8th Five Year Plan (Vol-1)
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Objectives and Orientation || Development Perspective || Macro Economic Dimensions || Policy Framework || Financing the Plan || Employment Perspective


3.1.1 As a result of planned development over the last forty years and the consequent modernisation of the economy and the emergence of a large organised sector, the capacity of the economy to mobilise resources for further development is now well established. A reasonable stock of technological skills in men and machines and proven reserves of minerals and other resources are available. A diversified industrial and infrastructural base has been built up. We now have a robust and resilent agricultural economy. The Sixth and the Seventh Plans also paid particuar attention to the strengthening and modernisation of infrastructure. More incentives to private sector investments were provided through progressive deregulation of industry and more liberalised imports of capital goods and components. There has been atleast a five year period (1986-91) of good export performance. Corporate sector has generally welcomed and responded well to the market oriented shifts in industrial, trade and fiscal policies. At the same time capabilities exist in the economy to safeguard the interest of the small entrepreneurs and the small farmers. These achievements have given us strength to push forward and keep up the pace of development in the coming years. The task now is to utilise the human, material and financial resources for a pattern of growth which leads towards the goal of full employment and fulfilment of social aspirations and needs. Emphasis has also to be laid on a more efficient use of the available resources and the necessary environment for the same must be created.

Growth, Investment and Public Sector Outlay

3.2.1 The growth target for the next five years is based on an analysis of the recent growth experience, a careful assessment of the resources which could be mobilised and imperatives of meeting certain minimum of social needs and aspirations. The Seventh Plan achieved a growth rate of 5.8 per cent per annum against a target of 5 per cent. This was a good showing. However due to the setback in the expected growth performance during 1991-92 the average growth for the seven year period i.e. 1985-86 to 1991-92, would be 5.3 per cent per annum. The growth in this seven year period was supported by an investment rate of 23.1 per cent of GDP and this investment in turn was financed by domestic saving of 20.7 per cent of GDP and foreign savings (i.e., current account deficit) of 2.4 per cent. Looking to the good performance in the Seventh Plan and also keeping in view the requirement of generating employment at a certain minimum rate, there was a view that the Eighth Plan should aim at a higher growth rate. However, in view of the impact of structural adjustment programme, the resource crunch which the public sector is facing, and the need for correcting the fiscal imbalances, it would be prudent to plan more or less for the growth rate achieved during the decade and lay down foundations for higher growth in the future. Planning for a higher level of investment and cutting it as the plan proceeds because of inadequate resources will result in a less than optimal utilisation of resources.

3.2.2 Macro-economic and sectoral implications of alternative rates of growth in the Eighth Five Year Plan were considered by the National Development Council (NDC). The NDC approved, in December 1991, a growth target of 5.6 per cent per annum for the GDP. More detailed exercises and availability of further information since then indicate that this growth is feasible. Some of the macro implications of the target rate of growth are set out in Table 3.1.information since then indicate that this growth is feasible. Some of the macro implications of the target rate of growth are set out in Table 3.1.

Table 3.1 : Implications of Target Rate of Growth during the Eighth Plan (1992 - 97)

GDP Growth Rate ICOR Average Rate of Domestic Savings Current Account Deficit Average Rate of Investment
( % per annum) ( Per Cent of GDP at market price)
5.6 4.1 21.6 1.6 23.2

Abbreviations: ICOR - Incremental Capital Output Ratio* GDP - Gross Domestic Product

3.2.3 The incremental capital-output ratio (ICOR) is a summary expression for the existing technical conditions in the economy which determine the relationship between investment and additional output. Though, the ICOR is expressed as a relationship between investments and additional output of the same period (i.e., the plan period), it in fact depends on the pace of investment in the past creating additional output in the plan period and also takes into account the investment which will create capacities for growth in ftiture. Capacity utilisation improved during the Seventh Plan and also there were good gains in operational efficiencies in a number of sectors. The average ICOR for the Seventh Plan period turned out to be 3.9. However, due to a dip in the growth rate during the subsequent two year period, the ICOR for the seven year period, 1985-86 to 1991-92, is estimated to be 4.3. While there is much scope for improving operational efficiencies, gains in output from better utilisation of existing capacities may not be available in the Eighth Plan to the same extent as during the Seventh Plan. This holds particularly in the power generation, rail transport, agriculture (in the north-west regions), oil production and mining. Moreover the stock of investments in pipeline today is less than what it was at the commencement of the Seventh Plan. Investments for "Human Capital", which is a priority area in the Eighth Plan, show up in improved performance in terms of output with a longer time lag than the industrial and infrastructure projects. Project costs in the energy and •transport sectors are at present increasing as the more easily available natural resources have been exploited first and the more difficult ones remain to be harnessed. The efforts that are required to curb the ecological damage will also add to the costs. Expectations of productivity gains (and its consequent Impact' on ICOR) mainly rest on the extension Of the best available technology to the underdeveloped regions and sectors of the economy, say, for example, to agriculture in the eastern region, to large segments of services in public sector and to the traditional (decentralised ) .sectors in industry. Though the immediate impact of measures tor structural adjustments will lead to some filll in output, in the medium term the industrial sector is expected to respond well to the liberalised policies. On balance of assessment it appears to be reasonable to assume an ICOR of 4.1 for the period r.-f ihe Eighth Plan.

3.2.4 The projections of macro-aggregates and financial parameters are made at the prices prevailing in the base year of the Plan, i.e., 1991-92. The Plan model works with the input-output tables adjusted to the levels and structure of prices in 1991-92. Thus, the projections of savings, investments, balance of payments, etc., are all in terms of prices prevailing in 1991-92. No projection is made for the rate of inflation. It does not mean that there will be no inflation, however, it implies that there will be no erosion in resources in real terms. When actual financial allocations for the public sector plan are made through the annual budgets, prevailing rates of inflation are taken into account. Through prudent fiscal and monetary policies and management of production and distribution, the Plan would, however, attempt to keep the inflation at the lowest possible levels.

3.2.5 Maintaining a reasonable degree of price stability is essential for the smooth functioning of the economic system, protecting the interests of the poor and preventing any deterioration in the mobilisation of resources. In the past it has been found that while any increase in prices leads to corresponding increases in government expenditure, a corresponding increase in revenues does not occur. As a consequence, the resource gap widens. Price stability is essential in order to reverse the trend of dissavings in the government sector and to preserve the developmental content of public expenditure. The financing pattern of the Plan, therefore, relies on a much lower level of "fiscal deficit" and "deficit financing" with the objective of maintaining a reasonable degree of price stability.

3..2.6 The macro-economic aggregates and macro'-parameters for the Eighth Plan are presented in tables 3.2 and 3.3. It will be seen that an improvement in the rate of saving is expected. The marginal rate of savings over the Eighth Plan would be 23.7 per cent. Investment rate would be only marginally higher than the average of tlie last seven ytf;>rs. The current account deficit as a proportion of GDP is projected to dacline. This will have a more favourable impact on foreign debt accumulation and debt service ratio. The Eighth Plan is expected to bring about a significant improvement in Export performance.

Table '3.2 Macro Aggregates for the Eighth Plan (1992-97)
(Rs.Crores at 1991-92 price.-.)

  1991-92 1996-97
Total 8th Plan
(0)        (I) (2) (3) (4)
l.GDP at Factor Cost 519716 682473 3069138
2.GDP at Market Prices 582356 764730 3439053
3.Gross Domestic Savings 125789 165182 742835
4. Private Consumption 389211 504000 2266530
5.Gross Domestic Capital Formation 140348 172295 '797698
6. Foreign Savings + 14559 7113 54863
7. Exports of Goods ** 44292 83869 330153
S.Exports of Goods and Non Factor Services ** 55762 102366 407342
9. Imports of Goods '''* 62345 93314 399650
lO.Imports of Goods and Non Factor Services ** 72848 112797 477128

Note: Foreign Trade figures for 1991-92 are estimated as normalised base for projections during the Eighth Plan.
+The abnormaly low imports in 1991-92 compared to 1990-91 resulted in lower foreign savings than the normal base which is shown here. Preliminary RB1 data     indicates foreign savings of Rs.9000 Cr. but the national accounts data is not yet available for the year.
**Exports and Imports projections for 1991-92 are the normalised projections,, since the actuals are expected to be exceptionally low in  this year.

3.2.7 Private final consumption expenditure is projected to grow at the rate of 5.3 per cent per annum which amounts to a growth of 3.5 per cent per annum in per capita consumption (assuming a population growth of 1.8 per cent per annum). This is greater than the growth in per capita private consumption of 2.8 per cent per annum during the Seventh Plan. Since income distribution is also expected to improve because of various social welfare measures, a higher weightage has to be given to food consumption. This implies a better management of food economy with relative price stability than has been the case in the recent years.

3.2.8 Given the feasible level of domestic savings and resources from abroad, an investment level of Rs. 798000 crores is possible during the Eighth Plan. This implies an investment rate of 23.2 per cent of GDP. Given the stipualated incremental capital output ratio (ICOR), this investment will generate a growth of 5.6 per cent in GDP. The investment rates in the Sixth and the Seventh Plans were 21.1 per cent and 22.7 per cent respectively.

3.2.9 An important element of the macro-dimension of the plan is the size of the public sector outlay. Public sector outlay has two components: (a) investment and (b) current outlay. The current outlay corresponds to plan expenditure of a recurring and non-investment nature which is needed to initiate the accrual of benefits from the investment. In previous plan periods current outlay has been roughly of the order of 17 per cent of the plan investment. The current outlay is relatively higher in the social sectors which are primarily funded out of the budgets of Central and State Govts and the main among these are health, family welfare, education, welfare of weaker sections, efc. Keeping in view the overall sectoral priorities, a current outlay component at the level of about 20 per cent of public sector investment has been considered necessary for the Eighth Plan.

Table 3.3 Macro - Parameters for the Eighth Plan (1992-97)

Rates/Ratios Seventh   Plan(1985-  90) Seven Years
Seventh Plan (1985-92)
Eighth Plan (1992-97)
1 2 3 4
1. Rate of Growth in GDP (% per annum) 5.8 5.3 5.6
2.Domestic Saving (% of GDP) 20.3 20.7 21.6
3.Investment (% of GDP) 22.7 23.1 23.2
4. Current Account Deficit (% of GDP) + 2.4 2.4 1.6
5.ICOR 3.9 4.3 4.1
6.Growth Rate in :-
Exports ofGoods(% per annum) 8.1 * 8.5 13.6
Imports ofGoods(% per annum) 10.0 * 7.5 8.4

+  In the Seventh Plan, the interest paid on NRI deposits was not included as part of Current AccountDeficit (CAD) since RBI released the NRI capital inflow data after     accounting for the interestpaid. The CAD projection for Eighth Plan includes the interest paid on NRI deposits, as an item of import of non factor services.
#  This is estimated on the basis of for five years of the Seventh Plan period. As per D.G.C.I. and S. quantum index, the estimates are 7.6% for plan period and 11.6% during the last four years of the Seventh Plan.
*  These represent only six years average since the year 1991-92 has been an abnormal year in respect of foreign trade.

3.2.10 An outlay of Rs.434,100 crores is planned for public sector. This will have an investment component of Rs.361 thousand crores and a current outlay component of Rs.73100 crores. The public sector investment, then, will amount to 45.2 per cent of the total domestic investment, allowing for a much larger space for the private sector than has hitherto been given. The share of public sector investment in the total is shown in table 3.4. The sectoral pattern ofinvesment and its financing in the Eighth Plan is presented in table 3.5.

3.2.11 Even accepting the most selective role for public sector, there is the 'requirement' side which has to be looked at. Since the projects have long gestation period in the infrastructure sector, the investments in the immediate future determine

Table 3.4 Share of Public Sector in Total Investment

Public Sector (as % of total Investment) Projected Investment Realised
Fifth Plan (1974-79) 57.6 43.3
Sixth Plan (1980-85) 52.9 47.8
Seventh Plan (1985-90) 47.8 45.7
Eighth Plan (1992-97) 45.2 -

the longer term growth possibilities for the economy. In the recent two annual plans (1990-92), the investment in oil, coal, power, railways and irrigation has been confined generally to the already approved ongoing projects, and new projects for the future needs, in general, could not be provided for. Infrastructural bottlenecks can lead to a situation

Table 3.5 Sectoral Pattern of Investment and its Financing in the Eighth Plan (1992-97)

(Rs.Crores at 1991-92 Prices)



Sources of Financing the Investment Investment Current
Own Saving Transfer from Household
Sector's Savings
Rest of
the World
(0) (1) (2) (3) (4) (5) (6) (7)
1. Public Sector 





73100 434100
2.Private Corporate Sector 68930


21300 149000
3. Household Sector 605170 -317170 - 288000
743000 - 55000 798000

Table 3.6 Share of Centre and States in Public Sector Plan Outlay

Item Annual Plan 1991-92 ( At current prices) Annual Plan 1992-93 ( At current prices) Eighth Plan At 1991-92 prices
1. Central Deptts.
1.1 Outlay 42,969 48,407 247,865
1.2Budgetary Support 19,015 18,501 103,725
1.3IEBR 23,954 29,906 144,140
States and UTs outlay 28,107* 32,365 186,235
2.Union Territories
2.1 Outlay 1,277* 1,291 6,250
2.2Budgetary Support 1,277* 1,291 6,250
3.10utlay(l) 26,830* 31,074 179,985
3.2Central Assistance 13,428 14,820 78,500
3.3States own Resources 13,402 16,254 101,485
Total Plan outlay -(1.1 + 2.1 + 3.1) 71,076* 80,772 434,100

1 includes outlay for Area Programmes * Excludes Rs. 1072 crores Plan Loans to States which were not finally agreed to by Ministry of Finance and the "Model Villages" Scheme and "Equity Base for Cooperatives "which were subsequently dropped.

of the kind that prevailed in mid- seventies when shortages of cement, steel, coal and power were severe, and the annual rates of inflation had crossed 20 per cent. Private sector initiative can reduce the need for public sector investment. But some lag beween policy changes and actual investment is inevitable. Though, power sector has been opened up for private sector, it will take sometime before adequate response materialises. The size of public sector investment and outlay has been determined after carefully considering these issues.

3.2.12 The distribution of public sector plan outlay of Rs.434100 crores between the States and the Centre is arrived at on the following considerations:

  1. A careful evaluation of the resource position of the Centre and the States and the need to maintain a certain degree of fiscal discipline;
  2. The need to improve the share of States in the public sector plan since important sectors like agriculture particularly irrigation, health, education and other programmes contributing to human development are mainly the responsibility of the States;
  3. The requirement of investment in the Central P'an for the development of basic infrastructure for sustaining long-term growth, such as petroleum, coal, railways and telecommunications etc.

Consistent with the expected resource position, the size of the States' Plans is projected at Rs. 179985 crores and the Central Plan at Rs. 254115 crores (including Rs.6250 crores for the UTs). These are shown in table 3.6. The share of the States in the Public Sector plan which has been declining through the Fifth, Sixth and the Seven;!; Plan, is sought to be raised from realised level of 39 per cent in the Seventh Plan to 41.5 per cent in the Eighth Plan. The States will be required to improve their resources, curb expenditure and improve and realise a positive contribution to the resources from their enterprises particularly in the electricity and transport sectors.

Savings and Flow of Funds

3.3.1 The rate of savings is projected at an average of 21.6 per cent of GDP during the plan period. The realised average rate of savings was 19.7 per cent of GDP during the Sixth Plan and 20.4 per cent during the Seventh Plan. The slow pace of increase in domestic savings during the eightees as compared to the rate of improvement in savings in the earlier decades is accounted for by two factors. While the savings of the household sector has shown a smaller rise than in the previous decades partly influenced by the larger availability of consumer goods, both durable and non durable, the savings of the gc vernmen* sector has shown a sharp deterioration The rates of savings during the Sixth and the Seventh Plans and the projected rates of savings for the Eighth Plan are shown in table 3.7. Further corresponding detail presented in table 3.8.

3.3.2 The savings of the household sector increased from 16 percent of household disposable income in the Sixth Plan to 18.6 per cent in the Seventh Plan. In view of the increasing opportunities for consumption and urbanisation of the society, the increases in household savings in rdation to their disposable income are not expected to be as sharp as in the previous five year plans. With the increase in the proportion of financial savings in the total savings, however, the major contribution of household savings in the Eighth Plan will be towards making larger resources available for financing the investment of the private corporate sector and the Public Sector. The financial savings component of the household savings has progressively increased as shown in table 3.9. Sharper increases in financial savings component were observed from mid-sixties to mid-seventies. The network of commercial banks expanded across the country, particularly in the rural areas in early seventies following the nationalisation of Banks in 1969 and this helped in mobilising financial savings. Thereafter, the financial component of household savings has more or less remained at the same level. In the recent period, the widening of the base of capital market has raised the possibility of a larger proportion of household savings being made in the form of financial assets. Fiscal measures to strengthen this trend will be pursued further in the Eighth Plan.

Table 3.7 Rates of Savings
(As Percentage of GDPmp)

  ( At Current Prices ) Projected (At 1991-92 Prices)
Sixth Plan Seventh Plan Average of 7 yrs. ;
1985-86 to (1991-92)*
1991-92 1996-97 Eighth Plan (1992-97)
1 2 3 4 5 6 7
1. Public Sector (1.1+1.2) 3.69 2.33 2.00 1.44 2.07 2.00
LIGovt Sector 1.10 -1.36 -1.74 -2.37 -1.08 -1.11
1.2 Public Enterprises 2.59 3.69 3.74 3.81 3.15 3.11
2. Private Corporate Sector 1.63 2.04 2.15 2.39 2.17 2.00
3. Household Sector 14.33 16.00 16.60 17.77 17.36 17.60
4. Gross Domestic Savings 19.65 20.37 20.75 21.60 21.60 21.60

Notes: (*) Based on data from Quick Estimates for 1990-91 and projections for 1991-92. Abbreviation'.GDPmp = Gross Domestic Product at market prices.

3.3.3 The private corporate savings which increased from 1.6 per cent of GDP in Sixth Plan to a little over 2 per cent in the recent years are projected to remain at 2 per cent of GDP during the Eighth Plan.

3.3.4 Public sector savings have two components, i.e., the savings of the Government and savings of the public enterprises. Government's savings have shown a very discouraging performance during the 80's. While Government savings were positive during the Sixth Plan, they turned increasingly negative thereafter as shown in table 3.10. The expenditure of the Government as a proportion of GDP increased by 5 percentage points between the Sixth and the Seventh Plans, but the receipts increased by

Table 3.9 Share of Financial Savings in Total Household Savings


Share (Per cent)

1966-72 25.1
1972-82 37.5
1982-89 50.3

about 2 percentage points only. The items responsible for rapid build up of expenditure were interests on public debt, and subsidies. The gross savings of Government reached minus 3 per cent of GDP in 1990-91. If this situation continues, the Government will be increasingly handicapped in making adequate provision even for the most essential of its activities in the area of social infrastructure and minimum needs. If the trends of the Seventh Plan were to continue, the savings of Government in the Eighth Plan period would be about minus 160,000 crores of rupees. No meaningful human development programme could be pursued in such a scenario of Government resources. The Eighth Plan has to make a determined effort to reverse the trend of declining Oovernment receipts, rising. Government expenditure and negative savings. The seriousness of the Central Government on this account has already been expressed in the budgets of 1991 and 1992. Thus, the availability of resources for financing the projected level of public sector outlay depends on reducing Government dis-savings from Rs. 16000 crores in 1990-91 to an average of Rs. 7620 crores per annum during the Eighth Five Year Plan. This would he possible only if the contribution of direct taxes and non tax revenues increases and

Table 3.8 Gross Domestic Savings By Sector Of Origin During Sixth, Seventh And Eighth Plan
(Rs. Crores)

S.No and Item 6th Plan Total % Avg

At current  Prices

At 91-92 Prices
1985-86 1986-87 1987-88 1988-89 1989-90 7th Plan Total % Avg

(Annual Plans) 


8th Plan Total (1992-97)
1990-91 1991-92
1 G.D.P.m 912881 261920 291974 332616 394992 450601 1732103 529537 582356 764730 3439053
2 Public Saving 33037 3.69% 8457 3.23% 8002 2.74% 7249 
7743 1.96% 7054 1.57% 38505 2.33% 4690 0.89% 8386 1.44% 15864 2.07% 68900 2.00%
2.1 Govt. Sector -1766 -0.03% -3649
-5977 -2.05%



-17639 -3.91% -49826 -2.70% -22802 -4.31% -21183 -3.64% -18551 -2.43% -83644 -2.43%
22 Saving of Railways Communication 4167 0.44% 843 0.32% 1170 0.40% 1637 
2199 0.56% 2873 0.64% 8722 0.48% 3726 0.70% 4252 0.73% 5030 0.66% 20334 0.59%
2.3 Saving of Non-Department al Enterprices 20316 2.15% 7512 2.87% 8908 3.05% 10556 3.17% 13594 3.44% 15864 3.52% 56434 3.21% 17082 3.23% 17941 3.08% 19075 2.49% 86666


2.3.1 Depricia-tion 19264 2.09% 6258 2.39% 7360 2.52% 8455 
10032 2.54% 12986 2.88% 45091
13967 2.64% 14536 2.50% 14051 1.84% 66093 1.92%
2.3.2 Retained Profits 1052 0.06% 1254 0.48% 1548 0.53% 2101
3562 0.90% 2878 0.64% 11343 0.64%


3405 0.58% 5024 0.66% 20573 0.60%
2.4 Depriciation of Govt. Sector 10320 1.12% 3751 1.43% 3901 1.34% 4447 
5120 1.30% ' 5956 1.32% 23175 1.34% 6684 1.26% 7376 1.27% 10310 1.35% 45544 1.32%
3 Total (2.2+2.3

+ 2.4)

34803 3.72% 12106 4.62% 13979 4.79% 16640 5.00% 20913 5.29% 24693 5.48% 88331 5.04% 27492 5.19% . 29569 5.08% 34415 4.50% 152544 4.44%
4 Private Saving 144424 15.96% 43207 16.50% 45736 15.66% 60312 18.13% 75555 19.13% 93417 20.73% 318227 18.03% 111364 21.03% 117403 20.16% 149318 19.53% 674100 19.60%
4.1 Household sector 129573 14.33% 37999 14.51% 40696 13.94% 54718 16.45% 67439 17.07% ' 81319 18.05% 282171 16.00% 97441 18.40% 103463
132738 17.36% 605170 17.60%
4.2 Private corporate sector 14851 1.63% 5208 1.99% 5040 1.73% i 5594 1.68% 8116 2.05% . 12098 2.68% 36056 2.03% i 13923 2.63% 13940 2.39% 16580 2.17% 68930 2.00%
5 Total domestic saving (4+2) 177461 19.65% 51664 19.73% 53738 18.41% 67561 20.31% 83298 21.09%  100471 22.30% 356732 20.37%  116054 21.92%  125789 21.60% 165182 21.60% 743000 21.60%

the Government's consumption expenditure is contained. Subsidies need to be carefully examined, rationalised and reduced. The subsidies need to be targeted mainly towards the weaker sections and within them particularly those who are located in the poverty prone districts/blocks. Limits on fiscal deficits will have a favourable impact on interest burden in the future.There is a need for reductionin Government expendi-turein nominal terms.

3.3.5 In raising the receipts of Government by about 3 percentage points of GDP during 1992-97, major efforts are needed for extending the coverage of direct taxes and the excise duties. This is all the more necessary since the receipts from custom duties will fall because the level of tariff protection to the domestic industries is to be brought down. A move towards presumtive taxation in the Central Budget 1992-93 has already been announced and generally welcomed. The receipts from government property (Centre and States) arise mainly from the dividends from public enterprises and the interest on loans. The dividends and other returns should be much higher and commensurate with their command of public enterprises over assets whose market value is far more than what is shown in their balance sheets. Enterprises that hold no prospects of giving a return to the budgets of their owner governments (Centre or State) will have to be disinvested from. More often the cause of poor returns is shown as fulfilment of "social obligation" by the enterprises. But quantitiative measurements of such costs are generally not available. The public enterprises should assess and display the hidden subsidies which their operations give to the suppliers of their inputs, to their labour and to their customers. The receipts from entrepreneurship and property of governments are projected to increase from 1.2 per cent of GDP in the Seventh Plan to 1.5 per cent of GDP in the Eighth Plan.

3.3 6 The savings of public enterprises have increased steadily from 1.7 per cent of GDP in 1980-81 to about 4 per cent of GDP in 1989-90. This has been possible because of the expansion of their operations which in turn was made possible by large investments made in the industries and infrastructure (power, railways, other transport, communication, petroleum, coal, etc.) during the Fourth to Sixth Plan periods. While the overall trends have been encouraging, it needs to he recognised that the bulk of the contribution through retained profits (as distinct from depreciation) has come from petroleum, communications and railways. A substantial part of the savings here have come from the rise in administered prices of their goods and services rather than reduction in their current expenditures. In other areas the savings of public enterprises have not been suffi'-' - •: for their capital expenditure and therefore were not able to generate a surplus for paying adequate returns to the government. In the ensuing phase of economic reform, higher efficiency in operations of the enterprises will have to replace progressively the gains that were possible from monopoly power, particularly since the public enterprises now will have to face competition in the capital market as well as in the output market, both domestically and abroad. The savings of public enterprises are projected to rise to 3.1 per cent of GDP in the Eighth Plan as comapred to 2.6 per cent in the Sixth Plan and 3.7 per cent in the Seventh Plan.

3.3.7 The scheme of financing the Eighth Plan public sector outlay is given in table 3.11. The financing pattern of public sector plan has two components, one is the budgetary support to the plan and the other is the internal and extra-budgetary resources, of public enterprises. In recent years the budgetary support was almost entirely met out of borrowings, since the balance from current revenues (BCR) has been negative. Adequate budgetary support is needed for the social sectors - education, health, family welfare, welfare of weaker sections, etc. Sectors like irrigation, rural development, agricultural research and extension, etc., also depend heavily on budgetary support as they are not commercially viable. The capability to provide adequate budget support to the Plan while reducing the fiscal deficits (i.e., borrowings of" government) rests on the budgetary savings made by the governments at the Centre and the States. The BCR during the Seventh Plan was about 2 per cent of the total public sector outlays in real terms. The projected BCR at Rs.35005 crores (Centre and States) would be about 8.0% of the total public sector plan outlay. These estimates of BCR are consistent with the projected government savings and current plan outlay. Considerable improvement will be needed over the past performance both at the Centre,and the States. Budgetary resources of the Centre dur-

Table 3.10 Govermnment Saving : During Sixth, Seventh ard Eighth Plan

S. No. and Item 6th Plan Total % Avg 1985-86 1986-87 1987-88 1988-89 1989-90 At current puces At 91-92 Prices
7th Plan
Total %Avg.
(Annual Plans) 8th Plan
(1992- 97)






1990-91 1991-92 1996-97
1 2 3 4 5 5 7 8 9 10 11 12
l.G.D.P.m 912881 261920 291974 332616 394992 450601 1732103 529537 582356 764730 3439053

2. Receipts
(2.1 to2.3)

150743 47805 55599 63511 73404 84787 325106 96494 110688 168538 717462
16.45% 18.25% 19.04% 19.09% 18.58% 18.82% 18.76% 18.22% 19.01% 22.04% 20.86%
2.1 Receipts from entrepreneurship and property (Govt) 7203 2977 4374 4461 4026 4687 20525 425-5 8400 13000 51959
0.77% 1.14% 1.50% 1.34% 1.02% 1.04% 1.21% 0.80% 1.44% 1.70% 1.51%
2.2 Direct and indirect taxes (2.2.1+2.2.2) 140963 43561 50042 57848 67766 78226 297443 90303 99734 1516)3 648617
15.40% 16.63% 17.14% 17.39% 17.16% 17.36% 17.14% 17.05% 17.13% 19.83% 18.86%
2.2.1 Direct Taxes 24032 6574 7328 8001 10363 11351 43617 14378 15535 24854 103350
2.64% 2.51% 2.51% 2.41% 2.62% 2.52% 2.51% 2.72% 2.67% 3,25% 3.01%
2.2.2 Indirect Taxes 116931 36987 42714 49847 57403 66875 253826 75925 84199 126759 545267
12.76% 14.12% 14.63% 14.99% 14.53% 14.84% 14.62% 14.34% 14.46% 16.58% 15.86%
2.3 Miscellaneous items 2577 1267 1183 1202 1612 1874 7138 1932 2554 3925 16886
0.27% 0.48% 0.41 % 0.36% 0.41% 0.42% 0.41% 0.36% 0.44% 0.51% 0.49%
3 Expenditure 152509 51454 61576 72902 86574 102426 374932 119296 131871 187089 801106
(3.1 to 3.6) 16.48% 19.64% 21.09% 21.92% 21.92% 22.73 % 21.46% 22.53% 22.64% 24.46% 23.29%
3.1 Subsidies 24388 8543 9795 11497 14135 17843 61813 18987 20531 22671 107322
2.60% 3.26% 3.35% 3.46% 3.58% 3.96% 3.52% 3.59% 3.53% 2.96% 3.12%
3.2 Interest on Public Debt 14895 6115 7592 9678 12157 15783 51325 19973 24077 42763 164749
1.56% 2.33% 2.60% 2.91% 3.08% 3.50% 2.89% 3.77% 4.13% 5.59% 4.79%
3.3 Current Transfers 20586 6994 8697 9973 12327 14388 52379 16933 17321 28397 111992
2.23% 2.67% 2.98% 3.00% 3.12% 3.19% 2.99% 3.20% 2.97% 3.71% 3.26%
3.4 Current Transfers to ROW 121 41 23 43 95 43 245 51 59 80 315
0.01% 0.02% 0.01% 0.01% 0.02% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01%
3.5 Consumption Expenditure 92204 29174 34625 40843 47203 54319 206164 63325 69883 93178 416728
10.04% 11.14% 11.86% 12.28% 11.95% 12.05% 11.86% 11.96% 12.00% 12.18% 12.12%
3.6 Inter - Govt. 315 587 844 868 657 50 3006 27 0 0 0
Accounting Adjustment 0.03% 0.22% 0.29% 0.26% 0.17% 0.01 % 0.19% 0.01 % 0.00% 0.00% 0.00%
4. Notional Depreciation (Included in item 3.5) 10320 1.12% 3751 1.43% 3901
4447 1.34% 5120 1.30% 5956
23175 1.34% 6684 1.26% 7376
10310 1.35% 45544
5. Gross Saving (2-3+4) 8554 1.09V S02 0.04% -2076 -0.71% -4944 -1.49% -8050 -2.04% -11683 -2.59% -26651 -1.36% -16118
-8241 -1.08% -38100

(a) Government Admins.i.i-ative Departments; and Departmental Commercial Enterprises other than Railway? and Tile-communications -Note : Data for 1989-90 and 1990-91 are from the Quick Estimates of National Accounts, 1990-91. Percentages are with respect to GDP at market prices.

Table 3.11 Public Sector PSsni Outlay and its Financing by Centre and States
(Rs. Croresat I991-92 prices)

S.No. Items Centre States Total
0 1 2 3 4
1. Balance from Current Revenue 22020 12985 35005
2. Public Enterprises 144140 4000 148140
2.1-Ext. Corn. Borrowing and Sup.Credit (Net of repayment) (5000) - (5000)
2.2Public Bonds by Enterprises 37300 - 37300
3.Government Borrwoings (1) 117755 58300 176055
4. Negotiated Loans - 26200 26200
5. Net Capital Inflow from Abroad 28700 - 28700
5.1-Govt Loans 24500 - 24500
5.2-Govt Grants 4200 - 4200
6. Deficit Financing 20000 - 20000
7.Total Resources (1 to 6 ) 332615 101485 434100
8. Central Assistance -78500 78500 0
9.Resources for Plan (7 + 8) 254115 179985 434100

Note: (l) Includes market borrwoings, small savings, other loans taken by central and state governments, state povident funds and net miscellaneous capital receipts. (2) External aid is routed to States as a part of central assistance.

ing the Eighth Plan having been assessed at Rs. 188475 crores, an amount of Rs.78,500 crores would be transt'erred to the States as plan assistance and grants.

3.3.8 The financing pattern of the Eighth Plan public sector outlay stipulates reduced share of market borrowing and increased share of miscellaneous capital receipts (MCR) in total available resources as a result of selective and partial disinvestments in some of the public sector enterprises.

3.3.9 About 7.8 per cent of the total public sector outlay in the Eighth Plan is expected to he financed by net inflows from abroad. A part of the net inflow of capital from abroad will take the form of external commercial borrowings (ECB's) by public enterprise, and therefore will not be available as a resource for budgetary support. Enterprise-wise distribution of the ECB's in public sector will have to he consistent with the objectives of public sector plan.

3.3.10 Deficit financing was projected to be 8 per cent of the outlay during the Seventh Plan. As against this, the actual deficit financing amounted to 17per cent of the plan expenditure. The Eighth Plan would draw less than 5 per cent of its public sector outlay from this source of financing, so as to keep inflation in check.

3.3.11 The Public Sector Plan relies heavily on a larger availability of internal resources of the enterprises. Many of the public enterprises, such as the financial enterprises, airlines and the consultancy organisations have large surpluses available from their operations. These will be channelised to other enterprises whose capital expenditure requires extra budgetary resources over and above their own internal resources. This will he done either through the budget or through the capital market or by transfers among enterprises within the administrative control of the same Department.

3.3.12 The contribution of PSEs and their resource mohlization through issue of bonds etc., accounted tor about 21.2 per cent of the Seventh Plan expenditure. The Eighth Plan stipulates this share to be as high as 34.10 per cent of the total public sector outlay. Greater reliance would be put on the public sector enterprises in the Central sector anticipating their constribution to be Rs. 1,44,140 crore.s. In the re-oriented approach, public sector enterprises would he streamlined to impart greater viability in their operations in the context of competitive development. The Eighth Plan emphasises that the State Public Sector enterprises would, in reversal of their negative contribution, generate Rs. 4000 crores by means of imparting operational efficiency and by appropriate pricing of the products of utilities like electricity, transport services etc.

3.3.13 The ability of the economy to mobilise resources from abroad on affordable terms was put to severe test in recent years. The current account deficit rose to 2.4 per cent of GDP during the Seventh Plan as against the targetted 1.6 per cent. The economy tended to rely, beyond its means, on external capital. Increase in imports from hard currency areas and diversion of substantial part of our exports to rupee payment areas increased our external debt of hard currency foreign exchange. The decline in soft aid for infrastructure development made us borrow in the exernal commercial market at high costs. While resort to exceptional financing from donors could salvage the situation to an extent, it is imperative that during the Eighth Plan the dependence on inflow of external capital (foreign savings) should be reduced. The current account deficit is projected at Rs. 55000 crores, i.e., 1.6 percent of GDP. If the growth of the economy is not to he starved of the required raw-materials, capital goods and technology, adequate imports will have to be provided for. Therefore, in containing the current account deficit to a low level, exports will have to assume a dominant role. Exports are, therefore, projected to grow at 13.6 per cent per annum in real terms during the Eighth Plan period.

3.3.14 The Eighth Five Year Plan allocates a higher share of external resources to the private sector as shown in table 3.12.

3.3.15 Under the envisaged scenario, in order to support the public sector investment of the magnitude envisaged, nearly 81% of the financial savings of the household sector will have to be transferred to the public sector. In the context of the liherlisation of the financial system and, in particular, the interest rate structure, the public sector will have to compete with private sector for the household savings. This implies, a higher cost and this can be borne only if the public sector earns a higher return. The stipulated pattern of the inter-sectoral flow of funds during the Eighth Plan is shown in table 3.13.

Sectoral Pattern of Growth and Investment

3.4.1 Given the overall growth target of the economy during the Eighth Plan, the sectoral pattern of output and related growth rates are obtained through the consistency model which starts with the final demand and fully takes into account the inter-sectoral linkages via inputs and outputs. The main components of the final demand are private final consumption, the government final consumption, exports, imports and capital formation. While consumption and exports are exogenously determined, imports and capital formation are endogenous to the model. Each one of these components is worked out through a sub-model which takes into account the dominant parameters obtained from analysis of past data. The resultant pattern of growth, both in terms of gross value added and in terms of value of gross output, is described in table 3.14.

Table 3.12 Distribution of Inflow of External Funds to Public and Private Sector

Public Sector Private Sector Total
1 2 3 4
Seventh Plan 82.4 17.6 100.00
Eighth Plan 61.3 38.7 100.00

3.4.2 It may be noted that the growth rates in value of gross output are higher than the growth rates in the gross value added. This represents increasing ratio of inputs to output, which is the result of the increasing roundahoutedness of the production process. Agriculture sector is expected to grow at the rate of 3.1 per cent per annum. This can he considered to he a good growth rate for the sector, though it is a little lower than the average achieved during the Eighties. The average in the Eighties was pushed up by a single year's growth performance, i.e., the year 1988-89. Otherwise, agriculture had a very fluctuating growth. Growth

Table  3.13 Domestic Investment  and Intersectoral (1992-97) 
Flow  of  Funds During the Eighth Plan

(Rs.Crores at 1991-92 Prices)

Item Public Sector Private Corporate Sector Household Sector All Sector
(1) (2) (3) (4) (5)
Gross Investment : 361000 149000 288000 798000
10.50% 4.33% 8.37% 23.20%
Financed by:
1) Own Savings 68900 68930 605170 743000
2.00% 2.00% 17.60% 21.60%
2) Borrowings
2.1 From Households 258400 58770 -317170 0
7.51% 1.71% -9.22% 0.00%
2.2 From Rest of the World 33700 21300 0 55000
0.98% 0.62% 0.00% 1.60%

Note : 1. Percentage are with reference to GDP at market prices during the 5 years of the Eighth Plan.
2. For the Eighth Plan financial savings of household sector as a percentage of total household savings is projected at about 52%.

Table 3.14 Sectoral Growth Rates of Gross Value Added at Factor Cost (GVA)
and Value of Gross Output

Sl. Sector No. Trend Growth RateofG.V.A.
81-82 to 90-91 (10 Years)
Projected Growth Rate >2-93 to
96-97 (percent per annum)
Sectoral Share in GDP (Percent)
G.V.A. Value of
Gross Output
1991-92 1996-97
1. 2. 3. 4. 5. 6. 7.
1.Agriculture 3.8 3.1 4.1 27.7 24.6
2. Mining and Quarrying 6.8 8.0 l 8.9 2.0 2.3
3. Manufacturing 7.2 7.3 8.2 21.5 23.3
4.Electricity, Gas and Water 9.0 7.8 ; 7.6 2.4 2.7
5. Construction 3.6 4.7 5.3 5.1 4.9
6. Transport 7.3 6.7 7.7 5.9 6.2
7. Communication 6.2 6.1 6.9 1.2 1.2
8. Other Services 6.5 6.C l 6.6 34.2 34.8
9. Total 5.6 5.6 6.7 100.0 100.0

in mining and manufacturing is to be somewhat higher than it was during the eighties. The infrastructure sectors like electricity and transport are projected at a little lower than the growth achieved during the eighties. This ii mainly because the Eighth Plan will have tc make vigorous efforts to achieve higher efficiency in the use of the products of these sectors, Table 3.14 also shows sectoral shares in GDP ir the base year and the terminal year of the Eight!-Plan. The share of mining and manufacturing together will,for the first time, exceed the share of agriculture in the year 1996-97.

3.4.3 Sectoral distribution of investment ir the Eighth Five Year Plan has been derived froir the pattern of sectoral output. The investments are related to output with a lag between investment and output. The estimates of average lag between investment and output are obtainec through the analysis of past trends in investment-output relationships but with some modifications made in the light of expected changes ir technology and efficiency in the use of energy and other inputs. Gross Investment during the Eighth Plan distributed according to broad sectors of economic activity is presented in table 3.15. Agriculture, Irrigation and allied sectors will account for 18.65 per cent of total inves-ment. Mining and Manufacturing will get 28.57 per cent; Electricity, Transport and Communication will take 27.08 per cent of the total and the remaining investment will be in the construction and services sectors. The sectoral investment in the five year period (1992-97) include the requirements for sustaining the growth in output in the post-plan period. A significant shift in investment is proposed in favour of Agriculture and allied sectors. Investment in agriculture had been declining over years, while the need for agricultural growth is all the more for maintaining food security as well as for generating employment. This Plan intends, therefore, to tilt the allocation in favour of agriculture. Attempt has been made to maintain the relative share of infrastructure sector in order to strengthen the foundations for growth in future.

 Table 3.15  Sectoral Investment during the Eighth Plan (1992-93 to 1996-97)
(Rs. crores at 1991-92 prices)

Sl. Sector Public Private Total Share of Public
Sector in Total Investment by Sectors (%)
Sectoral Distribution




6th Plan 7th Plan 8th Plan
1. 2. 3. 4. 5. 6. 7. 8. 9.
1. Agriculture 52000 96800 148800 34.95 15.24 11.23 18.65
2.Mining and Quarrying 28500 11100 39600 71.97 6.06 6.70 4.96
3.Manufacturing 47100 141300 188400  25.00 23.60 26.00 23.61
4.Electricity, Gas and Water 92000 10120 102120 90.09 12.07 13.65 12.80
5. Construction 3300 17240 20540 16.07 2.73 1.86 2.57
6. Transport 49200 38710 87910 55.97 9.42 9.93 11.02
7-Communication 25000 1000 26000 96.15 1.50 2.03 3.26
8. Services 63900 120730 184630 34.61 29.38 28.60 23.13
9.Total 361000 437000 798000 45.24 100.00 100.00 100.00

Note:Sixth and Seventh Plan figures are calculated at 1980-81 prices.

3.4.4 Distribution of In vestment between public and private sectors at the sectoral level is based on the proposed reorientation in the relative roles of the private and the public sector objectives. The broad industrial groups where private sector is expected to have a much larger share than hitherto are electricity, communications, mining and quarrying particularly oil and coal, large industries in manufacturing sector (petro-chemi-cals, metals, fertilisers and heavy capital goods) and the organised segment of commercial services.

3.4.5 Employment implications of growth are presented in table 3.16. With the planned pattern of investment and production, the employment potential will grow at about 2.6 per cent per annum. In absolute terms it implies generation of about 8 million jobs per annum during the first couple of years of the Eighth Plan, and about 9 million jobs per year during the latter years, and more than 10 million jobs per year in the post-Eighth Plan period. These employment projections are based on projected employment elasticities, which, in turn are based on plans to increase agricultural intensity and agricultural productivity, particularly in the eastern region and the dry belts. The pattern of industrialisation and choice of technique, wherever possible without sacrificing productivity, have to be such as to increase the possibility of labour absorption in manufacturing and other sectors. Services will also have to play a major role in generating employment.

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