India Finance and Five-year Plan
Despite the slow pace of development, the Indian economy has experienced severe inflationary pressures. Wholesale prices rose by 66.50 per cent, between 1971 and 1975 and consumer prices showed a similar trend. Only towards the end of 1974 did the restrictive measures imposed by the Indian government bear their first fruits, slowing down the rate of inflation which in 1975, according to data from the International Monetary Fund, would have been even negative: -4.4%. These measures have had their fulcrum, in addition to the usual actions to contain monetary expansion, in the introduction of a highly progressive taxation system, which in addition to reducing the budget deficit should contain the consumption of the wealthier classes.
However, the most significant aspect of public action in the field of economics is represented by the attempt to promote and guide development through economic planning and in particular through a series of five-year plans.
The third five-year plan (1961-62 / 1965-66) aimed to ensure stable and lasting growth of the national income. Its immediate objectives were: 1) to guarantee an annual income growth of 5%, and, at the same time, an investment structure capable of ensuring a similar development also in subsequent periods; 2) achieve food self-sufficiency and develop agricultural production in order to meet the needs of industry and exports; 3) expand the basic industries so as to be able to satisfy autonomously, within 10 years, the further needs of industrial development; 4) to employ the entire workforce of the country; 5) redistribute income so as to eliminate pockets of extreme poverty.
The situation created by the Indo-Pakistani conflict delayed the definition of the fourth five-year plan. In its place, between 1966 and 1969, three annual plans were formulated, which, however, were strongly conditioned by the contingent situation and, above all, by the scarcity of available financial resources. For India 2018, please check ethnicityology.com.
The Fourth Five Year Plan (1969-74) aimed to accelerate the pace of development in conditions of stability and to reduce the fluctuations in agricultural production and in foreign aid necessitated by these fluctuations. It also aimed to raise the standard of living of the population through programs that were to promote both equality and social justice. The plan emphasized the improvement of the living conditions of the weakest and least privileged part of society, especially through the development of employment and education.
The concrete results of such plans are quite contradictory. During the third plan, national income grew by about 20% in the first few years, but decreased by 6% in the last year. The trend of agricultural production was not satisfactory and a series of widespread crises during the years 1965-67 slowed the growth rate of production, making it necessary to resort to the import of foodstuffs. The growth rate of industrial production remained around 10% in the first years of the plan, but then fell to 5.7% in the last year, due to the war with Pakistan and the reduction in the flow of foreign aid. The actual growth rate of industrial production was thus 8.2% during the plan period, compared with an expected rate of 11%.
The fourth plan was formulated at a time when the economy had to recover from an experience of recession and where c ‘was also large spare capacity in industry. A better utilization of the existing production capacity was therefore one of the main objectives of the plan. In the industrial sector, the plan envisaged an average growth of 8-10% per year while the growth actually achieved was lower. In the first four years of the period covered by the plan, growth rates were respectively 7.3%, 3.1%, 3.3%, and 5.3%, while for 1975 growth was estimated at around at 1%.
Subsequently, the plan for the period 1974-79 was approved, the main objectives of which are, again, those of reducing poverty and achieving economic independence.
Public savings (negative for the fourth plan period) should absorb 42% of internal resources destined for consumption. However, all this seems difficult to implement; the credit squeeze implemented in 1974, as a consequence of the increase in oil costs which had strongly affected the trade balance, in fact made it possible to obtain stability in domestic prices in a short time (+ 0.6% in 1974-75 against +27, 8% in 1973-74), but led to a slowdown in the pace of growth. In fact, the worsening of the terms of trade is reabsorbed in a long time and the oil deficit for 1975-76 would amount, according to unofficial data, to 2 billion dollars.
The Indian trade balance has closed almost every year in balance, while that relating to services is always in deficit, so that the balance of current operations is always negative. India, however, benefits every year from a lot of international aid, first of all from Western countries: 341 billion lire in 1972, 410 billion in 1973 and 633 in 1974 (equal to about double the trade deficit and 1, 3% of the gross national product). Other aid comes from OPEC countries (180 billion in 1974), not counting those used to support nuclear policy. According to unofficial data, aid for 1975 would have amounted to about 5 billion rupees.