotion expanded. The deficit in the first year would be around Rs., 2,000 million and would total Rs. 5,000 million in the following four years, decreasing as follows:

Rs. Hillion 'I t

1952~53 1,500 1953~54 1,300 1954-55 1,150 1955-56 1,050

5,,000 • Addi tiona! imports would still be substantially higher than the

above oalculated indirect foreign exchange impact.

Thus, the balanee of payments deficit would amount to the equiva­lent of ~~1,uOO-l,500 million for the five year period. Of this defiCit" India could meet about one half from its sterling balances. An amount of ~ 35 million will be released yearly during the six years of the Colombo Plan (~ 175 million in five years), and on July 1, 1951, India had in

- 18_

No.1 Account a substantial amount carried over from 1950.,1 in addition to ;r,. 40 million of uorking balances.

Deducting the balance of payments deficit for 195]..,.52 for ~jhich financing is available (see later)1 the bal~nce of payments deficit for the remaining four years might be estimated at Rs. 5,000 million (~:1,o50 million). Assuming that India could finance about half of the deficit (~ 115-la, million) from its sterling balDnces, foreign assistance equiva­lent to a total of about $520...540 million, or ~)13(}"13' million yearly, would be required to finance the remaining deficit. This appears to be more than could be financed on a regular lo~~ basis.

Because of the estimated larger balance of payments deficits in the first two years than in the following three years, it is probable that India will dravl heavily on its sterling bal,mces during this period. If the carry-over from 1950...51 in No. 1 Account is used up in the first two years in addition to the newly released balances, only ~ 35 million (~,98 million) released yearly 'tdll be available to finance the balance of payments deficit in the following years. The yearly deficit is e:i:pected to be substantially smaller in the second half of the Plan than in the first ~iO years.

This analysis shaHs that, contrary to the statement in the Draft Outline of the Five Year Plan, India cannot finance even the first part of the Five Year Plan without additional foreign assistance. Therefore, until a substantial part of the first part of the Plan is completed, or unless considerable additional grants are provided, the Government of India should hold off the implementation of the second part of the progr~ Exceptions might pe made for very urgent projects which would have really favorable effects on 'India's balance of payments in the not too distant future. (See Table 3-A)

.--

- 19 -

III. Financing of the First Year (1951-52) of the I I It'i va Year Plan

A. Internal Financing

The expenditures on the public development program in 1951-52 are estimated at Rs. ),114 million. Resources available from current receipts of public authorities are estL~ated at Rs. 1,190 million so that Rs. 1,924 million remain to be covered. The Central Gover~~ent will obtain from small sa~Qngs and various deposits at least ~ 500 million, and the five provincial governments have issued loans of Rs. 107 million. The uncovered amount vdll thus be reduced to about Rs. 1,)17 million.

The surplus on the 1950-51 revenue budget was substAntially higher than the estimated Rs. 79.3 million. Good e1ridence is suppl:.ed by the Central Government cash balances vihich at the beginning of the fiscal year 1951-52 (on April 1, 1951) stood at Rs. 1,574 million against an estimated Rs. 954 million. It was possible for the Govern..,. ment to finance a part of the Development Program from the surplus on revenue budget~ In the 1951-52 budget, the total reV€fl11eS were esti::lat,... ed at Rs. 4,019 million, and total (ordinary and capital) expenditure at Rs. 5.353 million.

11illion

Capital accounts not met from nevenue '."Vereestimated at; 1,595

Of "hich: Railways Pos t and te Ie ...

grams Industrial

Development Civil works

196 l!lultipurpose River Schemes 24

54 Defense Capital out-lay 130

106 Loans and Advances 125 by the Central

Govt. 679

The deficit on total (revenue and capital) expenditure of Rs. 509 million, after taking into account various capital receipts, was to be met from cash balances which were budgeted at only Rs. 43') million at the end of fiscal year 1951.,..52 (Naroh 31, 1952).

The actuals for the first half of the fiscal year 1951-52 again indicate that a surplus on revenue account will be achie~red in the present fiscal year. The proceeds from customs and union excise duties during this period wet'e about • 420 million higher than was estimated in the budget. i.ccordinGly, the government cash balances increased to Rs. 2,151 million at the end of September 1951 and stood at Rs. 2,108 million on February 1, 1952, i~ further increase of the government cash balances might be expected from the sale of Yheat from the U.S. ·"heat Loan and of wheat prOVided as grant 'by the Canadian C;lQ million) and Australian (~'12 million) contributions to the Colombo Plan. Altogether, the Treasury might obtain from these sales of wheat about Rs. 800 miliion,

- 20 -

As things stand at present, it will be no surprise if the government balances at the end of the fiscal year will be higher than Rs. 1,500 million instead of the estimated Rs. h3.5 million. This does not take into account any rupee counterpart of the U~ s. aid of ~p.50 million for 19.51-52. Thus, the Government has sufficient funds to finance expenditures during the first year of the Development Program, and a sbable amount 11\'111 be left for the next fiscal year which will facilitate the financing of the second year of the Plan. It may be assumed that the D's. 2,242.8 million to be provided from internal resourc!'Oswill be available in the second year as anticipa.ted in the Plan.

B.. External Financing ,

The table belo"., shows India I s balance of pa;vments em current account for the last three years (year = July 1 - June 30).

(In Hs. i:Ulion)

1948 ... 49 1949-50 19r::O-.... '±/ ~ .. ,. Export of Commodities

I I

plus re-export 4,744 5,252 7,080

Imports 6,.730 6,028 6~790

Invisibles (net) 415 515 440

-1,571 - 233 t 730

Proceeds of IERD loans 60

.;. 790 !/The import figure includes Rs. 180 million representing

the net effect of current transactions Vlri th Pakistan between ~~arch and June 19t:;1. Till the end of February 1951, trade with PakistA.n was financed without any call on the net foreign exchange resources.

The year 195'0 .... 51 brought in a surplus of :1s. 790 million <= ~'166 million) 1!,hich was due to a very large increase in exports. In this year India contributed, 78 million to the Centrel Reserves of the Sterling Area. The value of imports reached the 1948-49 level. During this year India, benefiting from the post-Korean boom, exported its manu­factUred goods without, howev~r, replenishing the stocks of raV! materials (for instance ~ cotton, raw jute and some metals) and at the same time keeping imports of foodgrains lower than the previous year. In

- 21 ...

1949 India imported 3.7 million tons of foodgrains as against only 2.1 million tons in 1950. The balance of payments surplus resulted in a substantial 5.ncrease in foreign exchange holdings of the R.eserve Bank which went up from Rs. 8,123 million (~~l, 706 million) at the end of August to Ra. 8,795 million 01,847 million) at the end of May 1951. The total of sterling balances increased during this period from t 605 . million to };, 660 million" Since the end of May 195)., the foreign assets have begun to decline as a result of the unfavorable balance of payments.

The foreign exchange budget for the year J~y 1951-June 1952, re­vised by the Ministry of Finance in December 1951, shows a deficit of Rs. 1,690 million. Total imports were estimated at Ra. 9,170 million and exports at Rs. 1~700. A surplus of Rs. 380 million on invisibles was assumed.

The deficit is due to the fact that imports increased by 45%. As mentioned earlier, India has to rerylenish her stocks of cotton, jute, and other raw materials. Imports of machinery and other develonmental co!mnodi­ties have been increasing in the first year of the Five Year Plan and prices during this period have been generally higher than in the Dreceding year. Finally, India has had to import much greater quantities of food­grains because of the poor harvest and reduced stocks. Imports of food­graim, in 1951 amounted to 4.7 million tons. The inport figures of foodgrains,. Rs. 2,240 mUlion (as compared to Es. 1,510 million in 1950 .. 51), do not inQludethe 2 million tons of wheat financed by the $190 million . U. S. Loan (except lor the freight charges which are included in the amount of t'oodgrain imports). Nearly one million tons of the U. S. Wheat Loan will reach India in 1952, but a purchase of an additional 4 million tons is considered necessary to maintain an adequate supply of foodgrains and to increase the government stocks, During 1951 the government stocks of foodgrains declined because of low imports in 1950 from 1.3 million tons to 600,000 tons. By the end of 1951, the stocks had again reached 1.2 million tons.

The deficit of Rs. 1,690 million will be covered to the extent of Rs. ISO million from the~roceeds of IBP~ loans and Canadian and austra­lian assistance. The remainder, which is equivalent to t 117 million ($323 million), could be met from sterling balances,

The deficit may, however, be smaller than expected. According to the present expectation, exports will be at least Rs. 300 million Mgher than estimated. From July 1 to the end of December 1951, the sterling balances in No.1 Account were reduced by t 43 million, It is likely that the deficit in the first half of 1952 will not exceed this amount •. It is not known how much of the U. S. grant of $50 million will be spent by

- 22 -

June 1952 and for what purposes. It may be assurned that perhaps on8 third, or an amount of Rs. 80 million might be used for financing ir.lports, thus reducing the drawing on sterling balances. .As the situation now stands, India has enough of available foreign assets to fi.nance the bal ... ance of payments deficit in 1951~52.

Balance of Payments Forecast for 1952-53

A balance of payment~ forecast, prepared for the annual review of the Colombo Plan, shows a deficit of Rs. 1,650 million for 1952-53. (According to the I"Iinistry of Finance, imports of cotton and SOlJe other goods, however, are exnected to decline substantially in the subseZ)!1.1ent year .. ) In the previous chapter, the 1952-53 deficit was estimated at Rs. 1,500 million, or ~~3l5 million. To meet this deficit, India ·will have available b 35 million, newly released, of sterling balances and probably an additional amount remaining on the Ho~ 1 AccO'.l..Ylt. TogethF;r, the sterling balances could f:i.nance about one half of this deficit, but the financing of the remaining ~~155 million 1I1Tould den end on external assistance. It may be assmned that India will have a carry-over from the u. s. $50 million grant for 1951-52 and will obtain a sL'11ilar grant in 1952-53. These together may be able to finance about $60-6.5 million of the deficit~ A further contribution of ~>15-20 milltoD may be expected from Canada, Australia, and Hew ZeaJ.and. Sh01.11d the deficit reach the estimated $315 million, $70-80 million vrould have to be nrovided from other sources. If, however, the defictt vrould be reduced to C300 m.-tllion, the gap would amount to ~;.55-65 million. (Table 3-B)

Should India use up the sterling balances carried over on Ho. 1 Account from 1950-51 and the b 70 million released during the tv10 years, she would have only b 35 million, released yearly from the No. 2 Account, left for the remaining three years ~ VIhile she would be finanoing from sterling balances more than 50% of the first year deficit and could meet in the same way half of the e:l..'Pected deHci t in the second year, in the remaining three years the available ~terling balances would cover less than half of the estimated balance of payments deficits~

- 23 -

IV f The Effects of the Implementation of the Five Year Plan

on India's Creditworthiness

----~~--------------------~-------------------, ----

A c~leu1ation of the value of the expected additional production indicates that the national income of India would increase at the end of the Five Year Plan by at least 10%. As the execution of some of the very important projects will require several years~ the full effects of the program on production and standard of Ii ving vlill appear in the yes,rs following tte completion of the program. A large-scale development pro­gram will, however, give a strong initial spark to the whole economy and help to reach a stage of development from which further progress should be easier.

The total net investment, including the estimated ~)rivatetnvest ... ment, would amount to about 5% of the national income 'which would be around 1% more than during the last years. ?ri vate investment :Ln the agricultural sector is not included in this figure.

The implementation of the Plan will have foreign exchange earninGs as well as foreign exchange savincs effects.

The Volume of exports is likely to increase by nearly 30% by 1955-56 as cOTI~ared to 1948-49 and over 10% as compared to 1950 ... 51 (which was a boom year for exports). The volume of ii'iports for 1955-56 vlil1 be about 18% more than in 1950-51 but only 3% more than 1948-49 'when the open general license (unrestricted imports for most cOr1rnodities) was in full operation.

The following balance of payments forecast based on the e~)ort and import estimates of all important commodities YJas prepared by the Plan­ning Commission for the period at the end of 1955-56.

- 24'-

(1) (2) At 1948-49 Prices !t 1950-21 Prices

Exports plus re-exports Invisible receipts

Total receipts on current account

Imports Invisible payments

Surplus

(Annual rate at 1955~56)

(Rs. Million)

6,212 .,1,359

7,571

6,391 944

7,341

230 ($,48 million)

7,187 1,520

8,701

6,916 1,025

7,941

766 ($160 millton)

The estimates were made on two assumptions (1) terms of trade prevailing in 1948-49 (= 100), and (2) terms of trade in 1950~51 (= 117). Esti­mated at 1950-51 prices, the balance of payments on eurrent account will show a surplus of apout Rs. 766 million ()160 million). If 1948 ... 49 prices are taken as a basis, the surplus will amount to Rs. 230 million, or about :~48 million. The value of imports of producer goods necessary for net investment was estimated at q,bout Rs. 1,000 million (:;210 mill:ton) , which VIaS the value of these imports in 1950 ... 51. No provision v'fas made for possible reduction in foodgrain imoorts below the level of 3 Idllion tons per annum by the end of the Five Year Plan. The estirlates of the Planning Commission are on the whole reasonable.

A statement was also prepared calculating the foreign exchange effects of the Plan. The estimates were made at 1950-51 1)rices, and for comparison of quantities both imports and exports in 1950 ... 51 were taken as a base year. In that year exports of most commodities were at a higher level than usu/iil on account of the post-Korean boom whereas irnports reached only the value of 19h8-L~9 imports. The estimate shows a substan­tial foreign exchange savinf! compared to a year during which the balance of payments on current account ended ~~th a surrylus of more than Rs. 700 million •. Increases in foreign exchange earnings thro\l.gh the exoansio!l of exnorts over 1950-51 levels are expected in raw cotton, manganese are, iron ore, coal, vegetable oi1.$, raw jute, cement, leather manufactures, light engineering trade, and also in jute manufactures where an increase of export volume by about 30r; (8% over the 1948-49 level) is assumed.

- 25 -

Cotton manufactures will reach a substantially higher level than in 1948 ... 49 but will be below the record export of 1,270 million yards in 1950-51. Reduction of exports, required t~ attain consumption targets of the Plan is expected in cotton twist and yarn, cotton waste, wool, oilseeds, and hides and skins.·

Net reduction in foreign exchange expenditure through direct sub­stitution of domestic products for Present imports is exnected in raw jute, fertiliZers, iron and steel, rayon, locomotives, machine tools,

. newsprint, aluminum, glass and glassware, paper, and staple fiber It Rmv­ever, additional imports vdl1 be required to arrive at the higher con­sumption targets enVisaged in the Plan. This is especially true of mineral oils, machinery, instruments, non-ferrous metals, chemicals, woolen yarn, dyestuff, and tanning materials.

India's conservative fiscal and monetary policy iShould also be considered as a factor supporting the country's creditworthiness, The policy of financing a part of capital expenditure out of current revenue has been firmly established. The Five Year Plan will be reviewed every year, and the Hinistry of Finance is determined to reduce the rateo! in~estment and to space the execution of the Plan oVer a longer period should deficit financing jeopardize the financial stability of the country.

Only few countries can match India IS record in monetary policy. At the end of December 1951,notes in circulation totalled Rs. 11,411 million as compared to Rs. 11,1442 million at the end of Deeember 1950 t and an average of Rs. 11,287 million in 1949-50. During 1951, the Reserve Bank's holdings of government securities increased by Rs. 403 million through open market operations l'i.'hile private banks' deposits vlith the Reserve Bank declined by Rs. 162 million. I\.dvances of private banks in India increased by nearlyRs. 700 million, and the banks continued to unload their holdings of government bonds in order to be able to finance expanding d.emand for credit.

Y.'hen the Bank tvas contemplating its initial lencine operations in India, it took as a basis India's ability to meet service on external loans at the rate of $10-15 million a year. It was accepted that this amount could be increased if the general economic and financial situation Of India improved, In the meantime, overall production in India has in­creased in practically all fields andsubstcmtia1 im!Jrovements have taken place in the overall financial situation. In view of these developments and in anticipation of what might reasonably be regarded as the effects on India's balance of payments of some of the Drojects in the Five Year Plan, it is possible to revise upwards the assessment of Indials capacity

- 26 -

to service external debt which was prepared in 1949. In my view, it would therefore be appropriate, in the light of the financial and economie considerations, for the 13ank to be prepared to partieipate in the fin­ancing of India1s Five Year Plan in the current year to the extent of loans in the aggregate amount of $60-70 million, The service of this additional amount is ivithin Indiafs capacity, even if the total a~ount imposed a liability for repayment in dollars. This figure should be re­viewed again at the end of the ~econd year of the Five Year Plan~ By that time more might be known about the overall progress of the Plan and also about the external assistance. The improvement in India's bal­ance of trade resulting from the execution of the Plan may be eX!'ected more in its relations With the sterling area and other non-hard currency countries than with the dollar area. A further increase in India 1 s ability to service dollar loans will depend on whether the country -rTil1 be able to keep its foodgrains and cotton imports from the hard currency area wi thin certain limits'. Even imports of 3 million tons of food grains could be obtained in normal years without substantial Durchases in Canada and the United states·. ImT)roved trade relations '1i':ith Pakistan should make it possible to red:uce ir;rports both of cotton and grain from the hard currency area. At nresent India has the following foreign debt:

IBRD Loans

U,. S" Viheat Loan:

$59.8 million (of which disbursed $47.2 million and repaid $2,,5 million through December 31, 1951)

$190 million

In addition, India has an obligation to TIJF amounting to $99,,98 million. The lBRn loans are expected to be repaid by 1970. During thi;S period (1952-1970) the combined yearly service on IBRD loans and the lTneat Loan will be highest, reaching $11.62 nil1ion in the years 1959-64. The service on IBRn loans Will reach its peak at $6.4 million in 1955" It declines to $4.q2 million in 1957 when the Kans Grass loan will be repaid. In 196, after the repayment of the railway loan, it will amount to $1.6 million for the following five years and end. with $806,000 in 1970 when the Bokaro loan will be repaid. In the years 1971-76 the servi~e on the U. S. Whe~t'Loan will amount to $10 million yearly; in the perj.od 1977-85 to ~12 million yearly; and in 1986 it will end with a final pay­ment of $5 million. (See Table No.4)

India's gold and sterling balances totalled anequi\7'alent of nearly $1;900 million at the end of 1951. Even after using *' ~60....280 million for financing part of the balance of payments deficit during the Five Year Plan, India 'frill still have left more than $).,000 million equivalent in gold and sterling balances. (lr 300 million plus gold reserve of $247 million.)

Table 1

Agricultural ,Production

Averag,e 1930-37 to 1938-39 19h8-49 1949-50 1950-51

Total foodgrains (million tons) 50.02 47.85 49.68 45.49

Cereals " 11 43.76 44.26 46.54 42.78 Gram II II 6.26 3.59 3.14 2.7

Sugarcane II II h.45 4.87 4.94 5.46

.tidible oilseeds II II 4.27 3.97 4.60 4.58

Non-edible oilseeds 11 II 0.54 0.53 0.5h 0.49

Cotton (million bales) 4.15 1.77 2.63 2.93

Jute II II 1.90 2.05 3.09 3.29

Tea (thousrnd Ibs.) 392,354 577~507 585,030

Pulses (million tons) n.a. 3.91 4.0

£,;lectric pmver Coal Steel Cem'ant Cotton textiles

a. cloth b. yarn

Jute Paper Caustic Soda Soda ash Sulrhuric acid Superphosphate

Sugar Vanasp2ti (veg. oil) POl'Jer alcohol Electric motors ~ H.P. Electric lamps Bicycles

Refractories Rubber footwear Dry cells Stor~ge batteries

Table 2 1~ •

Industrial ~roduction

(million Kvi) (million tons)

" 1/

tI II

(million yds.) (million lbs.) (thouscnd tons) (thousflnd tons) (tons)

tI

tI

11

(thousand tons) 11 II

(million gals.)

(million) (Nos.)

(thousand tons) (thousand pairs) (million 1~OS.) (t.1.ot:s~md J.\08.)

1948

4,575 29.8 0.85 1.55

4,)19 1,448 1,091

98 4,820

29,150 80,000 21,358

1,075 145 3.8

59,083 9.25

55,451

189 18,702 12).8

llO

1950

5,088 31.9 0.98 2.61

3,665 1,174

870 108

10,835 44,690

101,114 51,708

974 172 4.5

83,791 14.3

104,005

228 16,648

138 169

1951 (est.)

5,800 34

1.057 3.12

4,078 1,290

879 123

13,700 47,800 95,600)short2ge 51,178)01 sul-

)phur

1,116 160 5.46

140,760 15

89,OOO)strike in )hind )cyc1e ) factory.

237 22,791

146 216

Ts.ble 2 B •.

Post War I~rovement in Industries

The table belov-l shows the precentages of expansi)n t~C1at have tak_n pld<>3 j!1 the more important industries tl.t the end of October" 1951 as compClY'c(l ,It th the monthly average for 1946.

All industries

Coal Cement Steel ingots Cotton cloth &ulphuric acid Soda ash Caustic soda Superphosphates Ammonium sulphate Paper and paper boards Refractories Glass Sewing machines Electric lamps Dry ceUs Electric motors blectric fan Bicycles

13.9 111.2

20.2 1.4

74.6 331.5· 684.5

1,,003 162 II 41.8 65.2

479.8 96.1 38.9

176.1 34.3

161.5

12 .. 4 .

Tabte.J A.

~E2_2L !.'~zmeE.!~_p~!.!E.!~_~!.!E!L~E.!LF.!~. !.~~!~ .~!_!p~. rl-!!!.L

I. Ontimisti.c Estimate -..-......-.-------

Defici t

(July 1. 1951 - June 30. 1956)

I (Ra. million) f

4.435 ($931 million) f

II~

Es j: j,l!11J.ji~_lib'!iW_ ~£'§\JP.!l§L A til ( iji},.Q ~l_!!!l!'Cl 1'311_91 l2Q~Er~jE§-ED~M~nyfE£~~!~g.Q.QP!_~~_29.QQ§

($ million) Deficit Rs. 7,.000 million 1 .. 470

----_ ..... _._------------------------ I I

Aid already extended for 1951-53 (this includes the $190 million US bneat Loan)

Sterling ba.la.nces undrawn in 1950-51

Sterline bDl~nces re­leases for 1951-56

Total

1 .. 000

1~100

2.335

Rs. 4.435 ($931 million)

I

I If ~n amount of b 257 million "muIr': be used (luring this period to meet the deficit = 720

------~---.....---,-------I Remaining dafic! t woulil be '750 I I

t

I l 1 I

i

i

!Y~1-1f.!.Plff tiJ1-_E.2lH Undisbursed IBlID lOl'lns (as of Dec. 31~ 1951) Canadats contribution to the first yepr of the Colombo Plan Australia's contribution to the first ye"r of the Colombo Flan Two-thirds of the US gra.nt of $50 million for 1951/52

Not covered

14.8

15

12

__ J.L_

675 .. 2

Table 3 B.

Balance of Payments Deficit in the First Year195~52

1. Ministry, of Ffnance Est:i.mate a.s of December 195~ ,

Deficit = Rs. 1,690 million

(a) Rs. 150 million covered from !BRD loans" Canadian and Australian contribut~on to the Colombo Plan

Deficit

(b) An amount of ;. 117 million would be needed to cover this deficit

2. EstL~ated Deficit - Rs. 1:,00 million

(a) Same as i tem (a) above

(b) Assuming that one third of the ~:;,o million Uq S; grant ~dll be used for financing imports during this period

Deficit·

(c) ~ 95.3 million to be met from;' balances

($ million) ,

355

31.50 ,I

323

315

31.50

267oCO

Balance of Payments Defioit in the Second Year (l952 ... 53l

Estimated Deficit (about 13%le68 than the Planning Co~mission estimate)

If ~ 57 million would be met from ;. balances

Not covered

Expected Contributions

( a) Canada f s, Australia Is" and I~ew Zealand t s contribution to the Second Year of the Colombo Plan

(b) Carry-over from t,50 million of U.S~ grant for 1952 and the same amount for 1953, of which available for financing imports

Total

Deficit not covered

(1)

15

60

75

315

(2}

20

65 -85

·70.4

TeEle 4: Ii.J)IA1S S:EhVIC:;:; OiT TBE u.s •. ~'!HEAT LOA1-; AND I.J.E.D. LOJ\l~S

(B.:;q>ressed in thoust'.nds of U.S. dollars) Page 1

LP-.. A.D- lQ~s U.S. Oo~etDmeni lpans Total dollar debt Year Debt out- paYments during lear Debt out- Pa;y:ments during lear 'Debt out- Pa;'l!f!en t s during Y.,ear

standing .A.morti- 1n- standing Amorti- Ill- standing Amorti- In- Total Jan. 1 zation terest Total Jan. 1 z~tion terest Total Ja,n. 1 zation terest

1952 51,14oY 3,148 1,974 5,12Z 190,OOcY 2,375 2,375 241,140 3,148 ~J1' 7,497 1953 47,992 3,207 1,856 5,063 190,000 4,750 4,750 ' 237,992 3,207 ,00 9,813 1954 44,785 3,268 1,736 5,004 190,000 4,750 4,750 234,785 3,268 6,486 9,754 19.55 41.517 4,211 1,604 5,815 190,000 Lt ,750 4,750 231,517 4,.211 6,354 10,565 1956 37,306 4,314 I j 443 5,7.57 190,COO 4,750 4,750 227,306 4,,314 6,193 10,507 19.57 ,32,992 2,720 1,29,3 4,013 190,000 2,264 4,736 7,000 222,992 4,984 6,029 11,01) 1958 30,272 2,8,30 1,183 4,01,3 187,736 2,321 4,679 7,000 218,008 5,151 5,86z 11,013 19.59 27.44Z 2,944 1,069 4,013 185,415 2,379 4,.621 7,000 212 p 8.57 5,323 5,690 11.01,3 1960 24,498 3,063 949 4,012 183,036 2,4.39 4,561 7,000 207,534 .5,502 5,510 11,012 1961 21,435 .3,188 826 4,014 180,596 2,501 4,499 7,000 202,031 5,1589 5,325 11,014 1962 18,247 .3,315 698 4,013 178 t 096 2,564 4,436 7.000 196,343 .5,879 .5,,134 11.013 1963 14,932 3,449 563 4,012 17.5,532 2,628 '4,.372 7,000 190,464 6,,077 4,935 11,012 1964 11,483 3,589 424 4,013 172,904 2,694 4,306 7,000 184,387 6,283 4,730 11,013 1965 7,894 1,311 303 1,614 170,210 2,762 4,238 7,000 178,.104 4,073 4,541 8,614 1966 6,58,3 1,363 250 1,613 167,448 2,831 4,169 7,000 174,031 4,194 4,419 8,613 1967 5,220 1,418 194 1,612 164,617 4,403 4,097 8,500 169,837 5,821 4,291 10,112 1968 3,802 1,476 137 1,613 160,214 6,032 3,968 10,000 164,016 7,.508 4,10.5 11,61,3 1969 2,.326 1,535 78 1,613 1.54,182 6,184 3,816 10,000 156,.508 7.719 3,894 11,613 1970 791 791 16 807 147,998 6".339 3,661 10,000 148,789 7,130 3,677 10,..807 1971 141,659 6,499 3,.501 10,000 141,6.59 ~:~*~ 3,501 10,000 1972 13.5,160 6,662 3,338 10,000 13.5,160 3,3.38 10.000 1973 128,497 6,830 3,170 10,000 128,497 6,830 .3,170 10,000 1974 121,667 7,002 2,998 10,000 121,667 7,002 2,998 10,000 1975 114,666 7,178 . 2,822 10,000 114,666 7,,178 2,822 10,000 1976 107,488 7,359 2,641 10,000 107,488 7,359 2,641 10,000

See footnotes at end of table.

Tane 4: IlIDIAtS SERVIC:t1 OH Tll:E u.s. t1HE.h.T LOAli Alm I.i3.R_D. LO':J~S - Continued

(E:;;:pressed in thouSD,nds of U .. S. dollars) Page 2

Canndicn .<l;ol,l:..:r deqt 'j{-- Total U.S. and C~~4.ith'l dQ~J..tlr dobj ~ ·----St~~ga;bt EJ Debt out- Pa;yme11ts during year Debt out- Payments during year Debt out- pa;yments during year standing Amort i- In- Ttl staneJ.j.ng Amorti- In- Ttl standing Amort i- In- T tal Jan, l zation terest 0 a Jan, 1 zation terest 0 a Jan. 1 zation terest 0

Year

1952 6,073 364 239 60~ 247,213 3,512 4,588 8,100 4,284 :J 1953 5,709 379 225 60 2t}3,701 3,586 6,831 10,417 1954 5,330 395 209 604 240,115 3,663 6,695 10,.358 -1955 4,935 410 193 603 236,452 4,621 6,547 11,168 1956 4,525 427 177 604 231,831 4,741 6,370 11,111 -1957 4-,098 44~ 160 604 227,090 5,428 6,189 11,617

.....

1958 3,654 462 142 604- 221,662 5,613 6,004 11,617 1959 3,192 481 123 604 216,049 5,804 S,B13 11,617 1960 2,711 500 103 603 210,245 6,002 5,613 11,615 1961 2,211 521 83 604 204,242 6,210 5,408 11,618 1962 1,690 .541 62 60J 198,033 6.420 5,196 11,616 1963 1,149 563 40 60,3 191.613 6,640 4,975 11,615 1964 586 586 18 604 18L~t 973 6,869 4,748 11,617 1965 178,104 4,073 4,541 8,614 1966 174,031 4,194 4,419 8,61.3 1967 169,837 5,821 4,291 10,112

-1968 164,016 7,508 4,105 11,613 1969 156,508 7,719 3,894 11,613 1970 148,789 7,130 .3,677 10,807 1971 141,659 6,499 3,501 10.000 1972 135,160 6,662 3,338 10,000 1973 128,497 6,830 3,170 10,000 1974 121,667 7,002 2,998 10~000

1975 114,666 7,178 2,822 10,000 1976 107,488 7,3.59 2,641 10,000

See footnotes on page ).

1.1 Y J./ BJ

Te.ble 4: FOOTj:lOTES

---~--- -~--

Of this amount $14,823".603 \1Tas undisbursed. As of Decemher)1,. 1951 wheat shipments equive.lent to an amount of $105,967,678.65 had been made to India. Represents part -of I .. R.R.D. lot:mfor railways. This debt consists of the following: (expressed in thousands of U.S. dollars)

2 1/.2~t 1892/1900 red~~mable after 1926 !I 420 4 1/2%, 1928-1958/68 ~ 1,302 :3 1/2%, 1933-1954/9 ~l 903 Rail\V'ay debenture stock, 1892/1900 - perpetual !!:.I 105 Other sterling debt W 1,_554

~ It is believed that these issues are small amounts l'lhich are held by non-residents of either India or U.K. and were not acquired by the British ~vernment under the Acquisition of Securities Orders 1941 nor have they been submitted to the Indian Government ..

. "EJ This atlount is the residual obtained after deduction of all the known debt obli­gations from the total debt as stated by the Reserve Barur of India •

. .1 Adequate details concerning the repayment terms on these obligations are not readily available. sJ Amount outstanding March 31, 1951.

Table 2

India r s Account with the Hestern Hemis:ehere

(In ,:, million)

Receipts Payment! B81ance

July-December 1948 169 264 ~ 95 Jan:",June 1949 159 257 • 98

15'48-49 -193

July-December :1.949 141 13~ f: 10 Jan ... Ju.l'le 1950 174 180 - 6

1949-50 f 4

July ... December 1950 178 120 f 58 Jan .. June 1951 256 228 f 28

1950 ... 51 f 86

July-September 1951 83 84 - 1

(Source: Re~erve Bank of India)

Table 6 A .

Commodity Structure of U. S. Trade with India 19h9 and 1950

U~ .8. Exports , i950 -(in millions of ;,»

Raw cotton Machinery and vehicles Grain Chemicals and related products Metals and mrs., excl. machinery and vehicles Petroleum and products Tobacco and mfrs. Miscellaneous mrs. Other

Total

u.;. S.. Izggorts

Jute and Infra', Pepper Mica Tea Nuts Managanese Ore Hides and skins Vicol Raw cotton Lac, crude Shellac Leather Drugs, herbs Other vegetable fibers and mil's. Ilmenite Animal hair Other

Total

U~ S. Exports U. S. Imports

Balance

Source: U. S. Pepart~ent of Commerce

o 113.2

u3<t5 20.6 36.9 16;2 7.0 7.6

. ?;8

254.8

116.5 16~J 17.1 17;1 13.7 7.2 7.8 4.8 5'.2 5.7 5~0 .3.3 1.6 1.2 2.2 0.5 12~8

238.0

254.8 228~9._

{16.8 •• p , ,

90.6 36.8 2o~6 19~8 15~5 15.h 12H 7~9 .... ?

4.5 4~0 3~7 LB 1.2 1.0 0~5

20.5 ........ 261.1

• 'I. .......

215.2 261.1

-45.9 •

Table 6 13

Commodit.y Struct.ure of U. s. Trade with India . 1950-and 1951

u. s.. Exports ,

Grain Raw Cot.ton Machinery and Vehicles Chemicals and relat.ed products Petroleum product.s Metals and !Jlfrs., exc1. machinery and vehicles Tobacco and mira. other

U. S. Imports

Jute and mirs. Pepper Nuts Mica

Total

Hides andsldns Tea Manganese Raw cotton Shellac VIool, unmanufactured LaG, crude Drugs, herbs other vegetable fibers and mfrs~ Leather Ilmenite Animal hair Other

Total U. S. Exports Total U. S. Imports

Balance

pummary

Source: U.S. Departn:ent of Commerce

"1950 Jan-oct.

1951 Jan:.oct

(In mil1i ons of :',;)

'16.2 67,,5 46 0 3 16 ... 5 60 3

12.5 4.1 7.4

176 .. 8

74.1 35.4 12.4 18.3 9 .. 6

16.4 13 .. 0

14.8 2.9 7.3 4.0 1.4 0.9 3.3 0.9 0.5

13-.4

218.6

176.8 218.6

- 41.8

144.8 59,.2 49.5 11.9 1}.4

9 .. 8 L~ .. 5

12 .• 2 .,

311,.3

89.5 30 .. 9 16.1 15 .. 9 14·.4 13-.2 11.8 9 ... 9 6.3 5.8 3.7 2,1 2.5 2.) 1 .. 2 1 .. 0

25.7

252 .. 9

311.3 252.9 --

I- 58.4 ----

Table 7 A

Commodity Structure of U. K. Trade with India 1949 and 1950

u ., K. F.xports t

(In millions of ~)

Machinery Vehicles Chemicals and drugs Electrical goods Iron and steel mfrs. Miscellaneous mfrs. Cutlery and hardware Woolen yarns and mfrs. Food and beverages Paper and cardboard Pottery Cotton yarn and mfrs. Silk Other

Total

U. K. Imports

Tea Leather Tobacco Cotton yarns and mfrs. Jute piece goods and sacks Oil seeds , vegetable oils, g~s and resins Cotton waste 1!Ioolenyarn and mfrs. Miscellaneous raw materials Other food Raw wool Fre,sh fruit and vegetables Hides and skins Oils, fats and resins, manufactured Mining and quarry products, non ... metalliferous Manganese ore Raw cotton Other

Total

U. K. Exports U. K. Imports

Balance

Summary

39.0 15 .. 8 10.2 9.3 5.1 5,,9 3.3 ,3.2 1 .. 7 1",7 2.2

11.0 2.3 6.4 ,

117.1

42.5 10.) 5.6 0.4

10.7 5.2 0.9 1.6 2.2 1.0 1.9 0 .. 7 1 .. 8 0., L,l 0 .. 9 0.5

11.2

99.0

117.1 99.0

(II ,

f 18.1 I --

36.0 18.3

7 .. 5 6.6 6.1 4.4 3.1 2.8 2.6 1.4 1.) 1.1 1.0 :4.6

96.8 y' ,

34.7 11.1 ·7.9 6.2 6.0 1+.2 3..1 ).0 2.8 2.1 1 .. 9 1.4 1.h 1.3 1.3 1,.1 0.8 8.1

98.4

96.8 98.4 -

- 1.6 I

Table 7, B

Commodity Structure ,of U. K. Trade v:i th India

1950 and i951 U. K. Exports Jan-Nov • 1950 Jan-Nov. 1951 .

(In millions of b)

Machinery :33.8 31.1 Vehicles 16.6 21.1 Chemicals and drugs 6.8 10.5 Ele ctrical goods 6.3 7.3

'II Iron and steel mirs. 5.6 6.0 1111scellaneous mfrs. 4.1 5 .)~ Woolen yarns and mfrs. 2.5 4.3 Cutlery and hardvvare 2.9 3.1 Food and beverages 1.3 3.1 Cotton yarns and mfrs. 1.,0 2.5 Paper and cardboard 1.2 2.0 Pottery 1.1 1.9 Silk 0.7 1.1 Other 4.0 5.3

Total 81.9 105.9

V· K. Imports

Tea 30.4 37.8 Jute piece goods and sacks 5.5 2h.4 Leather 10.4 l8.h Cotton yarn and mirs. 5.8 8.9 Oilseeds, vegetable oils, gums & re sins 3.8 6.8 Tobacco 1.5 6.5 Raw wool 1.9 5.0 i'Joolen yarn and mfra. 2.7 4.5 Miscellaneous raw materials 2.6 3.7 Cotton waste 2.7 2.8 Mining and quarry products 1.2 2.4 other Feod 2.0 2.2 Hides and skins 1.3 1.9 Oils, fats and resins, manufactured 1.2 1.9 Nuts, edible 1.3 1.4 Manganese ore 1.0 1.4 Raw cotton 0.6 1.0 Other 7.7 10.0

89.6 141.0

Summary U, K. Exports

, 87.9 105.9

u. K. Imports 89.6 141.0

Balance - 1.7 .... 35.1 I w