University of Southern California Dissertations and Theses

A Comparative Appraisal Of Developmental Planning In India And Communist China Under The Second Five Year Plans

(USC Thesis Other)

A Comparative Appraisal Of Developmental Planning In India And Communist China Under The Second Five Year Plans

PDF

Download a page range

Download transcript

Copy asset link

Request this asset

Transcript (if available)

Content Copyright by NoKyoon Kwak 1965 A COMPARATIVE APPRAISAL OF DEVELOPMENTAL PLANNING IN INDIA AND COMMUNIST CHINA UNDER THE SECOND FIVE YEAR PLANS by NoKyoon Kwak A Dissertation Presented to the FACULTY OF THE GRADUATE SCHOOL UNIVERSITY OF SOUTHERN CALIFORNIA In Partial Fulfillment of the Requirements for the Degree DOCTOR OF PHILOSOPHY (Economics) January 1965 UNIVERSITY O F SOUTHERN CALIFORNIA THE GRADUATE SCHOOL UNIVERSITY PARK LOS ANGELES. CALIFORNIA 9 0 0 0 7 This dissertation, written by NoKyoon Kwak under the direction of h.^...Dissertation Com mittee, and approved by all its members, has been presented to and accepted by the Graduate School, in partial fulfillment of requirements for the degree of D O C T O R O F P H IL O S O P H Y Dean D ate.. January...lS65.. [SSERTATIQN COM MITT, V TABLE OF CONTENTS CHAPTER PAGE I. INTRODUCTION................................ 1 Purpose, Nature, and Importance of the Study 1 The Method of Approach.................... 5 Sources of Study .......................... 7 Organization of Remainder of the Study ... 7 II. ECONOMIC ORGANIZATION AND DEVELOPMENTAL PLANNING IN INDIA AND COMMUNIST CHINA .... 9 Characteristics of Economic Organization. . . 9 The methods of production...................11 The ownership and management of property. . 11 Methods for socio-economic coordination . . 12 Locus of economic power.....................13 Centralization vs. decentralization .... 14 The level of economic development.......... 15 Distribution of income.......................16 Economic motivations .................... 18 Guidelines for and Goals of Developmental Planning . .................... 20 Planning guidelines ...................... 20 ii ill CHAPTER PAGE Goals of developmental planning......... 24 Introductory remarks ............... 24 Second Five Year Plans of India and Communist China ...................... 27 India................................ 27 Communist China ...................... 35 Summary.............................. 41 Techniques for Formulation and Execution of of P l a n s.............................. 42 India.................................. 42 Planning organs, techniques, and execution.......................... 42 The second five-year plan............. 47 Communist China ........................ 50 Planning mechanism, techniques, and execution.......................... 50 The second five-year plan............. 55 Summary............... .............. 62 III. THE GROWTH IN NATIONAL INCOME AND INVESTMENT. 64 Introductory Remarks.................... 64 Conceptual Differences..................... 66 National income........................ 66 iv CHAPTER PAGE Investment and consumption......... 70 The Growth in National Income......... 72 Per Capita Income..................... 84 Income Contributed by Various Sectors ... 87 Saving, Investment, and Consumption .... 100 Summary............................... 108 IV. DEVELOPMENT OF AGRICULTURE............. Ill Characteristic Features, Problems, and Targets............................. 112 The Changing Structure of Agriculture . . . 120 The problem......................... 120 India: land reform and community develop ment ................................. 122 Land reform....................... 122 Community development............. 125 Communist China: communes .............. 127 Development of Agricultural Production . . 135 Food crops........................... 137 Industrial crops ...................... 144 Summary............................... 151 V. DEVELOPMENT OF INDUSTRY................. 154 Approaches to Industrialization .......... 154 CHAPTER PAGE The place of industrialization in developmental planning.............. 154 Balanced growth vs. unbalanced growth theories.......................... 155 Unbalanced growth theory and industrialization .................. 158 Conclusion.......................... 160 Production policies, priorities, and targets.............................. 162 Heavy Industry.......................... 173 India.................................. 174 Communist China ........................ 178 Small-scale, Light, and Cottage Industries 185 India . . ............................ 185 Communist China................ 188 Summary................................... 190 VI. FINANCING THE PLANS........................ 195 Introduction ............................ 195 Projected Expenditures .................. 196 Internal Financing ...................... 197 India................................... 198 Taxation............................ 198 vi CHAPTER PAGE Other budgetary revenues ............ 202 Loans and small savings.............. 203 Deficit financing .................... 205 Financing private investment ........ 208 Communist China........................ 209 Taxation............................ 210 State enterprises and undertakings. . . 210 Borrowing and other revenues ........ 213 Summary................................ 213 External Financing .............. .... 214 VII. FUTURE PROSPECTS .......................... 225 Introductory Remarks .................... 225 Future Prospects of the Indian Economy . . 227 Future Prospects of Communist China's Economy................................. 237 VIII. SUMMARY AND CONCLUSIONS.................... 246 Summary................................... 246 Conclusions............................... 256 BIBLIOGRAPHY..................................... 261 APPENDIX....................................... . 274 STISTICAL APPENDIX............................... 280 vii STATISTICAL APPENDIX TABLE PAGE A. Investment Allocation by Sectors In India, 1956-1961 280 B. Planned State Investment Allocation by Sectors In Communist China, 1960 281 C. Outlays on Agricultural Production of India 1956-1961 ................................. 282 D. Average Production and Yield per Acre In India, 1956-1961 283 E. Officially Claimed Grain Acreage In Communist China . . ..................... 284 F. India's Projected Investment in Industrial Growth, 1956-1961 ......................... 285 G. Communist China's State Expenditures under the Second Five Year Plan................ 286 viii LIST OF TABLES TABLE PAGE 1. Gkowth in National Income of India, 1948-61 75 II. National Income of Communist China, 1952-62. 76 III. National Income of India Adjusted to China's Definition ....................... 79 IV. Per Capita Income of India................ 88 V. Per Capita Income of Communist China .... 90 VI. National Income of India by Industrial Origin 92 VII. National Income of Communist China by Industrial Origin ................ . . . 93 VIII. The Changing Ratio among Savings, Investment, and Consumption in the National Income of India. ....... ..................... 102 IX. The Changing Ratio between Investment and Consumption in the National Income of Communist China ......................... 103 X. Targets for Agricultural Production in India and Communist China in the Second Five Year Plans..................................... 138 XI. Agricultural Production in India.......... 140 XII. Agricultural Production in Communist China . 141 ix TABLE PAGE XIII. India'8 Industrial Production Targets for 1960-61 and Actual Performance .......... 172 XIV. Communist China's Major Heavy Industrial Production Targets and Actual Performance as Officially claimed................. 181 XV. India's Major Products of Cottage Industries 189 XVI. Communist China's Major Light Industrial Production Targets and Actual Performance as Officially Claimed.............. 190 XVII. India's Financial Resources in the Second Five Year Plan.......................... 199 XVIII. Communist China's Financial Resources in the Second Five Year P l a n ............... 211 XIX. Financing of Foreign Exchange Requirements for the Second Five Year P l a n ....... 218 XX. Authorization and Utilization of Foreign Aids for India's Developmental Planning .... 220 XXI. Communist China's Major Industrial Production Targets for the Third Five Year Plan . . . 243 CHAPTER I INTRODUCTION The need for developmental planning arises from a relative scarcity of goods and services desired or productive resources to provide them. If there were an ample supply of productive resources to produce them, developmental planning or choice of techniques would be totally unnecessary. The present study is devoted primarily to a comparative appraisal of developmental planning in India and Communist China under the second five-year plans. I. PURPOSE, NATURE, AND IMPORTANCE OF THE STUDY Since the end of the last decade, there has been growing awareness that a proper comparative study on the problems of economic planning and economic development in India and Communist China is essential for economists as well as for the students of international relations. For this, several factors are directly and indirectly responsible. India and Communist China are the two giant Asian countries with huge areas, which together comprise approximately one-third of the total population in the world. Both countries have centuries of a long and glorious history with old civilizations and with many vissicitude8 as well as great affinities. After long years of direct and indirect dominance by the Great Powers, especially by Great Britain in India and by Japan in China, both countries achieved their full independence immediately after World War 11. In addition to these factors, India and Communist China have many economic problems in common. In spite of huge natural and human resources available for development, the most overwhelming of economic problems in both coun tries has been staggering mass poverty,arising from the vi cious circle of subsistence agriculture,low productivity, population pressures,widespread chronic unemployment and under-employment, low quality of labor, deficiency of capi tal, under-consumption, low level of technology, et cetera. Both countries are thus categorized in a group of underdeveloped countries by economists of the West. Thus, at the time of instituting developmental planning, India and Communist China were essentially at about the same stages of economic development. However, sharp contrasts have been seen between these two countries in the methods and directions of developmental planning. In India developmental planning has been undertaken by means of democratic methods with relative emphasis placed on the private sector, consumer sovereignty, economic welfare and allocation of available resources through the market mechanism. In contrast, developmental planning in Communist China has been undertaken by means of totalitar ian planning techniques with substantial reliance on coercion and economic controls, together with abolition of consumer sovereignty and immediate economic welfare to transform the country rapidly into a powerful, industrial ized, socialist state. Relative economic progress in these two countries is of great importance because success or failure in developmental planning in these two countries not only affects economic development, but also influences the pattern of the future planning formulation and implementation to be adopted by other underdeveloped countries. Like other studies in the comparative appraisal of developmental planning, the present study must be incom plete in certain aspects, both because the field itself is exceedingly broad and problems are treated with varying meanings and nuances, and because certain conflicts may frequently arise between planning goals. In addition, a comparative appraisal of developmental planning in these two countries always encounters major technical difficul ties and limitations. In many cases, there is a scarcity of needed information and reliable statistics for actual comparison. If the available materials exist, neither are they always complete nor readily comparable, nor analyti cally useful, mainly because of conceptual differences and different economic, institutional organizations to which they apply. In India, despite a lack of complece internal v consistency in estimates, a considerable effort has been made to improve official estimates with publication of V available statistics and Information for evaluation. In contrast, much information has been withheld from the public in Communist China, especially on trade and communi cations as well as on services. This has been particularly true ever since the Communist China's official proclamation that the planning targets for the second five-year plan has been virtually accomplished by the end of 1959, three years ahead of original schedule. Furthermore, the published data have not been announced in a complete and systematic fashion in most cases. Figures for planning targets or for their achievements have been usually expressed in terms of ratios of earlier figures without making known any precise magnitudes of these figures. The present study restricts its discussion to the periods of the second five-year plans, covering the period April, 1956 to March, 1961 in India and 1958 to 1962 in Communist China. This is done because treatment of development contrasts under the first five-year plans is readily available elsewhere. A five-year period is really too short to formulate and conclude any definite notions concerning the pattern of economic development or the role of developmental planning in underdeveloped countries such as India and Communist China. However, viewing the five- year period as one of continuous development processes serving as a link between the past and the future, con trasts of actual performance over this period may contri bute to our understanding of the trends of economic development and planning in these two countries. II. THE METHOD OF APPROACH Our comparative appraisal is partly based on an examination of the characteristics of economic organization and developmental planning in India and Communist China with special reference to planning goals, techniques and execution. In these respects, our approach is mainly theoretical. Also, our comparative appraisal is partly based on an examination of the growth of national income and investment, agricultural and industrial production, and financial aspects of developmental planning. In these respects, an attempt is made to present a strictly factual description and quantitative analysis with the help of available statistics. Throughout this present study, no attempt is made to touch upon the problems of social and political affairs which might prevent us from evaluating a proper analysis of known facts. That is to say, the present writer attempts to refrain from making value judgments in this study, because both social and political values are neither uniform nor always the highest values for all people in different economic systems. The present writer believes that developmental planning in India and Communist China has been guided by "rational considerations of self- interest," apart from the mere adoption of planning methodology of economically advanced countries. 7 III. SOURCES OF STUDY Literature In the field of economic development and economic planning in India and Communist China may be found in the following areas, as indicated in the bibliography: (1) books, (2) government publications, (3) periodicals, (4) independent studies, and (5) newspapers. The views of many Western economists and planners of other countries on India and Communist China have been expressed in many leading journals and other publications. They have been scrutinized with great interest and concern. For factual description and quantitative analysis of development performance, heavy reliance has been placed on government publications of various nature. IV. ORGANIZATION OF REMAINDER OF THE STUDY Since economic developmental planning has taken entirely different directions in India and Communist China, an examination of the characteristics of economic organi zation and developmental planning is not only a logical but also a convenient starting point for this study. Therefore, it is treated in Chapter II. In view of the fact that a comparative appraisal can best be performed with an examination of the growth in national income and investment as well as development of agricultural and industrial production, each of these problems has been studied in the succeeding chapters. The various means and methods of financing developmental planning in both countries are to be compared in Chapter VI. An evaluation of the future prospects of development is attempted in Chapter VII with special emphasis placed upon the third five-year plans as well as perspective plans. An attempt is also made in the last chapter to bring together important factors in relation to the problems of developmental planning and to venture some comments necessary on the problems studied. Although it is not the function of this study to do so, a brief survey of past developmental planning in India and Communist China is presented in the Appendix for review. CHAPTER II ECONOMIC ORGANIZATION AND DEVELOPMENTAL PLANNING IN INDIA AND COMMUNIST CHINA I. CHARACTERISTICS OF ECONOMIC ORGANIZATION Parallel with the case of economically advanced countries such as between the United States and Soviet Russia, competition between two different economic systems, India and Communist China, is perhaps a major fact of our time. This competition between two neighboring countries is not only economic but social and political as well. In the analysis of characterizing economic organization, therefore, we frequently show a tendency to touch upon the problems of social and political affairs which inevitably require moral and/or political value judgments. It is, however, of importance to keep our value judgments separate from our economic analysis because both moral and political values are neither uniform nor always the highest values for all people in different societies. Also, as in the case of characterizing different 9 industrial markets by certain distinctive features, such as pure or perfect competition and monopolistic competition, different systems for organizing economic life can be con trasted in several different ways. Notwithstanding this fact, it is worth noting that different writers and various studies have frequently come up with very similar lists or methods of classifications in spite of the fact that socio economic, cultural, and political conditions are frequently not in common and the practical realities of each organiza tion are too complex and dynamic in nature. In this analysis, therefore, we shall rather present the following major characteristics most often mentioned in differenti ating economic organizations, although whether or not the reader includes a certain item as a distinctive character istic is dependent in a sense upon how he analyzes the particular problem concerned. The major characteristics can be differentiated in (1) the methods of production, (2) the ownership and management of property, (3) methods for socio-economic coordination, (4) locus of economic power, (3) centralization vs. decentralization, (6) the level of economic development, (7) distribution of Income, and (8) 11 economic motivations.^ Let us now, following these criteria, venture to differentiate the main characteristics of economic organizations in India and Communist China. The Methods of Production Historically, in any economic society, patterns of production have played an important role in determining the character of whole economic systems. With regard to this significance of the patterns of production we can, at best, rely on the characteristic roles played by certain factors of production. In this regard both India and Communist China follow the patterns of laboristic and landistic or naturalistic production with a relatively smaller role placed on capital and capitalistic methods of production. The Ownership and Management of Property Unlike the case of Communist China, India's Plan ning is not based on a blueprint with specific input-output figures to be closely followed by managers of publicly *Cf. John E. Elliott, Economic Systems and National Planning (Los Angeles: University of Southern California, 1963), Ch. 3, pp. 1-11. (Mimeographed) 12 owned enterprises. Specific planning as well as the ownership and management of production is restricted to the relatively small public enterprise sector, while in other sectors private enterprises are predominant, subject to various government controls such as credit controls, price controls, licensing and the like. In Communist China, on the contrary, the public ownership and management of production, together with communal ownership of agricul tural production, is predominant, following the basic Marxist dictum that whosoever owns the means of production also holds the key to socio-economic, political, and institutional control during the period of transition. Methods for Socio-economic Coordination India, both in the calculation of alternative ways to achieve planning goals through efficient allocation of scarce resources and in the coordination of economic acti vities, gives overall reliance on the methods of coordination elucidated by Dahl and Lindblom, that is, the price or market system, hierarcy, polyarchy or democracy, and bargaining, especially laying heavy reliance on democratic planning in the process of coordinating ^According to Dahl and Lindblom, polyarchy is 13 national economic activities. In Communist China, on the other hand, hierarchy is an acceptable form of economic coordination with less or no reliance on the price- directed market system, polyarchy, or bargaining. Locus of Economic Power The locus of economic power can best be described In terms of Individualism vs. collectivism in making basic decisions in the course of developmental planning. In India, as we have already indicated, specific planning decisions in the public sector are made by the central government which assumes the most Important of the "itself a process of economizing." It is also "one of the major processes for shaping and changing the methods of economizing in the rest of society; thus the shift from laissez-faire to welfare state was brought through" democratic processes. Furthermore, polyarchy is "a means for controlling hierarchy, and hierarchy is an important economizing process." See Robert A. Dahl and Charles E. Lindblom, Politics. Economics, and Welfare (New York: Harper and Brothers Publishers, 1953), pp. 276-277, cited by John E. Elliott, 0£. cit., Ch. 3, p. 7. The planners of India, however, admit that democratic planning presents special difficulties. "Democratic pro cesses are complex, and the conflicting pulls from dif ferent political parties are apt to generate frictions and to slow down the pace of change. And, yet, it is only through democratic processes and methods that a vigorous creative political life is possible." Cf. Raghavan Iyer, "Economic Policy in India and China" in 6. F. Hudson (ed.), Far Eastern Affairs. No. 1: St. Antony's Papers, No. II (London: Chatto and Windus, 1957), p. 69. entrepreneurial functions, leaving ultimate decision making in the predominant private sector to the individuals. India, thus, tries to establish an economic order in which both private individuals and government would complement each other and combine in a concerted developmental planning effort. In contrast to India, developmental planning has proceeded on a "forced-draft basis" in Communist China. Instead of relying on economic incentives or voluntarism, compulsion is frequently seen in carrying out developmental planning. The government coordinates and regulates the "state-owned, economy, cooperative economy, the individual economy of peasants and handicraftsmen . . . in the sphere of operations, technical equipment, fiscal and financial policies, et cetera. 1^ Centralization vs. Decentralization Closely related to the characteristics of the locus of economic power is the distinction between centralization and decentralization. Although government centralized planning has played a crucial role in India's development ^Chao Kuo-chun, Economic Planning and Organization in Mainland China. Vol I (Cambridge, Massachusetts: Harvard University Press, 1959), p. 16. 15 effort, decentralization of economic organization is highly proposed, largely relying on the states, the district and village committees, and local initiative as well as private enterprises, to direct the path of developmental planning. As perfect democracy is based on individual freedom, a wide range for freedom of consumer and occupational choice is permitted. Thus, India's developmental planning is both centralized and decentralized—’decentralized because it is well-integrated democratic planning through which the planners attempt to make a compromise between growth and welfare objectives. In Communist China, on the contrary, the central planning board makes and directs the b^sic production decisions for the entire national economy, so that both developmental planning and the execution of the plan are substantially centralized, though decentralization, autonomy for the state trading mechanism have been advocated,^ closely integrating with the normal state planning organs. The Level of Economic Development The economies of India and Communist China during ^T. J. Hughes and D. E. T. Luard, The Economic Development of Communist China: 1949-1960 (London: Oxford University Press, 1962), p. 60. 16 the era of the second five-year plans are said to have much in common. Both countries were approximately at the same < ! stage of development, respectively launching their take off s. They were both predominantly agricultural countries which felt the burden of intense population pressure due to high fertility and mortality rates. In spite of the modest beginning made toward industrialization, they suffered from lack of capital and a primitive technology, low per capita income and low savings due to low productivity of labor, disguised unemployment and a lack of employment opportuni ties outside agriculture (especially in India). Along with the rudimentary education and high degree of illiteracy usually found in both countries, they had inadequate or crude communication and transportation facilities, espe cially in the rural areas. Both countries are, therefore, categorized in the group of economically underdeveloped countries by western economists. Distribution of Income Some economists would say that distribution of income is one of the most important characteristics to 5w. W. Rostow, The Stages of Economic Growth (London: Cambridge University Press, 1961), pp. 9 and 36. 17 differentiate the nature of economic organization. Distri bution of income may be discussed in terms of equalitarlan and inequalitarian economies according to the degree of equality in income, wealth, and economic opportunity. Despite the fact that the former has more acclaim in India under current developmental planning, considerable inequal ities exist in distribution of Income and economic opportunity. Also, in spite of heavy emphasis given to economic welfare of the people, income is distributed according to productive contribution made by individuals or factors of production in the market. Thus, inequali tarian and productive-contributive distribution are closely related. Existing inequalities both in income and wealth and in the ownership of factors of production by a small number of private individuals have aggravated the differentials in wages received.^ In contrast to India, equalitarlan distribution is an accepted dictum in theory in Communist China, although « &If, in any economy, complete equality of opportu nity, complete mobility of labor among different regions of the economy, and free choice of occupation were to be preserved, differentials in wages received would be bound to exist due to payment for scarce inborn abilities, costs of waiting and training, and compensation for special !8 wage differentials exist among different groups of laborers and different industries in practice. Taking the country as a whole, with the exception of a few high ranking party members, government officials, and top scientists and technicians, income received by various groups tended to be equalized, especially following the establishment of the communes in urban and rural districts. The existence of wage differentials in India has resulted in the fact that free choice of occupation allows workers to shift their employment into industries where their particular skills can best be utilized in the course of production. These wage differentials then are compensa tory in the sense that, . . . the choice of an occupation offering a lower income, but also a smaller disutility, may be interpreted as the purchase of leisure, safety, agreeableness of work, etc., at a price equal to the difference between the money earned in that particular occupation and in others.7 Economic Motivations With regard to economic motivations, India's planning hardships in relation to nature and conditions of work as well as its location. ^Oskar Lange and F M . Taylor, On the Economic Theory of Socialism (Minneapolis: The University of Minnesota Press, 1938), p. 88. 19 may be described as both market- and nonmarket-ortented. It is market-oriented in that the private sector still plays a dominant role in the national economy in the production of goods and services, and maximization of profit is an ultimate motive among the producers of the private sector. It is nonmarket-oriented in that as the official report of India claims the creation of "a socialist pattern of society," is an ultimate objective of develop mental planning. In such a society, . . . the basic criterion for determining the lines of advance must not be private profit but social gain, and . . . the pattern of development and the structure of socio-economic relations should be so planned that they result not only in appreciable increases in national income and employment but also in greater equality in income and wealth.& Developmental planning is thus motivated toward a greater social gain accompanied by the general welfare of the mass populace and a motivational characteristic is closely related to distribution of income. Planning in Communist China is also nonmarket-oriented. Nowhere in the planning text is profit maximization discussed. Rather, the planners ^Government of India Planning Commission, The Second Five-Year Plan (New Delhi: Government of India Press, 1956), p. 22. 20 lay heavy reliance on the rapid economic development to overpass the Western economic powers within a decade or so. Thus, planning In Communist China Is motivated toward the maximization of social economic gains, as Identified by party and planning leaders. II. GUIDELINES FOR AND GOALS OF DEVELOPMENTAL PLANNING Planning Guidelines Today, India and Communist China, as many other underdeveloped countries, are In "the vicious circle of poverty." In these economically underdeveloped countries poverty generates low rates of saving and investment which, in turn, sustain, "an expansion of production facilities no greater than required by relatively low rates of population growth." As Professor Mason puts it, . . . any small improvement in productivity, whether brought about by increased investment, technological changes, or the opening up of new areas, is likely to generate a population increase that will not only prevent any substantial improvement in living standards but will leave the vicious circle intact. If a sharp rise in the rate of population growth, brought about by the effect on death rates of public health measures, produces any substantial improvement in productivity, the problem only becomes more difficult.9 ^Edward S. Mason, Economic Planning in Under developed Areas (New York: Fordham University Press, 21 Therefore, "planning Is at the same time much more necessary and much more difficult In underdeveloped than advanced countries."^ We mean by underdeveloped countries those In which poor economic performance as evidenced by comparatively low average of consumption and material well-being of the people is accompanied by the potentiality of improvement through the application of known means. Proper develop mental planning is urgently needed in these cases to bring about rapid economic progress with some changes in the use of productive resources which might entail with it a potentially continuing growth of national income per head with an increasing or stable population. If existing resources are not to be wasted on uneconomic and conflicting aims, the developmental planning can be guided in general as follows: 1. The capitalistic system is weak in underdeveloped countries. The vicious circles of poverty and a mould of stagnation r e not likely to break up rapidly without a 1958), p. 45. Cf. Ragnar Nurkse, Problems of Capital Forma tion in Underdeveloped Countries (Oxford: Basil Blackwell and Mott Ltd., 1953), pp. 4-5. l^W. Arthur Lewis, The Principles of Economic Plan ning (London: George Allen & Unwin Ltd., 1956), p. 121. centrally directed and well•coordinated planning mechanism. 2. In the formulation of developmental planning, complete assessment, compilations, and classification of available resources have to be undertaken. Planning priorities should be fixed, as full knowledge on economic conditions and available resources is obtained, in the light of ultimate goals and the planning efforts should be directed toward the attainment of planning targets. 3. In most underdeveloped countries where developmental planning is pursued on the democratic line, the private sector is weak and development is bound to be retarded. The government should, therefore, help create a climate conducive to the growth of an efficient private sector which eventually can carry the main burden of economic development. An overall growth of the private sector is essential for sustained development in India. 4. Developmental planning also "requires a strong, competent and incorrupt administration," in any economic system. "In the absence of such an administration it is much better that governments should be laissez faire than they should pretend to plan ."^ 23 5. Special care must be taken in the use of planning methods and techniques which are more applicable to economically developed than to the underdeveloped countries (e.g., deficit financing to create employment). 6. Developmental planning has to be carried on rapidly and dynamically. "Insistence on 'slow' evolution . . . is defeatist, and indeed dangerous, because it is precisely slow evolution that cannot succeed in the face of all the obstacles."^ 7. In the course of developmental planning, the role of government should rest on;(a) the creation of necessary incentives, fostering entrepreneurship and encouraging "the development of a social pattern in which actions are guided," to a greater extent "by monetary 13 incentives" if democratic planning should be preserved, (b) investments In social overhead capital which is ^Benjamin Higgins, "The Dualistic Theory of Underdeveloped Areas," Economic Development and Cultural Change. IV, (January, 1956), p. 114. Cf. also John E. Elliott, "Economic Planning Reconsidered," The Quarterly Journal of Economics. LXII, (February, 1958), especially pp. 67-75. ^George N Halm, Economic Systems (New York: Rinehart and Winston, 1960), p. 288. 24 14 productive but not profitable, and (c) obtaining invest ment funds by such means as taxation, domestic borrowing, foreign borrowing, and credit creation to finance necessary investment projects.^ 8. All development schemes must be connected with capital formation as an indispensable lever of economic growth and must be well coordinated. Goals of Developmental Planning Introductory remarks. In any economy following the guidelines thus discussed, planners establish goals of developmental planning to achieve a rapid economic progress. The goals mainly discussed in theory and in practice are fourfold: namely, an efficient allocation of resources, an equitable distribution of income, economic stability -and full employment, and economic growth and economic freedom. Whether the welfare economy of India or the totalitarian economy of Communist China functions well or poorly depends on the compatibility of its different ^Albert 0. Hirschman, The Strategy of Economic Development (New Haven, Connecticut: Yale University Press, 1958), pp. 83ff. l^Mason, oj>. cit., p. 49. 25 planning goals and on Che adequacy and practicability of the proposed means to attain the goals pursued. Economic performance could be better either in the welfare state like India or in the totalitarian state such as Communist China in certain aspects. In any economy, however, many obstacles exist in the carrying out of planning goals. They are mainly because of the following reasons: (a) economic goals are often multiple rather than monistic; (b) goals are not generally in perfect harmony, but are often in conflict; (c) choices among the goals aforementioned are frequently made on marginal grounds; (d) goals are not clear cut, but rather imprecise; and (e) goals are not isolated from the means or techniques to attain them.^ One of the major characteristic differences, in the formulation of goals, between India and Communist China can be summarized in that whereas the supply of different commodities is, to a greater extent, determined by demand in the market in the former, it is determined in the latter by command and the plan. Therefore, the price mechanism l^Elliott, Economic Systems and National Planning. 0£. > cit., Ch. 2, p. 5. does not function as in the former and it has different functions on the markets. On the consumers' goods market, prices are usually raised far above costs of production to avoid rationing, whereas adequate supply is achieved by compulsion on the labor market when desirable. And on the other remaining markets prices are frequently so set that equality between supply and demand is maintained. If, furthermore, no market exists, a comprehensive system of allocation based on material balances determines the factors of supply and demand. Thus, the prices for pro ductive resources are artificially set, so that they do not perform any guiding functions. Due to the limited supply of certain factors of production, the planners of Communist China must constantly check the total resources available so that they may be allocated according to the relative importance of the products, or to the technological coefficients of produc tion, or to the relative use of the different factors of production. Allocation of resources performed, based on the above may create a system capable of maintaining full employment, but such a system can hardly maintain estab- % lished material balances and is prone to rule out individual freedom whenever bureaucratic functions and interference 27 of the plan exist. Second Five Year Plans of India and Communist China With this theoretical background we may now turn to the second five-year plans of India and Communist China, and examine the important differences in emphasis given on the goals and motivations of developmental planning in each country. India. The central goal of planning in India is to initiate, sustain, and secure rapid development along "democratic and egalitarian lines." The planners of India consider developmental planning as: ... an integral part of a wider process aiming not only at the development of resources in a narrow technical sense, but at the development of human faculties and the building up of an institutional framework adequate to the needs and aspirations of the people.17 The essential goal of planning is, therefore, to build a socialist society by democratic methods under a welfare state. The achievement of maximum rates of economic development through rapid industrial and technical advance ^Government of India Planning Commission, The First Five Year Plan (New Delhi: Government of India Press, 1952), p. 7. 28 is considered to be of secondary importance. Rather, the major emphasis is laid on the balanced growth of all sec tors of the economy and the improvement of the social and economic conditions of the country. Developmental planning in a democratic state is regarded as a social process in which an opportunity is provided to every member of the society to take part, directly or indirectly, in the fulfillment of planning goals. Planning in a democratic set-up implies the minimum use of compulsion or coercion for bringing about realignment of productive forces. The resources avail able to the public sector have, at this stage, to be utilized for investment along new lines rather than in acquisition of existing productive capacity. Public ownership of the means of production may be necessary in certain cases; public regulation and control in certain others. The private sector has, however, to continue to play an important part in production as well as in distribution. Planning under present conditions, thus means, in practice, an economy guided and directed by the state and operated partly through direct state action and partly through private initiative and effort.*-® Within this broad approach, the goals of the second five-year plan had been set out as follows. 1. A sizable increase in national income (25%) so as to raise the level of living in the country; *-®Iyer, ©£. cit., p. 50. 29 2. Rapid industrialization, with particular emphasis on the development of basic industries, and increased socialization of new heavy industries; 3. A large expansion of employment opportunities; 4. Reduction of inequalities in income and wealth and a more even distribution of economic power.^ These fourfold major goals are interrelated and should be balanced in the execution of the plan. Behind these goals, there are some basic decisions on the formulations of planning goals, which not only guide the second five-year plan, but also direct the course of future development. The basic assumptions which direct the course of planning are: 1. The second plan must be big enough to lift the Indian economy into the take-off stage of economic development; 2. The agricultural sector and the rural community should be developed first; 3. The development of large and small industry must be balanced to achieve the proper proportions of economic 19 Government of India Planning Commission, The Second Five Year Plan (New Delhi: Government of India Press, 1953, p. 11. 30 growth, employment, and social stability; 4. The level of living ought to be increased along with increased industrialization; 5. Democratic means toward economic development should be used; 6. All groups and classes and regions have to be developed in order to increase the equality of Income and opportunity; 7. The people of the villages and districts are to be associated with the plan so that their Initiative, energies, and cooperation are assured and may serve as the constructive and creative instrument of development; and 8. The highest goal of the plan is the development 20 of the individual and his advancement in human freedom. Returning to the four basic goals outlined for the second five-year plan, it has been envisaged to effect an increase of 25% in the national income compared to the growth target of 11% during the first five year plan period. Thus, in figures, national income would go up to Rs. 13,800 crores in 1960-61 against Rs. 10,800 crores in 1955-56, both ^Government of India Planning Commission, The New India: Progress through Democracy (New York: The Macmillan Company, 1958), pp. 40-63. 31 at 1948-49 constant prices. It is necessary, however, to note at this stage that a sizable increase in income may not be attained through a rise in the standard of living if the allocation of additional income to raise the living standard should compete with its use for new investment. The second goal, industrialization, is interrelated with the first, because a substantial increase in national income as well as in the standard of living preconditions a sufficient increase in the production of the country, and without industrialization, a full use of the total available productive potentialities is less likely to exist. Particular emphasis was laid on the development of basic industries on the score that a concentration on heavy industries may bring about a pattern of output in which an aggregate employment of available labor power is usually smaller than in other industries with the same overall output level. Also, investment in basic industries and expansion of small and village industries absorb as much as possible the surplus manpower. A large expansion of employment opportunities demands a balanced pattern of Investment in these industries. Like other underdeveloped countries, India faces the problem of existing inequalities of income and wealth. To 32 reduce these inequalities the planners endeavored to find a scheme to raise incomes at the lowest level, along with a simultaneous reduction of income at the top. A number of measures have been taken to attain this goal during the second five-year plan period, namely, through fiscal devices, mobilization of resources, expansion of social services, institutional changes in the structure of agri cultural and industrial management, development of small 21 scale industries, et cetera. Furthermore, a number of special measures also have been taken to reduce inequali ties due to regional disparities. Within the resources available the planners endeavored to provide for balanced development in different regions of the country through a variety of ways, i.e., through setting up of decentralized industrial production, appropriate policy on location of industries, and measures to promote the mobilization of labor to a greater extent between different regions of 22 the country. Special attention, at this stage, should be paid to 21 The Second Five Year Plan: Summary. op. cit., p.17. 22ibld., p. 18. the approaches thus discussed. If we are to follow the approach of Keynesa society's propensity to save may well increase as a society's income increases or as its distribution of income becomes less equitable. In such a society we may as well possibly expect to find a supply of the entrepreneurial ability, interest, and incentive for investment against consumption which is often regarded to be necessary for the promotion of rapid economic develop ment. Therefore, these conflicts should be fully appreciated by planners in the execution of the plan. The four basic goals outlined for the second five- year plan are interrelated and interdependent in one way and another, because a higher standard of living depends on increases in production which involve rapid industrializa tion. Increased investment generates consumers' demand for goods and services which in turn expand employment oppor tunities. Wage income rises as employment is provided, and ^^fteynes stated that "The fundamental psychological law, upon which we are entitled to depend with great confi dence both a priori from our knowledge of human nature and from the detailed facts of experience, is that men are disposed, as a rule and on the average, to Increase their consumption as their income increases, but not by as much as the increase in their income." See John M. Keynes, The General Theory of Employment. Interest, and Money (Mew York Harcourt, Brace and Company, 1936), p. 96. 34 through proper economic planning and social control, a pattern of development can also bridge the gap between rich and poor, reducing existing Inequalities In Incomes and wealth. The overall goal of the plan Is the creation of a "socialist pattern of society," in which the state is endowed with major responsibilities for the details of planning. In checking the rest of the economy, the state limits its role to cooperation, participation or control, so that the private sector plays its assigned role within the framework set under a pattern of centralized- decentralized economy. The socialist ideal, however, is not framed as in the case of totalitarian economy. The socialist pattern of society is not to be regarded as some fixed or rigid pattern. It is not rooted in any doctrine or dogma. Each country has to develop according to its own genius and traditions. . . . The accent of the socialist pattern is the attainment of positive goals: the raising of living standard, the enlargement of opportunities for all, the promotion of enterprise among the disadvantaged classes, and the creation of a sense of partnership among all sectors of the community .... Economic policy and Institutional changes have to be planned in a manner that would secure economic advance along democratic and egalitarian lines. ^^The Second Five Year Plan, op. cit., pp. 23-24. f 35 Communist China. Turning to Communist China, the central stated goal of planning is to carry out an inten sive program of building China into a great socialist country with a highly developed, modem industry, agricul ture, science, and culture. Through rapid growth, a higher overall production level, along with rising material and cultural requirements, can be developed, thus laying the economic foundations for the possible and eventual transition from socialism to communism. As the major goal is to transform China into a power-* ful, industrialized, and socialist state, the planners, in preparing the five-year plans, laid emphasis on rapid economic development without any substantial reference made to allocation of resources, distribution of income, economic stability and economic welfare. Due to the excessive concentration on heavy industries, the nationalization of trade and agriculture, the collectivization of agriculture, and the over-investment in capital construction in the execution of the first five-year plan, the economic situa tion of Communist China was not so favorable as had been expected when the second five-year plan was proposed in 1956. A sharp increase in capital investment— an increase of 62% over the preceding year in 1356— brought about 36 commodity shortages, thus creating inflationary pressures and tensions. Also, especially in the sector of agricul ture, Communist China faced serious unresolved problems. Up to 1957, farm output had grown slowly— just sufficiently to keep pace with the increase in population. In a closed economy such as Communist China, agriculture is likely to retard the pace of industrialization unless it promotes growth in farm output "without significant diversification of investment funds from industry to a g r i c u l t u r e . " ^ Considering the above factors, planners formulated a somewhat different set of planning goals for the second five-year plan. Although formal planning objectives have never been published, we may possibly gather these goals together from different sources and list them as follows: 1. The central goal is to give priority to the development of heavy industry, developing at a rapid rate to increase its total output by over 100% and national income by 50% by 1962.^^ ^Alexander Eckstein, "The Strategy of Economic Development in Communist China," The American Economic Review. LI (May, 1961), p. 513. 26chao, oj>. cit., p. 41. 37 2. The two basic departments of social production— industry and agriculture— depend on each other. Therefore, agriculture should be modernized through mechanization and 27 electrification, and light industries must be developed simultaneously to carry through socialist transformation, 3. On the basis of increased industrial and agricul tural production, the national defense should be reenforced and the level of the people's material and cultural life 28 should be raised. For rapid fulfillment of these goals and socialist construction of the economy, the planners laid down a whole set of developmental policies referred to as "walking on two legs" and "the big leap forward,"— the idea mainly based on the balanced growth model of Rosenstein-Rodin and Nurkse along with the Stalinist strategy of economic 27 Hsueh Mu-chiao, Su Hsing, and Lin Tse-li, The Socialist Transformation of the National Economy in China (Peking: Foreign Language Press, 1960), p. 246. Also, see Su Hsing, "Several Questions concerning Socialist Extended Reproduction," Hung-Ch1i (Red Flag), VII (April 1, 1962). ___ ^^Handbook on People's China (Peking: Foreign Language Press, 1957), p. 112. 38 development.29 These developmental policies call for the simultaneous development of Industry and agriculture and heavy and light Industries giving priority to heavy Industry. In the course of socialist construction of the national economy, agricultural production provides grains and raw materials for Industry. It also provides, ... a large amount of funds for Industrial construc tion and the biggest domestic market for Industrial product. The rate of Increase In agricultural production not only affects the tempo of development of light Industry, but that of heavy Industry as well.30 As the jargon ’’ walking on two legs" Implies, If heavy Industry alone develops far ahead, that Is, only one leg, without simultaneous development of agriculture and light Industry, that Is, the other leg, or If the other leg Is 29xhe principal feature of the Stalinist strategy of economic development can be described as high rates of sav ing and Investment by means of agricultural collectiviza tion, considerable emphasis on the development of raw materials and Investment goods Industries, stress on large- scale and capital Intensive technology In Industry, less reliance on Investments In agriculture, and In consumers' goods Industries, as well as In social overhead lines. Cf. Alexander Erlich, "Stalin's Views on Soviet Economic Development," In E. J.-Simmons (ed.), Continuity and Change in Russian and Soviet Thought (Cambridge, Massachusetts: Harvard University Press, 1955), pp. 81-99. 30Hsueh, oj>. cit., p. 254. 39 too short, it might be difficult to achieve rapid economic development. Heavy industry cannot develop in isolation, separated from agriculture and light industry. In the course of balanced growth of heavy industries and agriculture and light industries, however, top priority 31 should be given to the development of the former, not only because it provides an adequate supply of machinery, equipment, raw and other materials for large-scale produc tion and technical reform, but also because it gives an impetus to modem communication and transportation networks that are necessary for rapid economic development. Further more, the big leap in production may create "favorable conditions for improving the material and cultural life," 32 of the mass of the people. Thus all these goals are ^Toward the end of the second five-year plan, the priority was switched to agriculture and light industry from heavy industry. On the priority given to agriculture, Sung Meng-ming states "The establishment of industry should start from agriculture and the development of industry should be based upon agriculture. The development of industry is determined not only by the conditions of industry itself but also by the conditions of agriculture, and mainly by the latter, ..." See Sung Meng-ming, "On the Proportional Relationship between Industry and Agriculture," Ta-Kung Pao. May 4, 1962. ^Hsueh, oj>. cit., p. 266. 40 interrelated with one another, following the general line of "going all out, aiming high and achieving greater, quicker, and better and more economical results in building socialism."33 As these goals are attained along with rapid develop ment of the social productive forces, the relations of production must be adjusted, consolidated, and changed step by step to ensure their continuous and unhampered growth. Following the guideline of "adjustment, consolidation, filling out and raising standards with chief emphasis given to adjustment,"3^ socialist collective ownership of the means of production will, Chinese Communists allege, inevitably pass on to socialist ownership of the mass of the people. As socialist society advances further and thus matures, it gradually becomes transformed into a communist society where the principle of "from according to his ability to each according to his needs" prevails. 33Ibid.. p. 252. 34 American Consulate General in Hong Kong, Economic Problems and Policies. Part 1: Economic Development. Extracts from China Mainland Publications, No. 66, September 18, 1963, p. 7, citing Editorial, "Unite and Struggle for New Victories," Jen-min Jih-pao. April 17, 1962. 41 Summary. To sum up, examining the different set of planning goals In India and Communist China, we may safely state that the ultimate objectives of planning stem from the desire to achieve rapid economic development and to build up particular patterns of socialist society, applying different types of means or techniques to attain their respective objectives. Notwithstanding the existence of similarities In the ultimate objectives to be pursued, a clear distinction can be found In the process of formulat ing planning goals and their execution. It Is mainly due to the differences In concepts, philosophy, and values attached to planning— i.e., empirical and eclectic approaches to planning in India vs. dogmatic and determin istic approaches in Communist China, liberal vs. authori tarian conceptions of socialism, democratic vs. totalitarian planning, social welfare vs. economic growth, and the attempt to adapt people to plans vs. the attempt to adapt 35 plans to people. These distinctions are, however, concealed to a greater extent due to the similarities in overall characteristics of their backwardness and planning goals. »Cf. Iyer, oj). clt., pp. 56-57. 42 III. TECHNIQUES FOR FORMULATION AND EXECUTION OF FLANS India Planning organs. techniques. and execution. The Indian Planning Commission was created in March, 1950 under the authority o£ the prime minister as its chairman. The Planning Commission was instructed by the Government of India Resolution, in making planning decisions, to promote the welfare of the people by securing social, economic, and political justice. To pursue these objectives, the Com mission undertook to assess the nation's material, capital, and human resources and to investigate the possibilities of augmenting these resources if any deficiency were found in relation to the nation's requirements; to formulate a plan for the most effective and balanced utilization of the country'8 resources with proper priorities and allocations; to investigate the factors which tend to retard economic development and determine the conditions, machinery and adjustments necessary to implement the plan; to appraise from time to time the progress achieved in the execution of 36 the plan and make any recommendations to facilitate it. 360. K. Ghosh, Problems of Economic Planning in India (Allahabad, India: The Leader Press, 1957), pp. 51-52. 43 The present institutional structure of the Planning Commission has taken its shape mostly during the period of the first five-year plan. Besides the chairman, the Com mission consist8 of seven members— a deputy chairman, three cabinet ministers, including the finance minister and the minister for planning, and three other full-time members. Thus the Planning Commission links closely with the Cabinet Secretariat and with the Ministry of Finance in assessing the financial requirements of the plan. The Commission is assisted by its own technical staff and a few officers drawn from the services and several research officers grouped in a number of divisions such as the Economic and Finance Division, the Food and Agriculture Division, the Industry and Minerals Division, the Land Reform Division, the Irrigation and Power Division, et cetera. These organizations work closely with the relevant ministries at the center, and the states^? from which the actual plans and estimates come, to review needs, programs, and progress. In drafting the five-year plans, the Planning Com mission acts primarily, 37nstate" here means province. 44 ... to establish national priorities, to balance the needs of different parts of the economy, to recommend the size and broad directions of the acti vities to be taken up in each field, and to reconcile the claims of the various ministries in the Central and State governments, the consumer needs of the people and the investment needs of the economy, the needs of today and the needs of future,38 so that the various schemes of the plan are well coordi nated in the point of view of overall harmony and practicability and that basic decisions and policies adopted may represent the nation's best collective judgment in the promotion 4>f overall economic progress. In order to keep the plan more flexible, to assess the annual progress in the execution of the plan, and to reveal new means or incentives or leadership inevitable to overcome weak spots in the total program, the State Plan ning Commission was given the authority to formulate annual plans, which make possible more rapid adjustments to overall economic needs and trends in the process of execut ing the plan. In addition, "perspective planning" for the fifteen to twenty-year period following the five-year plan is also iconsidered by the Commission for long-range development. 38lhe New India, op. cit.. p. 66-67. Although the planning Commission estimates the nation's resources available to meet growth requirements- ln the plan, specific development programs included in the plan come in large part from the central and state govern ments, leaving with the former advisory functions of providing helpful suggestions in a decision making of programs of national importance. In a sense, therefore, the Planning Commission is a coordinating and priority fixing body working hand in hand with the central ministries and state governments. Before the programs for inclusion in the plan are made final the draft plan is submitted to the National Development Council, composed of the prime minister and the members of the central cabinet, members of the Planning Commission, and the chief ministers of the States. The plan thus submitted to the Council is subject to review and discussion in consideration of important questions of national, social, and economic policy. Therefore, the planning process must be democratic, and helpful sugges tions and corrections are the only instruments in arriving at final agreements. Once the final plan is approved by the Council, it is presented to Parliament with endorsement of the Planning Commission and becomes an official 46 production program if approved by Parliament. Because of heavy emphasis given to centralized- decentralized developmental planning, the private sector still plays a predominant role in carrying out the plan in India. However, in the operation and implementation of the plan, government directly controls allocation of raw materials, imports and exports, and foreign exchange transactions of the major strategic industries for India's development. This direct control is in addition to its indirect control through fiscal and monetary policy. Government is also empowered by various acts to license, control, and regulate the methods and volume of production, distribution, and consumption of major industrial raw materials and industrial components as well as a large part of iron and steel products. Government prescribes prices of the controlled commodities in short supply (e.g., food stuffs, certain manufactured consumer goods, et cetera) and sets the price ceilings of varying degrees for many com modities.^^ Thus, government determines the pattern of ^Everett E. Hagen (ed.), Planning Economic Develop ment (Homewood, 111.: Richard D. Irwin, Inc., 1963), p. 82. Cf. also P. T. Bauer, Indian Economic Policy and Develop ment (New York: Frederick A. Fraeger, 1961), pp. 86-88. 47 economic activity to accomplish goals of developmental planning. The second five-year plan. India's second five-year plan was launched in April, 1956. In drafting the second five-year plan India followed methods of democratic plan ning. In April, 1954, nearly two years before the onset of the second five-year plan, the Planning Commission requested the state governments to arrange for the prepara tion of district and village plans, particularly "local agricultural production, rural industries, and coopera tion."^ These plans were formulated on the local village level by agreements reached between councils of village leaders and local project officers as to their needs, and thus formed some basis for the draft plans of state governments. During the same period the study of wider aspects of national planning was made by the Planning Commission, relying on the analyses and proposals of the central ministries, Central Statistical Organization, Indian Statis tical Institute as well as the views expressed by a 40Ibid.. p. 68. considerable group of independent economists and technical experts. Specific plans presented by state governments on their needs, proposals and probable resources were initially discussed in the Planning Commission in September 1954 and coordinated with national objectives and resources. Further discussions were held in November of that year on the national objectives of "liquidating unemployment and achieving a satisfactory increase in national income,"^1 and the objectives were endorsed by the National Develop ment Council. In December the Lok Sabha. The House of People, reviewed, discussed, and assented to the draft plan, declaring the objective of Indian economic planning to be "the creation of a socialist pattern of society." In 1955, the draft plan was further studied and reexamined by the Planning Commission. Throughout this review the Planning Commission had constantly benefited from extensive discussions with the director of the Indian Statistical Institute, Ragnar Frisch of Norway, Oskar Lange of Poland, Charles Bettleheim of Paris, R. M. Goodwin of Cambridge, Degtyar of Gosplan, Pisarev, Rubinstein, and Moskvin from the Academy of Sciences of the U. S. S. R.^ 49 In May the draft memorandum was considered by the National Development Council and finally a draft outline was released for public information, discussion, and comment. The draft plan was widely discussed and commented in the All-India Congress Committee and the public was invited to discuss, coordinate and recommend their views, while the preparation of detailed proposals was being made by the central and state governments. By late January, 1956 the revised draft plans presented by the state governments were fully discussed, coordinated, and recommended by the National Development Council in close cooperation with the Consultative Committee of Members of Parliament. The final plan adopted was then presented to Parliament on May 5 and after minor amendments passed in July, 1956, thus becoming an official second five-year plan of India. At the time of the formulation of the basic planning technique of the second five-year plan, less emphasis was given to the development of agriculture— the major preoccu pation of the preceding plan. Rather, the main strategic technique advocated in the second five-year plan hinges on the development of capital good industries, on which the Indian economy firmly stands. This was due perhaps partly, if not totally, to the overfillment of the targets in the 50 agricultural sector during the first five-year plan period, and partly due to the fact that both agriculture and con sumption goods industries were considered to be of secondary importance to heavy industry. The above mentioned planning strategy was supple mented by a minor technique for fostering the goals and objectives of the welfare state, considering the develop ment of social and welfare services. In addition, planners placed an emphasis on the expansion of household and cottage industries not merely to match the increased supply and demand for consumer goods on the score that an increase in purchasing power or consumer demand is likely to follow in the process of applying these planning techniques favored, but to reduce unemployment or underemployment problems in the rural economy. Thus the basic strategy discussed is to enhance the accelerated growth of the Indian economy through rapid industrialization and to promote social and economic welfare of the mass populace. Communist China Planning mechanism, techniques. and execution. The broad planning objectives of Communist China's economy are set by the Political Bureau of the Central Committee of 51 the Chinese Communist Party and the People's Congress, taking Into consideration both economic and political factors and needs. With this general framework, the State Planning C o m m i s s i o n , ^ created in November, 1952, sets out the five-year plan as well as long-range (two or three Quinquennia, i.e. five year periods) planned in close cooperation with the State Economic Commission, the State Statistical Bureau, the Commission of National Construction (abolished in February, 1958), the various ministries in Central People's Government and supervises planning and the execution of the plan. The preparation of the five-year plan begins at least a year in advance, in the preparation of the plan the State Planning Commission is assisted by regional and local organs in charge of planning "in the twenty-two provinces, two autonomous areas, the municipalities of Peking and Shanghai, and about 2200 hsien or provincial * municipalities,"^ which serve as the coordinating agency ^Prior to May, 1956 the State Planning Commission performed the short-term planning functions, in addition to the long-range plans, of the formulation and supervision of the annual plans and the day-to-day adjustments of planning targets. These functions were taken over by the National Economic Commission in May, 1956. 44Chao, op. cit., p. 1. 52 presenting their local needs and plans to the State Plan ning Commission for revision and approval. Thus, prepara- tion, evaluation, and revision of the five-year plans of Communist China are carried out on the one hand by the State Planning Commission in cooperation with other central planning organs, and on the other hand by the regional planning bureaus. In making up its detailed plan, the State Planning Commission initially calls for preliminary estimates, reports, and inventories from the various heads of govern mental ministries, regional administrative authorities, and about 100 major enterprises, who inform the State Planning Commission what they need to achieve certain goals after obtaining advice from production experts. These prelim inary reports usually contain data on a number of such essential areas as labor, use of raw materials, costs of production, volume of sales, construction, finance, at cetera. The State Planning Commission is assisted by the State Statistical Bureau which makes separate estimates on these data and evaluates the appropriate ratios between various needs— e.g., the ratios between production and consumption, consumption and investment, labor force and material resources, the industrial and agricultural sectors, 53 and the like--In the form of functional relationships, or in detailed balance sheets, or matrices.4^ The State Planning Commission then draws up a tenta tive plan, considering the above factors and preserving "comprehensive balances,"— i.e., balances between state revenue and expenditures, between the supply and demand for commodities, and between the inflow and outflow of cash, and distributes the blueprints of "control figures" through the administrative channels of the central ministries down to the regional authorities and the enterprises. In accordance with the control figures and directives received, the lower-level planning units prepare their respective five-year plans. With corrections and suggestions the tentative blueprints are collected by the State Planning Commission. Thus, the formal plan is drawn up with revisions and corrections after examining and discussing these draft plans and requests. If the new plan is adopted by the National People's Congress, it becomes an official production program, with detailed figures, and providing compulsory instruction for all sectors of the economy. The official plan then travels the inverse route 45Ibid., p. 2. 54 to the central ministries and regional and local planning organs. In carrying out the plan, realistic compromises are made. The day-to-day operations of the various productive unit8 of the economy are directed by an annual plan drafted by the National Economic Commission in cooperation with the local organs and the State Economic Commission. If any disproportionalities exist in the various units, the annual plan faces constant revisions, even quarterly and monthly, so that current bottlenecks and miscalculations are avoided. Checking on the operation, efficiency, and fulfill ment of actual implementation of the plan is carried on by a number of supervisory organs— i.e., . . . the Ministry of Supervision with sections at ministry, bureau, and enterprise level; the inspection teams sent periodically by the state planning agencies; conferences on planning problems convened at central, regional and local levels; and the state bank branches which provide funds for many economic projects.^ These supervisory organs assist the State Planning Com mission in the execution of the plan providing such information as the "cost of production, quality of products, and the accuracy of production reports." 46Ibid., p. 5. 55 The second five-year plan. In the case of the second five-year plan (1958-62) of Communist China, prepar ations for the compilation of control figures were initiated in December, 1956 by the State Planning Commis sion. Specific planning studies, on the estimated achievements of the first five-year plan (1953-57) and certain other related problems for the preparation of the second five-year plan, were made by the various research bureaus of the State Planning Commission. In the process of preliminary research, the planners followed the instructions given by the State Planning Commission, especially paying their careful attention on the conditions of national income growth in the first five-year plan period and its ratio between consumption a,nd investment; the distribution of income in relation to the level of income and consumption expenditures of differ ent social classes; the achievements of planned targets with respect to the value of total industrial production and the rate of labor productivity; the path of industri alization; the implementation of the planning of production increase, cost reduction, and national construction with frugality and industry— these are regarded basic policies in socialist construction; technological development; 56 coordination among industries of different scales; the ratio between industry and agriculture and their production potentialities; the ratio between transportation and production developments; the problem of population growth and employment; the balance between the increase of pur chasing power and the supply of goods, between major goods imported or exported; the relative proportion between the governments' receipts and expenditures; and the level of education and availability of technical training of the 47 urban and rural populace. The strategy and techniques of developmental planning for the second five-year plan were proposed and studied at the~Eighth National Congress of the Chinese Communist Party, held in Peking during September 19-27, 1956, and the proposed plan was sent to the State Council after its adoption by this Congress. Although the planning principles on the same subject were laid down in the report of Premier Chou En-lai, the official plan has never been published. Both proposals adopted at the Eighth National Congress and in Premier's report stressed the importance 47Ibid., pp. 29-30^ of intensive utilization of under-employed labor combined with promotion of technological dualism as a means of maximizing the rate of economic development during the second five-year plan period. The new strategy thus evolved laid stress upon the simultaneous growth of industry and agriculture on the basis of priority for the development of heavy industry. The strategy of economic development through balanced growth was initially advocated by Mao Tse-tung, denouncing the Stalinist strategy of developmental planning which brought about only a meager increase in the farm product just sufficient to keep pace with an increase in population. Agriculture must be developed simultaneously with industry in order to get raw materials and markets and to accumulate substantial capital for the establishment of a powerful heavy industry. It was further stressed by Li Fu-chun, the chairman of the State Planning Commission, in The Report on the Tasks and Directions in Socialist Construction in Future: Industry is the leading force of the national economy and heavy industry is the material basis for expanded socialist production. Only when heavy indus try is given priority of development can expanded , ~ socialist reproduction be carried out successfully. This newly evolved planning strategy popularly referred to as the "big leap forward" was initially announced by the Central Committee of the Chinese Communist Party in September, 1957, and then, "the general line of socialist construction," was adopted, at the second session of the Chinese Communist Party Eighth National Congress in May, 1958, to accelerate the development of industry, laying special emphasis on the development of local, small- scale light industries with, "indigenous methods of ..50 production." In order to obtain better results, the planners studied a scheme of decentralization in these fields, delegating substantially increased powers to the local organs and to the individual enterprises.^ This general line of socialist construction also advanced the strategy of balanced growth commonly denoted by a Chinese Communist jargon, "walking on two legs." From then on, as Li Fu-chun puts it, "the actual period of socialist con struction began.As these new policies were adopted, ^Cheng, op. cit., pp. 138-139. ^Hughes, oj>. cit., p. 63. 52 Li Fu-chun, "Report on the Tasks and Directions in Socialist Construction in Future," Hung-Ch'i. 1, (1960), cited by Cheng, oj>. cit., p. 17. 59 special emphasis was given to overtake and surpass Great Britain in steel output as well as other major industrial products in the next fifteen years. To reexamine this target, the Political Bureau of the Central Committee of the Chinese Communist Party called a special meeting and a new resolution was adopted to take "steel production as the core and achieving a comprehensive leap forward," and the establishment of people's communes on a national scale was 53 proposed in addition. In spite of many difficulties encountered in the course of executing policies for the "big leap forward," along with great chaos envisaged in the commodity market, the Chinese Communists proclaimed that the planned targets for the second five-year plan had already been fulfilled by the end of 1959, three years ahead of schedule. However, soon experiencing shortages of both consumer and capital goods, as well as a great famine in agriculture, planners finally admitted that their official claims had been divorced to a great extent from actual performance.**^ 53 Cheng, oj>. cit.. p. 139. 54 Chou En-lai, "Report on the 1959 Economic Plan," Peking Review (September 1, 1959), pp. 11-19. -- - 60 Considering the seriousness of the commodity shortages and the great famine in agriculture, the Chinese Communist Party convened its ninth plenum in January, 1961, to reexamine the overall economic situation. As a result, a new planning technique was evolved in favor of production in agriculture, advocating a "whole country support agriculture" movement. Thus, following the reaffirmation of balanced growth with the priority given to agriculture as the foundation, the big leap forward in industrializa tion was officially abolished. Toward the end of the second five year plan, the Chinese Communist planners endeavored to carry out the general line for socialist construction under present conditions through the policy of "adjustment, consolidation, filling out, and raising standards," with adjustment as the center. After the socialist construction has gone through an extraordinary development, it is quite necessary to proceed with all round [sic] adjustment. Restoration and development of agricultural production are the central link in the chain of adjusting the national economy at present.55 Parallel with the new policy of "taking adjustment, 55 Editorial, Jen-min Jih-pao. op. cit. 61 consolidation, filling out, and raising standards as adjust* ment on the center," Chou En-lai pointed out ten tasks for the adjustment of the national economy in his report to the third session of the National People's Congress in March, 1961. The report stated: 1. To strive to increase agricultural production, first of all the production of grain, cotton, and oil- bearing crops. 2. To make a rational arrangement of the production of light and heavy industries and to increase the output of daily necessities as much as possible. 3. To continue to retrench the front of capital construction, and to use materials, equipment and manpower where they are most urgently needed. 4. To reduce the urban population and the number of workers and functionaries to an appropriate extent by per suading, first of all, those workers and functionaries who have come from the rural areas to return to rural produc tive work and strengthen the agricultural front. 5. To make stock inventories and to examine and fix the amount of funds for each enterprise so that the unused materials and funds will be used where they are most needed during the present adjustment. 62 6. To insure that the purchase and supply of com modities are well done and market supply conditions improved. 7. To work energetically to fulfill foreign trade tasks. 8. To adjust cultural, educational, scientific research and public health undertakings and improve the quality of their work. 9. To carry out, firmly and thoroughly, the policy of building the country with diligence and thrift to reduce expenditure and increase revenue. 10. To continue to improve the work of planning to insure an all-round balance between the branches of the national economy in the order of agriculture, light industry, and heavy industry Summary From the above analyses, it is clear that in spite 56chou En-lai, "On the Task for the Adjustment of the National Economy in 1962," (Press Communique of the Third Session of the Second National People's Congress of China, Peking: April 16, 1962), translated into English by New China New Agency (NCNA). See also Extracts from China Mainland Publications, op. cit., No. 66, pp. 6-7. of certain similarities in the ultimate objectives of developmental planning, India and Communist China differ in the details of planning techniques and execution. Since we have examined in detail the major characteristic differences in economic organization of both countries, there is no need to elucidate and compare all those differences here. If, however, we are to note some of them briefly, redundant as they are, both economic planning and the execution of the plan in India follow centralized- decentralized, democratic, welfare-oriented lines with relative reliance on economic and psychological incentives and voluntarism rather than on control; whereas the adopted lines for execution of the plan in Communist China are highly centralized, totalitarian planning techniques with substantial reliance on coercion and economic controls. CHAPTER III THE GROWTH IN NATIONAL INCOME AND INVESTMENT I. INTRODUCTORY REMARKS Without a proper inquiry into the relationship between the growth of national income and consumption or investment, a comparative appraisal of developmental, planning in India and Communist China must be incomplete, because both the growth of productivity and the dynamic aspects of economic performance of the nation during the planning period can best be indicated by changes in the components of national income and its allocation between the two basic competing uses of consumption and investment. However, comparisons of the growth of productivity and the dynamic aspects of economic performance in different countries over a period of time have always presented great practical difficulties. These difficulties are particularly acute in the case of economically underdeveloped countries. Perhaps the most difficult problem in the estimation of national income arises from the fact that in most under developed countries, much of the national output is 64 65 produced and consumed without passing through the market. Thus, it is practically impossible to interpret these activities according to the acceptable form of estimation.^ Comparisons between different countries are further blocked due to the characteristic differences in the economic organization in which institutional differences and differ ences arising from individual preferences bring about con- 2 ceptual differences in the treatment of certain transactions. Furthermore, differences in the statistical information available and incompleteness of needed data often prevent comparisons of economic levels of different countries on the things to be compared. Before attempting to make comparisons of national The United Nations, Statistical Office, National Income and Its Distribution in Underdeveloped Countries (New York: The United Nations, 1957), p. 1. Cf. Norman S. Buchanan and Howard S. Ellis, Approaches to Economic Development (New York: The Twentieth Century Fund, 1955) p. 17. o Alexander Eckstein, The National Income of Commun ist China (New York: The Free Press of Glencoe, Inc., 1961), pp. 19-77. Cf. also The United Nations, Statistical Office, Measurement of National Income and the Construction of Social Accounts. Report of the Sub-committee on National Income Statistics of the League of Nations Committee of Statistical Experts Studies and Report on Statistical Method, No. 17 (New York: The United Nations, 1947), p. 18. 66 income and its components in India and Communist China, therefore, it may be desirable to discuss the conceptual differences arising in the measurements of national income and product in these two countries and to find the expres sion of values in common comparable terms. Keeping in view the above aspects, this chapter analyzes and discusses: (1) conceptual differences, (2) the growth in national income, (3) per capita income, (4) income contributed by various sectors, and (5) savings, investment, and consumption. II. CONCEPTUAL DIFFERENCES National Income The various concepts of national income are the principal result of the emphasis on measurement of a nation18 economic activities and performance, the value of which is increasingly recognized. At first glance, however, we may easily be confused by the variety of national income concepts and by the lack of consistency among the defini tions adopted for its measurement in different countries such as in India and Communist China. Many of the national income measurements are available only for recent periods. In the estimation of national income India follows statistical concepts similar to those of the United States, whereas Communist China follows the practice of Soviet Russia patterned on the Marxian concept or material produc tive approach. With India, therefore, the national income is regarded as "the aggregate earnings of labor and property which arise from the current production of goods and services by the nation's economy," and thus includes all money incomes from productive activity accruing in the market economy.3 Recently, the factor-share payment approach in terms of income flow^ has been widely utilized in estimating the nation's economic activities in India. ^The phrase "... incomes from productive activity accruing in the market economy," is an important limitation in interpreting total national income, for if services are bought in the market the incomes arising from them will form part of the national income, and if similar services are rendered within the household they are not so computed. See NoKyoon Rwak, Development of National Income and Prod uct Measurements (Unpublished Master's Thesis, The Univer sity of California, Berkeley, 1959), pp. 11-13. ^In the United States, both the factor-share payment approach in terms of income flow and final product approach in terms of product flow have been utilized in addition to the method of national income accounting. National income as a measure of factor-share payment total is computed by summing income figures of various distributive shares, while national product as a measure of final net product total is computed by adding component figures of the purchases of final product by major purchaser groups. 68 By a total of factor-share payments, we refer to aggregate payments of wages, Interests, profits, and rents made to the owners of productive resources or factors, such as labor, capital, enterprise, and land, in return for their co-operation in the process of production. All these aggregate payments made to the factors of production currently utilized in a certain period, before taxes are deducted, comprise the conventionally conceived national income for a given period. These aggregate payments, however, being valued in terms of factor-share payments, have a valuation less than what we call gross national product at market prices by omission of capital consumption allowances and indirect business taxes in computing a total of national income. ^ Communist China, on the other hand, follows the value-added practice of Soviet Russia. National income is, therefore, . . . taken to mean the value added to the country's material wealth by productive activities and those serving production (industry, agriculture, construction, transport, post and telecommunications, commerce, the catering trades and services, etc.) over a given period. The national income for any year is thus the gross social product minus the means of production consumed in creating the new wealth.5 5l u Rang, "China's National Income," Peking Review (April 8, 1958), p. 7. 69 In principle, the procedure consists in the computation of net value added by each productive agency directly contri buted to the current production and then aggregating them together to arrive at the national income estimates.** In comparison with the Indian concept of national income, incomes accruing from providing services such as public administration, defence, education, professional services, and other services which have no direct bearing on material production are excluded in Communist China, except a minimum of services directly connected with the process of material production such as freight transporta tion, communications, and catering services. The national income of Communist China thus includes the aggregate earnings arising from the current production of all goods and only a few services,^ whereas that of India covers the **In practice, the term "the country's material wealth by productive activities," is to include certain services that are not "material wealth." Then, the Marxian concept of national ineome, which only includes incomes generated in the process of material production, is modi fied in a way to measure economic performance in Communist China. ^Since no allowance has been made for the balance in the international account, the national income as under stood in Communist China, is in essence the same as the net domestic material product in accordance with the 70 aggregate earnings accruing from the production of all goods and most services that are excluded In Communist China. Then, national Income in India is calculated on a wider base than that in Communist China, covering production of both material and non-material goods. Investment and Consumption As is the case of most western countries, the term "investment" is synonymously used, while not formerly identifying it with productive capital formation in India. Following the Keynesian type of economic analysis, the whole amount of income or output from productive activities in any period is classified to be used for either consump tion purposes or non-consumption, i.e., investment purposes as a matter of convenience. The concept of investment or capital formation is not used in the national income accounting of Communist China, but that of "accumulation," covering net fixed capital investments for production expansion, additions to stocks, and social reserve and definition adopted by the United Nations. Cf. Choh-ming Li, Economic , Development of Communist China (Berkeley: Univer sity oi: California Press, 1959), p. 80. Also see E. Stuart Kirby (ed.), Contemporary China 1959-60, IV (Hong Kong: Hong Kong University Press, 1961), p. 120. 71 social Insurance. Consumption is conceived to include all personal income, expenditures for scientific research, education, public health as well as government administra tive expenses. Thus, although the distribution of national expenditure between "accumulation" and "consumption" is not entirely dissimilar with that in India, slight concept ual differences exist in the common usage of these terms in Communist China. If we are to follow the concept of investment and consumption as given by Po I-po, chairman of the State Economic Commission, the part of national income which goes to accumulation consists of the following: 1. In the form of centralized state expenditure: investment in capital construction of productive and non productive undertakings less depreciation charges for fixed asset8; increases in circulating funds (working capital); increases in state material reserves, etc.; 2. In the case of state enterprises: accumulation within each enterprise; 3. In the case of agricultural producers' co-operatives (and collectives), handicraft producers' co-operatives, and supply and marketing co-operatives: reserve funds (surplus) of the co-operatives (and 72 collectives); and 4. In the case of individuals: investments made by industrialists, merchants, individual peasants and Q handicraft smen. In short, examining the above we may safely state that except for the depreciation of non-productive fixed assets (e.g., residential houses, government offices, other buildings, et cetera) which is included in the consumption component of national income, the concept of investment or accumulation is very close to that of net capital formation in India. III. THE GROWTH IN NATIONAL INCONE A study of the growth of national income in India and Communist China during the recent past and the second five-year plan periods gives one a clear view into the internal workings of the economy in both countries and also indicates many obstacles on their roads toward economic development. In order to gain a better understanding of 8Po I-po, Speech delivered to the Eighth Congress of the Chinese Communist Party on September 18, 1956, Eighth National Congress of the Chinese Communist Party Documents. Vol. II, p. 51, cited in the United Nations, Economic Survey of Asia and Far East. 1956 (Bangkok, 1957), p. 106. 73 the comparative performance and to form a basis for study ing the problems of economic development in India and Communist China under the second five-year plan it is necessary to examine the national income of both countries over a number of years. Before attempting to examine the comparative perfor mance special care should be taken. India launched its second five-year plan in April, 1956 and ended up in March, 1961, while the second five-year plan of Communist China covered the period 1958-62; thus there is a time lag of nearly two years in the plan periods which we are going to discuss. A difficulty arises in the comparison of official estimates available. With Communist China, not until September, 1956 when Fo I-po, chairman of the State Eco nomic Commission, revealed the level of 1956 domestic production based on 1952 constant prices, was there any available estimates of national income. It was not until April, 1958, when Lu Kang published estimates of national income for the period 1952-56, in the Peking Review, that the Statistical Bureau undertook to compile official national income statistics. In spite of this attempt figures available are confined to the period prior to 1960, leaving no figures for the last three years of the second 74 five-year plan. Thus, availability of the reliable statistical data in India and unavailability of them in Communist China make the actual comparison more difficult and tedious. Furthermore, even much of the available data for Communist China "remain simply numbers to most students," and the inadequacy of the statistical system makes any precise comparison virtually impossible.^ In comparison of national income figures, therefore, both figures and results must be used to show the broad orders of magnitude and interpreted with a great deal of caution. Following the official definitions, the growth in national income for India and Communist China is estimated in Tables 1 and II. As can be seen in the tables, the estimates of India cover a series of national income in terms of factor-share values in the period 1948-61 at 1948-49 constant prices, while the estimates for Communist China cover a series of national income in terms of value- added in the period of 1952-62 at 1952 constant prices, ^Professor Eckstein believes that "what statistical discrepancies there are (in Chinese Communist material) do not seem generally to be the products of outright falsifi cation but rather of conceptual obscruantism, methodologi cal vagueness, and shifting definitions and coverage . . ." See Eckstein, 0£. cit., p. 15. TABLE I 75 GROWTH IN NATIONAL INCOKE OF INDIA, 1948-61 AT 1948-49 CONSTANT PRICES (in Rs. Crores: Rs. 1 Crore-Rs.10 million) Year National Rs.lOO Crs. (1) Income U.S.$ mil. (2) Index 1952-100 (3) Z Incr.over Preceding Yr. (4) 1948-49 86.5 91.4 1949-50 88.2 93.2 1.9 1950-51 88.5 18,560 93.6 0.3 1951-52 91.0 19,100 96.2 2.8 1952-53 94.6 19,870 100.0 3.9 1953-54 100.3 21,060 105.0 5.0 1954-55 102.8 21,590 108.7 2.4 1955-56 104.8 22,010 110.8-100 1.9 1956-57 110.0 23,200 116.3 4.9 1957-58 108.9 22,870 115.1 -1.0 1958-59 116.9 24,465 123.6 7.3 1959-60 117.6 a 24,700 124.3 0.6 1960-61 125.2 a 26,300 132.3-119.5 6.5 Column (1): M. Mukherjee, "National Income of India during the Last Decade" in M. R. Sinha (ed.), A Decade of Economic Development in India,p.115. (l)a:Derived from column (2) applying the conversion rate of 1 rupee to U.S. 21 cents. Column (2) Government of India, Estimates of National Income. March, 1961, cited in Wilfred Malen- baum, Prospects for Indian Development. p.209. Column (3): Computed from column (1) applying the index with 1952-53 as base. Column (4):Derived from column (1) applying each year with each previous year's index as base. TABLE II 76 NATIONAL INCOME OF COMMUNIST CHINA, 1952-62, AT 1952 CONSTANT PRICES National Income Index X Incr.over Year Million Yuan U.S.? mil. 1952-100 Preced. Yr. (1) (2) (3) (4) 1952 61,130 25,950 100 1953 1954 1955 1956 1957 70,040 73,880 78,000 88.750 *57 Prices 93,650 95,000c 29,996 31,370 33,460 37,680 40,107 114.6 120.9 128.9 145.2 153.2- 14.6 5.5 6.7 12.6 ]00 5.5 1958 1959 1960 1961 1962 125,490a 127,300c 152,520a 154,720d 146,420b 148,535b U«A« n.a n.a 53,743 65,321 64,787 205.3 249.5 239.5- 34.0 21.5 1563 -4.0 Column (1) Lu Kang, "China's National Income," p.7. (l)a Paul Luey, "Sdcial Accounting in Communist China^ in E. S. Kirby (ed.), oj>. cit. p. 124. (l)b Provisional estimates derived from national income o£ 1959 applying the rate of decrease of 4% experienced in 1960. Yuan-li Wu, "An Interpretation of the Industrial Cutback in Communist China," Current Scene, Vol. I, No. 9 (August 8, 1961), p. 2. (l)c Li Fu-chun, "On the Big Leap Forward in China's Socialist Construction," Hung-ch'i XIX (Peking^ 1959), p. 37. (l)d Kirby (ed.), oj>. cit., p. 124. Column (2) By 1959 the official exchange rate of the Bank of China in foreign exchange was 2.335 yuan to one U.S. dollar. Since 1960 the conversion rate is based on the exchange rate of 2.26 yuan to one U.S. dollar. See Cheng, op.cit., p. 109. (continued) 77 TABLE II (Continued) Column (3) Computed from column (1) applying the index with 1952 as base. Column (4) Computed from column (1) applying each year with each previous year's index as base. f 78 referring the years 1960-62 to provisional data based on the general level of production as estimated by Yuan-li Wu. For a better understanding of the comparative growth, national income estimates for both countries are converted into a common unit, i.e., the U. S. dollars, so that existing difficulties of expressing the monetary value of two different countries may be eliminated. Although the two countries compared are essentially at the same stages of economic development, a comparison should be made with sufficient caution because "the current exchange rate is at best a very poor reflector of the very important differ ences in the international price relationships, and pattern li of and preferences in consumption, in different countries." That is to say, conversion of two different currencies into a common currency does not necessarily imply that the pur chasing power in this common currency in these two different countries is the same. The year 1952 is chosen as the base year for both countries under the assumption that relative changes in the comparable index numbers may be better estimated and it lOsurendra J. Patel, "Growth in Income and Invest ment in India and China," in the Delhi School of Economics, The Indian Economic Review. HI, (February, 1957), p. 59. 7/ 79 TABLE III NATIONAL INCOME OF INDIA ADJUSTED TO COMMUNIST CHINA'S DEFINITION, AT 1948-49 CONSTANT PRICES (in Rs. Crores) National Income Index % Incr.over Year Rs.100 Crs. U.S. $ mil. 1952-100 Preceding Yr _____________ (1)__________ (2) (3)_________ (4) 1955-56 86.67 -100 1956-57 91.8 19,278 115.3 1957-58 89.7 17,837 112.7 -2.3 1958-59 96.5 20,265 121.2 7.6 1959-60 98.5 a 20,695 123.8 0.2 1960-61 104.9 a 22,031 131.8-121.0 6.5 aaoEB Column (1) Figures derived from national income with deductions of public administration and other services. The figures for other services thus deducted are: 1956-57 - Rs. 1,730 crores^ 1957-58 - Rs. 1,820 crores, and 1958-59 - Rs. 2,040 crores. Cf. Mukherjee, oj>. cit., p. 115. (1) a 1959-60 - Rs. 1,910 crores And 1960-61 - Rs. 2,030 crores— These figures are derived from national income (Table I, Column 1) deducting 16.2% of annual average composition, during 1948-59 period, of other services item from the national income total. 80 allows more precise comparison. To gain more precise understanding of the growth in national income ah attempt is also made in Table HI to adjust the Indian estimates of national income somewhat roughly eliminating Incomes from most services so that they may correspond in a sense, as crude they may be, to the estimates of Communist China. Available data and studies indicate that the income from this item has composed an annual average of about 16.2% or less than one-sixth of the national income total during the period 1948-59 in India.^ As Tables 1 and II indicate, in the first year of the second five-year plan the level of national income in India based on official definitions registered Rs. 11,000 crores or U. S. $23,200 in 1956-57, an increase of 16.3% over Rs. 9,460 crores or U. S. $19,870 million in 1952-53, while in Communist China national income was 125,490 million yuan or U. S. $53,743 million in 1958 showing an increase of 105.3% over 61,130 million yuan or U. S. $25,950 million in 1952. Thus, the level of national U-See M. Mukherjee, "National Income of India during the Last Decade," in M. R. Sinha (ed.), A Decade of Eco nomic Development and Planning in India (Bombay: Asian Studies Press, May, 1962), p. 115. Also Cf. Patel, oj>. cit. p. 58. Income In Communist China in the first year of the second five-year plan was approximately over two times higher than that in India based on official definitions. If the adjusted figures of national income for India following the concepts of Communist China are compared with the latter's figures, the difference is further widened, thus giving an impression that the economic performance in Communist China was about two and a half times as high as that of India. Also, the statistics for Communist China indicate that during the first three years of the second five-year plan period national income has increased about 56.3% over 1957 level showing a total of 146,420 million yuan or U. S. $64,787 million— the level of national income in 1962 is considered to be in the vicinity of 1960 level, judged from the overall growth of agricultural and indus trial products— while Indian data indicate an increase of 19.5% over 1955-56 level during the second five-year plan showing a total of Rs. 12,520 crores or U. S. $26,300 million based on official definitions and of Rs. 10,490 crores or U. S. $22,031 million based on adjusted definitions, thus denoting the level of national income in Communist China increased fantastically at an annual average rate of about 10.3% during the second five-year plot period starting from 1957 level provided that the level of national income in 1962 is about at the same level of I960, * whereas it has increased at an annual average rate of about 8.9% during the first five-year plan period covering from 1953 to 1957. In comparison, although an annual rate of increase of 5% was officially planned in India the actual rate of growth during the second five-year plan period was 3.9% from 1956-57 to 1960-61 compared to 3.6% during the first five-year plan period based on official definitions. Since, however, the official conversion rate given here is arbitrarily determined, so that it would not be entirely unreasonable to state that the actual level of national income in Communist China would be much lower than indicated in Table II. Also, the fact that national income estimates are made at 1948-49 constant prices in India in contrast to those at 1952 constant prices in Communist China would lead us to assume that the figures for Com munist China are somewhat overvalued as against those for India. There are also a few added reasons to believe that the recorded growth in national income is unrealistic and greatly divorced from the actual performance. First, the 83 first year of th^ second five-year plan was the "year of great disturbance" to the internal workings of the economy of Communist China. In 1958, Communist China launched the "big leap forward" attempting to speed the construction of socialism by means of rapid development of industry and agriculture mobilizing its vast labor force. The produc tion figures used for this purpose were "based on bold guesses rather than reality." As Cheng's study points out, the increase of 100% in the production of cotton, food grain, and steel in 1958 over the production figures of 1957 was later admitted by a revised official statement an exaggeration of previous figures by 45% in these productions, which proves the unreliability of inflated 12 estimates of Communist China. Second, the available studies indicate that in the course of executing policies for "big leap forward" Communist China has encountered a number of difficulties in the last three years of the second five-year plan period. It has experienced great chaos in the market due to the overall shortages of both consumer and capital goods. The main causes of this chaos were (1) poor harvests ^Cheng Chu-yuan, oj>. cit.. pp. 110-111. 84 resulting in the great famine in agriculture and (2) short comings and misdirection in the execution of development planning. The fact that "agriculture was unable to provide sufficient raw materials for industry, thus the supply of 13 some kinds of consumers' goods was affected to a degree" adds another reason to assert that the actual performance must be much lower than we have estimated. IV. PER CAPITA INCOME So far we have been treating the estimates of national income in terms of constant prices only under the assumption that in viewing national income as an adequate guage of economic activities in a given period, the esti mated figures should be presented in terms of constant prices' (i.e., real terms) rather than in current prices (i.e., money terms), for income at current prices is affected by the level of changes in prices, and thus fails to represent a true picture of the nation's economic activities during the period concerned. Even in terms of constant prices there still exists the drastic change in *^Yung Lung-kwei, "The Socialist Economy Moves Ahead^' China Reconstructs. XI, (December, 1962), p. 6. 85 the type of goods and services produced. It should, also, be kept in mind that even with national income at constant prices the mere estimated figures fail to present the real economic well-being unless certain adjustments for changes in population growth are taken into account. To remove this shortcoming, the estimated figures on a per capita income basis should also be considered. The growth in per capita income in India and Com munist China is estimated separately in Tables IV and V. As can be seen easily in the tables, there has been a higher annual rate of population growth in Communist China than in India in the past ten years, showing an annual increase of about 2.1% in Communist China as against between 1.4 and 1.7Z in India. Thus it follows that increases in per capita income would show a somewhat narrower margin for Communist China over India thand increases in the national income total which we have examined previously. In 1956, the first year of the second five-year plan, the level of per capita income in India based on official definitions was Rs. 283.5 or U. S. $59.54 while that of Communist China in 1958 was 187 yuan or U. S. $80.1, about one and a quarter higher than in India, in spite of the fact that the situation was reversed in the beginning of the first five-year plans showing a slightly higher figure for India than Communist China. The changes since the beginning of the second five-year plans in both countries, however, indicate that the rate of growth in per capita income has been considerably higher in Communist China than India, showing an increase of 34.6%*^ during the second five-year plan period over 1957 level, under the assumption that the level of national income in 1962 is about the same level as 1960, or the annual average rate of increase in per capita income of 6.8%, while the annual rate of growth in population has been only 2.1%. If we assume that the figures for the rate of growth in per capita income are realistic, we may safely assert that population growth is not the foremost problem to be worried about, for the rate of growth in national income has been much higher than that of population, thus offsetting the problems arisipg from the latter. In comparison, Indian figures show some ups and ^If we assume that the level of national income in 1962 is about the same as that in 1960, per capita income would be 204.6 yuan or U. S. $90.5— a 34.6% increase over 1957 level. 87 downs in the level of per capita income during the period under consideration. As can be seen from Table IV, per capita income has increased only about 6.4% based on official definitions or 6.8% based on adjusted figures over the second five-year plan period, and the rate of growth falls short of the growth target set up in the official draft plan. This interpretation, however, is subject to certain qualifications, for as available studies denote, a substantially higher percentage of national income has been allocated for investment in Communist China than in India over the past several years which would indicate an increasing gap in the growth of per capita income between the two countries. As Mukherkee pointed out, the fact that the rate of growth in population was probably somewhat larger than what was assumed for the computation of national income^ in India adds to the qualification in accepting the invalidity of this rate of growth. V. INCOME CONTRIBUTED BY VARIOUS SECTORS Due to the limited statistical information available on the recent development of national income in Communist l^Mukherjee, o£. cit., p. 110. TABLE IV PER CAPITA INCOME OF INDIA, 1948-61, AT 1948-49 CONSTANT PRICES Per Capita Income Index % Incr.ov. Pop. Year Rs. U.S. $ 1952-100 Preced.Yr. (mil. (1) <2) W (4) (5) 1948-49 246.9 51.85 96.2 1949-50 248.6 52.21 96.8 0.7 1950-51 246.3 51.72 95.9 -1.0 1951-52 250.1 52.52 97.4 1.1 1952-53 256.6 53.89 100 2.6 367.4 a 1953-54 268.7 55.43 104.7 4.7 372.0 a 1954-55 271.9 57.10 105.9 1.2 376.8 a 1955-56 273.6 57.46 106.6-100 0.6 381.7 a 1956-57 283.5 59.54 110.5 3.9 396.8 b 1957-58 277.1 58.19 107.9 -2.3 404.9 b 1958-59 293.6 61.66 114.4 5.9 413.3 b 1959-60 291.3 61.17 113.5 -0.8 422.3 b 1960-61 290.0 60.90 113.0-106A -0.5 431.7 b! Column (1) Mukherjee, 0£. cit. , p. 108. Column (2) Derived from column (1) applying the conversion rate of 1 rupee to U. S. 21 cents. Column (3) Derived from column (1) applying the index with 1952-53 as base. Column (4) Derived from column (1) applying each year with each previous year's index as base. Col.(5) a (5) b U.K., Economic Survey of Asia and the Far East 1956. p. 178. Ibid. 1962. p. 186. Adjusted per capita incomes of India based on Communist China's definitions are: 1955-56 - rs. 227.3 (U.S.$ 47.33), 1956-57 - Rs. 231.3 ($ 48.57), 1957-58 - Rs. 221.5 ($46.52),; TABLE IV (Continued) 1958-59 - Rs. 233.5 ($49.04), 1959-60 - Rs. 233.2 ($48.97), and 1960-61 - Rs. 242.9 ($51.01). The Index for the year 1960-61 Is 106.8 with 1955-56 as base. 90 TABLE V PER CAPITA INCOME OF COMMUNIST CHINA, 1952-62, AT 1952 CONSTANT PRICES Year Per Capita Yuan (1) Income U.S. $ (2) Index 1952-100 (3) Xlncr.Ov. Preced.Yr. (4) Pop. (million) (5) 1952 107 45.5 100 569 1953” 120 50.9 112.1 12.1 581 1954 124 52.7 115.9 3.3 595 1955 129 54.8 . 120.5 4.0 608 1956 143 60.7 133.6 10.9 621 1957 152 64.5 142.0-100 6.3 635 1958 187 a 80.1 b 174.8 23.0 669 c 1959 227 a 97.2 b 212.1 21.4 672.7 d 1960 213.8 a 94.6 b 199.8-134j6-5 .9 686.4 e 1961 n.a. n.a. 700.8 f 1962 n.a. n.a. 715.5 f Column (1) Cheng Chu-yuan, oj>. cit., p. 109. (1) a Computed from national income (Table II) divided by total population. Column (2) Ibid., p. 109. (2) a Computed from column (1) a applying the conver sion rate of 2.26 yuan to one U.S. dollar. Column (3) Computed from column (1) applying the index with 1952 base. Column (4) Derived from column (1) applying each year with each previous year's index as base. Column (5) (5) (5) (5) (5) c d e f The population figures for the period 1952-57 are obtained from T1ung-chi Kung-tso (Statis tical Work), No. 11, Peking,(June 1957),p.25. U.N., Economic Survey I960, p. 124. Ibid. ,“T96? T p . 186. The mean value of 1958 and 1960 estimates. Figures for the period 1961-62 are extrapo lations from 1960 at 2,11 per annum. 91 China, it Is not easy to make comparisons of income contri buted by various sectors over time, or among different groups of industries. However, by borrowing the statisti cal data obtained we may venture to examine the income contribution among the most important sectors of the economy. The broad structural patterns of income contributed by various sectors in India and Communist China are presented in Tables VI and VII in terms of constant prices respectively. The most interesting feature one can find from the table is that there has not been any considerable change in the percentage compositions of various sectors to the national income total in India over the second five- year plan period or over the last thirteen years. Except in the case of commerce, transport and communication, and other services sectors which show slight percentage increases in the relative shares, the relative stability of the ratios ranging from 46 to 48.2% in the sector of agriculture, and 16 to 18.5% in the sector of industries and mining has been experienced in India over the planning period under consideration. It follows, therefore, to say that taking the economy as a whole, the only elaborate statement we can presumably make is that there has been TABLE VI 92 NATIONAL INCOME OF INDIA BY INDUSTRIAL ORIGIN AT 1948-49 CONSTANT PRICES (in Rs. Crores) Year Agricul ture Indu stries Commerce. Transport, &Communic. Other Services Nat'1 Inc Total 1948-49 42.5 14.8 16.0 13.4 86.5 (49.1) (17.1) (18.5) (15.5) (100) 1951-52 44.4 15.2 17.3 14.3 91.0 (48.8) (16.7) (19.0) (15.7) (100) 1955-56 50.2 17.6 19.7 17.3 104.8 (47.9) (16.8) (18.8) (16.5) (100) 1956-57 52.5 18.4 20.8 18.2 110.0 (47.7) (16.7) (18.9) (16.6) (100) 1957-58 50.1 18.6 21.1 19.2 108.9 (46.0) (17.1) (19.4) (17.6) (100) 1958-59 55.8 18.7 22.1 20.4 116.9 (47.7) (16.0) (18.9) (17.5) (100) 1959-60® 62.1 23.3 21.0 23.3 129.7 (47.8) (17.9) (16.4) (17.9) (100) 1960-61* 68.6 26.4 22.1 25.3 142.4 * (48.2) (18.5) (15.5) (17.8) (100) Mukherjee, oj>. cit., p. 115. aFigures for 1959-60 and 1960-61 are obtained from Economic Survey of Asia and the Far East 1962. p. Iff. Figures adopted by the United Nations' study do not coin cide with our figures estimated in Table I, but they are useful to compare the magnitude of percentage compositions.; N.B.: Figures in brackets show percentage. Omission of | net earned income from abroad does not affect the magnitude; of total national income because its figures are negligibly^ small: 1955-56— Rs. 0, 1956-57— Rs. 0.1 crores, 1957-58— Rs. 0, . . . et cetera. See Sinha, oj>. cit., p. 83. TABLE VII 93 NATIONAL INCOME OF COMMUNIST CHINA BY INDUSTRIAL ORIGIN (in million yuan) Year Agricul ture Industry Transport. &Con8truc. & Comnunic. Trade Nat'l Inc. Total 1952 36.200 (59.2) 12.830 (21.0) 2.400 (4.0) 9.600 (15.8) 61.130 (100) 1956 42.745 (48.1) 28.460 (32.0) 3.910 (4.4) 13.755 (15.5) 88.750 (100) 1957 53.680a 70.482a. n.a. 47.241b n.a. 1958 67.100c 117.000c n.a. 54.800c n.a. 1959 78.300d 163.000d n.a. 63.800d n.a. I960 88.OOOe planned 210.OOOe planned 195.000f actual n.a. 72.500e planned n.a. 1961 n.a. n.a. n.a. n.a. n.a. 1962 n.a. n.a. n.a. n.a. n.a. N.B. Figures in brackets show percentage. Figures £or 1952 and 1956 are measured at 1952 con stant prices, while those for 1957-59 are expressed in terms of gross output at 1957 constant prices. Figures for 1952 and 1956: Peking Review (April 8, 1958), p. 8. a. People*8 Daily (Remain Ribao), August 27, 1959. b. Peking Review (April 21, 1959), p. 31. c* People’s Daily. March 31, 1960. d. Peking Review (April 5, 1960), p. 5. e. Ibid.. pp. 10 and 17. Peking Review (January 27, 1961), p. 6. 94 only a mild structural shift In the entire economy of India over the previous two plan periods, in spite of heavy emphasis made on the economic development. In order to examine more precise features of income contributed by the various industrial sectors let us now turn to the number of persons engaged in each of these sectors. This will make it possible to compare the efficiency of workers in each industrial sector with workers in other sectors, thus providing a better idea of developmental conditions and possibilities in each of the major sectors of endeavor. According to the data prepared in the Final Report of the National Income Committee of India, the agricultural sector occupied about 103.64 million workers or 72.4% of the total economically active population of 143.22 millions in 1951, contributing about 51.3% to the national Income total for that year, while the industries and mining sector occupied some 10.6% of the total economically active population, contributing about 16.1% to the total national income in the same year. Also, the two other confining sectors engaged 10.7% of the population, but contributed 4 95 16 32.8% to the total national income of the country. The fact that the very high proportion of the total population is making their living from agriculture on a near subsistence level, and its relative percentage composi tion has not been changed very much in the last decade, may lead us to assume that little economic development has taken place. Furthermore, the percentage share of income contributed by agriculture has remained relatively stable over the period under consideration, which serves to indicate that a high degree of inefficiency existed in agriculture. Therefore, developmental planning should be patterned in such a way that excess labor forces are taken out and shifted from the agricultural sector to other parts of the economy where- they can become much more productive while also providing a room for growth in productivity of the remaining workers in the agricultural sector. In comparing the sector contributions to the total national income in India and Communist China under the second five-year plans we face considerable difficulties ^*^The National Income Conmittee of India, Final Report (New Delhi, 1954), cited in N. V. Sovani, "Indian Economy during 1950-59," in Sinha (ed.) o£. cit.,-p. 80. 96 in estimating the latter, for no overall measures have been taken to estimate or compile the relative changes in the composition of income especially in the recent period. Since figures obtained for the first three years of the second five-year plan are expressed in terms of gross output at 1957 constant prices, they fail to explain the real outcomes due to value duplications. With respect to income contributed by the various sectors, therefore, we can derive at this state, only some general tendency based on the past performance. In contrast to India, one salient aspect in the structural pattern of the sector contributions to national income in Communist China during the second five-year plan period is that a considerable change has taken place in the relative shares of agriculture and industry in their con tribution to national income. In 1952, as Table Vll indicates, the agricultural sector contributed 59.2% to the total national income while the industry and construction sector contributed 21%. fn 1956, however, some structural shift could be noticed with respect to the relative shares between these two sectors, showing the increasing impor tance of the industry and construction sector registering 32% of the total national income at 1952 prices and the 97 steadily declining share of the agricultural sector registering 48.IX, that is, a decrease of 11.171 over 1952 level. This change in the relative shares has been drastic in the first half of the second five-year plan period. According to Communist China's official statistics, the agricultural sector contributed some 36.4% in 1958 and 33.4% in 1959, while the industry and construction sector contributed about 63.6% in 1958 and 66.6% in 1959 to the combined gross output value of these two sectors. A further change could be seen in the planned target ratios registering about 29.5% for agriculture and 70.5% for industries and construction combined for 1960.^ From the above figures, we can say that the industry and construction sector contributed about twice as much to the value of national Income than the agricultural sector in 1959. The above analysis, however, calls for a few quali fications. As Liao Lu-yen, Minister of Agriculture, once indicated, figures of the gross output value exaggerate the .actual composition because of double counting. Also, the l?Li Fu-chun, "Report on the Draft 1960 National Economic Plan," Peking Review (April 5, 1960), p. 5. 98 fact that about "one-third of industrial gross output embodies agrarian raw materials," and "in the industries producing consumer goods, this portion is four-fifths of the gross output,"*® reveals that if they were calculated as in the estimates of national income following the net value-added method, the change in the relative shares over the years may not be so great as we have seen in the above. In addition, the primary emphasis has been shifted to agriculture from industry since 1960 following the policy of "readjusting, consolidating,'filling out gaps and rais ing standards." It therefore, also indicates the Communist China's attempt to balance agriculture and industry in the composition of national income during the latter part of the second five-year plan. Since any reliable data, both official and non official, concerning the number of the total economically active population engaging in the productive activities among the different sectors, are not available at present, a comparison of the efficiency of workers in each indus trial sector is hampered. However, the fact that the *®Hung-ch'l (September 1, 1960), cited in Cheng, op. cit., p. 114. } relative number of people engaged in agriculture has been predominant and the primary emphasis has switched to agriculture in the recent years, serves to indicate that Communist China is still very much in the class of economic- i ally underdeveloped countries. Unlike the case of India or other underdeveloped countries, income distributed to the members of various groups appeared to be considerably equalized, except in a few instances, especially following the establishment of communes in Communist China. Then, the highly unequal distribution of income among the members of the different sectors is partly responsible for the lower level of economic performance in India more than in Communist China over the period under consideration. The low level of national income and its uneven distribution and unsteady employment in the more productive sectors of the economy all made it impossible for the mass people of India either to have an effective demand for goods or to fully utilize resources available to them. These obstacles to development coupled with some sociological rigidities resulting from customs and beliefs tended to retard the growth of income and investment in India in comparison to that in Communist China. 100 VI. SAVINGS, INVESTMENT, AND CONSUMPTION Next to the growth of national income in total or per capita, the relative changes in the ratio between saving or investment and consumption elucidate the perfor mance of developmental planning over the period in the countries in comparison. Notwithstanding some difficulties encountered, there have been overall efforts to raise the rate of saving and investment in India and Communist China, though patterned on different approaches. As in the case of national income estimates, an examination of comparative performance in these two countries according to the data presented here are neither precise nor perhaps very inclusive due to the statistical blackout of Communist China especially in the last few years. The following comparisons, therefore, should be taken to indicate only the magnitudes and directions of change during the period under consideration. In India, according to Mukherhee1s estimates, the proportion of national income diverttd to investment was 9.3% in 1935-56 while the savings ratio was 8.2% for that 101 19 year. Changes since that year indicate that the ratio of investment increased slowly to 11.0% in 1960-61, showing an increase of nearly 18% over 1955-56 level, whereas savings ratio has increased very meagerly to almost 4% over 1955-56 level, registering 8.5% in 1960-61. Then, the proportion of national income diverted to consumption has occupied between 91.4% and 93.1% over the second five-year plan period. From this it follows that the ratio of domestic savings made available for investment showed no perceptible increase during the second five-year plan period. In spite of the fact that the government has adopted various avail able devices, e.g., raising tax revenues from about 7.5% of 20 national to 8.9%, to raise the level of saving and investment, the rate of progress appears to be rather meager due to the lower level of saving made by the private sector. Since only a very small fraction of the total ^Divergence between saving and investment exists in the official statistics of India, because a part of the total investment has been financed by foreign assistance. 20 Government of India Planning Commission, Third Five Year Plan (New Delhi: Government of India Press, 1961), p. 102. 102 TABLE Vlll THE CHANGING RATIO AMONG SAVINGS, INVESTMENT, AND CONSUMPTION IN THE NATIONAL INCOME OF INDIA Year Nat'l Malenbaumh Estimated Mukherj ee?s Estimates^ Income S I - C S I C-Y-S 1950-51 100 5.9 5.5 94.1 6.8 6.6 93.2 1951-52 100 4.4 6.0 95.6 5.0 6.0 95.0 1952-53 100 6.5 5.9 93.5 6.0 6.0 94.0 1953-54 100 6.2 5.9 93.8 5.4 6.7 94.6 1954-55 100 7.6 7.7 92.4 6.6 7.9 93.4 1955-56 100 8.5 8.8 91.5 8.2 9.3 91.8 1956-57 100 7.0 10.1 93.0 8.6 10.1 91.4 1957-58 100 8.0 10.8 92.0 6.9 11.5 93.1 1958-59 100 8.0 10.9 92.0 10.5c 1959-60 100 1960-61 J.00 8.5d 11.Od 91.5 &MAlenbaum, Prospects for Indian Development. p.242. Percentage figures for investment are derived from the amount of investment divided by national income of his estimates. Wlukherjee, oj>. cit., p. 116. cSovani, in Sinha (ed.), op. cit., p. 90. dJohn P. Levis, Quiet Crisis in India (Washington, D. C.: The Brookings Institution, 196?), p. 33. 103 TABLE IX THE CHANGING RATIO BETWEEN INVESTMENT AND CONSUMPTION IN THE NATIONAL INCOME OF COMflJNIST CHINA Year Nat'l Income Investment Consumption 1952 a 100 15.7 84.3 1953 b 100 21.4 78.6 1954 b 100 22.3 77.7 1955 b 100 20.9 79.1 1956 b 100 22.5 77.5 1957 c 100 23.7 76.3 1958 d 100 21.2 78.8 1959 e 100 20.5 79.5 1960 f 100 22.8 77.2 1961 g 100 21.9 78.1 1962 g 100 21.9 78.1 Sources: a. Patel., oj>. cit.. p. 64. b. Peking Review (April 8, 1958), pp. 7-9. c. People’s Daily. October 13, 1958, cited in Cheng, op. cit.. p. 117. d. Communist China State Statistical Bureau (ed.), Ten Great Years (Peking: Foreign Language Press, 1960), p. 55. Also see Edwin P. Peubeus, "The Dream and Reality of Water Control in Communist China," Current Scene: Developments in Mainland China. II, September 14, 1962), p. 14. e. A total investment for 1959 was 31,700 million yuan out of 154,720 million yuan of national income at 1957 prices. Peking Review (April 5, 1960), p. 5. f. A planned total investment for 1960 was 38,500 million yuan (state- 32,500 and local-6,000) at 1957 prices. Ibid.« p. 11. g. Provisional percentage figures for 1961 and 1962 are an average ratio of investment to total national income during the 1953-60 period. 104 population located entirely In the. capital and other large cities falls In the saving group, as low standards of living of the mass populace effectively keep them out of the saving group, the gap between savings and investment has been bridged by external assistance, that is by way of foreign aid, contributing about 24% of total public outlays for investment during the course of the second 21 five-year plan as against 10% in the first five-year plan. The rate of performance in Communist China has been substantially different from that in India during the second five-year plan period. Despite the lower level of per capita income envisaged in Communist China compared to that of India during the early years of the first five-year plan period, the proportion of national income diverted to accumulation or investment was relatively higher in Communist China as a result of a smaller share of consump tion in income than in India. Because of the rapid increase in the proportion of national income allocated to investment, the amount of investment has steadily increased ranging between 20.5% and 22.8% of national income over ^Richard T. Gill, Economic Development: Past and Present (Englewood Cliffs, New Jersey: The Prentice-Hall, Inc., 1963), p. 105. 105 the second five-year plan period, almost two times higher percentagewise than that of India In essentially the same period. Somewhat stable growth In the rate of Investment has been experienced In Communist China in the past several years. If the provisional estimates for 1962 are regarded as reasonable, the total Investment for that year would be around 32,529 million yuan at 1957 prices reflect ing an increase of about 21.8% over the 1958 investment level of 26,700 million yuan. The high performance of Communist China in contrast to India may be chiefly attributed to the different alloca tion of investment, placing heavy stress upon the promotion of capital formation to carry out rapid industrialization and upon the development of the means of production. This was only possible at the expense of a decrease in consump tion resulting from the adoption of a forced savings policy in Communist China through various measures, such as compulsory collective savings in the form of taxes, the profits and depreciation reserves of state-controlled enterprises, and the funds generated from the agricultural sector by way of mobilization of surplus labor in the communes, as the importance of external assistance to finance investment has declined. 106 In recent years, however, salient changes have been made in the pattern of Investment components. According to the Report on the Draft 1960 National Economic Plan. most of the released figures on investment during the first half of the second five-year plan period refer to state investment registering roughly 84% of the total investment, with the remaining portion consisting of local industries, 22 residential buildings and the like. From this it can be safely generalized that with the progress of socialization, only the predominant investors in Communist China would fall into the state sector and urban-rural communes. Then, the predominance of state investment in Communist China may possibly contribute to lower investment costs per unit of product, because under totalitarian central planning government can restrict the degree of choice to a greater extent both in factor and product mar kets. Since "ex ante coordination" of investment plans in | different branches of the economy is also possible under totalitarian central planning, enforcement of proper production techniques is capable with close control of both! 22"Report on the Draft 1960 National Economic Plan," : op. cit.4 pp. 5 and 11. 107 pattern and allocation of Investment according to the plan. From this viewpoint, the high degree of centralization of investment activity in Communist China may have a more profound influence on the efficiency of production.23 In short, the level of national income total or per capita, savings and investment, and consumption in absolute terms have all risen during the period under consideration both in India and Communist China, although the rate of progress differs. The relatively rapid progress experi enced in Communist China infers that the level of investment and thus that of income can be increased substantially within a limited period of time. It was only possible through direct compulsory measures to deflect expenditures from consumption to investment by way of curtailment of consumption, allocation priorities for labor and materials, 24 conmunalization of agriculture ^ for providing the where withal for industrialization, and the direct conduct of production by the central planning board. 23Cf. Wilfred Malenbaum, "India and China: Contrasts in Development Performance," The American Economic Review. XLIX, (June, 1959), pp. 302-304. 2^See Chapter IV, "Communes," for detailed analysis. 108 VII. SUMMARY 1. In order to compare or appraise actual perfor mance of developmental planning in two different countries over a given period of time, it is necessary to have a proper examination of the relationship between the growth of national income and consumption or investment. 2. India18 national income includes "the aggregate earnings of labor and property which arise from the current production of goods and services," following the factor- share payment approach in terms of income flow. In Com munist China, national income is "taken to mean the value added to the country's material wealth by productive activities." National income thus includes the aggregate earnings arising from the current production of all goods and a fewTervlces which have direct bearing on material production. The concept of investment or accumulation is almost similar. 3. Because conceptual differences existed in the measurements of national income, an exact magnitude of actual performance in India and Communist China cannot be comparable, unless certain adjustments are made in con nection with the components of national income. Also, in 109 order to eliminate existing difficulties of expressing the monetary value of two different countries, national income estimates should be converted into a common measurable unit. 4. The present study indicates that actual performance of Communist China has much advanced in comparison to that of India under the second five-year plans, registering a 56.3% increase in national income in the former and a 19.5% increase (or 21% when adjusted to Communist China's definition) in the latter. However, a relatively higher rate of population growth in Communist China than in India narrows the divergence between these two countries slightly when compared in terms of per capita income. 5. Figures for the sector contributions to the total national income in India indicate that, except in the case of commerce, transport and communication, and other service sectors— which show slight percentage increases in the relative shares— the relative stability of the ratios has been seen both in the agricultural and in the industrial sectors. In Communist China, a considerable change has taken place in the relative shares of agricul ture and industry in their contribution to national income. 110 6. In spite of various efforts made by the govern ment of India to raise the level of saving and Investment, the ratio of domestic savings made available for Investment shows no perceptible Increase In India. The proportion of national Income diverted to Investment was relatively higher In Communist China as a result of a smaller share (about 78%) of Income allocated to consumption compared to between 91.4% and 93.1% of national Income allocated to consumption In India. 7. Since government can restrict the degree of choice to a greater extent both In factor and product markets, lowering the Investment costs per unit of product, the high degree of centralization of Investment activity In Communist China seems to have more Influence on the efficiency of production than in India. Ill CHAPTER IV DEVELOPMENT OF AGRICULTURE For predominantly agricultural countries such as India and Communist China, the success of developmental planning ultimately depends on continuous achievements in the sphere of increasing agricultural production. This reflects the economic conditions of the country to a considerable extent. Despite the expansion of manufacturing industries in recent years, agriculture will continue to be the principal industry in both countries. Its growth potentialities are still large. It not only provides more employment than any other major occupation, covering about three-fourths of the total population in both countries and yielding approximately half the national income total in India and over one-third of that in Communist China, but also furnishes most of the raw materials for manufacturing and other subsidiary industries, thus providing a means of livelihood. Keeping the above factors in view, we shall discuss in this chapter a number of topics: (1) characteristic 112 features, planning strategy, and targets; (2) the changing structure of agriculture, placing emphasis on land reform, community development, and communes; and (3) development of agricultural production. 1. CHARACTERISTIC FEATURES, PLANNING STRATEGY, AND TARGETS Notwithstanding the considerable emphasis given to the development of agriculture, poverty In India and Communist China has been almost always associated with low Incomes derived from agriculture^- and Its low productivity. 1 -ln most underdeveloped countries agriculture has been considered to be Inferior to Industry, following the reasoning of Raul Preblsh. He contends that since the general level of Incomes In the Industrial countries has increased more than productivity while that in the "peri phery" countries engaging in the primary production has increased less than productivity, the industrial countries have enjoyed the benefits of technical progress dispropor tionately in international trade until the underdeveloped countries primarily engaging in agriculture are themselves industrialized. This approach has been criticized by Jacob Viner: "Misallocation of resources as between agriculture and manufactures is probably rarely a major cause of poverty and backwardness, except where government, through tariffs, discriminatory taxation and expenditure policies, and failure to provide, on a regionally non-dlscriminatory pattern, facilities for education, health, promotion, and |technical training, is itself responsible for this misallo- cation. . . . That agriculture is not necessarily associ- i ated with poverty becomes obvious when one considers Australia, New Zealand, Denmark, or Iowa and Nebraska. Industrialization is not necessarily associated with 113 Low incomes and low productivity in agriculture arise from a great variety of causes: population density, specializa tion in labor intensive or land-intensive primary products, the low amount of land per worker, inferior soils, inefficient land use patterns, the small scale of crop cultivation, low quality of the worker, low quality of production associated with the limited amount of capital, inadequate cash reserves, lack of storage facilities, inefficient techniques of production, inadequate knowledge of better methods of production, and the limited size of markets. prosperity becomes obvious when one e^mslders Italy or Spain. It is undoubtedly true, howe* tr, that most of the poorest countries have largely rural populations, and that in most countries the per capita money Incomes of the rural population are lower than those of the urban population . . . The present writer conclddes that the inference of a general inferiority of agriculture to industry has not been definitively proved by either logical reasoning or empiri cal evidence. See The United Nations Economic Commission for Latin America, The Economic Development of Latin America and Its Principal Problems (New York: The United Nations, 1950), pp. 8-14. Cf. also Jacob Viner, Interna tional Trade and Economic Development (Glencoe, Illinois: The Free Press, 1952), pp. 62-63 and 71. 2It is correct to assume that the amount of land available per worker does not give any precise meaning when the quality of land differs significantly, because these qualitative differences may not be revealed by physical units of land. It is, however, a useful concept and is 114 In addition to the above causes, caste, status, social mores, and religious taboos play a large part in economic opportunities and social distinctions in India in contrast to Communist China where they have disappeared substantially, if not entirely, since the establishment of the people's communes, thus reducing the non-economic obstacles to developmental planning. Thus, planning in India and Communist China has had to be associated with a removal of these economic and non economic obstacles to development of agriculture and a promotion of the expansion of agricultural production during the planning periods in question. Of course, a large number of planning measures and techniques are pos sible, but formulation of specific policy measures is deemed necessary only after determination of the particular causes of low productivity in agriculture in these two countries. Both in the formulation of planning targets for regarded to be one of the major characteristics of the cause of underdevelopment. According to the official |estimates, about 53% of all farm owners in India hold less jthan 5 acres. Cf. The New India, op. cit., p. 161. 115 agricultural production and in the execution of planning, India followed centralized-decentralized, democratic, welfare oriented lines with relative reliance on economic and psychological incentives and voluntarism. In spite of heavier emphasis given to big plan or centralized planning in the second five-year plan, than in the previous one, India, in no sense, advocated an imitation of Soviet Russia cum Communist China type of planning. Rather, preserving individual liberty and freedom, centralized and integrated type of democratic planning has been supported, so that both growth and welfare objectives may be achieved and maintained at the same time. Indian planners believe that Important roles should be assigned to the private sector under government guidance and supervision so that attainment of agricultural planning targets may be possible through the combined effort of the whole rural population. In setting targets, both national and regional needs and priorities were concerned, and for local agricultural production and cooperation, district and village plans are formulated on the local village level by agreement reached between councils of village leaders and local project officers as to their needs, production potentialities, et cetera. In India, preparing for the future development in industry, the first five-year plan laid its principal emphasis on the agricultural sector inclusive of rural development and irrigation originally allocating Rs. 741 crores or 31.4% of the total investment outlay of Rs. 2,356 crores on restoration of food and raw material output to the prewar level. During the second five-year plan period, however, Rs. 959 crores or 20% of the total investment outlay of Rs. 4,800 crores has been initially allocated to 3 agriculture. Although it shows an increase of Rs. 218 crores in amount over the first five-year plan, it indi cates a decrease of 11.4% in the ratio of the total invest ment outlay, which was primarily due to a greater agricul tural advance during the first five-year plan period than was expected because of unusually good weather and a rapid progress in land reforms. However, except for a few important new targets set forth in the second five-year plan such as increases in total agricultural production by 28% (an increase of 24.6% in food grains and 56% in cotton production) and in agricultural incomes by 17% over 3ln addition to agriculture, the figure includes the outlays for rural development and irrigation. See Ibid., p. 82. For revised planned and actual figures, see Appendix Table A. 117 1955-56 level,4 no new major program has been Introduced In the second five-year plan. Rather, the plan was designed to continue and expand the substantial efforts and progress made In the previous period by means of certain programs such as land reforms, community development projects, increased irrigation and fertilization of land, as well as an increase in rural power supply to promote the expansion of agricultural production.^ In essence, then, developmental planning of agricul ture in the second five-year plan only aims at a moderate increase in production emphasizing the need for sustained effort on the growth of foodstuffs and raw materials through intensive cultivation and the introduction of better techniques. In comparison, both in the formulation of agricul tural production targets and in the execution of develop mental planning, Communist China followed highly centralis^ totalitarian planning techniques with substantial reliance on coercion and centralized economic controls. Following 4Ibid., pp. 158 and 210. 5Ibid., p. 76. 118 the Stalinist strategy of developmental planning, heavy emphasis has been laid on high rates of saving and invest ment by means of agricultural collectivization. Also considerable attention has been given to the development of raw materials and investment goods industries, laying stress on the large-scale and capital-intensive technology in industry. In contrast, relatively less attention has been given to investments in agriculture and consumers' goods industries as well as in social overhead capital in Communist China's developmental planning.^ Despite the enormous efforts made in the development of agriculture during the first five-year plan period following the Stalinist strategy of planning techniques, Communist China has experienced a modest growth of agricultural production, one just sufficient to keep pace with the increase in population. In a closed economy like Communist China, agriculture is likely to retard the pace of industrialization unless it promotes growth in agricul tural production by means of an increase in the yield per acre and the effective area of arable land as well as of 6."The Strategy of Economic Development in Communist China," oj>. cit., p. 508. 119 reform of the land tenure system. Based on the principle of the "big leap forward" in agriculture, a new development strategy has been focused on the "mass mobilization of underemployed rural labor" on a large scale for the second five-year plan. Setting targets for agricultural production of 264.9 million tons in the output of grains, soybeans, and cottons with an increase of 36.2X as against 194.5 million tons of 1957 targets (see Table X), an increased volume of labor has been chiefly used for labor-intensive investment projects, such as water conservation (including irrigation, flood control, and field drainage), improvement of the soil through successful soil reclamation and better soil management practice, manufacture of indigenous fertilizers, more intensive application of agricultural production, a better variety of seeds, and better planting techniques based on close plant ing, deep plowing, and Intensive manuring by adding an enormous amount of night soil, green leaves, compost, bone ash, et cetera to the soil.^ 7S. Hua, "Agriculture Will Have a New Look," China Reconstructs. VII (February, 1958), p. 3. J. E. Spencer, "Agriculture and Population in Relation to Economic Plan ning," The Annals of the American Academy of Political and Social Science.CCCXXI (January, 1959), pp. 68-69. Srlpati 120 II. THE CHANGING STRUCTURE OF AGRICULTURE The Problem As writings in the history of economic thought reflect,the importance of systems of land tenure as a means to achieve higher agricultural productivity had been Q stressed from the time of Adam Smith to the Neo-classicals. Recently, it has been flourishing again in the process of developmental planning in underdeveloped countries like India and Communist China, not only because agricultural production is carried within the system of tenurial relationship but also because growth of the economy is based so much on the development of agriculture. In these countries the system of land tenure has often been defective, since the land is fragmented into strip parcels so that a large number of ill-equipped peasants hold scattered small plots of land and a small Chandra-sekhar, Red China: An Asian View (New York: Fredrick A. Praeger, 1961), pp. 34-35. ®See Adam Smith, The Wealth of Nations (New York: The Modem Library, 1937), Book I: Chapter 11, "Of the Rent of Land," pp. 144-174. John Stuart Mill, Principles of Political Economy (London: George Routledge & Sons, Ltd.), "Peasant Proprietors, Metayers, and Cottiers," pp. 178-237. Alfred Marshall, Principles of Economics (New-York: The Macmillan Company, 1948), Book VI: Chapter 10, pp. 637-659. 121 number of proprietors enjoy very large landholdings, reflecting much inequality of landownership in the different types of peasant versus plantation farming. In India, where tenancy exists, the landowners are merely the rent- collectors who have incurred no part in cultivation. There have been insecurities and injustices in the property of many tenant farmers and their scale of cultivation has been too small to be economic. There have been little or almost negligible incentives on the part of tenant farmers and sharecroppers to increase their output, as a large share of any such increase goes to the landowners. The substantial share of income generated as such has been invested in land, leaving the peasant farmers "with a bare 9 subsistence minimum, with no margin for investment." And investment in land has not increased the real income of the country to any large extent, because little has been done to improve the land after investing. Ownership of land has been regarded not only a principal basis of wealth and income but also as the main source of social prestige and status as well as practical power. Therefore, existing ^The United Nations, Department of Economic Affairs, Land Reform (New York: The United Nations, 1951) p. 18. 122 systems of tenure relationships have been usually an obsta cle to the development of agriculture without responding favorably to the stimuli of development efforts. India: Land Reform and Community Development Land reform. In countries such as India, where agriculture has played a predominant role in the nation's economy, some form of land reform is necessary to raise agricultural production. Indian planners believe that the "future of land ownership and cultivation is perhaps the most fundamental issue of national development. The pat tern of economic and social organization will depend upon the manner in which the land problem is solved.Viewing the importance of land reform as such, developmental plan ning has concentrated on redistribution of land ownership, improvement in the conditions of tenancy, and control of rents so that more efficient utilization of land can be attained by allowing farm units to be more or less the am optimal size, and methods of production can be improved by instilling the tillers with incentives. ^The Government of India Planning Commission, First Five Year Plan. The People's Edition (Delhi: The Publica tion Division, Ministry of Information and Broadcasting, 1953), p. 88. 123 In the course of the second five-year plan, land reform projects have focused on the following four areas as continuation of incompleted efforts made during the previous plan period: 1. Abolition of intermediaries between the State and actual tillers in zamindari areas and other tax-farming systems. With the intermediaries abolished, all new landowners pay their rent on land directly to the State as a form of land tax. 2. Tenancy reform; with the intermediaries abolished, tenancy reform not only provides the former tenants the fruits of reduced rents but also an opportunity j to acquire ownership rights of the land by payment of fixed compensation. 3. Fixing Ceiling on the amount of land any individ ual may hold. To bring about a more fair and equitable distribution of land ownership, any amount of land above this ceiling should be redistributed to the landless peasants in the interest of social justice and equal oppor tunity. Because of different kinds and qualities of land, however, ceilings differ in different states or regions. Exceptions are also made for large coffee and tea planta tions, orchards, cattle-breeding farms, et cetera, which 124 require heavy Investment and permanent structural Improvements. 4. To reorganize agriculture through consolidation of small holdings, and fragmentations and to develop cooperative village management and cooperative farming through pooling of land for cultivation under joint manage ment without sacrifice of land-ownership, so that supplies of farm credit, seed, technical assistance, et cetera can be effectively maintained.^ As the result of the enactment of land reform, and except for a small number of minor tenures held by reli gious or charitable institutions, there has been almost universal abolition of intermediary tenures such as zamindaris, jagris, and inams which occupy over 40% of the whole area of the country, bringing approximately 20 millions of former tenants into direct relationship with the State, removing intermediaries. Also, a substantial amount of rent has been reduced in most States with execu tion of land reform, yet the level of reduction has not been uniform. As against the customary level of rents about ^The New India, op. cit., pp. 186-208. See also Shriman Narayan, Trends in Indian Planning (Bombay: Asia Publishing House, 1962), pp. 58-60. 125 one-half of the farm produce usually paid by tenants and sharecroppers before the enactment of the first five-year plan, the maximum or normal level of rent payable ranged from one-sixth of the farm produce in Gujarat, Maharashtra, and Rajasthan, to about one-fourth in Assam, Kerala, Orissa, et cetera, and to about one-third in other several States. In addition, a total of about 23 million acres of small holdings and fragmentaries have been consolidated in several States by April, 1960 to encourage and to make 12 possible land improvements for cultivation. Community development. The community development program is one of the salient unique features of agricul tural and rural development planning in India. In order to rectify the defects of centralized planning, the program has been based on decentralized or regional planning. . . . The community development program is not an end product, but an instrument of development placed in the hands of people. It is the means through which the rural majority can gain strength, skill productiv ity, self-confidence and the democratic vitality essential to push ahead the nation as a whole. In the execution of development programs, therefore, ^ Third Five Year Plan, op. cit., pp. 221-234. l^The New India, op. cit.. p. 178. 126 efforts are well-coordinated from the base rather than the apex of a pyramid. The community development projects, called "dynamo," cover 300 villages respectively and absorb about 200 mil lions of rural population in the different States. The projects were initially designed to mobilize local resources and local initiative in the rural construction as well as ~ in the development of agricultural production. In view of the high priority given to a rapid increase in agricultural production under the second five-year plan, development strategy has been chiefly focused on the expansion of improved methods of cropping and promotion of cooperation in harvesting, marketing, and so on. Thus, to increase agricultural productivity, cooperation has been advocated, 14 as against collectivization or complete individualism. In addition, in the execution of community develop ment programs, further efforts have been laid on the development of village and cottage industries, expansion of "panchatayats as organizations actively responsible for ^^Malenbaum, "India and China: Contrasts in Development Performance," The American Economic Review. XLIX (June, 1959), p. 303. 127 village development,"^ as well as land management, consolidation of landholdings, and provision of assistance to the landless laborers, the small farmers, artisans, et cetera. Communist China: Communes In contrast to the systems of land tenure in India, Communist China has transformed its systems of land tenure into more advanced forms of collectivization. Various changes were made prior to the formulation of the agricul tural policy for the second five-year plan, partly because the revolution in Communist China depended for its success predominantly on support from the agricultural population, and partly because agricultural transformation has been the major program of economic strategy in Communist China. The collectivization program of Communist China was planned and carried out as a gradual transition to communal- ization. In the execution of the program, various changes have taken place: the land reform of 1950; agricultural collectivization of 1951-56, under the pattern of mutual- aid teams by pooling agricultural implements and land under i^The New India, op. cit.. p. 177. 128 common management for the spring planting or the autumn harvest; elementary co-operatives and advanced co-operativ«; and the state farms and tractor stations of 1953-61. In the early stage of land reform, planning measures aimed at a reduction of existing rents by 25%; a rent celling equal to 37.5% of the normal yield of the principal crop; prohibition of advance rent payment, extra obliga tions to landlords and secondary renting; refunding of rental deposits; and cancellation of unpaid rent, giving priority to reduction of rent and interest to acquire p<V lar support from the farmers.^ Unlike Soviet Russia's collectivization of 1930- 34, which was accompanied by brutality, the deportation of a large number of the most efficient "kulkas," mass slaughter of livestock, hunger, and widespread discontent, agricultural collectivization in Communist China at the same stage of development was better planned in many ways. In the early stages of collectivization (i.e., elementary co-operatives), the well-to-do peasants were allowed to remain on the land and to keep a private plot and animals ^^Yuan-li Wu, An Economic Survey of Communist China (lew York: Bookman Associates, 1956), p. 46. Cf. also Cheng, op. cit., p. 25. 129 for their own use, and the peasants obtained dividends from the producers co-operatives for the use of their land and means of production by the latter. However, in the advanced co-operatives which represented a higher form of collectivization patterned after the "kolkhoz" of Soviet Russia, both land and other means of production were transferred to collective ownership, with abolition of payments for the use of them.^ The state farms as a constituent part of ownership by the whole people were initially established in the frontier areas during the first five-year plan not only for wasteland reclamation with highly mechanized agricult ural equipment and machinery, but also to demonstrate high quality of state management to the peasants so that they may be lead further along the path of collectivization. With the "big leap forward," of 1958, they have reflected rapid growth. By the end of 1960, there were no less than 2,490 state farms spreading over a total acreage of 60 mil- 18 lion mou (9,882,000 acres) of land in Communist China. ^Alec Nove, "Communists and Peasants," Current Scene. I (February 20, 1962), pp. 5-6. *®In contrast, a central mechanized state farm was established in 1956 at Suratgarh, Rajasthan, India, with an area of some 30,000 acres. In no sense is it comparable In the actual fulfillment of the collectivization program, especially in 1957, Communist China faced a series of "internal and external contradictions" on the co-operative farms. First, a contradiction was found in the fact that despite the priority given to assigned work to fulfill state quotas, the members of co-operatives gave priorities to their own crop cultivation and animal husbandry, so that the collective economy was neglected. Second, existence of the well-to-do co-operatives and poor co-operatives caused inequality of income distribution and production between them. Third, because of the priority given to peasants in the distribution of farm output within co-operatives, there was an enormous decline in the state agricultural tax collection and state procurement of major crops. Experiencing these contradictions and failures, which were thought to be the result of the Chinese peasant's deep-rooted attachment to individualism, his farm, his traditional family system and private property, the communes were established in 1958 to replace collective to state farms of Communist China both in its scope of operation and in its characteristics. See Third Five Year Plan, op. cit.. p. 323. 131 19 farms. In essence, the commune Is a merging of a number of collective farms and villages into a single, larger organizational unit combining all the administrative func tions of the local government and agricultural management for the development of industry, agriculture, trade, education and the military under a unified system.^ Each commune as a unit not only engages in agricul tural and industrial production, but also performs several other functions, such as financial and commercial affairs, credit allocation, distribution of incomes as well as under taking cultural and educational work in addition to con trolling its own militia and political organizations. In the communes, private ownership of all properties and means 19 The Eighth Central Committee of Chinese Communist Party, "Resolution on Some Questions Concerning the People's Communes," Peking Review (December 23, 1958), p. 11. 20 Shortly after the revolution in Soviet Russia the communes were set up in the years of 1918-1923 to experi ment with the communist dictum "to work according to their ability and to receive according to their needs," under communal ownership of the means of production with all private property abolished. When the internal workings of the commune failed, it was abolished substituting for the "kolkhozy," in which co-existence of private property and collective ownership prevails. Therefore, the communes of Communist China are the result of its peculiar invention, even if its idea is not entirely new. 132 of production has been abolished and placed under communal ownership. Establishing "a half-wage and half-supply % system," the wages are paid on a monthly basis according to "labor performance and work attitude," and the rest of wages is distributed in the form of the free supply of meals to be eaten at public mess halls, clothing, housing, and other services. The traditional Chinese family system was regarded as an obstacle to communalization and its elimination was scheduled as soon as possible. Labor was normally organ ized in the form of production brigades, further divided into production teams assuming overall economic activities within the commune. In assuming their overall economic activities, however, the communes were not allowed to make their independent decisions. Rather, in the formulation of any specific economic plans for production and distribution of commodities, capital construction, purchases of farm equipment and machinery, and the like, the communes were constantly supervised and advised by the state planning organizations to carry out their production targets.^ ^Cheng Chu-yuan, The People's Communes (Hong Kong: Union Press, 1959), pp. 37-39. Hughes and Luard, oj>. cit., pp. 161*163. 133 Thus, through introduction of the people's communes, a complete reorganization of the entire social, economic, and cultural fabric of the traditional society was planned, so as to eliminate both (1) the shortage of capital backing rapid achievement of planned large-scale industrialization and (2) the peasants as a class by converting them into a working class. The communal movement spread rapidly and widely throughout the country. By the end of November, 1958, there were about 26,000 people's communes, each unit con sisting of more than 5,000 households or about 30 cooperaV tives, covering on the average, approximately ~98% of the total farm population in contrast to about 158 households within each collective f a r m . 2 2 Despite this rapid expansion, toward the end of 1958 the communes ran into difficulties, mainly because of misuse of a large amount of labor, disruption of established agricultural practice, and the peasant's antagonism against regimentation within the communes. Thus, during the first three years of the "big leap forward," a series of changes occurred in the workings of communes, especially as to ^^The People's Communes, op. cit., pp. 15-16. 134 functions, pattern of communal ownership, distribution of income, and "the timetable of the transition from socialism to communism."^ Because the communes neither increased agricultural production nor improved the living conditions of the peasants since they were instituted in 1958 and because famine and chaos have been widespread in the countryside, a "rectification and commune-readjustment" movement was fully promulgated at the beginning of 1961. This confirmed the commune*8 "three level ownership system with the production ^Realizing the disruption of agricultural practice and the prevailing discontent of the communal members, the Central Consaittee of the Chinese Communist Party convened in Wuhan in December, 1958 and adopted the "Resolution on Some Questions Concerning the People's-Communes." The major decisions adopted for changes of the commune system are: (1) For communal administration its management and business accounting must be done at different levels, i.e., by the commune management committee, production brigade, and production team; (2) Retention of private property and means of livelihood be flowed to commune members to the extent that it would not reduce collective production; (3) Distribution of income is to follow the principle "to each according to his work" and "more income for those who do more work;" (4) The merger of communes within a region is to be continued; and (5) The commune is the best form of realizing transition from socialism to communism, but the timetable of its transition has to be revised. See "Resolution on Some Questions Concerning the People's Communes," oj>. cit.. pp. 10-19. 135 24 brigade as the basis," the enforcement of the principle of "distribution according to labor, and more compensation for more work," the negation of "egalitarianism," the reissuing of "private plots" to commune members, permission to carry out "family side-line occupation,"^ et cetera. Thus, private ownership and functional distribution have been reacclaimed recently as the communalization for agricultural production retreated to the previous form of collectivization even if the communes are officially retained as administrative entities. Ill, DEVELOPMENT OF AGRICULTURAL PRODUCTION Both in India and Communist China, development of agricultural production is a principal objective of the land reform movement or collectivization and communaliza- tion of agriculture. It also occupies a place of utmost importance in the reconstruction of the rural economy. 24 According to this system, top priority is given to the level of the production brigade in apportioning the right of ownership, while partial priority is given to the communal level. A small portion of ownership is also allocated to the production teams. % C Li Ch'ang-yen, "Agriculture," in Communist China: 1961. II, Communist China Problem Research Series (Hong Kong: Union Research Institute, 1962), p. 86. 136 In these countries where the predominant portion of the population engages In primary production, development of agricultural production Is of great Importance, not only to Increase the supply of farm output for the rapidly growing population, but also to meet and finance the requirements of urgently needed Industrialization programs. Throughout the plan period, comprehensive programs for Irrigation, land reclamation and soli conservation, supplies of fertilizers, Improved seed, availability of rural credit, et cetera, along with technical research and training, are directly and Indirectly associated with an Increase of agricultural production. For long-run developmental planning, measures for Increasing agricultural production are closely related with growth In the products of animal husbandry, fisheries, forestry, as well as rural handicraft Industries. Since It Is not possible to discuss In detail all of these problems within the scope of this presentation, although not under estimating their vital role played both In some areas of the nation's economic life and In the execution of develop mental planning, agricultural production will be examined under the following headings: food crops and non-food or Industrial crops. 137 Food Crops fable X provides targets for agricultural production In India and Communist China during the second five-year plan periods. In the production of food crops India set the new target for production of 80.4 million tons by the end of the second five-year plan, an Increase of 24.6% over the 1955-56 level. A continuous rise In prices of and demand for food crops toward the end of the first five- year plan, along with an acute shortage of foreign exchange^ made It desirable to increase production of food crops, so as to reduce the amount of money spent for imports of food, thus providing funds for financing imports of machinery and other essential materials unavilable within the Indian economy. In Communist China, production targets for food crops including soybeans were set initially at 262.5 million tons by 1962, aiming at an increase of approximately 36.2% over 1957 targets of 192.81 million tons. In spite of the greater attention given to the production of food crops in the second five-year plan over the previous one, the rate of increase in the production of food crops was not so favorable as had been expected both because of a sharp rise in capital investment and of inflationary TABLE X TARGETS FOR AGRICULTURAL PRODUCTION IN INDIA AND COMMUNIST CHINA IN THE SECOND FIVE YEAR FLANS India® Communist Chinab Products Unit 1955-56 1960-61 % Incr. 1957 1962 1 Incr. Productkn Targets Targets Targets Grains Mil . tons 65.0 80.4 24.6 181.59 250.0 37.7 Soybeans ii ii 11.22 12.5 11.4 Cotton ii ii 4.2 6.5 55.6 1.64 2.4 46.3 Sugarcane it n 5.8 7.8 33.9 Oilseeds ii n 5.5 7.6 37.0 Jute Mil.bales 4.0 5.5 58.1 Total Products 27.8 aThe New India, p. 213. bHandbook on People's China (Peking: Foreign Language Press, April, 1957), pp. 116*117, and Peking Review (September 1, 1959), pp. 19*20. 138 139 pressures experienced toward the end of the first five-year plan. As a result, Communist China set revised targets for agricultural production in 1958 only 5% higher than that of total agricultural production experienced in the previous year Progress of agricultural production in India and Communist China is estimated separately in Tables XI and XII. According to the figures for India, production of food crops^? rose from 101.5 million tons in 1955-56 to 118.0 million tons by the end of the second five-year plan, registering an increase of 16.2%, while the index of agricultural production increased 15.6% over 1955-56 level. Despite the overall efforts made to reach the plan targets of a 28% increase over 1955-56 level, the actual performance has fallen below the plan targets on account of unfavorable harvest of food grains in two years (i.e., 1957-58 and 1959-60) in spite of record output of bumper crops in 1958-59. Although we can read an upward trend in the figures of food crops production since the end of the first ^Cheng, Communist China*8 Economy, op. cit., p.138. ^Here, food crops include rice and wheat in addi tion to an item of grains (i.e., all cereals and pulses). TABLE XI AGRICULTURAL PRODUCTION IN INDIA Crop Unit 1955-56 1956-57 1957-58 1958-59 1959-60 1960-61 Rice Mil.tons 27.1 28.6 24.9 30.4 29.3 32.0 Wheat i t i t 8.6 9.3 7.7 9.8 9.7 10.0 All Cereals i t i t 54.9 57.4 53.0 62.6 60.5 64.0 Pulses i t i i 10.9 11.4 9.5 12.9 11.2 12.0 Oilseeds i i ii 5.6 6.3 6.1 6.9 6.4 7.1 Sugarcane (gur) H 6.0 6.8 6.9 7.1 7.6 8.0 Cotton Mil.bales 4.0 4.7 4.7 4.7 3.8 5.1 Jute ii ii 4.2 4.3 4.1 5.2 4.6 4.0 Total Food Crops Mil.tons 101.5 (-100) 106.7 95.1 115.7 110.7 118.0 (-116.2) All Commodities 1949-50 - 100 116.8 (-100) 124.0 114.6 132.3 127.2 135.0 (-115.6 — ------------------------------------------------------------------------------F* • P * Third Five Year Plan, p. 302. 0 TABLE XII AGRICULTURAL PRODUCTION IN COMMUNIST CHINA Crop Unit 1957 Offcl. Est. 1958 Offcl.aEst.b 1959 OffclfEst.b 1960 Est. 1961 1962 Estb % Rice Mil. tons 113.7 90.0 80.2 77.5 80.0 Wheat f t t f 29.0 24.0 24.3 22.2 16.5 Miscellaneous Grains* i t i . i 61.9 50.2 41.6 38.2 45.4 Potatoes i t ii 45.4 29.3 21.6 21.6 24.6 Cotton6 i i ii 2.1 2.4 Total Food ii ii 185.0 170.0 250.0 193.5 270.0 167.6 159.6 166.5 Grain Production (-100) (-98.0) aOfficlal figures: Ten Great Years, cited in Current Scene, I,(January 22, 1962), pp. 3-4. "Estimated figures: Current Scene. I (January 22, 1962), pp. 5 and 7-9. cPeking Review (February 16, I960), p. 14. Miscellaneous grains include corn, millet, kaoliang, and other minor cereals and leguminous crops. 142 five-year plan, the general record of performance In these major crops is said to be a disappointing one for the growth of Indian economy. In contrast to India, the revised official estimates 28 of food crops in Communist China indicate tremendous increases in the first two years of the second five-year plan denoting total production of 250 million tons in 1958 and 270 million tons in 1959, as against the production targets of 192.81 million tons in 1957. The index of food crops production increased about 40% by the end of 1959, thus fulfilling the production targets of 262.5 million tons or a 36.2% increase over the 1957 level three years ahead of the planned schedule. Despite this remarkable achievement of food crops production officially claimed, the prevailing overall food shortages throughout the country soon proved that the actual gains made during the two year period were nominal and that the claims were greatly exaggerated. 2&Here, food crops refer to rice, wheat, corn, millet, and other minor cereals as well as potatoes and soybeans. Originally, food crops production in 1958 was estimated at 350 million tons, and production target for 1959 was set at 525 million tons. 143 According to the data prepared by Current Scene (which furnished the estimates for the first four years of the second five-year plan), except a bumper crop year 1958 (In which 193.5 million tons of food crops were produced due to unusually favorable weather and natural conditions), average annual food crops production under the transforma tion of agriculture since 1953 is believed to be at 170 million tons. Even so, the physical volume of food crops « production was much higher in Communist China than India, though these estimates fall below the official claim of 1957 production level. For the reduced production of food crops in 1959 and 1960, bad weather conditions were largely responsible, in addition to the mismanagement of farm collectivization within communes, and the peasants' unwillingness to labor and the lack of incentives. As the planners put it, Commu nist China suffered from natural calamities that were "un precedented in the past 100 years." In the summer, floods were widespread in the south and drought was ubiquitous in Manchuria and Yangze areas, extending the area of calamity- stricken farmland to approximately 900 million mou^ (150 ^Communist China: 1961. op. cit.. p. 78. 144 million acres) or over one-half of Che total arable farmland in that country. No detailed estimates have ever been made public by Communist China for the actual production of food crops in 1961 and 1962. But the available studies indicate that there was an increase in productivity in 1961 mainly accompanied by a rise in the production of miscellaneous grains and potatoes. Examining the cumulative effects of two successive years of severe shortage of food crops, a reduced acreage of arable land for crop yielding caused by natural calamities, decentralization of communes, et cetera, we may safely assume that agricultural output in Communist China toward the end of the second five-year plan must not have been as favorable- as to reach the previous peak level of 1958. Industrial Crops Along with the growth in production of food crops, industrial crops constitute an important position in the development of agriculture in India and Communist China, because they represent the major sources of raw materials ^Communist China: 1961. op. cit., p. 78. 145 for use in small-scale industries and constitute one of the major export items in the form of raw and processed materi- 30 als to finance imports. For this reason, fluctuation in their production is prone-to accompany direct changes in the production of small-scale industries. In both countries the principal industrial crops include cotton, oilseeds, sugarcane, et cetera. Jute and rubber constitute the major sources of industrial crops in India in contrast to hemp, silk, tea, and tobacco in Communist China. As Table XI indicates (except production of jute which shows a falling trend after a peak reached in 1958-59), the overall trend of production of industrial crops increased moderately over the period of the second five-year plan in India. In this respect, a comparison of the actual performance between India and Communist China suffers from the lack of reliable Chines statisticil data. In spite of the fact that about one-fifth of the peasants' total income has been represented by proceeds from the sale of cotton, hemp, oilseeds, tea, and the like,31 actual ^Available studies indicate that over 70% of total exports of Communist China come from agricultural and processed products. See Communist China:1961. ibid.. p. 79. ^ Ta-kung Pao. June 23 and July, 1961. Cf. also Communist China: 1961. op. clt., p. 81. 146 performance has never been made public except for cotton production, which was 2.1 million tons In 1958 and 2.4 million tons In 1959. Taking agricultural production as a whole, production targets have not been fulfilled In two 32 years, viz., 1960 and 1961, because of severe natural calamities and other unfavorable factors which we have described earlier. The records of Industrial crops production In India reveal about the same proportionate Increase over the second five-year plan period as do the production of food crops, while those of the food crops production In Com munist China reflect the early Increase and then general downward trend with minor oscillations over the entire years through the end of the plan period under consideration. In India, nearly half the expansion in production of food crops over the plan period has been associated with extensive expansion of arable land or Inccease In acreage harvested, whereas the growth of Industrial crops produc tion has been attempted by Intensive utilization of arable ^The Communist Party of China, "Communique of the Ninth Plenary Session of the Eighth Central Committee of the Communist Party of China," Peking Review (January 27, 1961), p. 5. 147 land through improvements in yields per a c r e . 33 To help increase yield per acre there was a total outlay of Rs. 372 crores on major and medium irrigation schemes and Rs. 95 crores on minor irrigation schemes in addition to the allo cation of Rs. 290 crores for agricultural programs.^ Also, much emphasis has been laid on the multiplication of improved seeds--for improvement of varieties of farm seed about 4,000 seed farms were established by the end of the oe second five-year plan, on the expanded use of fertilizers, soil conservation, and the "Japanese method" of rice culti vation so that maximum results may be obtained to advance the agriculture of India. In contrast to India, expansion of agricultural production in Communist China has been mainly attempted through expansion of sowing acreage and water conservation 33prospects for Indian Development, op. cit., pp. 221-223. • ^Third Five Year Plan, op. cit.. pp. 303-304. It is rather impossible to ascertain the actual increase in the area of newly irrigated land as statistics relating to land utilization have not been available beyond 1957-58. However, it was estimated that according to the draft out line of the second five-year plan, the net irrigated area would be of the order of approximately 70 million aeres through the end of this plan. 35Ibid., p. 312. 148 throughout the whole country. For rapid expansion of sow ing acreage the following three means were used: wasteland reclamation, Improvement of low-yield land, and economizing arable land. First, wasteland reclamation as a means to attain more land for cultivation was derived from the principle of "simultaneous promotion of more-sowing-more harvest and high-yield-more-harvest" substituting for the unworked principle of "less sowing, high yield, and more harvest," advocated by Mao Tse-tung for a gradual realization of 36 "basic farmland system" in Communist China. In the course of wasteland reclamation, organizations at various levels of the people's communes worked along with the State farms, following the strategy of "walking on two legs." As a result of this combined effort, nearly 60 million mou (9,882,000 acres) of wasteland was reclaimed in the first three years of the second five-year plan. But a large part of newly reclaimed land in hilly regions was soon found to be unsuitable for sowing because of insufficient irrigation, and soil preservation, and mountain torrents. Second, the improving low-yield land movement was ^^Kung-mlng Jlh-pao. October 9, 1961. 149 widespread in 1961 in order to increase per acreage produc tivity through intensive manuring. As a result, about 200 million mou (32,940,000 acres) of low-yield land were improved to a greater extent with no less than 260 million mou (42,822,000 acres) still remaining unimproved. Third, for economization of arable land these instructions were followed," ". . .to leave no land unsown no matter whether it be the center or the edge, whether it be near or distant, whether it be a vast stretch or a small plot; to reduce the number and narrow down the width of small paths in the fields, so as to provide more land for sowing; to reclaim land from useless dikes around lakes; to remove forests to the mountains and turn woods into farmland; to keep the farmland in good shape........ 38 In addition to these measures, some 100 million OQ peasants were mobilized in water conservation projects**7 with the adoption of the "big leap forward," not only to prevent flood and drought, but also to increase the area of irrigation for agricultural production. According to the official claim, they built substantial numbers of large and 37 Jen-min Jih-pao. December 29, 1961. 3®Ibid., November 20, 1961, cited in Communist China; 1961. op. cit., p. 99. 39lbid.. March 1, 1959. Cf. also Cheng, Communist China1s Economy, op. cit., p. 142. 150 medium scale reservoirs and Irrigation systems along with small water conservation works, bringing about two-thirds of the arable land of the whole country under irrigation systems, and thus increasing the irrigated farmland for crop cultivation by more than 300 million mou (49,410,000 acres)^® during the first three years of the "big leap forward." To sum up, then, in view of the production trends in India and Communist China during the second five-year plans, both achievement of self-sufficiency in food-crops and further progress in the production of industrial crops would be of great importance to both countries to meet the growth of internal and external demands for agricultural production along with the sustained development of the nation's economy. Figures for development of agricultural work in both countries, especially growth in per acreage productivity and acreage expansion are estimated in Appendix Tables & and E for comparison. ^Kung-len Jih-pao. March 28, 1961, cited in Com munist Chinai1961. op. cit.. p. 99. 151 IV. SUMMARY 1. For predominantly agricultural countries like India and<Communist China, poverty has always been associ ated with low incomes and low productivity in agriculture. The success of developmental planning in these two countries therefore, ultimately depends on the continuous achieve ments in the sphere of increasing agricultural production. 2. To attain continuous achievements, important roles have been assigned to the private sector in India under government guidance and supervision, following centralized-decentralized planning techniques. Placing emphasis on the need for sustained effort on the growth of foodstuffs and raw materials through intensive cultivation and the introduction of better techniques, a moderate increase in the production of agriculture has been advocated. 3. In Communist China, experiencing not so favor able results of agricultural production, a new development strategy has been focused on "the mass utilization of under employed rural labor," on a large scale, based on the principle of the "big leap forward." 4. Agricultural development planning in India has stressed land reform and community development. Through land reform, redistribution of landownership, Improvement in the conditions of tenancy, and control of rents have been planned. In order to rectify the defects of central planning, India's community development programs have been based on decentralized, regional planning. For the development of agricultural productivity, cooperation has been the accepted form in the execution of developmental planning, as against collectivization or complete individualism. 5. Highly centralized communalization of agricul ture has been advocated in Communist China. The commune is a merging of a number of collective farms and villages into a single,larger organizational unit combining all the administrative functions of the local government and agricultural management for the development of industry, agriculture, trade, education, and the military under a unified system. Because neither agricultural production nor the living conditions of the peasant have been improved under communalization of agriculture, the communes have been retreated to the previous form of collective farms. 6. Actual performance of the agricultural sector in India and Communist China under the second five-year plans has not been so favorable, partly because both population and unemployment pressures have retarded the development of agricultural production, and partly because severe natural calamities and famines have stricken the growth of agriculture, especially in Communist China. CHAPTER V DEVELOPMENT OF INDUSTRY Both in India and Communist China, developmental planning has stressed the importance of rapid advance in industrialization. Industrial development programs of Communist China have involved a high degree of central plan ning and control in an attempt to transform the nation into a powerful, industrialized, socialist state. In India, however, the gradual and decentralized approach has been widely acclaimed. In order to compare the relative development performance under different approaches, this chapter deals with the following subjects: (1) approaches to Industrialization, (2) heavy industry, and (3) small- scale light and cottage industries. I. APPROACHES TO INDUSTRIALIZATION The Place of Industrialization in Developmental Planning The importance of rapid industrialization in the development process is accepted by planners on all sides as a means to secure a long-run increase in the level of 154 155 income from available resources. As we are all aware, a rise in the total output and the level of income, espe cially in underdeveloped countries, cannot be expected unless the proportion between labor and other productive factors has improved. Since industrialization is one of the most feasible ways to improve the proportions between labor and the different productive factors and is a way of bringing about rapid economic development, heavy stress has been laid on the role of industrialization in developmental planning. However, the forms, means, and goals of indus trialization have been "often vague in the mixture of reason, rationalizing and sentiment accompanying the clamor for it."1 Balanced growth vs. unbalanced growth theory. Since the appearance of Rosenstein-Rodan'8 balanced-growth theory 9 introduced in connection with industrialization in 1943, various modified arguments have been presented by econo mists in this field as to whether or not it should be Buchanan, Norman S. and Howard S. Ellis, Approaches to Economic Development (New York: The Twentieth Century Fund, 1955), p. 267. 9 *See P. N. Rosenstein-Rodan, "Problems of Industri alization of Eastern and South-Eastern Europe," Economic Journal (June-September, 1943), pp. 202-211. 156 applied to economically underdeveloped countries as a proper planning measure to enforce development programs. Two maj-or arguments are frequently debated: balanced growth and unbalanced growth theories. Nurkse and Rosenstein-Rodan assert that the economi cally underdeveloped countries have to have balanced growth because otherwise there will be no sufficient demand to absorb the expanded output of a single growing industry, 4 that is, balance in demand, while Lewis and Scitovsky argue that there must be balance in supply,^ because many The theory of balanced growth "shows great affinity with the classical and neo-classical theories, stressing the maximizing of output by a 'correct' allocation of factors so as to achieve equal marginal— or equal marginal social— product in all lines of activity," while the theory of unbalanced growth "does not directly deny this line of thought, but (rather) chooses to lay greater emphasis in a dynamic setting upon other factors," relying on the belief that a large initial burst of saving and investment engi neered by the state is essential for the performance of economic developmental projects in underdeveloped countries. Cf. Howard S. Ellis, "Big Push" Theories of Economic Devel opment (Milano: Editrlce L'industria, 1957), p. 3. ^Hurkse, Ragnar, Problems of Capital Formation in Underdeveloped Countries (Oxford: Basil Blackwell and Mott, Ltd., 1953) pp. 11-17. Rosenstein-Rodan, oj>. cit. ,pp .202-2L -*W. Arthur Lewis, The Theory of Economic Growth (London: George Allen and Unwin Ltd., 1955), pp. 274-183. Tibor Scitovsky, "Two Concepts of External Economies," The Journal of Political Economy. UCII (April, 1954), pp. 143- 152. 157 industries are subject to external economies of scale, and if those industries which enjoy external economies increase their output, they can contribute to the profitability of other industries as well as their own. In other words, when all are undertaken at the same time, all concerns will become profitable. On the contrary, Hirschman contended that the "theory of balanced growth fails as a theory of development?1 He stated: » Development presumably means the process of change of one type of economy into some more advanced type. But such a process is given up as hopeless by the balanced growth theory which finds it difficult to visualize how the "underdevelopment equilibrium" can be broken into at any one point. The argument is reminiscent of the paradox about the string that is equally strong everywhere and that therefore when pulled cannot break anywhere firSt.6 Thus, Hirschman believed that the advantages of simultane ous multiple development cannot be enjoyed because the initial resources for simultaneous developments on many fronts are generally lacking in underdeveloped countries. Rather by building up one stage or sector of industry, heavy demands for productive increases in the lagging parts ^Hirschman, Albert 0., The Strategy of Economic Development (New Haven, Connecticut: Yale University Press,: 1958), p. 52. 158 of the economy will be set up In the underdeveloped countries due to the linkage effects between different Industries. Therefore, If a country were ready to apply the theory of balanced growth, then It would not be underdeveloped In the first place. Also, Lelbensteln, In defense of the unbalanced growth theory, states: In order to achieve sustained secular growth . . . it is necessary that the initial stimulant or stimu lants to development be of a certain critical minimum size .... These stimulants . . . tend to raise per capita incomes above the equilibrium level. But in backward economies, long-run economic development does not occur because the magnitude of the stimulants is too small. That is to say, the efforts to escape from economic backwardness, be they spontaneous or forced, are below the critical minimum required for persistent growth.’ Unbalanced growth theory and industrialization. Economists who have been associated with the concept of unbalanced growth, usually believe that a large initial burst of investment and rapid industrialization are neces sary to engender ^economic development, not only because industrialization has been frequently associated with urbanization, which is regarded as a contributor to the ^Harvey Leibenstein, Economic Backwardness and Economic Growth (New York: John Wiley and Sons, Inc., 1957), pp. 94-95. 159 reduction of fertility rates while hastening economic development, but also because rapid development of manu facturing industries entails more numerous instances of a large indivisible capital unit than other sectors of the economy,, i.e., agriculture, trade, services, et cetera. Manufacturing industry presents ... a higher stage of production. In advanced countries the development of manufacturing industry has been concomitant with these countries' spectacular economic progress and rise in levels of living; many of its products are indeed almost symbolic of a high living standard. Not least in the underdeveloped countries, the productivity of manpower in industry tends to be considerably greater than in the traditional agricultural pursuits. Indus trialization, and the growth of that part of the working population that is engaged in industry, is therefore a means of raising national income per capita.** Industrialization, without doubt, has a necessary and predominant role to play in almost any sound developmental planning, but its role is considered to be narrower than emphasized in relation to the total program of the economy, especially in the early stages of economic development in underdeveloped countries. As the study of economic history reflects, industry was built on agriculture and both indus trial and agricultural improvements went hand in hand ' except in the case of Soviet Russia and of the early stages **Gunnar Myrdal, An International Economy (New York: Harper and^Brothers Publishers, 1956), p. 226. of developmental planning in Communist China. Then, the contentions favoring rapid industrialization as a means to achieve economic development seem to be somewhat overrated. Conclusion. In planning for economic development, then, planners must set realistic targets in the allocation of total investment to different sectors of the economy to arrive at maximum results without establishing a general presumption favorable to the allocation of investment to industry. In fact, a strong case can be made for basing industrial development on agriculture because industry is dependent upon agriculture for raw materials and other inputs in the process of production. Also, "agriculture makes relatively light drafts upon technical skills, upon entrepreneurial abilities, and upon capital, all of which _ Q are generally scarce,11 in underdeveloped countries. Improvements in the methods of production and new techniques introduced can be absorbed without much expense as time goes on. 9"Big Push " Theories of Economic Development. op. cit.t pp. 10-11. 161 Surplus agricultural labor can be turned into a source o£ economic development in village and other local undertakings and in processing agricultural products . . . without the economic costs and social disruptions of transplanting the labor to cities," so that the heavy costs of urban life can be postponed until the overall level of farm incomes has risen. Also, indus trialization based on the development of agriculture— i.e., agricultural production and agricultural population— is not only a means to achieve growth in mass purchasing power, but also a way to expand the domestic market, thus "laying the base for thriving domestic manufactures of varied As Staley stated, Improvement in the productivity of agriculture is one of the most solid means of promoting industrialization; in fact unless agriculture does modernize substan tially, industrial expansion in most underdeveloped countries is likely to be cut short by lack of markets, for the great majority of the population will not have the necessary purchasing power. Conversely, agricul tural improvements cannot take up the released man power and to provide a solid technical base for the equipment and services essential to modernized agriculture. . . .,fl1 ^Also see Buchanan and Ellis, oj>. cit. „ p. 268. ^Eugene Staley, The Future of Underdeveloped Countries (New York: Harper and Brothers Publishers, 1954), p. 304. 162 Production Policies, Priorities, and Targets The main feature of developmental planning in India under the second five-year plan was the importance given to the program of rapid and basic industrialization as the ’'grand strategy,” in its warqgainst poverty, following the adoption of New Industrial Policy Resolution in 1956. For the accomplishment of orderly, effective industrial growth, "not at human and social cost., but to the benefit of the Indian people,and as a guiding principle of industriali zation, industries have been classified under three cate gories, in accordance with the roles to be played by either government or private sector in the future development of industries. In the first category, appearing in schedule A, are the basic heavy industries the development of which is exclusively to be in the hands of the State— i.e., the public sector— because of the availability of both the financial and organizational resources for rapid expansion of industries. There are seventeen industries under this category inclusive of steel, coal, all essential and strategic minerals, the government-owned defense industries, et cetera. In the second category, appearing in schedule B, l^The New India. job. , cit., p. 245. 163 are twelve industries whose future development will be primarily dependent upon State undertakings. Included in this category are the mixed group of essential industries such as machine tools, basic chemicals, road and sea transport, essential drugs, et cetera. All other Indus** tries not included in these two categories are placed in the third category and their future development will be left for the private initiative and enterprise under State regulation. The major emphasis laid on the development of heavy and other strategic industries does not necessarily mean that the public sector alone will concentrate on the developmental programs, father, it was proposed to make the private sector supplement the effort of the public sector through direct or indirect participation whenever the opportunity exists. Because of the nature of the goods themselves, the development of consumer goods production is ultimately dependent upon the growth of private enter prises, i.e., cottage and small-scale industries, the expansion of which necessitates relatively little capital expenditure and enables the absorption of rural labor while helping to decentralize production and mobilize potential resources. In addition, the balanced regional 164 industrialization and training of personnel for industry received attention so that the problems arising from regional disparities might be avoided. Furthermore, in view of balancing total investment and effort so as to achieve the main objective of raising the living standards of the people of India, priorities were assigned to industries in the order of those which help push the economy forward swiftly and help earning foreign exchange needed for financing industrialization, i.e., (a) increased production of iron and steel, and heavy chemical8, along with the development of heavy engineering and machine-building industries; (b) expansion of indus tries producing developmental and producers goods such as aluminum, cement, fertilizers, and the like; (c) moderniza tion and re-equipment of existing Industries such as cotton textiles, jute, and sugar; (d) fuller utilization of exist ing plant capacity unutilized; and (e) expansion of small- scale and cottage industries producing consumer goods, 13 keeping in view demand and requirement trends. In the determination of production targets for industry over the second five-year plan, these priorities 13Ibid., pp. 248-249. had been kept in view. The new production target for~all industries taken together was set at an increase of 64% over the 1955-56 level. In keeping with the strong emphasis on heavy and basic industries, a 150% increase in production of capital goods (e.g., textile machinery, machine tools, et cetera) and a 73% increase in production of producer goods (e.g., steel forges, power plant, et cetera) were scheduled for large- and medium-scale indus tries, while a 30% increase in production of consumer goods by small-scale and village industries was planned just sufficient to meet most of the increase in consumers' demand. In addition, a 58% increase in total mineral pro duction was also planned to meet the requirement for 14 industrial development. For these industrial programs as a whole, the total planned investment allocated by both public and private sectors amounted to Rs. 1,465 crores (See Appendix Table A for revised planned and actual figures)— an increase of about four and a half times as much as actual investment made for these industrial developments over the first five- year plan. The detailed breakdowns of total investment 14Ibid.. pp. 254-258, 260, 280, and 296. 166 made by both major sectors In accordance with the size of industries are shown in Appendix Table F. In contrast to the heavy emphasis given to indus trialization and development of industrial production in India in the second five-year plan, the pattern of industri alization in Communist China has changed considerably with the launching of the "big leap forward," in 1958. For this, three factors were mainly responsible. First, adhering to the achievement of rapid industrialization, a large part of the nation's economic resources and invest ment were allocated to the development of heavy industry with the result that increases of 204.2% in capital goods and 85.1% in consumer goods were achieved as against a 126.5% increase for the former and a 79.7% increase for thej latter as envisaged in the industrial production targets for the first five-year plan.^ Second, due to over investment in capital construction and the divergent higher annual rate of growth of capital goods over consumer goods throughout the planning period, commodity shortages were widely experienced throughout the country, creating ^Ronald Hsia, "China's Industrial Growth, 1953- 1957,” The Annals of the American Academy of Political and Social Science. CCCXXI (January, 1959), p. 76. 167 tensions and stresses in the commodity market accompanied by inflationary pressures. Third, as a result of these tensions and stresses in the commodity market, the planners hastily reduced the amount of investment for capital con struction by 7.4% in 1957, the last year of the first five- year plan from the level of the previous year, which caused a decline in demand for labor while increasing unemployment in urban areas. For the purpose of rectifying the all-around setback on the economic front, a new planning strategy was advo cated in the formulation of the second five-year plan, laying stress upon the importance of intensive utilization of underemployed labor combined with the simultaneous growth of industry and agriculture on the basis of priority for the progress of heavy industry, i.e., so-called "walking on two legs," or balanced growth. In view of maximizing the rate of industrial develop ment while maintaining the balance with agriculture, plan ning priorities had been directed to the following: (a) increased attention to industries serving the agricultural sector; (b) emphasis upon medium and small-scale industries; (c) modernization and re-equipment of existing handicrafts industries; (d) fuller utilization of existing plant 168 facilities located in the coastal areas; (e) emphasis on decentralization and industrial planning and administration; and (f) increased production of steel and other metals by 'promoting native mining and methods of processing.^ Further, the balance between the large-scale and capital intensive industrial projects— the major preoccupations of the preceding planning period— and the medium, small-scale, and labor intensive industrial develop* ment had been preserved. This was only possible through the decentralization of industrial planning and administra tion, for without decentralization, development of small- scale and handicraft industries, as well as those serving the agricultural sector, would not have been possible due to the inefficient mobilization of financial material, and human resosrces in the local or rural areas, leaving with the central authorities the undertaking of large-scale capital intensive industries whose development cannot be properly carried on by local planning organs because of their economies of scale. That is to say, the balance 16Ibid., p. 78. ^ Ibid. t Also Hughes and Luard, oj>. cit., p. 63. 169 between the development of Industry and agriculture, between the large-scale and small-scale industries, may not be maintained. Laying emphasis on the development of small-scale and handicrafts industries and on their advantages, Liu Shao-ch'i, vice-chairman of the Chinese Communist Party, stated: . . . they require less investment and can more readily absorb funds from scattered sources; they require less time to construct and produce more rapid results; they can be designed and equipt locally; and they can be established over a wider area, thus facilitating industrialization throughout the entire country at a faster rate. Moreover, these small local units can better make flexible use of the labor power available in the countryside.*8 Thus, predicated upon the belief that the huge labor power available in the countryside is perhaps the only great natural resource of Communist China, there was a gradual shift of emphasis to the development of small-scale and local industries using indigenous production methods with the mobilization of labor forces. Giving priorities to the development of small-scale industries along with that-of *®Liu Shao-ch'i, "Report on the Works of the Central Committee of the Communist Party of China to the Second Session of the Eighth National Congress" (Peking: Foreign Language Press, 1958), p. 49, cited in Cheng, Communist China's Economy, op. cit.. p. 139. 170 large-scale industries such as machine-building, electrical power, coal-mining, and the relatively less developed branches of industry— i.e., the crude oil production and chemical industries— some sixty million people were forced to directly participate in manning the "backyard blast furnaces," during the 1958 steel production drive, while some forty million persons were placed in the construction of coal-mining and the oil industries, as well as power stations, cement plants, fertilizer plants, farm-tool manufacturing and repairing plants, and the like, mostly located in the rural areas under the direct control of 19 local planning organs. In the formulation of targets for major industrial products in the second five-year-plan, laying emphasis on the development of heavy industries, a 100Z increase in the gross value of industry^® was planned setting the produc tion targets for steel at 10.5 - 12 million tons, and coal 19 State Statistical Bureau, Communique on the Devel opment of the National Economy in 1958 (Peking, April 14, 1958). Cf. also Peter S.H.Tang, Communist China as a Developmental Model for Underdeveloped Countries (Washing ton, D.C.: The Research Institute on Sino-Soviet Bloc, 196Q p. 51. 20"Report on the Draft 1960 National Economic Flan," ££.. cit., p. 5. 171 at 190 - 210 million tons by 1962 as indicated in Table XIII. However, with the adoption of the "general line of socialist construction" and the new drive for labor- intensive methods, special emphasis was placed on the increase in steel production in order to overtake and sur pass Great Britain in its production as well as in the production of other major industries by 1973. Thus, taking the "steel production as the core and achieving a compre hensive leap forward," the targets initially set for steel and coal production were revised in the determination of 21 1958 and 1959 production figures. The detailed figures for the amount of investment allocated for the achievement of these production targets are not yet available. Taking the development programs as a whole, a total capital investment of approximately 110.000 million yuan was estimated to be necessary, with 50.000 million yuan going to industrial investment— though the actual level of investment must have been higher due to the overall increase in production targets— for the second five-year plan, as against the total capital investment of ^Cheng, Communist China18 Economy, op. cit., p. 139. 172 TABLE Xlll INDIA'S INDUSTRIAL PRODUCTION TARGETS FOR 1960-61 AND ACTUAL PERFORMANCE Item Unit Production Targets Actual Production Coal Mil. tons 60 54.62 Steel Finished i i i t 4.3 2.2 Nitrogenous Fertilizers 1000 " 290.0 110.0 Phosphatic Fertilizers i i i t 120.0 55.0 Textile Machinery Rs. crores 17.0 9.0 Cement Machinery i t • i 2.0 0.6 Paper Machinery i t ii 4.0 -- Aluminum 1000 i t 25.0 18.5 Newsprint It n 60.0 25.0 Chemical Pulp II i t 30.0 -- Soda Ash II ii 230.0 145.0 Caustic Soda II i t 135.0 100.0 Dyestuffs Mil. lbs. 22.0 11.5 Cement Mil. tons 13.0 8.5 Third Five Year Plan, pp. 454 and 511. 173 55,000 million yuan, of which 25,030 million yuan allocated for industrial programs during the first five-year plan.22 Judged from the proposed production targets for the development of industry taken as a whole, Communist China's policy of industrialization has been much more ambitious— perhaps overly-ambitious— than that of India during the periods under consideration. Now, keeping these proposed programs in mind, let us turn to the actual performance in the major industrial fields of endeavor. II. HEAVY INDUSTRY23 22Ibid.. pp. 167-168. 2^The term "heavy industry" as used in the official planning texts of India and Communist China shows a certain divergence and thus needs some explanations. In India industries producing certain producer goods (e.g., steel forges and power plant equipment), capital goods (e.g., machinery and machine tools), and some intermediate pro ducts (e.g., basic iron and steel, heavy engineering and electrical engineering, and basic chemicals, et cetera), and transportation equipment are usually referred to as heavy industries. In Communist China, following the definition adopted by the State Statistical Bureau, indus tries producing the producer goods are identified as heavy industries. Such a definition has brought considerable difficulties in the measurements of growth of industrial production, for certain industrial products (e.g., paper and farm implements) which have been customarily categor ized in light industries belong to the group of producer goods. Cf. Choh-Ming Li, oj>. cit., p. 41. 174 India As the top priorities given to the development of heavy industries during the second five-year plan, both industrial products and diversification of industry in general have shown remarkable progress in India. Taking the production of steel, heavy chemicals along with the development of heavy engineering and machine-building industries as "the core of the Plan," three steel plants having a combined capacity of 2.3 million tons of finished steel have been completed by the public sector and two other plants already operated by private enterprises have been expanded enormously so that their steel ingot capacity may , i i i be increased twice as much in volume. Further progress has been made in the fields of heavy foundries, forges, elec- ; trical and machine tools building and other branches of heavy engineering, cement production, et cetera. In spite of the overall growth made in industrial products, however, the statistics presented in Table XIII indicates that the actual achievement is somewhat below the planned targets, while the overall fixed investment during the period 1956-61 rose to a total of Rs. 1,620 crores (Rs. 770 crores on public sector and Rs. 850 crores on private sector projects) from the original estimate of Rs. 1,245 crores (Rs. 560 crores on public sector projects and Rs. 685 crores on private sector projects).^ The failures to meet the planned targets were especially severe in the production of finished steel, fertilizers, and certain items of industrial machinery. In the case of steel production, for example, the combined output of newly established steel plants reached only about 0.6 million tons by 1960-61, the last year of the second five-year'' plan period as against the original production target of 2.3 million tons. In the production of fertilizers, the government-owned plant at Sindri— the main source of supply in India contributing some 84% of total combined ferti lizer production during the first five-year plan— and other private-owned ammonium plants at Varanasi were not able to meet the demand producing 165 million tons, thus achieving only 40% of the planned target, chiefly because of the delay in completion of the proposed three new fertilizer plants at South Arcot, Nangal, and Rourkela. The delay in the completion of these projects rested primarily in the 26 foreign exchange crisis experienced in 1957-58. ^^Thlrd Five Year Plan, op. cit.. p. 455. ^ Ibid.. pp. 452-453, and The New India, op. cit. pp. 262-266. 176 In the field of Mineral development, the second five year plan attempted to raise the total mineral production by 58% over the 1955-56 level not only for its own indus trial growth but also for export. Heavy emphasis has been laid on the intensive exploration for new mineral resource^ especially of coal and oil, setting targets at 60 million tons to be produced by both public and private enterprise in the former, showing an increase of 22 million tons or 58% over the level of production reached in 1955-56. In carrying out expanded coal production projects, the public sector took the major responsibility in producing this additional output undertaking an increase of 12 million tons through intensive utilization of existing colliers and new colliers established, leaving the rest to the private sector. In spite of~slow progress made in the early stage of the plan period, it increased by 3.2 million tons during the first three years of the second five-year plan, and actual production reached 54.62 million tons in 1960-61 as against a target of 60 million tons.26 Considering the ^^Third Five Year Plan, pp. 510-511. Birendra Kumar; An Introduction to Planning in India (Calcutta: Bookland Private Limited, 1962), p. 122. 177 difficulties which arose in connection with establishment of new colliers and foreign exchange crisis, a remarkable achievement has been made in coal production, even though the actual production has fallen short of the planned target. Despite a high priority given to the exploration and development of mineral oil resources under the second five-year plan, no production of oil has been witnessed in India except a very small quantity of crude oil obtained in the area of Digboi, Aftsam. However, the foundations have been laid for an oil industry as the Assam Oil Company was assisted by the public sector in exploration of oil resources from the newly found Nahorkatiya oil field which has annual capacity of producing about 2.75 million tons of crude oil. When we take into account the production of mineral industries as a whole, both the public and private sectors have achieved a planned target of 58% increase over the plan period under consideration, registering Rs. 159 crores in the total value of production in 1960 as against Rs. 94.3 crores in 1955. Except for manganese, the stead ily rising trends have shown in the mineral production in general, and they are mainly due not only to the expansion of steel production within the country but also to the 178 27 expansion of export to foreign countries, notably Japan. Taking Industrial production as a whole, then, India witnessed the general Index of 194 In 1960-61 as against 132.6 in 1955-56,^® taking 1950-51 as the base year, which is equivalent to an increase of about 46.3%— about 17.7% below the planned increase of 64%— over the second five- year plan. Communist China In comparison to the actual performance in India, the overall achievement in the production of heavy indus tries has been much greater in Communist China. In the early stages of the second five-year plan, which aimed at a 100% increase in the gross value of industry, vigorous efforts have been made on the development of heavy indus tries, as has been described previously. In the field of steel and coal production, the original planned targets were revised in August, 1958 with the adoption of a new resolution, "taking steel production as the core and achieving a comprehensive leap forward." ^ Third Five Year Plan, op. cit., pp. 510-515. ^®Ibid., p. 452, and Prospects for Indian Develop ment , op. cit., p. 228. 179 Following this resolution, new production targets for 1958 were set for steel at 10.7 million tons and coal at 270 million tons. These targets were further raised in 1959 setting 18 million tons for steel and 380 million tons for coal production, showing an increase of 200% over the 1957 level and 60% compared to 1958 targets in the production of coal.^ For these to attain some 85.6% of total amount invested in industrial development went to heavy industries allocating only about 14.4% to light industries. In spite of this over-ambitious, fantastic "big leap forward," the actual outcome has turned out to be far short of the planned targets. In fact, the rate of increase in productive capacity of heavy industries which Communist China aimed at was even much higher than that achieved by Soviet Russia at a comparable stage of its economy. Not withstanding this fact, Li Fu-chun, chairman of the State Planning Commission, issuing a communique reporting "the Draft 1960 National Economic Plan" at the Second Session of the Second National People's Congress, proclaimed that the planned targets for the second five-year plan had 2!?Cheng, Communist China's Economy, op. cit. .p. 139. 30sidney Klein, "China's Industrialisation: Critical Sectors," Current Scenet I, (May 20, 1962), p. 4. 180 already been fulfilled as shown in Table XIV by the end of 1959, three years ahead of schedule. According to the official claim of Communist China, the total value of industrial products reached 163,000 million yuan by the end of 1959, registering an increase of 39% over 117,000 million yuan of 1958. Also, the total investment outlays made by the State alone for capital construction reached 26,700 million yuan in 1959 as against 21,400 million yuan of 1958, an increase of 24.5%.^ Such a high rate of growth in the production of heavy industries as officially claimed, is certainly beyond our imagination, and of course, the validity of these statistics is ques tionable, because such a huge amount of investment for capital constructions alone is almost impossible in under developed countries like Communist China where the mass of the people are already on the verge of mere subsistence level. However, examining the overall commodity shortages in the commodity and capital markets in 1960, mainly due to the reckless efforts made in industrial development and ^"Report on the Draft 1960 National Economic Plan," op. cit., p. 5* 181 TABLE XIV COMMUNIST CHINA'S MAJOR HEAVY INDUSTRIAL PRODUCTION TARGETS AND ACTUAL PERFORMANCE AS OFFICIALLY CLAIMED IN 1959 Product Unit Target8 for 1957 Targets for 1962 Productioi in 1959 Steel Mil. tons 4.1 10.5-12 13.35 Coal I f H 113.0 190-200 347.80 Electricity Mil.KWH 15,900 40,GOO- 43, 000 41,500 Metal Equipment 1000 tons 8.0 30-40 205 Power Generating Equipment Mil.KWH 0.64 1.4-1.5 2.15 Metal-cutting Machines 1000 tons 13.0 60-65 70 Cement Mil. tons 6.0 12.5-14.5 12.27 LI Fu-chun, "Report on the Draft 1960 National Economic Plan," Peking Review (April 5, 1960), p. 6. Handbook on People’s China (Peking: Foreign Language Press, April, 1957), p. 115. 182 severe natural calamities, the planners of Communist China endeavored to readjust Industrial development in 1961. In heavy industry, insofar as tremendous develop ment has already been achieved over the past three years and as the output of major products has greatly exceeded the levels originally scheduled for 1961 and 1962, the last two years of the Second Five-Year Flan, the scope of capital construction in 1961 should be appropriately reduced, the rate of development should be readjusted and a policy of consolidating, filling out and raising standards should be adopted on the basis of the victories already won. This means that efforts should be made to improve the quality of products, increase their variety, strengthen-the weak links in production and continue to develop the mass ~ movement of technical innovations; economize raw material, lower the costs of production and raise the labor productivity.^2 Thus the reckless practice of laying a top priority on the development of heavy Industry was given up; and priorities were given in the order of agriculture, light industry, and heavy industry. In view of the repeated assertions that Communist China has already surpassed the originally planned targets in the production of most heavy industrial products three years ahead of schedule, and that the production priorities given to heavy industries have been readjusted beginning with 1961 leading to a slowdown of the industrial growth 32jen-min Jih-pao (January 21, 1961), cited in Chao I-neng, "Industry," in Communist China; 1961. II, p. 214. 183 already underway, we may assume that the upward trends In the production of heavy industries must not have been so significant in the last two years of the second five-year plan as experienced previously. Until recently, no produc tion figures have been published officially, but judging from the policy measures taken since 1960, the actual amount of steel production must have been in the vicinity of 18.45 million tons— the actual level of the previous year. In the coal Industry, remarkable development has been made during the second five-year plan. According to official proclamations, as stated earlier, the output in 1958 was 270 million tons, more than double the output level of 130 million tons in 1957, the last year of the first five-year plan. It further increased in 1959 and 1960 reaching the peak of approximately 347.8 million tons 33 and 425 million tons respectively. This comparatively high rate of development has been associated with a large number of newly established medium- and small-scale coal mines during the "big leap forward" drive. For example, of the total amount of coal output in 1958 some 57% was •^Editorial, jen-min Jih-pao. February 4, 1961. 184 produced by large-scale enterprises and the remaining 43% by medium- and small-scale coal mines in combination, but this ratio changed to 34.7% and 65.3% respectively in I960.34 Since the proclamation of readjustments of heavy industries, almost all industrial resources in the machine- building have been assigned to produce agricultural implements. As the result of this rectification movement, the machine-building industry provided the agricultural sector: . . . with some 40,000 tractors, 37,000 tractor-pulled plows, 37,000 tractor-pulled rakes, 3.3 million horse power of irrigation machines, 150,000 animal drawn rubber wheeled carts, 11.5 million rubber-tyred hand carts, 800 million small farm tools, and the substan tial amount of other semi-mechanized agricultural implements, 35 during 1960 and 1961, thus laying the foundations for further development of agriculture. To sum up, on the basis of the above examination with respect to the development of heavy industrial products, Communist China has made much greater progress 34Chung-kuo Ch'ing-nien Pao. February 10, 1961. Cf. also Chao I-neng, o£. cit., p. 225. 35RUng-jen Jih-pao, January 18, 1962. Cf. also Chao I-neng, 0£. cit.. p. 223. 185 than India. Although the rate of progress has been retarded In the last three years of the second five-year plan and the actual level of aggregate Industrial products has not been available due to the statistical blackout, the rates of growth in Communist China for almost every industrial product have exceeded those of India by a sizable amount. III. SMALL-SCALE LIGHT AND COTTAGE INDUSTRIES Both in India and Communist China somewhat heavier emphasis was placed on the development of the small-scale and cottage industries under the second five-year plans than the previous ones. India Laying stress on the role to be played in planned economic development by these industries, Indian planners state that through the expansion of these small-scale and cottage industries an attempt is made to create "more goods and jobs with a small capital investment," on a large scal^ "help rural people get better incomes and employment, and mobilize and improve the skills of rural craftsmen," which might otherwise remain unutilized while large-scale heavy 186 36 industries grow up. ° Also, development of these indus tries is directly associated with achievement of-the fourth major goal, i.e., "reduction of inequalities in income and wealth and a more even distribution of economic power," and with reduction of some of the unplanned problems, for example, excessive urbanization, which might be brought about in the process of rapid industrialization, while helping to creat a decentralized sector of the economy with the development of production methods, marketing organizations, and other related techniques. The efforts made for expansion of small-scale and cottage industries are in a sense the continuation of development programs initiated during the previous plan period. By the end of 1960 the actual investment outlays allocated by the public sector for the execution of var ious programs, mainly for the provision of marketing facilities, the purchase of necessary equipment, and the establishment of services and training centers (e.g., Small Industries Service Institutes, National Small Industries Corporation, Industrial Estates, eit cetera) were estimated to be some Rs. 180 crores, as against about Rs. 43 crores • ^The New India, op. cit.. p. 285. 187 in the previous plan, in addition to total investment outlay of about Rs. 100 crores which was initially esti mated to be spent by private enterprises during the second five-year plan.^ For the effective organization and administration of widely scattered small-scale and cottage industries the States, in close cooperation with the ce itral planning authorities, concentrated their efforts on the following four types of major activities: technical service and research, turning pilot production schemes over to indus trial cooperatives or private enterprises, production projects of a commercial character and loans to private concerns under the State Aid to Industries Acts, and schemes 38 for supply of power. As a result, the output of many small-scale indus tries producing bicycles, sewing machines, electrical goods, hand tools, et cetera, has increased to a greater extent, and also new skills have been learned by the workers of these industries. Government restrictions placed on the ^Bauer, oj>. cit .p. 80. See also Third Five Year Plan, op. cit., p. 428 and The New India, oj>. cit., p. 288. 38Ibid., p. 294. 188 imports of these goods from foreign countries further helped to increase the rate of growth, registering an annu al increase of between 25-50% in the production of these industries. The establishment of industrial estates whose number reached about 60 by the end of the second five-year plan also provided employment opportunities for the mass workers who might remain unemployed otherwise. Thus,taking the small-scale industries as a whole excluding cottage industries, full-time employment has been provided for 39 some 300,000 workers. In the field of cottage industries substantial pro gress has also been made. The official claim for rapid progress in the output of industries is shown in Table XV. Communist China In the production of light industries, too, a tre mendous progress has been made in Communist China, as in the case of heavy industries. According to the official figures available, as noted in Table XVI, in the production of cotton yarn, cotton cloth, salt, paper, and so on, the originally planned targets for the second five-year plan had been fulfilled by the end of 1959, three years ahead of the initial schedule. ^Third Five Year Plan, p. 431. 189 TABLE XV INDIA'S MAJOR PRODUCTS OF COTTAGE INDUSTRIES Product Unit 1960< Production -61 Employment Handloom Cloth Mil. yards 1900 3,000,OOOf Khadi (cotton, silk, and woolen) i t ii 48 l,100,000p 140,OOOf Ambar Khadi i t ii 26 300,OOOp 51,OOOf Raw Silk Mil. lbs. 3.6 2,700,OOOp 35,OOOf Third Five Year Plan, pp. 429-431. N. B.: £ denotes full-time and p part-time workers. 190 TABLE XVI COMMUNIST CHINA'S MAJOR LIGHT INDUSTRIAL PRODUCTION TARGETS AND ACTUAL PERFORMANCE AS OFFICIALLY CLAIMED IN 1959 Product Unit Targets for 1957 Target8 for 1962 Production In 1959 Cotton Yarn Mil.bales 0.9a 8.9 8.25 Cotton Cloth Mil.meters 5,583 7,290- 8,060 7,500 Salt Mil. tons 7.6 10-11 11.04 Edible Oil n ii 1.8 3.1-3.2 n.a. Sugar ii it 1.1 2.4-2.5 n.a. Paper ti ii 0.7 1.5-1.6 1.7 LI Fu-chun, "Report on the Draft 1960 National -Economic Plan," p. 6. N.B. gargets for cotton yarn production In 1957 was 0.9 million tons. However, after experiencing the severe natural calamities in 1960, the overall expansion of light indus tries wa8 greatly hampered. Judged from the fact that over 70% of the light industrial products produced in Communist China relied on the agricultural sector for the supply of raw materials,we may safely assert that the level of production in these fields must have been very low in 1961. Due to the limited supply of agricultural raw materials, the increased light industrial products have been concen trated in accordance with possible demand, on the produc tion of paper and paper board, crude salt, porcelain and glass for daily use, thermos bottles, matches, shoes, enamel washing basins and cups, bicycles, soap, glycerin, batteries, sewing machines, and the like— which rely more or less on industry for the supply of raw materials.^ Because of the lack of comparable information available for the light industrial products in both coun tries, a comparison of the actual achievements made under the second five-year plans is quite limited. Available ^Jen-min Jih-pao. November 10, 1961, and Chao 1-neng, oj>. cit., p. 228. ^Ibid., August 8, 1961. Cf. Chao I-neng, o£. cit. p. 228. 192 studies, however, Indicate that Communist China's perform ance has not been as spectacular as in the case of heavy industries, on account of a deliberate limitation of production for light industrial articles, although 42 increased attention has been paid in the recent period. However, judged from the fact that about 15% of the total industries in India produces, "light and consumer goods' for the private domestic and foreign market" and that further emphasis is being laid on the development of these industries, rapid progress can be expected in the future. IV. SUMMARY 1. Both in the formulation of planning techniques and in the implementation of developmental planning, Indian and Communist Chinese planners have stressed the importance of rapid advance in Industrialization as a means to secure a long-run increase in the level of income from available resosrces. 2. Economists have presented various modified arguments in connection with industrialization in under developed countries. Two major contentions have been India and China: Contrasts in Development Perform ance o£; cit., pp. 295-297. 193 frequently debated: balanced growth and unbalanced growth theories. The theory of balanced growth "shows great affinity with the classical and neo-classical theories," placing emphasis on the maximizing of product "by a 'correct' allocation of factors so as to achieve equal marginal— or equal marginal social— product" in all lines of productive activity. The theory of unbalanced growth, on the other hand, rather chooses to place greater emphasis "in a dynamic setting upon other factors," relying on the belief that a large initial burst of saving and investment engineered by the state is essential to engender economic development. 3. The contentions favoring rapid industrialization as a means to achieve economic development in underdevel oped countries are frequently overrated. In the allocation of investment to different sectors of the economy, Indian and Communist Chinese planners must set realistic targets to attain maximum results without establishing a general presumption favorable to the allocation of investment to industry. 4. In view of the importance given to the program of rapid and basic industrialization as the "grand strategy in its war against poverty, developmental planning in India 194 placed heavier emphasis on the development of industry than agriculture under the second five-year plan. In Communist China, with the launching of the "big leap forward" in 1958, the major planning strategy has been focused on intensive utilization of underemployed labor combined with the simultaneous growth of industry and agriculture on the basis of priority given to the progress of heavy industry, i.e., so-called "walking on two legs" or balanced growth. 5. Taking industrial production as a whole, both India and Communist China have achieved a marked progress under the second five-year plans. However, actual performance of India is in no sense comparable to that of Communist China, measured in both absolute and relative terms. — CHAPTER VI FINANCING THE PLANS . I. INTRODUCTION In any economic system, developmental planning Incorporates provisions for financing planned expenditures, though the characteristics and methods of financing differ considerably between different economies. A close examina tion of financial resources Is of great Importance In the execution of developmental planning, because It not only enables us to estimate the total cost of the whole series of production targets for development, but also it helps to bring about a smooth course of planned economic development, thus avoiding possible disturbances caused by financial distress. Indeed, mobilization of financial resources for the purpose of obtaining an adequate or planned rate of economic development has been the crux of the problem of developmental planning both in India and Conmunist China. Before we attempt to discuss the possible means of financing we shall review briefly the total projected expenditures for the second five-year plans in both 195 countries and then analyze the available financial resources under the following headings: internal financing and external financing. II. PROJECTED EXPENDITURES In India, the total projected expenditures of national development programs under the second five-year plan were estimated at Rs. 7,200 crores (Rs. 4,800 crores from government and Rs. 2,400 crores from private enter prises). Out of government projected expenditures, a total government investment comes to Rs. 3,800, leaving the balance of Rs. 1,000 for current outlay, i.e., outlay for social services, and the like. It is estimated that a total investment of at least Rs. 6,200 crores (U.S. $13,020 million) is required to raise the level of national income by 25% and to accomplish other proposed major planning goalq and to attain this, about 11% of national income has to be allocated to investment by the last year of the second five- year plan, as compared to 9.3% in 1955-56. In comparison to India's projected rate of growth in national income, that of Communist China as planned originally is as much as twice higher. Aiming at a growth of national income by 50% in 1962 over the 1957 level, 197 Communist China estimated a projected expenditure of about 110,000 million yuan (U.S. $46,709 million) for total investment^* during the second five year plan, nearly doubling the amount of capital investment as compared to that of the previous plan. III. INTERNAL FINANCING Before we discuss the problems of internal financing in detail, a few words deserve to be mentioned. The various means of financing in India which we deal with here are only confined to the financing of developmental plan ning or programs under the second five-year plan, in contrast to those of Communist China where the available official statistics indicate a total government revenue from which both plan and non-plan expenditures must be defrayed over the five-year period. It is, therefore, not proper to make a direct comparison of the relative size of financial resources in these two countries, and so only the broad magnitudes of financial resources are given in the following analysis. 1-The actual amounts spent for capital investment were: 1958- 21,400 million yuan (state); 1959- 26,700 mil lion yuan (state), 5,000 million yuan (local); and 1960- 32,500 million yuan (state), 6,000 million yuan (local). 198 India As the planning text indicates, in India, a total public investment to be spent for the accomplishment of planned targets comprises only about a half of the govern- ment's total expenditure over the five-year period. Since the non-plan expenditures, i.e., expenditures for normal government administration and defense, at cetera can be met by the existing taxation and other ordinary sources of revenues, the problem which we seek is the other half of the total expenditure, that is, raising of Rs. 4,800 crores for the financing of public investment. The financing resources and the amount raised by the public sector is recapitulated in Table XVII. Taxation. As can be seen in Table XVII one of the major single sources of internal funds to the public sector is taxes of all kinds— income taxes, corporation taxes, excise taxes, land taxes, import duties, et cetera. At the time of formulation of financial estimates, the planners initially set the target for taxation at Rs. 800 crores— Rs. 450 crores from new taxes and Rs. 350 crores from ^The aggregate expenditures, i.e., both non-plan and plan expenditures, during the second five-year plan are con sidered to be in the vicinity of Rs. 8,700 crores. Cf. Third Five Year Plan, p. 97. 199 TABLE XVII INDIA'S FINANCIAL RESOURCES IN THE SECOND FIVE YEAR FLAN (in Rs. crores) Item Original Estimates of 1956a Estimates of 1961b Taxes 800 1,002 From new taxes 450 - 1,052 From former taxes 350 -50 Other Revenues Pension funds, railway profits. et cetera 400 382 Loans and Small Savings 1,200 1,180 Loans 700 780 Small savings 500 400 Deficit Financing 1,200 948 Foreign Assistance 800 1,090 Gap to be covered by Additional Domestic Resources 400 — - Total 4,800 4,600 aSecond Five Year Plan. Summary. p. 33. ^Thlrd Five Year Plan, p. 95. 200 former taxes. In the execution of financial planning, however, the government was expected to raise at least Rs. 850 crores from additional new taxes to bridge the gap of Rs. 400 crores shown in the financial scheme as originally estimated in 1956. According to the estimates of 1961 as shown in Table XVII, the total amount of taxes actually collected in the course of the second five-year plan reached Rs. 1,002 crores, of which additional taxation of Rs. 1,052 crores from new taxes has been offset by a reduction of Rs. 50 crores from former taxes. An increase of Rs. 350 crores from existing tax schemes was initially expected to materialize as a result of rising national income during the second five-year plan period. Notwithstanding this fact, the total amount of tax collections has substantially exceeded the initial target as well as the gap to be covered by additional domestic resources. And yet, tax collection as a percentage of national income only increased from 7.5% in 1955-56 to 8.9% when the second five-year came to an end.^ Thus, in comparison to the proportion of tax collection to national income in other countries of the 3Ibid., p. 102. 201 world, both developed and underdeveloped, that of India is considered to be one of the lowest in the world today. Even so, India faces some particular problems in raising the tax revenues as in most underdeveloped coun tries. It must be remembered that only a very small fraction of the total population is able to pay income taxes, as extremely low level of income and low standards of living of the mass of the people in India effectively keep them out of the class of tax-payers. In addition to the fact that tax "rates are among the highest in the world 4 for income of $8,000 and up," and most of the burden of the direct taxes— e.g., income taxes, corporation taxes, estate duties, et cetera. that account for approximately one-fourth of the total revenues from taxation— falls on the relatively small group of the total population;^ levy of income taxes on peasants has been difficult because they are "generally illiterate or, if literate, seldom keep ^The New India, p. 137. ^According to the official statistics of India, only about 1 to 1-1/2X of the total working population pays the direct taxes of one form or another to the central govern ment. Cf. Ibid., p. 137. 202 records."** Furthermore, so much of income realized in the rural areas is income in kind whose value fixation has proven to be very difficult and unreliable. The Imposition of indirect taxes or general consump tion taxes has been a way of raising aggregate savings in the economy, but it imposes heavy sacrifices on the mass of the people who are already on the verge of a mere subsist ence level, while affecting less the small group of relatively well-off people. All these factors serve to indicate that some appreciable amount of government expendi tures for financing development programs should come from other financial resources if India should endeavor to reduce inequalities in income and economic power. Other budgetary revenues. The major sources of other budgetary revenues are contributions of the railways, provident funds, and surpluses of other public enterprises. The railways contribution, represented by the net surplus earnings of the railways after deduction of depreciation allowances and actual expenses incurred in their operations, has provided the government with other budgetary revenues in the amount of Rs. 150 crores as initially planned. ^The New India, loc. cit. 203 Together with provident funds of Rs. 170 crores and the surplus earnings of other public enterprises, represented by "the balance of resources available with public enter prises after providing for their working expenses, normal replacements, Interest, and dividend,"7 this Item of other budgetary revenues amounted to Rs. 380 crores by the end of the second five-year plan. Loans and small savings. As has been Indicated In Chapter III, very low per capita Incomes In India make savings very difficult and the dearth of savings In turn holds the level of Incomes very low. The mass poverty, Illiteracy, poor health, low productivity, and existed land tenure system, et cetera, all have hampered the incentives as well as potentialities of saving. Keeping these factors in view, small savings as one of the sources of financing development programs have received much emphasis throughout the second five-year plan as the continuation of small savings drives adopted during the previous plan period. The actual collections from small savings were estimated to be about Rs. 400 crores by the end of the second five-year plan compared to the Initial 7Third Five Year Plan, p. 97. 204 target of Rs. 500 crores. This was 20% below the original estimation, but raising this amount was only possible by an increase in the rates of interest offered on small savings to attract more savers in urban and semi-urban areas. As the level of national income rises and the nation's economy expands, the potentialities of small sav ings will increase too in the rural areas, thus channeling the funds available to rural cooperative agencies to defray the necessary financial expenditures for rural developments. In addition to small savings, the government of India was able to float public loans of Rs. 780 crores from financial institutions and intermediaries and other investor8 during the five-year period. This, together with small savings constituted the largest source of internal financing and occupied about 25.7% of the total public investment financing. At this stage a word of mention is inevitable with regard to government borrowing from the public. As can be expected from the economic analysis, the ultimate source of public loans determine the precise effect of government borrowing on the nation's economy. If the government borrows from financial institutions or intermediaries and 205 private investors as experienced in India, it would reduce financial resources to invest in the private sector, provided that no change has been taken in the measures of monetary policy. Then, the real problem is not the shifting of financial resources from the private to the public sector but how the aggregate savings can be raised by borrowing from the public. The government of India has endeavored to meet this requirement by selling government bonds to the group of people whose savings would not have been materialized otherwise. Deficit financing. Deficit financing as a method of raising money to meet the excess of government expenditure over its receipts has been used in many countries, both developed and underdeveloped, in actual practice. In the process of developmental planning the creation of money to finance government expenditures for key development pro grams was generally regarded as inevitable even with favor able government receipts from taxation and other revenue sources, small savings and public loans as well as generous external assistance. Partly because it is one of the "painless" measures of increasing the supply of money and the creation of purchasing power, and partly because it is likely to 206 be accompanied by a serious price rise or inflation, a precise determination of its limits has been the major problem in pursuing the technique of deficit financing. The limitation of deficit financing is of great importance especially in underdeveloped countries, because the major problem in these countries is the effective mobilization of real resources and an increase in the supply of money in circulation accompanied by the creation of money is not likely to bring with it an immediate increase in production g while leading to inflation. At the time of formulating the financial plan, the planners of India originally estimated that about Rs. 1,200 crores, or about one-fourth of the total government invest ment expenditures could be met by deficit financing. In the first two years of the second five-year plan, viewing the estimates of revenues from taxes and public loans as unrealistic, the relied heavily on the measure of deficit ^Deficit finance if managed adequately would not lead to inflation to the extent that: (1) it does not exceed the additional supply of money needed to finance expansion of output at stable prices; (2) it accompanies an increase in production; (3) there is hoarding of money in the economy; (4) there are enough foreign exchange reserves; and (5) there are effective measures of controls. 207 financing which totalled approximately Rs. 700 crores® during this period. This sudden large-scale deficit financ ing not only precipitated the foreign exchange crisis in 1958, drawing about Rs. 700 crores of foreign exchange reserves as against the envisaged original draft of Rs. 200 crores over the five-year period, but it was also accompanied by a rise in prices in the market. In view of the inflationary pressures experienced during the first two years of the second five-year plan and the foreign exchange crisis, the planners have reduced the amount of deficit financing to a considerable extent, so that the actual amount has turned out to be about Rs. 948 crores, or about 20.6% of the total government expenditure by the end of the second five-year plan. As deficit financing brought increases in money incomes and prices, while at the same time over-valuing the domestic currency at its fixed rate of exchange, there was an increase in the pressure to import and to decrease exports, aggravating the strain on the international balance ^Government of India Planning Commission, Appraisal and Prospects of the Second Five Year Plan (Delhi: Govern ment of India Press, May, 1958), pp. 7-9. 208 of payments. And these all Introduced various government controls such as credit controls, price controls, Import and exchange controls, licensing and the like.*® Financing private Investment. Parallel with the development of public enterprises, India placed a continued heavy reliance on the development of private enterprises in production of major small-scale industrial and agricul tural output, construction, irrigation, and the like throughout the second five-year plan period. As India expects the major portion of its national output, i.e., some 90X** for example, to come from private enterprises, achievement of planning targets has been ultimately dependent upon the simultaneous, balanced development of both public and private enterprises. About Rs. 2,400 crores of total private investment was initially estimated to be necessary for financing of development programs carried on by private enterprises over; the five-year period. Of this total expected amount nearly one-fourth was deemed to be spent in foreign exchange for the purchase of raw materials, industrial machinery, et *®Bauer, ojk cit.. pp. 36-38. **The New India. p. 54. 209 cetera from foreign countries. In view of financial resources raised by savings of individuals and their own earnings, it is almost impossible to estimate precise figures in connection with the actual sources and uses of funds for private investment. However, available studies indicate that the total private invest ment during the second five-year plan was given at Rs.3,300 crores compared to original estimates of Rs. 2,400 crores, showing an increase of 37.5% inclusive of a transfer of 12 Rs. 200 crores from the public sector. Communist China With an adoption of the principle of "readjustment, consolidation, reenforcement and evaluation" of the national economy in I960 at the Ninth Plenary Session of the Central Committee of the Chinese Communist Party, the official statistics of annual State budget and State balance of accounts, which had been published prior to 1960, have not been disclosed for the last two years of the second five- year plan. Although the State budget and final balance of : accounts made public during the first three years of the ^Third Five Year Plan, p. 105. Cf. also Prospects for Indian Development. p. 213. 210 second five-year plan are not entirely reliable, they at least give some broad idea as to the workings of financial schemes in Communist China. Taxation. As can be seen from Table XVIII taxation and income from State enterprises and undertakings form the major sources of government financial revenues in Communist China. In spite of the fact that taxes of various kinds— industrial taxes, commercial taxes, agricultural taxes in kind collected in the form of grain requisition and the like— represented the most important source of State revenue during the first five-year plan, there has been a declining tendency of their role played in the State budget since 13 1958, although their absolute amount has increased considerably. Tax collection as a percentage of national income was about 14.7% in 1958 and 13.2% in 1959.^ State enterprises and undertakings. With the 13 Taxes of various kinds contributed 18,740 million yuan or about 44.8% to the total State revenue in 1958, 20,470 million yuan or 37.8% in 1959, and 24,360 million yuan or 34.8% in 1960. More or less the same level is deemed to have maintained in 1961 and 1962. ^^Figures for tax collection as a percentage of national income are computed from the national income, at 1957 prices, shown in Table II. 211 TABLE XVIII COMMUNIST CHINA'S FINANCIAL RESOURCES IN THE SECOND FIVE YEAR FLAN (in million yuan) Item 1958a 1959b Estimates 1960c 1961 1962 Taxation 18,740 (44.8) 20,470 (37.8) 24,360d (34.8) n.a. n.a. State Enterprises and Undertakings 22,020 (52.6) 33,360 (61.6) 45,300 (64.7) n.a. n.a. State Bonds 790 ~ -- n.a. n.a. Other Revenues 310 (0.7) 330 (0.6) 360 (0.5) n.a. n.a. Total 41,860 (100) 54,160 (100) 70,020 (100) aPekine Review (April 29, 1959),i P• 25• ^Peking Review (April 5. 1960), pp. 21-22 • cPeking Review (April 5. I960), p. 24. xhis figure includes industrial and commercial taxes of 19,450 million yuan and agricultural taxes of 3,300 million yuan. N. B.: Figures in brackets show percentage. launching of the "big leap forward" in industries and com- munalization of agriculture, incomes from State enter prises and undertakings increased enormously, largely replacing the role played by taxation in the State revenue during the first five-year plan. For the purpose of financing the ever-growing government expenditures for capital investment and development of the national economy, the planners of Communist China adopted, . . . the measures of assisting the enterprises and undertakings to strengthen their financial work, to handle well their economic accounting, and to lower their production cost, so as to make as much profit achievements in production.*5 Also, keeping the fulfilment of production target and increased profits in view, they adopted various sorts of bonus systems, following the practices of Soviet Russia. If unplanned profits exist due to the efficiency of pro duction and good management, the enterprise or industry is allowed to keep a certain percentage of the unplanned profits for its own use— e.g., for technical organization and measures, experiments with new products, as funds to ensure safety in production, and for the replenishment of ^Liu Yung-hua, "Finance," in Communist China: 1961. I» OR* cit.. p. 116. 213 small Items of assets— and for the production rewards as well as welfare expenses for the workers.^ As a result, there has been a rapid Increase In the Income from State enterprises and undertakings, registering 22,020 million yuan or 52.67* of the total State budgetary revenue in 1958, 33,360 million yuan or 61.6% in 1959, and 45,300 million yuan or 64.7% in 1960. Borrowing and other revenues. The State budgetary revenue is also augmented by funds from sales of State bonds, forced saving, and other revenues. These measures have absorbed a fair amount of personal incomes regularly. As the State revenue showed a surplus of 3,160 million yuan (local budget surplus of 1,770 million yuan in 1958 and State budget surplus of 1,390 million yuan in 1959,*^ sales of State bonds have been neglected since 1960. Summary To sum up briefly, then, tax collection as a per centage of national income has been much higher in 16Ibid., p. 117. ^Li Hsien-nien, "Report on the Final State Accounts for 1959 and the Draft State Budget for I960," Peking Review (April 5, 1960), p. 22. 214 - Communist China than In India, in spite of the fact that the reciprocal tendency— i.e., a decrease of tax collection as a percentage of national income in Communist China and an increase in India— has prevailed toward the end of the planning periods under consideration. With regard to the incomes from government enter prises, actual performance as experienced in Communist China is in no sense comparable to that of India because of the very nature and characteristics of economic organization and planning which we have examined in Chapter II. Then, deficit financing and public borrowing must be regarded as the major sources of internal financing for economic development in India. IV. EXTERNAL FINANCING In addition to the measures of internal financing thus discussed, external borrowing and assistance as a source of financing development programs is also signifi cant in the process of economic development and planning, especially in underdeveloped countries where some measures i of internal financing alone would be inadequate to acceler ate the pace of growth of the economy. Some forms of external financing are especially necessary in the early 215 stages of development in underdeveloped countries where a large volume of initial imports of capital goods from abroad is urgently needed for the expansion of the nation's economy, while the expansion of exports to meet the import 18 requirements is limited. Thus, a proper volume of external finance not only supplements the meager internal resources but also reduces balance-of-payments difficulties, providing stimulus and impetus for balanced rapid growth of the economy. In view of her major efforts to industrialize over the second five-year plan, India, at the time of formula tion of the plan, needed to raise some Rs. 1,100 crores in foreign exchange over a five-year period to carry on the major development programs, both public and private, rely-a. ing on heavy imports of machinery, steel, power plant 19 equipment, railway equipment, foodgrains, et cetera. 18 A proper volume of external finance depends upon certain economic characteristics and need of capital for developmental planning such as the rate of development planned, a SLze of available domestic capital resources, balance-of-payments deficit, foreign exchange content of the plan, et cetera. 19 It was announced at the time of plan formulation that India would import a considerable amount of food grains between 8 to 10 million tons over the second five- year plan to mitigate food shortages. The United States 216 As India's volume of Imports of machinery and other equipment exceeded the original estimates during the first two years of the second five-year plan (mainly due to an unplanned quick pace of industrialization and a growing gap between imports and exports over the five years), the actual balance-of-payments deficit rose ro about Rs. 2,100 crores by the end of the second five-year plan as against 20 the original estimate of Rs. 1,100 crores or about a 91% increase over the original deficit estimate. During the first two years of the second five-year plan India faced a continuous heavy pressure on foreign 21 exchange reserves with a decline of Rs. 481 crores. From the point of view of mitigating this foreign exchange pressure and utilizing sterling reserves to the maximum extent feasible, India reduced the legal minimum limit for its currency reserve in the fall of 1957, meanwhile obtaining short-term loan of RS. 95 crores from the grants of surplus agricultural commodities have eased the problem of food supply to a great extent. By the end of fiscal year 1959 the United States had granted some $94 million worth of surplus foods to India. See Quiet Crisis in India, p. 256. 20 Third Five Year Plan, p. 108. 217 22 International Monetary Fund. According to India's official statistics (see Table XIX, total receipts, inclusive of external assistance and both visible and invisible capital transaction, were estimated at Rs. 4,228 crores (excluding F.L 480 imports of Rs. 534 crores) or an annual average of Rs. 845.6 crores during the second five-year plan, whereas compar* able total payments were estimated at Rs. 4,826 crores or an annual average of Rs. 965.2 crores. To bridge the trade deficit gap, a total of Rs. 598 crores of foreign exchange reserves was drawing down as compared to the originally planned estimate of Rs. 200 crores— an increase 23 of almost three times over the planned level. The major sources of external financing have been taking place in the forms of foreign private capital investment, non-government external loans (e.g., IBRD, IMF, et cetera), foreign aids and grants, technical assistance, and so on. Over the five years 1956-61, the total of foreign aids and grants authorized to India reached some Rs. 2,588.4 crores. A large part of the authorizations ^ The New India. p. 146. ^Third Five Year Plan, pp. 108 and il2. TABLE XIX FINANCING OF FOREIGN EXCHANGE REQUIREMENTS FOR THE SECOND FIVE YEAR PLAN (in Rs. crores) Receipts Exports j 3,053 Invisibles (net) (excluding 420 official donations) Net Capital Transactions -172 (Including receipts of official loans and private investment) External Assistancea 927 Draft on Foreign Exchange 598 Reserves Payments Imports of Machinery and Equipment Components, Intermediate Products, et cetera for 4,826 raising production of capital goods Maintenance Imports Totalb 4,826 Totalb 4,826 &Net drawings on the IMF are included. bP. L. 480 imports of Rs. 534 crores are excluded. Third Five Year Plan, op. cit., p. 112. 219 came In the last three years of the second five-year plan after the foreign exchange crisis experienced in 1957-58. The detailed figures of authorization and actual utiliza tion of foreign aids and grants to India for its developmental planning are shown in Table XX. At this stage, it must be remembered that this foreign aid was not to carry political strings of any kind. In the acceptance of foreign aids and grants, India made it clear that she would prefer a lower development target rather than a higher level with foreign aid which might affect the independence of India as a sovereign nation in any manner. "... External assistance is acceptable only if it carries with it no conditions explicit or implicit, which might affect even remotely the country's ability to 24 take an independent line in international affairs." Therefore, loans have been preferred to grants, "despite the interest and repayment obligations which would seem to make the loan a much less helpful measure of foreign 25 assistance." ^First Five Year Plan, p. 26. ^ prospects for Indian Development, p. 97. 220 TABLE XX AUTHORIZATION AND UTILIZATION OF FOREIGN AID FOR INDIA'S DEVELOPMENTAL PLANNING (in Rs. crores) Aid Authorized Aid Used Aid Origin 1st plan 2nd plan Total Two Plans U. S. A. 246.49 1,544.56 1,791.05 977.45 U. S. S. R. 64.71 320.22 384.93 76.17 United Kingdom 0.39 123.08 123.47 122.3 Canada 32.34 74.02 106.36 95.71 Australia 11.08 2.2 13.28 12.64 New Zealand 1.72 1.71 3.43 3.23 West Germany tm mm 142.15 142.15 127.54 Japan — 27.62 27.62 16.01 Czechoslovakia 23.1 23.1 — Switzerland — 10.9 10.9 - - Yugoslavia mm m 19.05 19.05 — Norway 0.66 1.87 2.53 2.53 Poland mrnmm 14.3 14.3 « mm I.B.R.D. 57.7a 265.3 323.0 256.61 U. N. Special Fund*3 — 4.15 4.15 — U. N. Expanded Technical Assistance Program^ 1.66 1.66 1.66 Ford Foundation0 6.7 12.5 19.2 11.68 Total 421.79 2,588.39 3,010.18 1£03.53 Source: V.K.R.V. Rao and Dharm Narain, Foreign Aid and India's Economic Development (New York: Asia Publishing House, 1963), pp. 3-4. aRs. 270 million authorized prior to the first five- year plan period included. ^Value of equipment only. cFord Foundation grants to the public sector only. 221 In comparison to India, external assistance as a source of financing development programs has been very negligible in Communist China under the second five-year plan. Originally, a Sino-Soviet economic cooperation agreement was made in February, 1950,under the title of the Treaty of Friendship, Alliance, and Mutual Assistance. Soviet Russia initially agreed to loan Communist China a total of $1,500 million over a five-year period at IX interest per annum for the imports of raw materials and 26 capital equipment from Soviet Russia. Beginning with 1955, however, Soviet economic assistance had constantly declined providing loans of $700 million in 1955, $50 mil lion in 1956, and a little less than $10 million in 1957. With the launching of the "big leap forward" in 1958, the first year of the second five-year plan, Soviet economic assistance was suspended.^ In August, 1958, after a series of talks in Moscow between the delegates of Communist China and Soviet Russia, it was announced that the latter agreed to provide 26 Hughes and Luard, 0£. cit., p. 79. 27 Cheng Chu-yuan, "Moscow's Hungry Ally," The New Leader (July 31-August 7, 1961), p. 19. 1 1 222 technical assistance in the construction or expansion of some 48 new industrial plants with capital equipment sup plied by Soviet Russia under the survey and design made by Communist China. In February, 1959, Soviet Russia further agreed to provide economic assistance of about $1,249 mil lion (5,000 million roubles) over an eight-year period for the construction of 78 large-scale metallurgical, coal, oil, 28 and other enterprises. Notwithstanding the agreement reached, the actual volume of Soviet economic assistance made during the second five-year plan period was believed to be nil. Ratha; Communist China, in the years 1958-60, repayed the loans received since 1955 with interest in an amount ranging between $300 - $400 million annually^ by Communist China's deliveries of agricultural products, non-ferous metals, and other mineral production. The number of Soviet technicians; working for the construction of industrial projects had also declined since 1958 and in the summer of 1960 during the ideological disputes between these two countries a large number of Soviet specialists and technicians sud denly withdrew and returned to their country. 2®Hughe8 and Luard, oj>. cit., p. 81. 29 "Moscow's Hungry Ally," oj>. cit.. p. 19. 223 Because of the appreciable volume of exports of agricultural products for repayment of Soviet loans, coupled with severe natural calamities in 1959 and 1960, the food situation was so unfavorable that Communist China was forced to import some 5.9 million metric tons of food grains in 1961 from Argentina, Australia, Canada, France, West Germany, et cetera, in the sum of US. $340 million. In view of the overall shortage of both food and foreign exchange reserves (as of December, 1960, Communist China had foreign exchange reserves of about $300 million), her payment of $120 million was deferred until 1962, in spite of the release of its silver holdings of some 27.5 million ounces on the London market during the first nine months of 1961— an amount equivalent to four times that in I960.31 Thus, because of unfavorable financial conditions, namely, severe natural calamities and mismanagement, and 30 Ian Stewart, "Peking Suffers Sharp Reverses," The New York Times. January 9, 1962, p. 74 (c). Cf. also Allah J. Barry, "The Chinese Food Purchases," Far Eastern Eco- nomic Review,XXXIV, (Hong Kong: October 12, 1961), pp. 128- 129. ^1FEER London Correspondent, "Impact of Silver Exports," Far Eastern Economic Review. XXXIV, (Hong Kong: November 23, 1961), p. 382. the suspension of Soviet economic assistance, Communist China was forced to abandon the policy of pursuing large- scale capital construction of heavy industry and rapid economic development. In the last two years of the second five-year plan, following the~policy of "readjustment, consolidation, re-enforcement and evaluation," financial readjustment has been practiced by means of reduction of expenditures for State enterprises, capital construction, agricultural support and the like, while calling in all agricultural loans due. It is, therefore, clear that internal financial strain coupled with the suspension of external economic assistance has retarded the industriali zation efforts and economic development of Communist China toward the end of the second five-year plan. CHAPTER VII FUTURE PROSPECTS I. INTRODUCTORY REMARKS It is not an easy task to forecast or predict precisely the future prospects of the economic status in underdeveloped countries such as India and Communist China, where constant changes occur on a massive scale and at a rapid rate in economic, social, and political institutions. Difficulties further arise from the crude measurement of actual changes experienced in the past, with the absence of any reliable statistical data especially for Communist China. In appraising the future prospects of developmental planning and economic status, it is necessary to keep in view certain factors strategic to the rate of economic growth in the future in connection with actual progress made in the past. Although the basic strategy of develop mental planning and actual performance in the past help form the development programs for the immediate future and guide the direction of further growth, the future 225 226 developmental planning may differ from the previous one In many essential aspects. This difference Is especially salient when we compare the magnitude and programs of the future development In different countries such as India and Communist China where sharp contrasts have been seen In the past. It should be remembered, at this stage, that relatively low levels of national Income, productivity, and consumption, In association with high levels of population growth and unemployment are the different aspects of the major problems In common In the formulation of develop mental planning In the future. Raising the level of national Income, productivity, and consumption, while reducing the rate of population growth and unemployment, through various possible means and efforts, will be, as In the past, the central tasks In these countries If they are to bring about a marked Improvement In the nation's economic and political status within a relatively short span of period. For this to occur, both objectives and priorities of developmental planning as envisaged in the past must serve as a link, in a continuous process of economic development, for future planning, and past performance has 227 to be viewed as the foundation of future development. II. FUTURE PROSPECTS OF THE INDIAN ECONOMY As a continuous process of economic development, India's third five-year plan started in April, 1961. In addition to the major emphasis placed on accelerating the rate of growth of the national economy through a large increase in production, investment, and employment, while reducing disparities in income and wealth as well as in the concentration of economic power relying on a "social ist pattern of society," the principal objective of the third five-year plan is to secure a marked advance toward self-sustaining growth by means of balanced growth both in agriculture and industry.* To be precise, India's third five-year plan has five objectives to be achieved by the end of 1965-66. They are: (1) to secure an increase in national income over 5% per annum, the pattern of investment being designed also to sustain the rate of growth during subsequent Plan periods; (2) to achieve self-sufficiency in food grains and increase agricultural production to meet the require ments of industry and exports; (3) to expand basic industries like steel, chemicals industries, fuel and power and establish machine-building capacity, so that the requirements for further industrialization can be met within a period of ten years or so mainly from the coun try's own resources; (4) to utilize to the fullest possible extent the manpower resources of the country and to ensure a substantial expansion in employment opportunities; and 228 As has been seen previously, over the second five- year plan period, national income is estimated to have increased 19.5% as against a 25% increase envisaged in the plan. In consideration of the pattern of economic plan ning and development as has been experienced so far, the target for national income in 1965-66 has been placed at Rs. 19,000 crores and per capita income at Rs 330 at 1960- 2 1961 prices, an increase of about 30X and 17% respectively over the 1960-61 level. It is further predicted that national income will rise from Rs. 14,500 crores in 1960-61 to about Rs. 25,000 crores by 1970-71 and about Rs. 34,000 crores by 1975-76^ all at 1960-61 current prices. Allowing for an annual rate of population growth of about 2%,^ the Planning Commission estimates that total (5) to establish progressively greater equality of opportunity and to bring about reduction in disparities in income and wealth and a more even distribution of economic power. See Third Five Year Plan, p. 48. ^These figures are equivalent to national income of Rs. 16,270 crores and per capita income Rs. 342 at 1948-49 constant prices. 3Ibid.. p. 28. ^Improvements in sanitation and public health measures, control of infectious disease and other similar factors reduce the mortality rate, whereas the fertility 229 population will be of the order of about 625 million by 1975-76. On the basis of this tentative estimate, per capita Income should go up, at 1960-61 prices, from Rs.330 to Rs. 530 over the next fifteen-year period. These estimates of projected growth of incomes are based on "a cumulative rate of growth as near as possible to 6% per annum to secure a doubling of national income and 61% increase in per capita income,by the end of the fifth five-year plan. In order to maintain these rates of growth, it is estimated that the total investment as a portion of national income must rise from about 11% at the end of the second five-year plan to about 14% (or Rs. 10,400) by the end of the third five-year plan and to about 20% by 1975-7** rate remains in the vicinity of its present level as the economy develops. They are the direct and indirect causes of an increase in the rate of population growth in India. Cf. Alak Ghosh, Mew Horizons in Planning (Calcutta: The World Press Private Ltd., 1960J, p. 183. Also see Ansley J. Coale and Edgar M. Hoover, Population Growth and Economic Development in India. 1956-1986 (Mimeographed), cited in Walter C. Meale, The Economic Status of India in 1970. Tempo Report Mo. 49, (Santa Barbara: General Electric Company, 1958), p. 10. ^Birendra Kumar, An Introduction to Planning in India. (Calcutta: Bookland Private Ltd., 1962), p. 145. 230 while domestic savings should rise from 8.5% to about 11.5% and 19%** of the national income respectively. This serves to indicate that, in the future, India will lay relatively less reliance upon external sources of finance outside of the normal inflow of foreign capital. In the allocation of investment outlay, the third five-year plan follows the general pattern set in the previous plan, laying somewhat greater emphasis upon the development of agriculture, industry and power projects in the public sector, and less emphasis upon transportation communication, and social services. In the formulation of the third five-year plan and perspective plan, Indian planners envisaged that when the third five-year plan comes to an end the nation's economy should be in the take-off stage, thus paving the way for the beginning of self-generating and self-accelerating growth. For this purpose, programs of agricultural and industrial production should lie at the base of the comprehensive approach to the development of the economy, preserving a proper balance in the production of agriculture as well as of industries of different scales. ^Third Five Year Plan, pp. 28 and 59. 231 The rapid rise in population, changes in the pattern of consumption associated with increases in incomes, and agricultural drawbacks and seasonal variations, brought about the overall shortage of the food supply and an accompanying rise in food prices and food imports during the second five-year plan. Keeping these factors in view, greater stress is being laid on the provision of an adequate food supply, not only to support the increased population, but also to meet the requirement of raw materials for the ever-growing industrial sector of the economy. Over the five-year period beginning in 1961-62, total agricultural production is expected to rise by about 30%, and food grains about 32% above the 1960-61 level.7 Total investment outlay on agricultural production is expected to rise from Rs. 667 crores in 1960-61 to Rs.1,281 crores by 1965-66.® Following the Industrial Policy Resolution of 1956, small-scale, cottage industries and large-scale heavy industries are being attempted. Also, to reduce existing disparities in the levels of development, balanced growth 7Ibid., p. 317. 8Ibid., p. 304. 232 between different sectors of the economy will receive more attention in the future. Special attention is being given to the acquisition of designing and operational skills and technical know-how, so that self-sustaining growth may be created within the country independent of outside assist ance. It is estimated that a total investment of Rs.3,257 crores (Rs. 264 crores for small-scale and cottage indus tries and Rs. 2,993 crores for large-scale and mineral industries)^ will be necessary to reach the physical targets set for the third five-year plan. A rapid increase in population and the labor force brings with it related problems of labor utilization and expansion of employment opportunities. It is predicted that if population increases at an annual rate of 2% during the third five-year plan, population would reach nearly 476 millions'by 1965-66. The problem of unemploy ment and under-employment exists, not only because a higher rate of population growth will add new entrants to the labor force in the future, but also because a large backlog of unemployment, estimated at 9 millions, and of under employment, in the range of 15-18 millions^ at the end ^Ibid., pp. 437 and 459. 10Ibid., p. 156. 233 of the second five-year plan, will seek for proper employment. To avoid deterioration in the employment situation, therefore, India must be able to provide at least 15 mil lion new jobs for the fresh entrants to the labor force**- during a five-year period, even with the exception of backlog unemployment and under-employment, through a net work of small-scale, village and cottage, as well as handicraft industries, organized on cooperative lines. However, it is estimated that with the pattern and level of investment envisaged in the third five-year plan, the number of new jobs likely to be created during the five- year period will be only about 13.5 millions, and when the unemployment of the new labor force is added to the backlog unemployment of 9 millions, there will be over 10 million jobless workers when the third five-year plan comes to an end. From the viewpoint thus discussed, then, India's third five-year plan should be mainly rural and employment- oriented. In continuing and further developing the overall objective set out in the second five-year plan, both the 234 third five-year plan and perspective plan aim at a reduction in inequalities of income and a prevention of concentration of economic power, following a "socialist pattern of society," in which the major social and economic policies should be directed so as to promote cooperative forms of production, distribution, and consumption for the good of the community as a whole, while preserving development initiatives, potentialities, and resourceful ness of the people. In addition to the above objectives, the need for an adequate price policy is likely to receive more atten tion. It must be remembered that in the course of economic development some inflation is unavoidable and a mild price rise is sometimes rather desirable. If, however, the magnitude of inflation is too large, it will rather hamper developmental planning. Partly due to monetary expansion and partly due to changes in the income-investment- consumption structure, there has been about a 30% rise in the general index of wholesale prices during the second five-year plan period in India. It is also recognized that the progressive step-up in total investment from 11% to 14% of the national income over the five-year period is likely to exert a further upward pressure on prices. 235 Price policy must be directed in such a way that relatively stable and reasonable prices are ensured in farm produce and consumer goods, so that a rapid increase in the cost of living for people of the lower income group may be mitigated, while providing them a better incentive than fluctuating, uncertain prices, through the operation of monetary and fiscal policy measures along with direct allocation and control where desirable. To finance an investment program of Rs. 10,400 crores (Rs. 6,300 crores in the public sector and Rs. 4,100 12 crores in the private sector) over the five-year period beginning in 1961-62. Rs. 1,710 crores are proposed to be raised through new taxation in the public sector. Together with government revenues from former taxes, the revenue from total taxation will amount to Rs. 2,260 crores, compared to Rs. 1,002 crores of the second five-year plan. When a new source of finance, i.e., profits of the public enterprises of Rs. 450 crores, is added to the item of other revenues, Rs. 1,090 crores is expected to be raised. Also, a sum of Rs. 1,400 crores and Rs. 2,200 crores is to be raised through loans and small savings and foreign 12Ibid., p. 59. 236 assistance during the third five-year plan. Keeping in view the inflationary trends prevailing in the economy, relatively small emphasis is placed upon deficit financing, which is expected to rise only about Rs. 550 crores over- the five-year period, as against Rs. 948 crores in the second five-year plan. In total, then, the public sector is expected to raise Rs. 7,500 crores during the third - 13 five-year plan. Assuming that by 1975-76, investment as a fraction of national income stands at about 20% and that most of the investment in that year is financed by domestic financial resources, the level of national income is expected to be double the actual level reached at the end of the second five-year plan. However, the results of past development performance indicate that the rate of growth expected in India over the next fifteen-year period is not likely to be achieved, partly because a high rate of increase in popula tion makes it more difficult to move up the level of savings and investment and in turn, productivity and national income, and partly because with a given level of investment, a larger fraction is likely to put into 13Ibid., p. 95. 237 operation for the production of farm output and other essential consumer goods at the expense of the production of capital goods industries, thus slowing down the pace of industrialization. The future development of the Indian economy will be, therefore, ultimately dependent upon the effective measures taken for the removal of population and unemploy ment pressures in close connection with the promotion of balance between agricultural and industrial development, between economic and social development, and between national and regional development, in addition to effective utilization of natural and labor resources. III. FUTURE PROSPECTS OF COMMUNIST CHINA'S ECONOMY Any treatment of the economic development and strategy for the third five-year plan or perspective plan in Communist China must be extremely speculative and necessarily precarious. Ever since Communist China's proclamation that the major items of the planned targets for the second five-year plan had already been reached by the end of 1959, three years ahead of schedule, and that the transition of socialist economy had virtually been accomplished with the launching of the "big leap forward," 238 in industry and conmunalization of agriculture, neither official statistics for the actual achievements nor plan ning targets for the third five-year plan have been published. However, experiencing the seriousness of the commodity shortages and overall decreases in the production of agricultural output, Communist Chinese planners advocated a "whole country support agriculture" movement, with a suspension of the "big leap forward" in industrial ization, following the strategy of balanced growth with the priority given to agriculture as the foundation of the nation'8 economy. As the continuation of development process, then, the third five-year plan is likely to rely on the strategy of balanced growth and readjustment of the economy. After the socialist construction has gone through .an extraordinary development, it is quite necessary to proceed with all round adjustment. Restoration and development of agricultural production are the central link in the chain of adjusting the national economy. . . Thus, along with the restoration and development of agri culture, the immediate aim to be achieved during the third five-year plan is to catch up the absolute production ^^Editorial, Jen-min Jih-pao. April 17, 1962. 239 levels of Great Britain in the output of iron, steel and other principal industrial commodities by 1967,^ the end of the third five-year plan. As against the planned target of a 50% increase in national income in the second five-year plan, it is estimated that actual output increased about 56.3% over the five-year period in Communist China. If the third five-year plan maintains this rate of growth, national Income would reach about 222,802 million yuan at 1957 prices by the end of 1967. Since, however, population would also increase to about 797.3 millions by the same time, provided that the current annual rate of growth of 2.2% maintains the same pace, per capita income would increase, at 1957 prices, from about 207 yuan in 1962 to about 279 yuan in 1967, showing an increase of approxi mately 34.8% as compared to a 50% increase in national income. In any event, these projected rates of growth of income, both national and per capita, are much higher than ^At the time of formulation of the perspective plan, the planners of Communist China initially estimated that ; within fifteen-year period commencing in 1957 Communist i China will overtake and surpass Great Britain in the pro- I duction of principal industrial commodities. This original; i schedule was later revised with the launching of the "big leap forward," aiming at the accomplishment of these target^ by 1967, the end of the third five-year plan. j 240 those of India, where an Increase of about 30% and 17% respectively is being planned over the third five-year plan. To attain this target, Communist China would require a total investment of over 200 billion yuan over the five- year period, if about 22% of national income should be allo cated annually to the capital investment, as has been done during the second five-year plan. Such a high rate of investment would be possible only at the expense of consump tion, in the absence of considerable assistance from outside sources, and it would bring a heavy burden for the mass of the people, who have already suffered from the overall commodity and food shortages in the course of the second five-year plan. If, furthermore, Communist China should fail to allocate such a portion of national income to investment programs, their ambitious program of a complete transition of socialist economy and catching up to and outstripping Great Britain in the production of major industrial commodities would be virtually unattainable. Considering the priority given to agriculture, the pattern of investment allocation in the third five-year plan must have changed in the early period of the plan in favor of agriculture, although we are not capable of estimating the precise percentage allocation. A further 241 expansion in production of food crops is likely to receive more attention in close association with the extensive expansion of arable land or increase in acreage harvested. Furthermore, keeping the balance in view between agricul ture and light industries, much emphasis is to be laid on the production of industrial crops to meet the latter's requirement of the demand for raw materials. Parallel with this effort, continuous heavy stress will be given to the rapid transition of socialist indus trialization. Even at the end of the second five-year plan, Communist China was regarded to be in the group of under developed countries by Western economists. Despite its proclamation of the virtual accomplishment of socialist industrialization and rapid development in the key indus trial products, overall figures of industrial production were far below those of Great Britain, where the size of population was equivalent to approximately one-twelfth of that in Communist China. However, the planned rate of growth in the production of steel, iron, and other major industrial outputs is evidently higher than that being ! ' . Achieved in any other countries, both developed and under developed, and is sufficient to overtake and outstrip the absolute production level of Great Britain when the third 242 five-year plan will come to an end. Communist China's production targets for the major industrial commodities in 1967 are estimated in Table XXI along with those of Great Britain in 1972. Communist Chinese planners for China, in the estimation of major industrial production for Great Britain, "took fifteen- year period from 1941 to 1956 as base." In the determina tion of annual average rates of growth of the major indus trial products during this period, their projection had been made as follows: steel— 3.5%, pig iron--3.9%, coal- 16 0.5%, electric power— 6.5%, cement— 4%. . . et cetera. If these rates of growth should continue for the fifteen- year period commencing from 1957, Great Britain would reach the estimated production level of 1972, which Communist China aims to surpass by the end of the third five-year plan. According to the official statistics of Communist China, as can be seen in Table XXI, in the production of pig iron and coal, Communist China had-already achieved the planned targets by the end of 1959 with the launching l of the "big leap forward" in industrialization. Even with l^Cheng, Communist China's Economy, op.cit.. p. 166. TABLE XXI COMMUNIST CHINA'S MAJOR INDUSTRIAL PRODUCTION TARGETS FOR THE THIRD FIVE YEAR PLAN Item Unit Great 1957 Actual Britain8 1972 Estimated 1957b Actual 195 9C Actual 1967d Estimated Steel 1,000 tons 22,090 36,450 5.350 13.350 36,800 Pig Iron it ii 14,528 24,760 5,940 20,522 42,000 Coal ti ii 227,100 244,000 130,000 347,800 510,000 Machine Tools Units 162,488 n.a. 27,105 70,000 n.a. Electricity Mil. KW 101,460 241,160 19,300 41,500 120,000 Chemical Fertilizer 1,000 tons 3,570 ,3,621 632 1,056 15,000 Cement ii ti 12,150 24,270 6,860 12,270 24,000 Cotton Piece Goods Mil. meters 1,500 n.a. 5,050 7,500 9,500 aNiu Chung-huang, China Will Overtake Britain (Peking: Foreign Language Press, 1958). p. 31. "State Statistical Bureau, "Communique on the Fulfilment of the First Five Year Plan," Peking Review (April 21,1959), p. 30. ®Li Fu-chun, ^Report on the Draft 1960 National Economic Plan," pp. 6 and 13. dr.hcny rhn-v.mn Coammini at China's Economy, p. 167. I 243 244 the extreme achievement of these planned targets by 1967, which is not likely to happen, Communist China will still lag behind Great Britain in the fields of electricity, cement, and so on. Viewing the seriousness of the current economic situation in Communist China, such a high rate of planned industrial development must be too overambitious. Finan cing the rapid industrialization certainly requires a huge amount of capital formation, and at present a high rate of capital formation, if possible, must be matched only at the expense of heavy sacrifice in consumption as the avaiable sources of foreign assistance have been almost suspended. Over the second five-year plan, government revenues from State enterprises and undertakings have increased considerably, assuming the major role of financing capital investment toward the end of the five-year period, whereas there has been a declining tendency in the role played by taxation to meet financial requirements. It is estimated, however, that the levy of heavy taxation must be inevitable if Communist China should try to accomplish such extremely ambitious planning targets, as the government revenues from j State bonds and other revenues occupy only minor fractions of total annual revenues in Communist China. 245 From the viewpoint of the above discussion, we may safely state that notwithstanding the top priority given to agriculture in the beginning of the third five-year plan, agriculture has not received enough attention compared to industry. Without substantial development of agricul ture, the removal of the recurrent threats of famine and an increase in the consumption level of the mass of the people would be virtually impossible. It is more likely to be so because, as the agricultural population rises, a very considerable unemployment problem will further add to the burden of the economy. To curb these difficulties, the future strategy of developmental planning must be based on the preservation of balanced growth between light industries in the countryside and agriculture in general, and between industries and agriculture. Balanced growth requires, not only the development of a high level of technical knowledge and improvement in agricultural skills, but also in education and communication, which help remove many difficulties and bottlenecks encountered in the execution of developmental planning. At present, these factors are partly responsible for delays in the development of the economy and for economic imbalances in Communist China. CHAPTER VIII SUMMARY AND CONCLUSIONS I. SUMMARY In the previous chapters we have seen the various characteristic problems of developmental planning in India and Communist China under the second five-year plans. Now we may bring together some important contrasting aspects of developmental planning and venture some comments on the particular analysis where desirable. Developmental planning in India and Communist China under the second five-year plans has brought both substan tial accomplishments and many unresolved problems. The level of national income, savings and investment, and consumption in absolute terms have all risen, although the rate of progress in these two countries differs. Notwith standing the fact that both countries were at about the same stage of economic development at the time of the formulation of the second five-year plan, Communist China ha8 achieved much more spectacular and higher rates of progress during the period under consideration. The 246 247 existence of differences in the progress achieved are mainly due to different efforts made in the formulation of goals and techniques and in the execution of developmental planning in these two countries. The ultimate goals of developmental planning in India and Communist China derive from the desire not only to accomplish rapid economic development but also to build up particular patterns of society. In India the major planning efforts have been focused on the building of a society in which "the raising of living standard, the enlargement of opportunities for all, the promotion of enterprise among disadvantaged classes, and the creation of a sense of partnership among all sectors of the commun ity,"^ are to be preserved by democratic methods under a welfare state. Therefore, achievement of a maximum rate of economic development by means of rapid industrial and technical advance has been considered to be of secondary importance, although the importance of initiating, sustain ing, and securing rapid development has been stressed. In contrast, the central goal of developmental planning in Communist China is to carry out an intensive program of *The Second Five Year Plan, pp. 23-24. 248 building China into a powerful, industrialized, socialist state with a highly developed modern industry and agri culture. Thus, heavy stress has been placed upon rapid economic development without any reference made to distribution of income, economic welfare, et cetera. In spite of certain similarities which exist in the ultimate goals of developmental planning to be achieved in India and Communist China, a clear 'distinction has been seen in techniques of execution or control of developmental planning. In India, while government centralized planning has placed a substantial role in India's development efforts and specific planning decisions have been formulated by central government assuming the entrepreneurial functions, decentralization of developmental planning has been highly advocated, laying emphasis on the role of the states, the district and village committees, as well as private enter prise, to direct the path of developmental planning. In the coordination of overall economic activities, India has relied on allocation of available resources through the market mechanism with substantial reliance on hierarchy, democracy, and bargaining, thus appealing to economic incentives and voluntary actions of the people. In Communist China, developmental planning has 249 proceeded on a draft-basis with highly centralized, totali tarian planning techniques. Mo reference has been made to preservation of either consumer sovereignty or immediate economic and social welfare of the people, both in the formulation and execution of developmental planning. On the contrary, compulsion and control have been the accepted forms in the execution of developmental planning with little or no reliance on economic and psychological incentives or voluntary actions of the people. Developmental planning has placed heavy demands upon hierarchy or bureaucracy in the coordination of major national economic activities with no elements of democracy and bargaining. As the supply of different commodities has been determined mostly by command and the plan, the price-directed market mechanism has had a negligible, if not zero function. Important differences can be found in the pattern of investment allocation. In spite of the fact that a marked emphasis has been placed upon industrialization as the foundation of developmental planning in India under the second five-year plan, with the belief that progressive |increases in incomes and standards of living are hardly possible without rapid industrialization, only about 33Z of j total investment has been allocated to the industrial j 250 sector and about 18.5% to the agricultural sector. In Communist China, placing heavy stress upon the promotion of capital formation to carry out rapid industrialization and upon the development of the means of production, a large percentage of total investment has been allocated to the industrial sector, although considerable efforts have been made for the development of agriculture toward the end of the second five-year plan. In any event, investments in both sectors have shown more marked move ments in Communist China than in India. Because of less emphasis placed on services as against physical product in Communist China, allocation of investment in the social overhead sectors has not been so spectacular. However, an increase in investment for com munications and transport was planned in I960, allocating 6,810 million yuan for investment in capital construction of communications and transport out of a total investment of 32,500 million yuan, that is, about 20.9% of total 9 investment In spite of the superiority of India's com munication and transport networks under the previous plan, India has allocated nearly 24.3% of total investment to t ^"Report on the Draft 1960 National Economic Plan," op. cit.* p. 16. 251 the development of communication and transportation during the period of 1956-61. A large percentage of investment allocation to the social overhead sectors has been justi fied in that returns from investment will be greater in the future even though the capital-output ratio is high at present. Important differences between India and Communist China also exist in the relative roles played by the public sector in investment. In recent years, salient changes have been made both in India and Communist China in the pattern of investment component. Partly because of heavy emphasis given to the development of heavy industry and partly because of further investment allocated to the lines of social overhead capital, such as highways, railw^% et cetera for the purpose of expanding the output of coal and steel, India's public investment for development pro grams has increased rapidly over a five-year period, assum-; ing a little less than two-thirds of total investment allocated for development programs under the Second five- year plan. In the spheres of light industry, commerce, distribution, and so on, however, the private sector has iplayed a predominant role, assuming over one-third of total 252 3 investment for development programs. In Communist China, state investment has constituted some 84% of total investment during the first three-years of the second five-year plan, leaving the remaining portion with investment of local industries and the like. The rate of state investment in the future is likely to in crease further with the progress of socialization in Communist China. Despite a more rapid rate of expansion in;public investment experienced in India during the period under consideration, the value of public investment made in India is in no sense comparable to that in Commun ist China, especially when a comparison is made in terms of absolute value. Important differences between India and Communist China can also be found in the pattern of saving. In India, due to its centralized-decentralized planning, a large part of domestic saving comes from the private sector. Although government has assumed a growing responsibility for savings function, profits and depreciation allowances from state enterprises such as railways and postal services ^Here, we are discussing the pattern of investment component for development programs only. It should be noted that the private sector still creates some 90% of the current flow of goods and services in the Indian economy*1 253 have constituted only about 8.3% of total financial resources available for development programs under the second five-year plan. As the ratio of domestic savings made available for investment has not shown any perceptible increase, registering only about 8.5% of national income as against investment of 11% at the end of the second five- year plan, India has depended heavily upon external assist* ance to bridge the gap between saving and investment. In comparison, since the importance of external assistance to finance investment has declined almost entirely, the state sector has assumed the major responsi bility for savings function in Communist China. The high rate of capital formation and public investment for rapid industrialization and the development of the means of production have been achieved through various measures such as compulsory collective savings in the form of taxes, the growing profits and depreciation allowances for state- ' controlled enterprises, and the funds generated from the agricultural sector through mobilization of surplus labor in the communes. Thus, by means of forced savings at the ■ expense of a decrease in consumption, Communist China has saved each year about 21% of national income, allocated constantly into public investment throughout the second 254 i i five-year plan. For predominantly agricultural countries like India and Communist China, development of agricultural production has been che foundation of land reform and community X development or collectivization and communalization. Development of agriculture has been regarded as essential in both countries not only to increase the supply of agricultural products for the rapidly growing population but also to meet and to finance the requirement of urgently needed industrialization programs. However, the actual performance of the agricultural sector in both countries during the period under consideration has been disappoint ing. It has been particularly true in the case of Commun- ist China where agriculture has failed considerably to keep pace with the rate of population growth and industrial ization. Both in the formulation and execution of develop mental planning for agricultural advance in India and Communist China, planners have constantly encountered a conflict between maximization of product and maximization of employment. Although efficient production often requires more capital-intensive technology (which reduces employment), labor-intensive techniques of production have j 255 been preferred in both countries, so that absorption of unemployment and mobilization of underemployed labor forces on a mass scale might be attained. However, developmental planning has been carried on with entirely different techniques. In India, land reform has been adopted not only to remove existent inequalities in landownership, economic power, and opportunity, but also to improve the conditions of tenancy and control of rents to attain more efficient utilization of land. Also, improvements in the methods of production have been kept in view by instilling the tillers with incentives. Further* more, in order to rectify the defects of central planning, the community development projects have been based on decentralized, regional planning, advocating rural cooperation as against collectivization to increase agricultural production together with mass mobilization of idle or poorly allocated resources in rural areas. With the establishment of communes, Communist China has tried to reorganize the entire social, economic, and cultural fabric of the traditional Chinese society, so thati : i not only elimination of capital shortage for rapid develop-1 i ment of large-scale industrialization may be possible j within a short period of time, but also the elimination of j v . 256 the peasants as a class and their conversion Into a working class may be attained effectively under highly centralized planning. Thus, the problem of over-population and unemployment or underemployment can be mitigated to a greater extent than under collectivization. Since, however, communalization under central planning neither increased agricultural and industrial production, nor improved the living conditions of the peasants, the communes have given way to the previous form of collective farms, assisting the revival of peasants' incentives by allowing retention of private property and means of livelihood. CommunistXhina has been conspicuously unsuccessful in its attempts to solve agricultural and related problems. However, further : I decentralization may not be possible in the future because decentralization of agricultural decision-making based on price mechanism is almost impossible in the totalitarian economy under central planning. II. CONCLUSIONS The high performance of Communist China in contrast 'to India under the second five-year plans was mainly attributed to the different allocation of investment, because the growth of national income depends to great extent upon the actual amount of Investment as well as upon the pattern of Its distribution. At the end of the second five-year plan, India's rate of investment was about 11% of national income as compared to about 22% in Communist China. The portion of national income ploughed into investment has been substantially higher in Communist China. The high degree of centralization of investment activity in Communist China is regarded to have influenced efficiency of production, contributing to rapid development of the nation's economy. Since under central planning in a totalitarian economy government can restrict the degree of choice to a greater extent both in factor and product markets, the predominance of state investment costs per unit of product. Also, "ex ante coordination" of invest ment plans in different branches of the economy is possible under central planning, both pattern and allocation of investment can be closely controlled as planned and centralized developmental decisions can be reached so that proper production techniques could be enforced. Since both population and unemployment pressures have retarded the development of agriculture, while the deterioration of agriculture and the occurence of famines have offset the achievements of industry in both countries, 258 iespecially in Communist China, future economic development in these two countries will be ultimately dependent upon effective measures taken for the removal of population and unemployment pressures in close association with the promotion of balance between agricultural and industrial - * development. If this balanced growth is to be properly maintained, it requires not only i».creases in the quantity of productive factors and improvements in the quality of labor forces as productive agents, but also advances in the level of technical knowledge and improvements of productive skills. Judged from the relatively less spectacular progress, experienced in India with gradualistic, democratic, welfaref oriented planning than in Communist China with radical, totalitarian, central planning under the second five-year plans, more conscious action must come from the central government if India is to achieve more rapid economic development in the future, because "the government is the only major existing institutional arrangement that is capable of meeting the wide scope of development programs"^, I in underdeveloped countries like India. This is not to say! j i ^Meier and Baldwin, oj>. cit., pp. 441-442. 259 that India should follow the highly centralized type of totalitarian planning. Rather, a more conscious action of government is deemed necessary, only so that the "optimum moment" for generating a take-off of the Indian economy may be forthcoming within in the course of implementing developmental planning. The uniqueness of Communist China's experience and its spectacular progress relative to India's may exert a powerful influence on the pattern of developmental plan ning in most underdeveloped countries. At this stage, however, it is not yet certain that totalitarian planning in Communist China will eventually yield the greater return in the future. There are many unresolved problems and difficulties in the economy of Communist China. Furthermore, its centralized socio-economic system and developmental planning still stand on trial. BIBLIOGRAPHY BIBLIOGRAPHY A. BOORS Adler, Solomon. The Chinese Economy. New York: Monthly Review Press, 1957. Agarwala, A. N. and S. P. Singh (ed.). The Economics of Underdevelopment. Bombay: Oxford University Press,1958. Barnett, A. Doak. Communist Economic Strategy: The Rise of Mainland China. Washington, D. C.: National Planning Association, 1959. . Communist China--Continuing Revolution. New York: Foreign Policy Association, 1962. Bauer, P. T. Indian Economic Policy and Development. New York: Fredrick A. Praeger, 1961. Bettleheim, Charles. Studies in the Theory of Planning. Bombay: Asia Publishing House, 1961. Bhattacharyya, D. India1s Five Year Plans: 1951-1961. Calcutta: Udayan Granthagar, 1957. Bowie, Robert F. and John K. Fairbank. Communist China 1955-1959: Policy Documents with Analysis. Cambridge, Massachusetts: Harvard University Press, 1962. Braibanti, Ralph and Joseph J. Spengler (eds.). Adminis tration and Economic Development in India. Durham,N.C.: Duke University Press, 1963. Bryce, Murray D. Industrial Development. New York: McGraw-Hill Book Company, Inc., 1960. Buchanan, Norman S. and Howard S. Ellis. Approaches to Economic Development. New York: The Twentieth Century : Fund, 1955. 261 262 I Chandra-sekhar, S. Red China; An Aslan View. New York: Fredrick A. Praeger, 1961. Chao, Kuo-chun, Economic Planning and Organization in Mainland China. Cambridge, Massachusetts: Harvard University Press, 1959. Cheng, Chu-yuan. Communist China1s Economy: 1949-1962. South Orange, New Jersey: Seton Hall University Press, 1963. . The Peopled Communes. Hong Kong: Union Press, 1959. Dahl, Robert A. and Charles E. Lindblom. Politics, Economics, and Welfare. New York: Harper and Brothers Publishers, 1953. Eckstein, Alexander. The National Income of Communist China. New York: The Free Press of Glencoe, Inc. 1961. Gadgil, D. R. Planning and Economic Policy in India. Bombay: Asia Publishing House, 1961. Gill, Richard T. Economic Development: Past and Present. Englewood Cliffs, New Jersey: The Prentice-Hall, Inc. 1963 . Ghosh, Alak. New Horizons in Planning. Calcutta: The World Press Private Ltd., 1960. Ghosh, 0. K Problems of Economic Planning in India. Allahabad: The Leader Press, 1957. Hagen, Everett E. (ed.) Planning Economic Development. Homewood, Illinois: Richard D. Irwin, Inc., 1963. Halm, George N. Economic Systems. New York: Rinehart and Winston, 1960. Higgins, Benjamin. Economic Development. New York: I W. W. Norton and Company, Inc., 1959. Hirschman, Albert 0. The Strategy of Economic Development. New Haven, Conn.: Yale University Press, 1958. 263 Homan, Paul T., A. 6. Hart, and A. W. Sametz. The Economic Order. New York: Harcourt, Brace and Company, 1958. Hsush, Mu-chiao, Su Hsing, and Lin Tse-li. The Socialist Transformat ion of the National Economy in China. Peking: Foreign Language Press, 1960. Hughes, T. J. and D. E. T. Luard. The Economic Develop* ment of Communist China: 1949-1969* London: Oxford University Press, 1962. Keynes, John M. The General Theory of Employment, Interest; and Money. New York: Harcourt, Brace and Company,1936. Khan, Mohd. Shabbir. India's Economic Development and International Economic Relations. London: Asia Publishing ' House, 1961. Kirby, E. Stuart (ed.). Contemporary China 1959-1960. Hong Kong: Hong Kong University Press, 1961. Kumar, Birendra. An Introduction to Planning in India. Calcutta: Bookland Private Ltd., 1962. Lange, Oskar and F. M. Taylor. On the Economic Theory of Socialism. Minneapolis: The University of Minnesota Press, 1938. Leeman, Wayne A. (ed.). Capitalism. Market Socialism, and Central Planning. Boston: Houghton Mifflin Company, 1963. Leibenstein, Harvey. Economic Backwardness and Economic Growth. New York: John Wiley and Sons, Inc., 1957. Lewis, John P. Quiet Crisis in India. Washington, D. C.: The Brookings Institution, 1962. Lewis, W. Arthur. The Principles of Economic Planning. London: George Allen and Unwin Ltd., 1956. ; The Theory of Economic Growth. London: George Allen and Unwin Ltd., 1955. 264 Li, Choh-ming. Economic Development of Communist China. Berkeley: The University of California Press, 1059. Li, Fu-chun. Report on the First Five-Year Plan for Development of the National Economy of Peopled Republic of China in 1953-1957. Peking: Foreign Language Press, 1955. Loucks, William N. Comparative Economic Systems. New York: Harper and Brothers Publishers, 1961. Malenbaum, Wilfred. Prospects for Indian Development. New York: The Free Press of Glencoe, Inc., 1962. Marshall, Alfred. Principles of Economics. New York: The Macmillan Company, 1948. Mason, Edward S. Economic Planning in Underdeveloped Areas. New Yhrk: Fordham University Press, 1958. Meier, Gerald M. and Robert E. Baldwin. Economic Develop ment. New York: John Wiley and Sons, Inc., 1961. Mill, John Stuart. Principles of Political Economy. London: George Routledge and Sons, Ltd. Myrdal, Gunner. An International Economy. New York: Harper and Brothers Publishers, 1956. Narayan, Shriman. Trends in Indian Planning. Bombay: Asia Publishing House, 1962. Nurkse, Ragnar. Problems of Capital Formation in Under developed Countries. Oxford: Basil Blackwell and Mott Ltd., 1953. Rao, V. R. R. V. and Dharm Narain. Foreign Aid and India*s Economic Development. New York: Asia Publishing House,: 196-n Rostow, W. W. The States of Economic Growth. London: Cambridge University Press, 1961. Simmons, E. J. (ed.) Continuity and Change in Russian and Soviet Thought. Cambridge, Massachusetts: Harvard 265 University Press, 1955. Sinha, M. R. (ed.) A Decade of Economic Development in India. Bombay: Asian Studies Press, 1962. Smith, Adam. The Wealth of Nations. New York: The Modem Library, 1937. Staley, Eugene. The Future of Underdeveloped Countries. New York: Harper and Brothers Publishers, 1954. Tandon, B. C. (ed.) The Third Five Year Plan and India's Economic Growth. Allahabad: Ghaitanya Publishing House, 1962. Tinbergen^ Jan. The Design of Development. Baltimore, Maryland: The Johns Hopkins University Press, 1958. Viner, Jacob. International Trade and Economic Development. Glencoe, Illinois: The Free Press, 1952. Walker, Richard L. The Continuing Struggle. New York: Athens Press, Inc., 1958. Woytinsky, W. S. India: The Awakening Giant. New York: Harper and Brothers Publishers, 1957. Wu, Yuan-li. An Economic Survey of Communist China. New York: Bookman Associates, 1956. . Economic Development and the Use of Energy Resources in Communist China. New York: Fredrick A. Praeger, 1963. B. GOVERNMENT PUBLICATIONS AND DOCUMENTS Government of India, Planning Commission. The First Five Year Plan. New Delhi: Government of India Press, 1952, and The People's Edition, Delhi: The Publication Divi sion, Ministry of Information and Broadcasting, 1953. 266 . The Second Five Year Plan. New Delhi: Government of India Press, 1956. . The Second Five Year Plan: Summary. New Delhi: Government of India Press, 1956. _______. Appraisal and Prospects of the Second Five Year Plan. New Delhi: Government of India Press, 1958. . The New India: Progress through Democracy. New York: The Macmillan Company, 1958. . The Third Five Year Plan. New Delhi: Government of India Press, 1961. The People's Republic of China. Handbook on People's China. Peking: Foreign Language Press, 1957. The People's Republic of China, State Statistical Bureau. "Communique on the Development of the National Economy in 1958,"in Peking Review (April 21, 1959), pp. 33-36. . "Communique of the Fulfilment of the First Five- Year Plan for Development of the National Economy (1953-1957)." in Peking Review (April 21, 1959), pp.28- 32. . "Press Communique of the Growth of China's National Economy in 1959," in Peking Review (January 26, 1960), pp. 9-13. . Ten Great Years. Peking: Foreign Language Press, 1960. The United Nations, Economic Commission for Latin America. The Economic Development of Latin America and Its Principal Problems. New York: The United Nations, 1950. _______, Department of Economic Affairs. Land Reform. New York: The United Nations, 1951. . Statistical Office. Measurements of National Income and the Construction of Social Accounts. New York: The United Nations, 19?7. — — • National Income and Its Distribution in Under developed Countries. New York: The United Nations,1957. . Economic Commission for Asia and the Far East. Economic Survey of Asia and the Far East 1956. Bangkok: The United Nations, 1957. . Economic Survey of Asia and the Far East. 1960. Bangkok: The United Nations, 1961. . Economic Survey of Asia and the Far East 1962. New York: The United Nationa, 1963. U. S. Department of Agriculture. Communist China’s Agriculture. Washington, D. C.: U. S. Department of Agriculture, 1959. C. PERIODICALS AND MONOGRAPHS Barry, Allan J. "The Chinese Food Purchases," Far Eastern Economic Review. XXXIV (October 12, 1961)* pp. 128-129. Bettleheim, Charles. "China's Economic Growth," Monthly Review. X (March, 1959), pp. 429-458. Chao, I-neng. "Industry." Communist China 1961 Vol. II, Communist China Problem Research Series (Hong Kong: Union Research Institute, December, 1962), pp. 211-231. Cheng, Chu-yuan. "Moscow's Hungry Ally," The New Leader (July 31-Augu8t 7, 1961), pp. 18-20. Chou, En-lai. "Report on the 1959 Economic Plan," Peking Review (September 1, 1959), pp. 11-19. . "On the Task for the Adjustment of the National Economy in 1962," Press Communique of the Third Session the Second National People's Congress of China. (Peking: April 16, 1962). Communist Party of China, The. "Communique of the Ninth Plenary Session of the Eighth Central Committee of the Communist Party of China." Peking Review (January 27, 268 1961), pp. 557. Dutt, Gargl. "Some Problems of China's Rural Communes," The China Quarterly. No. 16 (October-December, 1963), pp. TT5^T36. Eckstein, Alexander. "The Strategy of Economic Development In Communist Chinaj" The American Economic Review. LI (May, 1961), pp. 508-517. The Eighth Central Committee of Chinese Communist Party. "Resolution on Some Questions Concerning the People's Communes.” Peking Review (December 23, 1958), pp.10-19. Elliott, John E. "Economic Planning Reconsidered," The Quarterly Journal of Economics. LXII (February, 1958), pp. 55-76. . Economic Systems and National Planning. Los Angeles: University of Southern California, 1963 (Mimeographed). Ellis, Howard S. "Big Push" Theories of Economic Develop ment. Milano: Editrice L'Industrie, 1957 (Monograph). FEER London Correspondent. "Impact of Silver Exports," Far Eastern Economic Review. XXXIV (November 23, 1961) pp. 380-382. Higgins, Benjamin. "The Dualistic Theory of Underdeveloped Areas," Economic Development and Cultural Change. IV (January, 1956), pp. 99-115. Hsia, Ronald. "China's Industrial Growth, 1953-1957," The Annals of the American Academy of Political and Social Science. CCCXXI (January, 1959), pp. 70-81. Hua, Shu. "Agriculture Hill Have a New Look," China Reconstructs. VII (February, 1958), pp. 2-5. Iyer, Raghaven. "Economic Policy in India and China," in G. F. Hudson (ed.), Far Eastern Affairs No. 1: St. Antony's Papers. No. II (London: Chatto and Hindus, 1957), pp. 34-74. 269 Kang, Chao. "Economic Aftermath of the Great Leap In Communist China," Aslan Survey, IV (Hay, 1964), pp. 851- 858. Klein, Sidney. "China's Industrialization: Critical Sectors," Current Scene. II (May 20, 1962), pp. 1-9. Kosambi, D. D. "China's Communes," Monthly Review, X (March, 1959), pp. 425-429. Krader, Lawrence. "The Economic Status of Communist China 1965-1970." TEMPO Report No.56 (Santa Barbara: General Electric Company, December 31, 1958. Kwak, NoKyoon. "Development of National Income and Product Measurements" Berkeley: University of California, January, 1959 (Unpublished Master's Thesis). Li, Ch'ang'yen. "Agriculture," Communist China 1961. Vol. II, Communist China Problem Research Series (Hong Kong: Union Research Institute, December, 1962), pp.75- 109. Li, Fu-chun. "Report on the Draft National Economic Plan for 1959." Peking Review (April 29, 1959), pp. 17-25. . "Report on the Draft 1960 National Economic Plan," Peking Review (April 5, 1960), pp. 5-21. Li, Hsien-nien. "Report on the Final State Accounts for 1958 and the Draft State Budget for 1959," Peking Review (April 29, 1959), pp. 25-30. . "Report on the Final State Accounts for 1959 and the Draft State Budget for 1960," Peking Review (April 5, 1960), pp. 21-29. Liao, Lu-yen. "Collectivization of Agriculture in China," ! Peking Review (November 1, 1963), pp. 7-14. Liu, Ta-chung. "Structural Changes in the Economy of the Chinese Mainland, 1933 to 1952-57," The American Economic Review. XLIX (May, 1959), pp. 84-93. 270 Liu, Yung-hua. "Finance," Communist China 1961. Vol. I, Communist China Problem Research Series (Hong Kong: Union Research Institute, December, 1962), pp. 105-125. Lu, Kang. "China's National Income," Peking Review (April 8, 1958), pp. 7-9. Malenbaum, Wilfred. "India and China: Contrasts in Develop ment Performance," The American Economic Review. XLIX (June, 1959), pp.•284-309. Neale, Walter C. "The Economic Status of India in 1970." TEMPO Report No. 49 (Santa Barbara: General Electric Company, 1958). Nove, Alec. "Communists and Peasants," Current Scene. Vol. I, No. 25 (February 20, 1962), pp. 1-9. Patel, Surendra J. "Growth in Income and Investment in India and Chinaj" The Indian Economic Review. Vol.Ill, No. 3 (February, 1957), pp. 5^-67. Peubeus, Edwin P. "The Dream and Reality of Water Control in Communist China," Current Scene. II (September 14, 1962), pp. 1-14. Po, I-po. "For New Victories in China's Industrial Produc tion and Construction," Peking Review (February 24,1961) pp. 5-8. Rosenstein-Rodin, P. N. "Problems of Industrialization of Eastern and South-Eastern Europe," Economic Journal (June-September, 1943), pp. 202-211. Scitovsky, Tibor. "Two Concepts of External economies," The Journal of Political Economy. U£II(April, 1954) ■ , pp. 143-152. Schran, Peter. "Some Reflections on Chinese Communist Economic Policy," The China Quarterly. No. 11 (July- September, 1962)* pp. 58-77. Spencer, J E. "Agriculture and Population in Relation to 1 Economic Planning," The Annals of the American Academy of Political and Social Science. CCGXXI (January,1959),: 271 pp. 62-70. Su, Hsing. "Several Questions Concerning Socialist Extended Reproduction," Hung-Ch'i (or Hong Qui), No. 7, (April 1, 1962). Tang, Peter S. H. Communist China As a Developmental Model for Underdeveloped Countries. Washington, D.C.: The Research Institute on the Sino-Soviet Bloc, 1960 (Monograph). Yang, Min. "The Continued Leap in Agriculture," Peking Review (February 16, 1960), pp. 14-17. Yung, Lung-kwei. "The Socialist Economy Moves Ahead," China Reconstructs. Vol. XI, No. 12 (December, 1962), pp. 5-8. "Agricultural Study Forecasts Another Hungry Spring for Communist China," Current Scene. I (January 22, 1962), pp. 1-21, (Author Unknown). D. NEWSPAPERS Sung, Meng-ming. "On the Proportional Relationship between Industry and Agriculture," Ta-kung Pao, May 4, 1962. Stewart, lan. "Peking Suffers Sharp Reverses," The New York Times. January 9, 1962, p. 74 (c). Chung-kuo Ch1ing-nien Pao. February 10, 1961. Jen-mln Jih-pao. Editorial, February 4, 1961. ■ December 29, 1961. . November 20, 1961. _______, Editorial. "Unite and Struggle for New Victories," April 17, 1962, cited in American Consulate General in j Hong Kong, Economic Problems and Policies. Part I: Economic Development. Extracts from China Mainland 272 Publications, No. 66 (September 18, 1963), p. 77 Kung-1en Jih-pao. March 28, 1961. Kung-ming Jih-pao, October 9, 1961. People18 Daily (Remain Ribao), August 27, 1959. _______, March 31, 1960. Ta-kung Pao, June 23, 1961. , July 24, 1961. APPENDIX 274 A BRIEF SURVEY OF PAST DEVELOPMENTAL PLANNING IN INDIA AND COMMUNIST CHINA India's first five-year plan started in April, 1951 and ended up in March, 1956. During this period develop mental planning had been directed to reduce inequality of income and wealth as well as reducing the rate of popula tion growth to about IE per year. Along with these double objectives, the plan was organized to "advance simultan eously on all front8," that is, to increase consumption as well as investment. For this to be attained, a modest increase in national income of HE for this period was set as the goal. Preparing for future investment in industry, the first five-year plan laid its principal emphasis on the agricultural sector which occupied about 75E of the Indian economy. Specifically, emphasis was laid on restoration of food and raw-material output in the agricultural sector to the pre-war level, so that these primary products need not be imported, thus releasing foreign exchange for the import of capital goods. In addition, the government began public investment in the basic utilities and private 275 industries already in existence. Also, in order to increase rural productivity, the first five-year plan set forth certain programs such as land reforms, community development projects, increased irrigation and fertiliza tion of land, as well as an increase in rural power supply. As for results, the first five-year plan achieved a greater agricultural advance than was expected because of unusually good weather and rapid progress in land reforms, while less industrialization was achieved than planned because of a lag in investment projects of the government owned industries. In contrast, with the triumph of the revolutionary communist movement in 1949, Communist China had closely modeled its economy on the pattern for industrialization followed by the Soviet economy during the period of the first five-year plan. Although Communist China1 s economy was far less developed at the time of successful revolution than the Soviet economy of 1917, its prospects of economic development have been much improved due to availability of advanced techniques and capital goods supplied by Soviet iRussia. To prepare the economy for the first five-year plan (1953-1957), which was to begin the industrialization of 276 the economy, the planners of Communist China endeavored to achieve three preliminary objectives: (1) to set up a sound monetary and fiscal system so as to remove existing inflationary pressures and to correct financial maladjust ments which are to be expected as the industrialization materializes; (2) to increase agricultural productivity so as to smooth the course of industrialization with supply of food and raw materials; and (3) to prepare for central planning under state direction and control in the spheres of overall economy with relative reliance on rapid indus trialization "with acquisition of increased ownership and control of the basic means of production. With the introduction of such compulsory measures as a drastic monetary reform (1948), compulsory purchases of government bonds (1949), and centralization of taxes with much emphasis on turnover taxes on commodities, price stability was virtually attained before initiating the first five-year plan. The land reform was carried on between 1950 and 1953. Large feudal holdings of land were broken up and redistributed to the peasants in small *Paul T. Homan, Albert G. Hart, and Arnold W. Sametz, The Economic Order (Hew York: Harcourt, Brace and Company, 1958), p. 806. 277 parcels. The peasants paid taxes in kind to the central government instead of rent to landlords. During the period of 1949-1953, grain output increased by 50X. At the same time the state developed various control measures for acquisition of ownership of existing private enterprise in light industry and started to fashion major techniques for central planning. By 1953, virtual nationalization of major industries was completed. The first five-year plan started in 1953 and ended in 1957. During this period the planners of Communist China pursued a "Stalinist strategy of economic development placing emphasis on industrialization, with proportionately smaller increases in agricultural and consumer-goods output. Statistical data show that by 1957 agricultural output was planned to increase by 17% and industrial output by 100%. To pursue rapid industrialization public investment has been proportionately distributed among industries in order of importance. Of this public investment fund, 60% was to go to industrial projects, 20% to agriculture, 7% for health and education, and 5% to the rest of the economy. Thus, the predominance of public investment contributed lower investment costs per unit of product due to government 278 restrictions on the degree of choice in both factor and product market. The essentially similar approaches to economic developmental planning, during the period of the first five-year plans, of Communist China and Soviet Russia brought about two rather different outcomes. Although industrial production expanded very rapidly in both countries, farm products declined enormously in Soviet Russia due to the impact of forced collectivization, whereas in Communist China the less violent course of agrarian transformation produced the modest growth of farm products. However, the different pattern of collectiviza tion and agricultural production had impacts upon all sectors of the economy, especially on the rate of involuntary farm saving, on the trends in industrial real wages and labor productivity, and on the rural-urban migration as well as on the investment structure. STATIST ICAL APPENDIX 280 TABLE A INVESTMENT ALLOCATION BY SECTORS IN INDIA, 1956-1961 Planned? Actual** Sector Rs.crores X Rs.crores X Agriculture, Community 513 8.8 835 12 Development Irrigation 556 9.7 420 6 Large Industry (including 1,694 29.2 2,030 30 Power and Mining) Small Industrial and Other 220 3.8 265 4 Enterprises Transport and Communications 1,418 24.3 1,410 21 Inventories -- — 500 8 Other8 (Social Services, etc.) 1,399 24.2 1,290 19 Total 5,800 100 6,750 100! aThe New India, p. 131. bThird Five Year Plan, p. 59. 281 TABLE B PLANNED STATE INVESTMENT ALLOCATION BY SECTORS IN COMMUNIST CHINA, 1960a Sector million yuan % Industry 18,750 57.7 Agriculture (including Water Conservation, Forestry, etc. 3,910 12.0 Light Industry 1,470 4.5 Communication and Transportation 6,810 20.9 Commerce 433 1.4 Scientific Research, Culture, Education, Public Health, etc. 1,127 3.5 Total 32,500 100.0 *11 Fu-chun, "Report on the Draft 1960 National Economic Plan," Peking Review (April 5, 1960), pp. 12-18. 282 TABLE C OUTLAYS ON AGRICULTURAL PRODUCTION OF INDIA, 1956-1961® Items Rs. Crores Agricultural Production 98.10 Major and Medium Irrigation 372.17 Minor Irrigation 94.94 Soil Conservation 17.61 Cooperation 33.83 Community Development (Agricultural Programs) 50.00 Total 666.65 1 i aThlrd Five Year Plan, p. 304. TABLE D AVERAGE PRODUCTION AND YIELD PER ACRE IN INDIA, 1956-1961a Crop Average Annual Pro duction (Mil. tons) Average Yield (lbs.per acre) Food grains (Cereals and Pulses) 70.9 575 Rice 29.3 807 Wheat 9.3 662 Oil seeds 6.5 451 Sugarcane (gur) 7.3 3,206 Cotton (Mil. bales) 4.6 95 Jute ( " " ) 4.4 1,035 aThird Five Year Plan, p. 318. TABLE E OFFICIALLY CLAIMED GRAIN ACREAGES IN COMMUNIST CHINAa 1958 1959 1960 1961 Crop Area Yield Area Yield Area Yield Area Yield Rice 32.7 2.8 29.7 2.7 31.5 2.5 31.0 2.6 Wheat 26.6 0.9 24.7 1.0 27.8 0.8 24.6 0.7 Miscellaneous Grains 45.7 1.1 42.4 1.0 47.2 0.8 49.4 i 0.9 Potatoes 16.3 1.8 12.7 1.7 13.5 1.6 14.0 1.8 Total Grain Acreage 121.3 109.1 120.0 119.0 Average Yield 1.6 1.5 1.3 1.4 N. B.: Area: million hectares and Yield: million tons. aCurrent Scene. (January 22, 1962), pp. 4-9. 284 TABLE F INDIA'S PROJECTED INVESTMENT IN INDUSTRIAL GROWTH 1956-I961a (Rs. crores) Industries Estimated Investment Private Public Total Large and Medium Industry 535 600 1,135 Mining and Mineral Development 40 70 110 Village and Small Industry 100 120 220 Total 675 790 1,465 aThe New India, p. 255. 286 TABLE G COMMUNIST CHINA'S STATE EXPENDITURES UNDER THE SECOND FIVE YEAR PLAY® (in million yuan) Item 1958® 1959^ Estimated 1960C Economic Construction 26,270 32,170 42,910 Social Services, Culture 4,350 5,860 8,620 and Education National Defense 5,000 5,800 5,800 Administration 2,270 2,900 3,170 Repayments of National 970 1,200 Debt and Foreign 1,180 Aids 350 500 Allotments for Credit Funds 1,650 4,430 5,800 to the Banks Others 240 290 320 General Reserve — m 1,700 Total 40,960 52,770 70,020 aPeking Review (April 29, 1959), p. 25. ^Ibid.. (April 5, 1960), p. 22. cIbid., p. 25.

Linked assets

University of Southern California Dissertations and Theses

Conceptually similar

PDF

Appraisal Of Developmental Planning And Industrialization In Turkey

PDF

The Size Distribution Of Income And Its Relationship To Economic And Social Well-Being In The State Of California

PDF

A Multidimensional Interpretation Of Comprehensive Developmental Planning

PDF

Financing Of Medical Care For The Aged: A Comparative Evaluation Of Compulsory Versus Voluntary Health Insurance

PDF

Developmental Planning In The United Arab Republic: An Economic Analysis And Evaluation Of The Egyptian Experience

PDF

Economic Analysis Of Factors Underlying Pricing In The Southern California Tuna Canning Industry

PDF

Economic Aspects In The Evolution Of The Great Lakes Freighter

PDF

Strategic Dimensions Of Developmental Planning With Particular Reference To Morocco And The United Arab Republic

PDF

The Evolution Of The Role Of Government In The Economic Development Of Mexico

PDF

The Usefulness And Limitations Of Accounting Reports For Testing The Theory Of The Firm: An Appraisal

PDF

An Economic Analysis Of The Factor Market For Pharmacists

PDF

Competition And Concentration In The Brewing Industry

PDF

A Multidisciplinary Analysis Of Technology Planning And Development

PDF

A Positive Approach To Advertising And Publicity As A Function Of Consumer Preference

PDF

Concepts Of Entrepreneurship In Recent Economic Thought

PDF

Forecasting Selected Statewide Recreation Requirements

PDF

An Empirical Study Of Some Significant Variables In Consumer Expenditures: Los Angeles County 1970

PDF

Participation Of Rank-And-File Member In The Decision Making Process And His Access To The Grievance Machinery Of His Union: Including A Survey And Case Study Of Uaw Local 1531, Amarillo, Texas

PDF

External Trade And Economic Growth In Developing Countries With Special Reference To Iraq

PDF

The Theory Of Investment Programming: A Suggested Econometric Model

Asset Metadata

Creator Kwak, Nokyoon (author)

Core Title A Comparative Appraisal Of Developmental Planning In India And Communist China Under The Second Five Year Plans

Degree Doctor of Philosophy

Degree Program Economics

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag economics, general,OAI-PMH Harvest

Language English

Contributor Digitized by ProQuest (provenance)

Advisor Elliott, John E (committee chair), Phillips, E. Bryant (committee member), Ward, Richard A. (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c18-159214

Unique identifier UC11359260

Identifier 6508914.pdf (filename),usctheses-c18-159214 (legacy record id)

Legacy Identifier 6508914.pdf

Dmrecord 159214

Document Type Dissertation

Rights Kwak, Nokyoon

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus, Los Angeles, California 90089, USA