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Shenoy is up.

Please help make the Manifesto better, or accept it, and propagate it!
R. Shenoy is now available at


Part III of this can be easily distributed to IAS OTs at LBS.

Some examples of Shenoy's wisdom:

* I presume that planning in India would be consistent with democracy and
democratic institutions.

* I apprehend that reliance on legislation and administrative measures to
increase the rate of saving which will permit a bigger and bolder Plan,
may, by degrees undermine our democratic social order, which would be too
high a price to pay for accelerated economic development. Legislative and
administrative action should be directed to ensuring the specially most
effective uses of democratically generated savings, rather than risk undue
infringements of the liberty of the individual

* Amendments to the constitution which should be rare, should much rather
be in the direction of adding to the liberties, privileges and rights of
the common man than otherwise.

* I would oppose general extension of nationalisation on principle.

* Efficient management of business and industrial concerns in a competitive
market economy is a highly specialised function and demands qualities which
a civil servant is not required to, and in the ordinary course of his
training may not, acquire.

*  Controls and physical allocations are not a necessary adjunct to planning.

*  There are great advantages in allowing freedom to the economy, and to
the price system in the use and distribution of the needs of production.

*   Price support of agricultural produce in India is a risky venture and
we should be forewarned of the inherent dangers of it.

For those who can't download Word documents, the text in full:

	Prof. B. R. Shenoy

I am unable to subscribe wholly to the views of my colleagues on (1) the
Size of the Plan, (2) Deficit Financing as a means of raising real
resources for the Plan, and (3) certain Policy and Institutional
Implications of the Plan Frame. I may set out, briefly, my views on these

The Plan Frame is built on the basis of a 25 to 27 per cent, increase in
the national income in five years. The targets of production in the several
sectors, which correspond to this rise in income, would require an increase
in net investment (or savings) from 6.75 per cent of the national income in
1955-56 to 10.95 per cent in 1960-61. This relationship yielded a figure of
a total net investment of Rs. 5,600 crores in five years; Rs. 3,400 crores
of this expenditure would be in the public sector and Rs. 2,200 crores in
the private sector. 
The total developmental outlay corresponding to a net investment of Rs.
3,400 crores in the public sector would be Rs. 4,300 crores. Adding to this
an expenditure of Rs. 4,500 crores outside the Plan, the total outlay of
the Centre and the States would be Rs. 8,800 crores in five years. The Plan
Frame proceeds to finance this expenditure in the following manner:

1.	Revenue and other current Receipts at the of 8.5%  of the National income
2. 	Railway surplus
3.	Loans and Small Savings
4.	Foreign assistance 
5.     Additional taxation, compulsory savings, and   higher profits from
government enterprises
6.     Deficit Financing
	(Crores of Rupees)



		If we separate from the above the total developmental outlay on the Plan
(Rs. 4,300 crores) the resources for the public sector of .the Plan would
be derived probably as under : 

1 .	Loans and Small Savings
2.	Foreign assistance
3.	Revenue Surplus on the basis of Revenue Receipts at the current rate of
8.5% of the national income.
4.	Additional taxation, compulsory savings, and higher profits from
government enterprises
5.	Deficit Financing
Total	(Crores of Rupees)



My colleagues have stated that the increase in investment required for the
Plan Frame is "fairly ambitious" and they "stress that the effort involved
in this increase is considerable, and will strain the economy a very great
deal" (para. 7). Earlier however, they have observed that "given a
determined bid to put forth a maximum measure of effort", the national
income objective, which this rate of increase in investment would yield,
"can be attained" (para. 4). This, to my mind, does not adequately indicate
the risks which an investment attempt on this scale may involve (unless
foreign assistance becomes available in an incomparably larger measure than
envisaged in the Plan Frame). To force a pace of development in excess of
the capacity of the available real resources must necessarily involve
uncontrolled inflation. In a democratic community where the masses of the
people live close to the margin of subsistence, uncontrolled inflation may
prove to be explosive  and might undermine the existing order of society.
In such a background one cannot subsidise communism better than through
inflationary deficit financing. Probably the greatest enemy of the
Kuomintang in China was the printing press. Alternatively, if appropriate
"physical measures", familiar to a communist economy, were adopted (in an
effort to prevent inflation) we would be writing off, gradually or rapidly,
depending upon the exigencies, of the plan, individual liberty and
democratic institutions by administrative or legislative action. We should
be, therefore, forewarned of the dangers of an over-ambitious plan. A wide
gap between targets and achievements as has been hither to the case with
the first plan was a third possibility This depended, however, upon the
rigour with which we may resist temptations for inflationary finance, and
the pressure to encroach upon the liberty of the individual. Such
resistance may prove to be difficult under the natural enthusiasm to reach
the targets. It may entail, moreover, some wastage incidental to a revision
(to match in the available resources) of a plan in progress which had been
based on a larger blue print.
The Plan Frame begins by prescribing the increase in national income which
the Plan would set to achieve. Its authors, then, proceed to find the real
resources necessary for the corresponding rate of investment. In making the
national budget, it is permissible to determine expenditure first and then,
raise equivalent funds, as the Receipts of the State form but a part of the
total national income. The budget can grow by drawing on the rest. This
procedure cannot be applied to the budget of a Plan, which embraces the
entire monetised saving and investment activity of the nation. Here the
availability of real resources must be assessed first and the investment
plan must match it. In a communist economy the volume of savings may be
made to vary within fair limits by restricting allocations to the consumer
trades. Within these limits a communist plan can determine expenditure
first, and, then, proceed to find the requisite resources. In a democratic
society the scope for variation in savings, which is largely the result of
individual choices, is comparatively limited.
The availability of real resources must depend on the reliability of the
estimates of saving. Under no circumstances can total net investment
(excluding external assistance) exceed the total net savings of the
community. Revenue surpluses, surpluses of State business undertakings,
loans, ploughing back of profits, deficit financing, credit creation, and
so on, are but devices of appropriating the savings of the community for
purposes of the Plan. There is no device of creating real resources which
are not saved.
A paper on "Capital Formation in India" supplied to the Panel of Economists
estimates net domestic capital formation India, in the recent past, as under :
Net Domestic Capital Formation in India
	(1)	(2)	(3)
	(Rs. in Crores)	
	Net Domestic Capital formation	National Income	1 as % of 2

1953-54	446
71 9	8,580
9, 500
10, 000
10, 500	5.2

During the first three years of the First Five Year Plan, (1951-52 to
1955-56), net capital formation, as a percentage of national income was
more or less stationary, the increase in the national income being
presumably absorbed, in large part, partly by an increase in the population
and partly by an increase in consumption. Relatively to 1949-50, capital
formation (as a percentage of national income) in 1953-54 rose by 17.24 per
cent, an annual increase of 4.56 per cent. Under the Plan Frame net capital
formation (10.95%) at the close of the Second Plan (1.960-61) would be
61.98 per cent higher than (6.75%) at the close of the First Plan (1955-56)
or an annual increase of 12.40 per cent.
The over-ambitious character of the Plan Frame is also reflected in the
rate of increase it aims at in the national income. Allowance being made
for favourable monsoons, the increase in national income during the First
Plan is estimated at 12 to 13 per cent, or an annual increase of 2.4 to 2.6
per cent. The corresponding increase in the Plan Frame is 5 per cent per
annum or 25 to 27 per cent in five years.
Statistics of the growth of national income in certain overseas countries,
quoted by the Plan Frame, show that in Canada, Switzerland and Germany the
rate of growth in national income generally approximated to the rate of
growth experienced in India during the First Five Year Plan. In U.S.A. the
rate of growth was 4.5 per cent until 1913 and 3 per cent from 1929 to
1950. Both in per capita income and the capacity to save we are far behind
these countries. In the Soviet Union, Poland, Czechoslovakia, Hungary and
Bulgaria, the rate of growth in recent years is stated to vary between 12
to 16 per cent. If these statistics are comparable, the more rapid progress
of communist economies reflects the relative efficiency of totalitarian
Judging from our own recent experience, and also the experience of other
democratic countries, the available real resources (savings) for
development cannot for sometime be expected to be of an order that would
permit anything like a doubling of the rate of growth in national income.
The current rate of savings in India is generally estimated at 7 per cent
or under of the national income. During the past five years it has risen by
about 1 per cent. It would be too optimistic to assume that the rate of
increase may be accelerated in the next five years. A reduction in the
inequalities of income distribution, which is the declared policy of the
Government, would tend to reduce overall savings. The consumption of food
of the vast masses of the people being both below the national average and
below the minimum nutritional standards, it has been estimated that about
50 per cent of an increase in consumer expenditure is liable to be utilised
in India on foodgrains. In conformity with traditional experience, a
succession of good harvests, which we have experienced, may be followed by
a couple of years or so of bad or indifferent harvests. Under the
circumstances, it may not be safe to assume a rate of saving of much higher
than 8 per cent at the end of the next five-year period. The possibility of
this conjecture proving too high cannot be ruled out. The size of the Plan
needs to be, therefore, revised to match the real resources as indicated by
this rate of savings and the estimate of the rate of increase in national
income should be adjusted to conform to the investment equivalent to this
rate of saving.
The rate of increase in income would depend upon the bias of the Plan for
labour intensive schemes and for cottage industries. The probable
magnitudes of the investment and of the growth in income remain to be
worked out. This it is not possible to do immediately. On a rough estimate
the order of magnitude of the investment would be probably about Rs. 3,500
to Rs. 4,000 crores. Considering that the total investment in the public
sector in the three years of the First Plan did not exceed Rs. 885 crores
(38.65 per cent of the target of Rs. 2,290 crores for five years), this is
not too low a target to aim at in the Second Five Year Plan. Investment in
the public sector may roughly correspond to the target fixed for the First
Plan. If at the end of the five year period, the actual investment, at
constant prices should be about 70 per cent of the target, the investment
in the public sector of the Second Plan would be about 43 per cent higher
than that in the First Plan.
As no plan can be bigger or bolder than the available resources, the size
of the investment programme should be reviewed periodically to ensure that
it keeps within the limits of savings. If such a review should reveal a
shortage of resources it would be short-sighted to fill the gap by credit
creation or deficit financing as this will be self-defeating. A deficiency
of total real resources for development will get manifested, in the sphere
of finance, by a failure to secure finance otherwise than through an
excessive creation of credit, or deficit financing. The inability of the
Plan Frame to place more than about 75 per cent of the resources required
for the Plan under the usual sources and the reliance on deficit financing
for the rest is broad evidence that the size of the plan far exceeds the
available savings.
The deficiency of resources, in fact, may be larger than the magnitude of
the deficit financing, as the assumed Receipts from other sources may prove
to be over-optimistic. To mention one item, it would appear exceedingly
unlikely that from an average of Rs. 45 crores per year during the past
seven years, the Revenue surplus would jump up to an average of Rs. 180
crores per year in the Second Plan, the figure assumed in the Plan Frame.
The available real resources were inadequate even for the comparatively
moderate First Plan. This is reflected in the disparity between
achievements and targets. Economic development is not merely a matter of
credit creation or deficit financing. Scarcity of savings manifests itself
in a scarcity of the needs of production, and in administrative and
organizational difficulties, which limit the pace of development and which
credit creation cannot correct.
Indian poverty and the massive rural under-employment are conceivably the
result of a continued shortfall of savings and investments below the
demographic rate (or a rate of investment necessary to maintain per capita
income undiminished with a growing labour force). It is not to be expected
that full solution of this problem would be possible in five years. The
employment potential of the First Five Year Plan has been estimated at 9 to
9.5 million persons. This is roughly equal to the natural growth in the
labour force during the period. We may presume, therefore, that with a
higher rate of investment, than during the First Plan period, the Second
Plan would begin to provide relief to the under-employed in addition to
absorbing the annual increase in the labour force. The unemployment
position may be worsened if the programme of investment proving
over-ambitious inflation should develop, as this would dissipate savings,
and, in due course, reduce the employment potential of a given volume of
The size of the Plan Frame has been unduly inflated as a result, on the one
hand, of an over-optimistic growth in national income, which it aims at,
and, on the other, of an unduly high average rate of saving as applied to
this assumed growth in income. A much lower figure would result if both
these rates were more realistic projections of Indian experience of the
recent past. Though a certain measure of accelerated progress may result as
incomes grow and savings increase, a steep upward movement from a
background in which the mass of the people live on the margin of
subsistence may not be possible except in a totalitarian regime.

The case for deficit financing, briefly, would appear to be that, (1 ) for
"initiating a process of higher investment and higher incomes by fuller
utilization of unemployed and under-utilized resources" credit must be
taken "in advance for the additional savings" that will be forthcoming, in
the future, from the larger incomes, and that "some initial credit creation
therefore, is an essential part of a development programme" (Paper No. 2,
Section II) (2) that "a larger money supply will be needed as the monetised
sector expands relatively to the non-monetised sector" (Paper No. 2, in
Section II); (3) that a larger money supply will be needed with an increase
in the national income: (4) that, there being no current inflationary
pressures in the economy, there was no danger in undertaking deficit
financing in a limited measure; and (5) that the apparently large budgetary
deficits of recent years have not produced adverse consequences.
My colleagues have cautioned "against any tendency to undue optimism as
regards the extent to which the use of deficit financing may avoid the
awkward necessity of a deliberate endeavour to mobilise resources" (p. 4) I
wish to join them in this cautioning. I also generally agree with (2), (3)
and (4) above as offering justification and scope for a certain measure of
deficit financing. With regard to (1) above, a distinction must be made
between unemployment in industrial economies and underemployment in
under-developed economies. A mistaken analogy between them has been
responsible for erroneous policy approach in under-developed economies. The
problems of the two economies differed in fundamental respects. In
under-developed economies the only factor of production that was in
abundance was unskilled labour. There was a scarcity of the other needs of
production machinery, materials, and skilled personnel with the
technological and managerial know-how. This reflected continued below the
demographic rate of saving and investment. The simplest form of investment
needed some equipment and technical know-how at some stage. In industrial
economies, on the other hand, the rate of saving being generally above the
demographic rate, unemployment of labour was accompanied by unemployment or
underutilization of the complementary real resources of production. Credit
creation could bring two together. Deficit financing or credit creation
here is a device of mobilizing the real resources. We cannot seek in this a
solution to the problem of development of under-developed economies. In the
latter it was a question of a scarcity of savings, for which created money
was no substitute. Under-employment in under-developed economies, thus,
offered no criterion for deficit financing in the way unemployment in the
industrial economies offered such criterion.
A paper on "Installed Capacity and its Utilization in Indian Industries"
(Paper No. 9 of Section III) presented to the Panel shows that appreciable
percentages of unutilized capacity exist in a number of industries
including jute, sugar, certain heavy chemicals, machines and machine tools.
It is conceivable that there may exist, in the case of some at least of
these industries, complementary skilled personnel, which are unemployed or
under-employed; there may also exist in the economy the materials of
production required to employ these personnel. The reasons for the partial
idleness of the plants may vary. This would require individual studies on
these industries. In some cases it may reflect export difficulties or
competition from imports, which, conceivably, may be related to the
over-valued exchange rate. Deficit financing or credit creation cannot meet
the needs of such cases. The economic significance of this unused capacity
to the total activity of even the organized private sector would be
negligible. Some of them may justify extension of credit by the banking
system or by the State Credit Corporations. They cannot be said to provide
a case for deficit financing of the public sector.
Regarding (5) the amount of the deficit financing with a monetary effect,
undertaken since August 15, 1947 to March 31, 1954 has been comparatively
moderate. Excluding the purchase of sterling by the Government in 1948
against ad hoc Treasury Bills, which had no monetary impact, and allowance
being made for the variations, in the public debt holdings of the Reserve
Bank and the commercial banks, the deficit financing of the period averaged
about Rs. 50 crores per annum. Between 1947-48 and 1953-54 the Whole-sale
Price Index rose from 308 in the former year to 435 in 1951--52 and stood
at 398 in 1953-54. Part of the rise in the price index may be due to the
activation of latent inflation. But its effect could not have lasted beyond
the early part of this period. The amount of the latent inflation in India
was in any case moderate. It would seem significant that notwithstanding
the moderate amount of the deficit financing, prices continued to rise
until 1951-52 and were about 29 per cent higher at the end of the period
relatively to the beginning of the period. This experience lends support to
our estimate of the magnitude of deficit financing which may be deemed safe
and necessary. 
My colleagues consider that for a year deficit financing at a rate of Rs.
200 crores is safe and even necessary and for the five-year period they
would put it at within Rs. 1,000 crores. I consider these figures far too
excessive. The formula on which they are based is not known.
Deficit financing does not create real resources. Together with the issue
of loans, collection of Small Savings, etc., it is one of the devices of
appropriating, for the public sector, the real resources which exist in the
economy. The necessity for deficit financing arises from the fact that an
individual converts a part of his real income into cash balance, the rest
of it being either consumed or invested (through the stock exchange or
otherwise). The cash balances, like the investments and the amounts spent
on consumption, tend to grow with the growth in income. As they form a part
of the savings, there exist somewhere in the economy equivalent real
resources. Deficit financing provides the individual with the cash balances
and acquires the real resources for investment in the Plan. If the demand
for the increase in cash balances is not adequately met, prices would
decline and there may ensue unemployment. Part of the cash balances would
be provided by the banking system through the creation of credit. In this
case the equivalent real resources would be acquired by the private sector,
in whose favour the banking system would create credit.
The amount of the deficit financing and the amount of the credit creation
should be together limited to the increase in the cash balances. The rate
of increase in the cash balances would depend upon the rate of increase in
the Indian national product during the Five Year Plan. An estimate of the
magnitude of the credit creation and of the deficit financing under this
head would require a closer study than is immediately possible. The
Bernstein Fund Mission estimated deficit financing and credit creation by
the banking system at about Rs. 33-1/3 crores per annum for the last three
years of the First Five Year Plan. Assuming constant prices, we may place
it at a round figure of Rs. 35-40 crores per annum for the next Five Year
Plan. This is only a conjecture. But it indicates the order of magnitudes
involved. What part of this amount would constitute deficit financing and
what part credit creation by the banking system, would depend upon the
ratio in which the increase in the cash balance real resources of the
public sector would be divided between the public and private sectors.
To the amount of the deficit financing under this head must be added the
sterling releases acquired for the public sector, to arrive at the total
figure of the deficit financing that might be safely undertaken. The total
amount of the sterling releases during the five-year period has been placed
at Rs. 100-150 crores by the Plan Frame. Part of this would have to be
allocated to the private sector and will be matched by equivalent credit
creation by the banking system. If we may assume a division of the cash
balance resources and the sterling release between the public and the
private sectors, respectively, in the ratio of 2:1, the order of magnitude
of aggregate deficit financing would be Rs. 180-235 crores for the five
years, or an annual rate of Rs. 35-47 crores. Post- Independence Indian
experience lends support to the comparative safety of this order of
magnitude of deficit financing.
Since the precise amount of the deficit financing is contingent upon the
actual rate of increase in the national product and the actual withdrawals
from the cash reserves, both of which may be subject to wide variation in
an economy where weather conditions significantly influence output and
prosperity, it may not be prudent finance to take advance credit for the
amount of the deficit financing even if the order of magnitude were larger.
The preference of the public for cash balance may, moreover, change with
their confidence in the honesty of the rupee. Under the circumstances these
sources should be held in reserve to help meet possible shortfalls in the
receipts from other sources.
I realise that this is less than cat's meat before the order of magnitude
of the deficit financing proposed in the Plan Frame and that approved by my
colleagues. But, if the above analysis is correct, I do not see how a
significantly different conclusion may be arrived at. Even on the
assumption of a doubling of the rate of growth of the national income, the
demand for the additional cash balances cannot be of an order to justify
deficit financing on a scale equivalent to 50-60% of the money supply. If a
third of the central bank money proposed to be put into circulation through
deficit financing went to augment the reserves of commercial banks, and if
they built on it a volume of credit six to seven times, the total money
supply at the end of the Plan period may be more than double the money
supply at the beginning of the period. This would be clearly inflationary.
An increase in the rate of growth of national income from 13 per cent to 27
per cent would not require a doubling of the total money supply.
Deficit financing is essential in an under-developed economy to permit full
use of the scarce real resources. By the same token, deficit financing
should stop severely short of the point at which inflation begins.
Inflation does not, on balance, add to the aggregate real resources. It
creates wasteful or socially less useful demands on the limited savings.
Investment gets diverted into luxury trades to meet the demand for their
products resulting from inflation incomes. It diverts an undue proportion
of savings into urban property and real estate, into gold hoards and
jewellery, and into foreign exchange, as a result of the effort of the
savers to protect the value of their savings. The resources available for
the plan would be, as a result, correspondingly less, and overall economic
development would be impeded.
Inflation tends to be self-perpetuating. With the rise in price and wages,
the original estimates of the cost of the projects taken in hand will be
out of date. More deficit financing would be necessary for their
completion. And, as they cannot be left half finished, there would be a
pressure for further deficit financing. At any given moment, the whole of
the currently available savings being invested either in the public or the
private sector, or outside the Plan, there would be no idle savings to draw
upon. Real resources would have to be drawn into the Plan by force, which
would render the distortions and wastages referred to above unavoidable.
This takes away from the practical value of the caution, that the
inflationary situation should be kept under watch. Once inflation begins,
it tends to gather momentum, and while it runs its course we are apt to be
more or less helpless witnesses. The best protection against inflation is
to prevent it by keeping the investment programmes within the available
real resources.

	In this section we shall deal with legislative and administrative
measures, taxes on lower income groups, extension of nationalisation,
continuance of controls, price support of agricultural produce, and the
proposed National Labour Force.

(i) Legislative and Administrative Measures
No plan can be bigger or bolder than the available real resources. The
taxation Inquiry Commission has estimated net savings in India at about 7
per cent of the national income in 1953-54, which is about Rs. 730 crores.
This is an overall figure and, therefore, includes savings utilised for
capital formation in the organized private sector (about Rs. 75 crores),
public savings, urban savings, rural savings, and also non-monetised
savings. Other estimates of savings are more or less of the same order. To
the extent this estimate is reliable, it is a measure of the total
permissible investments in India. Any attempt to exceed this limit would
raise prices, and would impede overall economic development. Consistent
with individual freedom and democratic institutions, there is no device of
significantly adding to the volume of the flow of savings, though, with
proper inducements (which should include an honest rupee and an unpegged
interest rate), it may be possible to stimulate the flow somewhat. The
situation, however, may be significantly different under a totalitarian
regime, which may impose authoritarian reductions in consumption. Overall
savings, then, are no longer dependent upon individual choices. I presume
that planning in India would be consistent with democracy and democratic
I am unable to agree to the following recommendation of my colleagues :
"It is only when there is a firm legislative and administrative base that
it is possible to think in terms of doubling the rate of progress in the
Second Plan period, of increasing capital formation, of raising levels of
living and providing the machinery for accelerated development in the
future. We cannot, therefore, emphasise too strongly the importance of
facing up boldly and without hesitation to the legislative and
administrative implications of a bigger and a bolder plan".
I apprehend that reliance on legislation and administrative measures to
increase the rate of saving which will permit a bigger and bolder Plan,
may, by degrees undermine our democratic social order, which would be too
high a price to pay for accelerated economic development. Legislative and
administrative action should be directed to ensuring the specially most
effective uses of democratically generated savings, rather than risk undue
infringements of the liberty of the individual, without which, to quote our
Prime Minister, "We lose what is the greatest value in life". It would
appear preferable to explore the scope for more ample but unicumbered,
foreign aid and foreign loans and a larger flow of unicumbered foreign
private capital to supplement domestic saving for accelerated economic
development. In view of the vast scope of profitable investments, this
would be imminently worth-while, the net profits of the projects may be
expected more than to cover the amortisation of the foreign capital within
a reasonable period. Economic history does provide instances of national
economic development being financed by foreign capital in the early stages
with no loss or sacrifice or sovereignty.

(ii) Taxes on Lower Income Groups
There is hardly room for a further reduction in the standard of living of
the lower income groups in India. Finance for the Plan must be raised from
the middle and the upper income groups. Measures of taxation and other
devices, which would tend to reduce further the consumption of the lower
income groups, should be avoided. I am unable, therefore, to agree to my
colleagues' recommendation to amend Article 286(3) of the Constitution in
order to permit taxation of articles "essential to the life of the
community". Amendments to the constitution which should be rare, should
much rather be in the direction of adding to the liberties, privileges and
rights of the common man than otherwise.

(iii) Extension of Nationalisation
I agree with my colleagues that the scarcity of administrative and
specialised personnel, and the necessity of conserving savings for the plan
are factors against extension of nationalisation. But they have no
objection for such extension on principle. I would oppose general extension
of nationalisation on principle. Nationalisation should be ordinarily
limited to public utility concerns and to concerns, involving national
security. Otherwise, State intervention should be concerned with the
prevention of monopolies or quasi-monopolies. Efficient management of
business and industrial concerns in a competitive market economy is a
highly specialised function and demands qualities which a civil servant is
not required to, and in the ordinary course of his training may not,
acquire. This function is best left to private entrepreneurs, in the
prevailing socio-economic order, which is dominated by the market economy
and the pricing system.

(iv) Continuance of Controls
I do not feel convinced of the economic importance of continuing the
remnants of controls. Decontrols have proved a noteworthy success. Controls
and physical allocations are not a necessary adjunct to planning. The
distribution of productive resources, including the ratios in which they
are used, are subject to variation and depend upon diverse technological,
economic and price considerations. It is quite impossible to take into
account these complex and changing considerations and arrange anything like
a satisfactory allocation of resources. There are great advantages in
allowing freedom to the economy, and to the price system in the use and
distribution of the needs of production. I am unable to agree with my
colleagues that a case exists for continuing what controls now remain.
Steps should be taken to remove controls as early as may be possible.
Controls and allocations are an essential characteristic of communist
planning. They do not very well fit in, under planning in a free enterprise
market economy.

(v) Price-support of Agricultural Produce
I wish to join my colleagues in the matter of the urgency and importance of
completing speedily the scheme for licensed ware-houses, and for the
provision of credit and marketing facilities to farmers. My colleagues have
stated that the ware-housing system "should be used by the State for
purchase and sales of buffer stocks of agricultural commodities not only
for the purpose of dealing with any sharp falls in agricultural prices such
as we are witnessing today but also with the objective of preventing any
sharp seasonal fall or rise in prices".
In theory it may be possible to distinguish between seasonal price
movements from the long-term price trends, and to prescribe that seasonal
fluctuations should be smoothed out by State purchases in times of harvest
and sales between harvests. In practice, however, such distinctions may
prove to be difficult and seasonal interventions may turn into long-term
price support operations.
Price support of agricultural produce in India is a risky venture and we
should be forewarned of the inherent dangers of it. About 50 per cent of
Indian national income is drawn from Agriculture. A policy of price support
is, in essence, a subsidy, by the rest of the community to the producers of
the price- supported commodity In countries, where agriculture is a minor
sector of the national economy, the incidence of the subsidy may be spread
out thinly on the larger sector of the economy and the proceeds may provide
substantial relief to farmers. The reverse would be the case in India. The
strain of the subsidy will manifest itself in a shortage of budget
resources for the open market purchase and storage of agricultural produce.
This, in due course, would lead to either abandonment of the price -support
policy or inflation. In either case damage would result. If the dilemma
does not appear in one season, it is likely to come in the next, as
successful price support would stimulate production. In the Indian context,
a policy of price support of agricultural produce may force the economy
down the inclined plane of inflation. Even in the United States, where
agriculture is a minor sector of the national economy, price support has
only survived. It has not succeeded. It has led to undue stockpiling of
agricultural commodities and, in the past, had involved a great deal of
wastage of stocks through deterioration. Selective price support policy is
a poor answer to this difficulty. The distinction between crops would be
invidious, the relief provided may prove to be a token, and it might cause
a distortion in the pattern of agricultural production and economic
The price situation in India today was too complex to be resolved by price
support of agricultural commodities or other inflationary measures such as
a deficit financing. The price decline was neither universal nor uniform.
The prices of some major commodities had moved in opposite directions. The
fall was heaviest among foodgrains, oilseeds, and black pepper. Some
agricultural produce, e.g., tea, raw hides and lac, which were export
goods, and raw jute, among import goods, had risen almost as high as some
other agricultural prices had fallen. The prices of manufactures were
either steady or showed a slight upturn on the average. The cost of living
index was either steady or had fallen only slightly. In a background of
dissimilar price movements, simple monetary remedies may aggravate the
complexity and difficulty of the price structure. It may, on balance,
adversely affect the employment position by stiffening the already rigid
cost structure. Price support and deficit financing were no remedies to
individual over-production, and to export difficulties which are
attributable to quality and to domestic costs or exchange overvaluation.
Price support and deficit financing might, in fact, aggravate these maladies.
The complex problems of the prevailing price situation emphasise the
importance of economic rationalisation, for progress with stability,
whereby the fiscal, the investment, the monetary, the interest rate, the
tariff, and the exchange rate policies are rendered mutually consistent and

(vi) National Labour Force
I apprehend more risks than I see advantages in the proposed National
Labour Force. It may create a privileged class of workers, who may prove to
be relatively more expensive to keep and to move. The availability of this
force may impede relief to the regional underemployment problems. The
necessity for such a force may not arise until labour becomes a bottleneck
in economic development.

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