July 2015

A 15-year plan of economic development for India

JRD Tata had definite ideas about the path independent India ought to take for the fruits of progress and modernity to reach its unwashed masses, and he was never reticent about airing them. In this address to the Bombay Rotary Club, made in February 1944, JRD uses insight, analysis and a dry wit to drive home the points he wants to make

1. Economic planning is not a new conception, but only in recent years, thanks largely to the success of the Russian experiment, has the full realisation burst upon a surprised world that the economic problems which have plagued the human race, particularly since the advent of the machine age, are not insoluble; that our economic destiny need no longer be left to the mercy of chance and the chaotic interplay of uncontrolled forces; that we can mould the shape and accelerate the tempo of our progress; and that in the economic field, perhaps more than in any other, God will help those who help themselves. Similarly, the history of the last 25 years has made us realise that unless some planned, organised pattern, based on human needs and social justice for all, is woven into our society, we shall inevitably find ourselves in a mess worse than the present and, in due course, drift into another and even more destructive war.

2. Thus, it is that all over the world problems of post-war reconstruction and economic rehabilitation are being considered and discussed, and individuals, groups, committees and Governments are endeavouring to plan a better world, free from those constant economic stresses and strains which have in the past caused so much of the world's disequilibrium and misery.

3. In India, too, post-war economic problems are an ever recurrent subject of conversation, and the problem is being studied in various quarters, official and non-official. The memorandum which forms the subject of my talk today represents the preliminary conclusions, reached after many months of study and thought, by the group of men whose signatures appear on it. Their approach has been in one material respect different from that of most other people, who have during the past year applied their mind to the subject, including the Government. While they do not wish to underrate the importance of the immediate post-war problem of switching over from a war to a peace economy, they feel that too much emphasis has been laid on this short-range aspect of the problem and not enough on the need for long-term economic development. They have in this respect preferred to follow the lead of the Congress National Planning Committee to whose labours under the distinguished leadership of Pandit Jawaharlal Nehru I take this opportunity of paying warm tribute.

4. The real and basic economic need of India is not so much to reconstruct as to construct. In more advanced countries the long-term problem, as distinguished from the immediate one of post-war reconstruction, is principally that of achieving a more equitable distribution of a very handsome national income; here in India we must first create enough wealth to go round before we can ensure that everyone gets a fair share of it. Today that share for most of our long-suffering people is a share of poverty and suffering. Our primary task, therefore, is to build up our economic structure from the foundations.

5. Some conservative people may ask why, with the advent of modern industry and scientific knowledge, India could not build up her economic wealth through a natural process of evolution, as England and America did during the last 50 or 100 years, instead of a forced expansion of the type we have outlined in our booklet. While it is true that great prosperity has been built up in other countries, and particularly in America, without any centralised planning and control, the conditions facing us in India today are entirely different. Climatic disabilities, the gradual erosion and de-mineralisation of our land, the progressive loss of vitality, the political subjection and economic degradation of the people, and the massive increase in our population, has brought the nation to a stage where, like a patient exhausted by a long illness, it lacks the vitality and the capacity to fight back to health unaided. The progress towards recovery that could be achieved in the natural course of things would be too slow. We cannot wait a 100 years or even half that time. There is no margin of safety left, as the recent tragedy in Bengal has shown us.

6. India has reached a fateful crossroad. One road, to which our booklet points, the road of a planned and vigorous economic expansion, will lead her to rehabilitation and ultimate prosperity. The other, which we may call the road of "Laissez faire", along which her economic evolution would be allowed to take its own course, will lead her to famine, chaos and despair.

7. Before I go on to explain our proposals to you, let me point out that they represent nothing more than the "Outline of a Plan", put forward as a basis for discussion, in which we have merely set a goal, and sketched ways and means of reaching it. The detailed planning, we have suggested, should be done by a National Planning Committee, appointed by the Central Government of a free India, and we have estimated that it would take the Committee at least three years to work out all the details of such a plan. We ourselves are continuing our studies of the problem and we propose to publish in greater detail our views on some of the more important aspects and implications of our scheme.

8. With these preliminary remarks, I shall now briefly take you through the main features of our plan. Its specific objective is to double the standard of living of the people over a period of 15 years. While the ultimate aim must naturally be to raise that standard to the maximum which the country's potential resources would allow, we have, for practical reasons, limited our proposals to what can be achieved in a period of 15 years. In the first part of our report we have set out the bare essentials of human life, covering food, clothing, shelter, health and education. Using money values prevalent during the 1931-1939 period, we have calculated that the annual recurring cost of providing these minimum requirements on the basis of the population of India as it stood in 1941 would be Rs2,900 crore. This amounts to an average per capita income of Rs74. Many attempts have been made to estimate India's national income, but the one which the authors believe to be the nearest to the truth is Professor Rao's estimate of Rs65 per capita for the year 1931-32. Allowing for the great inequalities of income prevalent in our country, it is clear that the per capita income of the vast majority of the rural population is actually much below that average, perhaps as low as Rs30 per year. It is evident, therefore, that our present national income is entirely insufficient to support even a minimum living standard. As, however, our objective is to raise the national dividend to a level which, after allowing for disparities of income, will give everyone the essentials and, on average, provide some margin for savings and for a fuller enjoyment of life, the target we have adopted is that at the end of 15 years, the annual per capita income should be doubled from Rs65 to about Rs135. Allowing for the increase in population which by 1960 will have reached a figure of about 490 million, this would require a threefold increase in the total national income, from Rs2,200 crore to Rs6,600 crore.

9. An increase of Rs4,400 crore a year in the national dividend, can only be obtained through a corresponding increase in the country's agricultural and industrial productivity. The plan provides that this increase in the total production should be so regulated as to avoid the present overwhelming predominance of agriculture, and to produce a more balanced economy, in which agriculture will contribute about 40X of the total national dividend as compared to 53 percent or more today. Industry will contribute 35 percent as compared to 17 percent today, while the contribution of services will remain more or less constant at around 20X. Applying these revised percentages to the total national income contemplated, it was found that the agricultural output of the country would have to be increased by about 130 percent, and the industrial output by 500 percent.

10. With the basic objectives now clear before us, we were in a position to indicate what form the required expansion should take and roughly what it would cost to achieve. Taking industry first, we have advocated that, particularly in the early stages of the plan, greater emphasis should be laid on the development of basic industries than on the development of consumption goods industries, because the basic industries will provide the materials and equipment for all other industries. In order, however, to avoid the great hardships and the inflationary dangers which would follow from an undue shortage of consumption goods, we have advocated that consumption goods industries should be developed simultaneously with basic industries, but on a smaller scale. We have also suggested that small and cottage industries, requiring little capital expenditure, should be encouraged and supported to the greatest possible extent.

11. The capital investment required to multiply the pre-war industrial output five times has been estimated by us at about Rs4,500 crore, and our plan provides for this expenditure spread over the period of 15 years. I may mention that the amount of capital invested in our industries, excluding railways and other forms of transport before the war, was about Rs700 crore.

12. Coming to agriculture, the task of more than doubling its output is perhaps the most formidable and difficult one of all. The problem is highly complex as many important factors have to be considered, such as fragmentation of land, low yield per acre, erosion and demineralisation of the soil, rural indebtedness, inadequate irrigation. ignorance of the cultivator, poor seeds, primitive implements, inferior cattle, etc. We have briefly tackled most of them in the plan and indicated the directions in which the nation's efforts should be concentrated. The total cost of the measures we have advocated has been estimated by us at Rs1,240 crore for the 15-year period.

13. An increase in the industrial and agricultural production on the scale envisaged, would result in a much larger movement of goods and services within the country than at present. The plan, therefore, provides for a 50 percent increase in railway mileage and a doubling of the present road mileage, the former at a capital cost of about Rs435 crore and the latter Rs300 crore. In addition, over Rs100 crore have been provided for reconstructing a large proportion of the existing road mileage. As the increase in the flow of trade would also require improvement in shipping facilities, capital expenditure of some Rs50 crore has been provided for improvements of port facilities.

14. In the matter of education, one of the principal pillars on which India's rehabilitation and future progress will rest, we have made provision for universal and compulsory primary and middle school education for all children between the ages of 6 and 14, for the eradication of adult illiteracy, and for vocational and university education as well as scientific research. Our estimate of the total cost of these educational measures amount to Rs267 crore on capital account, and Rs237 crore recurring.

15. Similarly, we have provided for public health measures covering sanitation, water supply, village dispensaries, urban hospitals and specialised institutions at a cost of about Rs280 crore on capital account and Rs185 crore recurring.

16. Finally, we have estimated that the capital cost of providing new houses, and reconstructing old ones, to provide on an average 100 sq. ft. of room per person for the whole population would amount to Rs2,200 crore. The sum total of all these figures may now be summarised as follows:

  Rs Crore
Industry 4,480
Agriculture 1,240
Communications 940
Education 490
Health 450
Housing 2,200
Miscellaneous 200

You will now understand why our plan has been referred to as the Rs 10,000 crore plan.

17. We now come to one of the most important aspects of the plan, namely, the sources from which the finance required can be obtained. The authors of the plan have made a distinction between external finance and internal finance. The former is finance available for payment to foreign countries for goods and services imported from them, while internal finance is that required for expenditure within the country. The imports from abroad of machinery and technical skill in the initial years will require a large amount of external finance. The authors have estimated that for expenditure abroad, the following sources and amounts will be available:—Hoarded wealth, mainly in precious metals, Rs300 crore; accumulated Sterling balances, Rs1,000 crore; favourable balance of trade at the rate of Rs40 crore per annum, Rs600 crore foreign credits, Rs700 crore; or a total of Rs2,600 crore. The balance of Rs7,400 crore would be internal finance, obtainable partly from the normal savings of the people during the period of the plan. For this purpose we have assumed that 6 percent of the total annual national income would, on the average, become available for investment every year. On this basis, Rs4,000 crore would become available during the period of the plan. Finally, we have proposed that the balance of Rs3,400 crore, or less if savings turn out to be greater than estimated, should be in the form of created money, i.e., currency raised by borrowing against ad hoc securities from the Reserve Bank.

18. While dealing with this subject of finance, the authors have stressed the fact that money should not be treated as the master of our economy but as its servant and instrument; that the real capital of a country consists of its resources in materials and manpower, and that money is simply a means of mobilising these resources and canalising them into specific forms of activity. The various estimates of production and income mentioned in the plan are therefore, to be envisaged in terms not so much of money as of the commodities and services which they represent, money being used only as a measuring rod.

19. In the final chapter of our Memorandum, we have indicated the stages by which the plan should be put into effect and completed. In doing so we have been guided by the rate at which natural resources, trained manpower and managerial ability can reasonably be made available, by the necessity of giving priority to certain kinds of development over others, and by the need to avoid an undue strain on the country's economy. We have, therefore, proposed that, for purposes of execution, the plan should be sub-divided into 3 five-year plans, with expenditure increasing in geometric progression from one period to the next, the figures being Rs1,400 crore during the first five-year period, and Rs5,700 crore in the final period, by which time the two first five-year plans will have materially increased the productivity of the country.

20. That, in brief, fellow Rotarians, is the gist of our plan.

21. Let me now deal with some of the criticisms which have been leveled against it, and which will no doubt have occurred to some of you. One of the principal criticisms is that we have failed to deal with many important aspects and consequences of such planning, of which two have been particularly mentioned, namely the problem of distribution and the role of the State in national economy. Some have gone so far as to read sinister implications in our omission to deal specifically with these two questions. I think the answer to this criticism is contained in our report itself. Firstly, we have made it perfectly clear that it is not meant to be a complete plan and should be regarded as a canvas on which we have sketched the outlines of a picture, rather than as a finished painting. Secondly we have, at the beginning of our memorandum, made a specific reference to these two problems, have admitted their vital importance and have said that they were under our consideration and would form the subject of a separate report. Thirdly, I submit that at least a partial answer to them is contained in our memorandum. Surely the fact that so large a part of the plan and of the expenditure proposed is devoted to agriculture, housing, communications, health, education, etc., should make it clear that its primary intention is to benefit the mass of the under-privileged people in the country and not, as one wit, or should I say half-wit, has suggested, to make the "Rich richer and the poor poorer". I can assure our critics on this point that the authors are fully alive to the need of ensuring that the expanded income of the nation will be equitably distributed.

22. Again, on the subject of State Control, the fact that we have actually recommended in the report that every aspect of our economic life should be rigorously controlled by the State, even at the cost of a temporary eclipse of individual liberty and freedom of enterprise, proves that our plan is not intended to provide capitalists with a free field in which to profiteer. Without committing the authors in advance of their next memorandum, I can state that they are not considering this problem of State Control from a narrow capitalistic point of view. And to the extent that they find that State Control of industries and even ownership of some industries are essential to the achievement of a rapid rise in the general standard of living, they will not hesitate to recommend it.

23. An important criticism that has been made is that it would be wrong for India to aim at rapid and extensive industrialisation, and that she should concentrate on developing her agricultural resources. I do not know to what extent such a suggestion is well-intentioned; but I must reject it in toto. Our plan has shown that a decent standard of living does not simply mean enough food, which is about as much as could be achieved merely by developing the country's agricultural economy. The figures quoted in the plan and the evidence furnished by all the countries of the world enjoying a high standard of living make it clear that only with a high degree of industrialisation can a nation afford all the goods, amenities and social services which constitute a high standard of living.

24. A more specific criticism of our plan, which has some relation to the previous one, is that the expansion of industry suggested in our plan is disproportionate to the increase proposed for agriculture. As I have told you, we have proposed a 500 percent increase for the former as against 130 percent for the latter. The answer to this is fairly simple, and is contained in paragraph 40 of the report itself. On the one hand there is a limit to the increased yield which can be got from the land, as well as to the amount of agricultural produce which can be absorbed within the country. From this point of view, the increase we have envisaged is quite considerable. On the other hand, we are still at so primitive a stage of industrialisation, with such large industrial resources unexploited, that the five-fold increase proposed cannot be considered excessive. It is not the percentage of increase in each case which matters, but the ratio of agricultural income to industrial income intended to be achieved. Under our proposals, agriculture will still provide the largest single contribution to the national income and will continue to employ the bulk of the population.

25. Some people who have agreed in principle to the objectives of our plan, have asked why, in view of the political uncertainties in the post-war period, such a plan could not be undertaken without the major constitutional changes which the authors have made a pre-requisite of the plan. The answer is that the measures required are so comprehensive and in some cases so drastic, that only a Government founded on the will of the people, enjoying their confidence, and imbued with the urge and determination to improve their lot, could carry them through. The form of Government we have had for nearly two centuries could not possibly succeed in such a task. We must remember that what is needed is nothing less than the transformation of our nation from a mass of poverty-stricken, unhappy people, the great bulk of whom are denied their most elementary requirements in food, clothing and shelter, into a people, provided not only with those three essentials of life but also with education, protection against disease, full and diversified employment, transportation, sanitation, cultural opportunities and security; all that is considered essential to decent living in other countries, but has too long been regarded as unnecessary for Indians.

26. An important doubt which our plan has aroused in the minds of some people is in respect of our financial proposals, and particularly in regard to our suggestion that over Rs3,000 crore may have to be found in the form of created money. It has been said that this would produce inflation in the country and an analogy has been drawn with the inflationary conditions from which the country is suffering so acutely today. The comparison is not a correct one. Inflation does not arise merely from expansion of currency or credit, but from the gap which is created between purchasing power and the volume of goods or services available. We have inflation in the country today mainly because on the one side more and more money is being placed in the hands of the people in payment for their increased economic activity, resulting from war demands, while on the other, there is no corresponding increase in the amount of goods they can buy with their money. There are only two remedies. Firstly, rigid controls such as rationing, compulsory savings and other measures to prevent purchasing power from bidding for insufficient goods, and secondly, increased supply of consumption goods. We have advocated both these remedies in our plan, and we have no doubt  that any inflationary tendencies that may arise from credit and currency expansion can easily be kept under control. The problem should actually be much easier than it is today, because the constantly rising output of agricultural produce and consumption goods will help towards satisfying the growing purchasing power of the people and only the time lag between the two will have to be taken care of. It will be for the State to keep vigilant and constant watch and, wherever necessary, to adjust their plans accordingly. After all, the technique is now well-known and neither in Russia, England, Germany or America has the forced economic expansion of war been permitted to produce inflation.

27. In conclusion let me say that the authors have not underestimated the magnitude of the problems to be solved or the difficulties to be overcome. They are also aware that however much time and care may ultimately be devoted to the preparation and execution of any comprehensive plan of this character, risks must be run, mistakes made, and set-backs encountered. But one thing is clear. That there should be widespread poverty and misery, in a country so lavishly endowed by Providence with manpower, talent, and natural resources, is an intolerable paradox, and a disgrace which should fill us with shame and anger, and a burning desire to wipe out this terrible wrong done to our people. The obstacles, doubts and set-backs which may have to be faced should not deflect us from our task, but rather arouse us to greater endeavour.

More about JRD Tata:
Spirit of the skies: A profile
From here to eternity: Keshub Mahindra, the patriarch of the Mahindra & Mahindra Group, remembers ‘Jeh’
Appro JRD: Sudha Murthy recalls an incident that shaped her life
One of a kind: Long-time associate Maneck Dalal on a multifaceted personality
A legend lives on: Ratan Tata pays tribute to the leader he succeeded
The JRD I knew: JJ Bhabha remembers JRD’s contributions
JRD, the eternal icon: Tata veteran TR Doongaji on the shaping of a legend
The man behind the icon: SA Sabavala recalls a leader of many passions
Wings for a nation: Excerpts from RM Lala’s The Creation of Wealth
A life in pictures: An interactive album