Fifth Five Year Plan

The Fifth Five Year Plan India was sketched out for the period spanning 1974 to 1979 with the objectives of increasing the employment level, reducing poverty, and attaining self-reliance. The twin objectives of poverty eradication and attainment of self reliance were inculcated in the fifth plan. A national program for minimum needs including elementary education, safe drinking water, health care, shelter for the landless was included. Electricity Supply Act was enacted in 1975, which enabled the Central Government to enter into power generation and transmission

Economical Background

At the onset of the Fifth Five Year Plan the global economy was in a turmoil, which had a great impact on the economy of both, developed and developing countries of the world. The main changes were perceived in sectors such as food, oil, and fertilizers where prices sky-rocketed. As a result of this, attaining self-reliance in food and energy became a top priority.

During this period, the Indian economy was affected by several inflationary pressures. Food grain production was above 118 million tons due to the improvement of infrastructural facilities like the functioning of the power plants and the rise in the supply of coal, steel, and fertilizers. Regarding the oil, credibility of Bombay High had shot up the commercial production of oil in India. In 1974-75, Indian exports crossed 18%, and the large earnings from these exports have further increased the Indian foreign exchange reserves.

Political Background

The World Bank economists argued that the most important problem of the third world countries was ” Poverty” and without removal of poverty the main objective of growth cannot be achieved. The commitment to Poverty alleviation was followed by formulation of 20 point program by Indira Gandhi. Year 1975 saw emergency and planning in the country became much politicized as well as quality of governance saw a declination. The government changed during this period and First Non-Congress Government took over in 1977, with Morar Ji Desai swearing in as First Janta Prime Minister of India on 24 Mar 1977. The fifth plan was terminated by the Janta Government in 1977-78 and they launched their own sixth plan for the period 1978-83 and called it ” rolling plan” later the Janta government came down and Indira Gandhi again became prime minister of India who immediately discarded the sixth plan by the Janta government and launched her own plan for year 1980-85. The year 1978-79 was restored back to fifth plan of 1974-79.

Plan Background

The Draft Fifth Five Year Plan was formulated in terms of 1972-73 prices and in the context of the economic situation obtaining in the first half of the fiscal year 1973-74. The inflation started rising till September, 1974; and the balance of payment position got worsened due to the steep rise in the prices of imported oil and other materials. Inflation & Price Rise problem: During 1972-73 period, the Inflation index rose by 31.8%. Food articles and industrial raw materials accounted for about 65% of the price increase. The prices of machinery, transport equipment and manufactured goods contributed to a little over one-fourth to the overall increase in prices.

What was the reason of rising inflation?

There was a severe drought conditions in 1972-73, followed by shortages of various essential consumer goods and critical raw-materials and inputs. Shortage of power together with higher international prices of imported inputs and their inadequate availability led to the stagnation of industrial production during 1973-74. This was one of the main reasons.

Besides, the price situation was aggravated by continued expansion in money supply partly due to large deficit financing and partly due to excessive expansion of bank credit to the commercial sector.

In 1973-74 the money supply increased by 15.4% over and above the increase of 15.9% registered in 1972-73. Acting together with the unaccounted money unregulated expansion of money supply in a situation of shortages provided an added impetus to the activities of speculative and unsocial elements. Owing to the escalation of costs and prices, even the administered prices of important intermediate goods such as steel, coal, cement and aluminum had to be raised as a defensive action.

The procurement and issue prices of important cereals such as rice and wheat were also increased significantly. This not only had a direct impact on the cost of living index but also strengthened the inflationary tendencies.

Balance of Payments Problem

The balance of payment position also came under severe strain. Large quantities of food grains and essential wage goods had to be imported. The four-time increase in oil prices and increase in prices of cereals, fertilizers, machinery and equipment, non-ferrous metals and other imported goods severely eroded the resources. The value of the three principal items of imports, namely food, fertilizers and POL (Petroleum, Oil & Lubricants) accounted for as much as 53.2% of the total import bill in 1974-75, as against 42.6% in 1973-74 and 23% in 1972-73. In absolute terms the import bill for these items increased from Rs. 431 crores in 1972-73 to Rs. 1260 crores in 1973-74 and to about Rs. 2500 crores in 197475. However , value of exports also increased but the balance of trade showed a deteriorating trend. The trade gap turned from a surplus of Rs. 103.4 crores in 1972-73 to a deficit of Rs. 432 crores in 1973-74 and Rs. 1190 crores in 1974-75. This trend was both on account of sharp deterioration in the terms of trade since 1973 and larger imports of certain commodities as mentioned in the above paragraph.

Borrowings from IMF including special oil facility to the extent of about Rs. 485 crores was resorted to in 1974-75 to meet the deficit in balance of payment.

These developments together with uneasy economic conditions in some countries abroad and unstable international monetary conditions could not but have an adverse impact on the Plan.

Annual Plan 1945-75

The Annual Plan 1974-75 was formulated at a time when the inflation rate was quite high. It was therefore, designed mainly to control inflation and increase production particularly in the key sectors. The Plan outlays had to be kept at a modest level. Yet care was taken to ensure adequate provisions for agriculture including irrigation and fertilizers, energy (power, coal and oil), ongoing projects in steel, non-ferrous metals and certain basic consumer goods industries. Emphasis was on fuller utilization of the unutilized capacities. The provision for social services was restrained but kept at a reasonable level. During the year, a comprehensive strategy was evolved and a package of measures–fiscal, monetary and administrative-was introduced. It included mobilization of additional resources (both by the Centre and the States), allocation of funds to high priority projects, restraint on growth of money supply and a crack down on anti-social elements. Disposable incomes were regulated through impounding of certain additional incomes, imposition of restrictions on dividends and compulsory savings by tax payers in the higher brackets. The procurement prices of major agricultural crops were not allowed to rise.

These measures effected deceleration in the rate of growth of money supply, significant improvement in price situation and easy availability of essential goods. The money supply increased by 6.9% in 1974-75 as against an increase of 15.4% in the previous year. The index of wholesale prices declined by 7.1 % between end September, 1974 and end March, 1975.

However Inflation was curbed still the economy was still operating under various constraints. Agricultural production in 1974- 75 declined by 3.1 Industrial productions grew at 2.5%. While the rate of aggregate investment (net) increased from 13.6% in 1973-74 to 14.8% in 1974-75, the rate of domestic savings (net) recorded a marginal increase from 12.8% in 1973-74 to 13.1% in 1974-75. As already mentioned the balance of payment deteriorated.

Annual Plan 1975-76

Having achieved a certain measure of price stability by the end of 1974-75, the Annual Plan for 1975-76 could aim at growth under conditions of price stability. Agriculture, Irrigation, Power, Coal, Oil and Fertilizers therefore continued to receive priority. Projects capable of yielding quick results received special attention.

Labor discipline and sustained anti-hoarding/smuggling operations created an appropriate climate. An excellent harvest gave timely vigor and push. The national income is estimated to have increased by 6 to 6.5% during 1975-76-agricultural production by about 10% and industrial output by 5.7%. Procurement of nearly 13 million tons of food grains in 1975-76, along with imports enabled the build-up of a high level of stocks of food grains (17 million tons).

The wholesale price index fell from 307.1 at end of March, 1975 to 283.0 at the end of March, 1976–by about 8%. The year 1975-76 closed with an overall budgetary surplus of over Rs. 200 crores against a deficit of Rs. 490 crores estimated earlier.

The balance of trade continued to be a matter for concern during 1975-76 and the trade gap was as high as Rs. 1216 crores. This was in spite of the fact that the value of exports had increased by 18.4% and imports by only 14%. However, as a result of larger inflow of private remittances because of effective action against smuggling and illegal dealings in foreign exchange and increase in net foreign aid the balance of payments was not strained. The foreign exchange reserves reached a high level of Rs. 1885 crores at the end of the year as against Rs. 969 crores at the end of the previous year. With stability of prices and growth in economy achieved during 1975-76, a bolder programme of investment was drawn up for 1976-77. The Annual Plan 1976-77 envisages an outlay of Rs. 7852 crores which represents an increase of 31.4% over the original Plan allocation for 1975-76.

Critical Assessment

The fifth five year plan was launched with twin objectives of poverty eradication and attainment of self reliance.

The planning commission devised a national program for minimum needs, which included elementary education, safe drinking water, health care, shelter for the landless etc. The Electricity Supply Act 1975 was enacted to enable the central government to enter into power generation and transmission. Meanwhile, India had seen substantial rise in the food grain production and from fifth plan onwards India achieved self-sufficiency in food grains production.

To alleviate the problem of unequal spread of green revolution, government unsuccessfully tried to take over the wholesale trade in wheat. Indira Gandhi government also launched twenty point programme and irrigation schemes such as Command Area Development Programme in this plan.

However, in 1975, Indira Gandhi imposed emergency and planning became subject to much politicization. In 1977, the government changed and first non-Congress Government took over power with Morar Ji Desai at its helm. The new central government was a coalition called Janata Alliance. This government reconstituted the planning commission and announced a new strategy in the planning. This new strategy involved a change in the objective and approach pattern. The new objective laid down was “Growth for Social Justice”. The new approach was “Rolling Plan”. It terminated the fifth five year plan in 1977-78 and launched its own sixth five year plan for period 1978-83 and called it rolling plan. Later, Janta government self-destructed itself and Indira Gandhi again became prime minister. She immediately threw the Janta’s rolling plan in dustbin and launched her own plan for year 1980-85. The year 1978-79 was restored back to fifth plan of 1974-79.