The Overstretched Superpower
Does America Have More Rivals Than It Can Handle?
ASMALL group of influential business leaders in Bombay drew up and published in January of last year a plan for the economic development of India which may be said to have opened a new chapter in Indian economic history. This plan was originally intended for private circulation only; and the decision to publish it in pamphlet form,[i] with wide consequent publicity, came afterward. The Bombay Plan, as it is now popularly called, did not represent the opinion of the whole business community. But it claimed public attention because it set forth the considered views of some of the front-rank businessmen and captains of Indian industry.
The signatories were not merely men of business experience but were inspired by more than a fair measure of public spirit and responsibility. Mr. J. R. D. Tata and Mr. G. D. Birla were primarily responsible for the initiation of the study. Mr. Tata is head of the well-known House of Tata, and is noted in India for his progressive outlook on life and business. Mr. Birla, the head of Birla Brothers, who own and manage a variety of industrial enterprises, is interested in educational and social work. Sir P. Thakurdas, the doyen of the business community, has enjoyed a reputation for possessing a wide outlook and for courageous thinking and speaking. Mr. Kasturbhai Lalbhai and Sir Shri Ram are leading mill-owners in Ahmedabad and Delhi respectively, and have business activities extending to other fields. The other three signatories -- Sir Ardeshir Dalal, Mr. A. D. Shroff and Dr. John Matthai -- are employees and directors of Tata Sons, Ltd., and the fact that they too signed the pamphlet is significant as showing that it was in no sense to be regarded as an industrialist's plan, at least when it was put out.
The reception accorded to the plan was unique. Within a few days of its publication the demand for copies was so great that it had to be reprinted for several successive months. Public interest has continued to this day. The plan has been translated into other languages than English for publication both in India and abroad and has been read by millions of people. Within a few weeks of its publication Lord Wavell, Viceroy of India, welcomed it in a speech to the Legislature and found in it a new approach to the solution of India's intractable political problems. Sir Jeremy Raisman, Finance Member of the Executive Council, called it a useful contribution in his budget speech in February 1944, though he doubted the soundness of some of its financial assumptions. The public and the press joined in the discussion and prompted a clarification of the document by the signatories. Toward the end of March the Federation of Indian Chambers of Commerce representing all business organizations of the country endorsed the Bombay Plan at its annual meeting, and from then on the plan came to be regarded as the proposal of India's business community, if not of India's big business.
The extraordinarily favorable reception which was accorded the scheme can be explained only in terms of an unusual conjunction of circumstances. It came out at an opportune moment. The country, disillusioned and dis-appointed with the slow pace of industrialization, and saddened by the tragic experience of a famine which had exacted a heavy toll of lives in Bengal, was ready for any kind of solution which would bring a ray of hope. And it feared that the talk of postwar reconstruction indulged in by the government was not sincere. Above all, the brevity of the plan and the remarkably simple and powerful language in which it is set forth contributed to its successful reception.
The Bombay Plan does not provide a complete scheme of economic development; much less does it pretend to be a blueprint for action. All that it does is "to put forward as a basis of discussion, a statement in as concrete a form as possible, of the objectives to be kept in mind in economic planning in India, the general lines on which development should proceed and the demands which planning is likely to make on the country's resources." The principal objectives of the plan are to achieve a balanced economy and to raise the standard of living of the masses of the population rapidly by doubling the present per capita income -- i.e. increasing it from $22 to about $45 -- within a period of 15 years from the time the plan goes into operation. A preliminary period of three to five years is to be devoted to preparing the details of the plan. Unfortunately, however, the per capita income in a country whose population (386,000,000 in 1941) has been increasing at the rate of nearly 1.5 percent per annum cannot be doubled unless total income increases at a faster rate than the per capita income; hence the planners provide for trebling the total income in order to double the income per person.
Planning in India runs up against a serious difficulty at the outset. There are no reliable figures of national income, and the only reasonably trustworthy estimate is for that of 1931-1932, an abnormal year. The plan had to be framed on the figures of a period of relatively low prices; prices today are 200 to 250 percent higher than those of 1931-1939. The planners warn that "money is used throughout as a measuring rod only; and in order to keep the measure uniform we have based all money figures on the rupee at the average price level which prevailed during the period 1931-39." However inescapable and justifiable this method, statistics in the plan which are expressed in terms of money have no current basis and an element of unreality runs through all of them.
The inadequacy of the present income for even the most essential requirements of the people is vividly apparent in the miserable living conditions of most of India's millions. The planners have laid down minimum living standards on the basis of about 2,800 calories of well-balanced food a day for each person, 30 yards of clothing and 100 square feet of housing; and they also outline the minimum needs for elementary education, sanitation, water supply, village dispensaries and hospitals. The plan points out that absolutely minimum needs require an annual income of at least $25; and if the income of the country were equally distributed it would give each individual only about $22. The problem is to increase production and to devise a program for putting the minimum within the reach of all. But this minimum promises only bare subsistence; no one can be satisfied with it. There must be some margin for enjoyment of life and cultural opportunities, and this can be provided only if the total income increases at least to thrice the present level.
This goal, according to the plan, is to be reached by altering the relative proportions in which agriculture, industry and services contribute to the national income, and increasing the output from agriculture by 130 percent, from industry by 500 percent, and from services by 200 percent. The shares of agriculture, industry and services in the total production is to be changed from 53, 17 and 22 percent, respectively, to 40, 35 and 20 percent (neglecting some categories of income not classified). Precisely how these changes in output are to be effected has not been made clear in the report.
The basis of Indian economy would continue to be agricultural even after this goal was reached. Some critics have said, however, that the plan lays undue stress on industrialization and sets its sights too low in regard to agriculture. But the plan explains that India's industrial potentialities are now largely unexploited and that there is much greater leeway for expansion in this field. And agricultural experts have pointed out that even to double the agricultural output in 15 years would not be an easy task, and that the scheduled increase of 130 percent is perhaps more than can be managed. Indeed, the most optimistic estimate of the Department of Agriculture dares hope for no more than a 50 percent increase in 10 years and perhaps a 100 percent increase in 15 years. It is unlikely, in fact, that an increase of more than 130 percent would be required for all purposes, and the more important question is whether the methods suggested for carrying out the agricultural program are reasonably efficient. The plan pins its faith on technical methods of improving agriculture -- irrigation, model farms, improved implements, etc. -- and on bringing fresh land under cultivation. It recommends the consolidation of holdings and coöperative farming, but proposes no further agricultural reorganization. Whether these methods of solving the enormous problem will be adequate is doubtful. It seems to the writer that little improvement can be expected unless the system of land tenure is reorganized and the dead hand of landlordism is removed.
The plan is highly realistic in its approach to industry. It emphasizes the importance of basic industries but also calls for the development of consumption goods industries in the early years of the plan. Power heads the list of basic industries which are to be developed, followed by mining and metallurgy, engineering, chemicals, armaments, transport, cement and others. The goal for expansion in each industry is not made clear. An important place is assigned to small-scale and cottage industries, and transport and communications are also to be developed. Here the objective is quite definite. The plan proposes doubling the present total of 300,000 miles of roads, increasing railway mileage by 50 percent from its present 41,000 miles, expanding coastal shipping and investing $150,000,000 on improvement of harbors.
But the attention paid to the social services is the feature that has appealed most to the public. The plan offers a comprehensive program of mass education, including primary, secondary and vocational and university schooling. Provision is also made for adult education and scientific training and research. To finance this program a capital expenditure of $700,000,000 and a recurring annual expenditure of nearly as much are recommended. A capital expenditure of $840,000,000 and an annual expenditure of $555,000,000 are provided for. The plan guarantees minimum housing for all. It is perhaps overambitious in this field, contemplating the building of nearly 55,000,000 new houses at a cost of 6.6 billion dollars. The capital expenditure proposed for the whole plan (omitting the annual recurring expenditure) is as follows:
The planners have added about 3 billion dollars to this sum for the recurring expenditure for one year, which in their view may be provided from out of capital funds. The Bombay Plan thus proposes an overall investment of 30 billion dollars in 15 years.
From what source is this enormous sum of capital to be drawn? The plan distinguishes between external finance, which would be available for payment to foreign countries for goods and services imported from them, and internal finance, for the mobilization of resources within the country. The plan assumes that roughly 8 billion dollars of external finance may be required and outlines the following methods of obtaining it. Though hoarded gold has been drawn upon for export since 1931, there are still large untapped amounts of it. The planners believe that "if suitable means are adopted for attracting hoards from their place of concealment and if a national government comes into power in which people have faith," about a billion dollars could be obtained. This would be available as foreign exchange. Secondly, as a result of India's new creditor position the balance of trade will improve sufficiently to enable her to use at least about $120,000,000 annually for getting extra capital goods from abroad. In 15 years this should come to about 1.8 billion dollars. Thirdly, the plan relies upon sterling balances accumulated to India's credit in Britain to the tune of about 3 billion dollars. Finally, an external loan (mainly from the United States) of 2 billion dollars or more to fill in the gap is advocated.
But the main reliance is placed on internal capital resources. At the current rate of saving in India, reckoned at only 6 percent of the annual income, about 12 billion dollars of capital should be available during the 15-year period. But this is a conservative estimate. There are reasons to believe that the rate of saving is nearer 8 percent than 6, and, as the annual income increases, a larger percentage may be expected to be saved. But whatever the estimated rate of savings, normal savings will clearly not be adequate to the needs; and here the plan has resorted to the unorthodox method of raising capital by "created money." About 10 billion dollars is expected to be obtained by borrowing against ad hoc securities from the Central Bank. The planners admit that new money in this amount can be created "only if people have full confidence in the resources and bona fides of the government that creates it." But there is nothing inherently wrong or unsound in this procedure, as in the long run assets equal in value to the created money would have been produced. It is recognized, however, that during the planning period there would be a gap between the volume of purchasing power in the hands of the people and the volume of goods available, leading to an inflationary situation. The planners boldly affirm that during this interval "in order to prevent the inequitable distribution of the burden between different classes which this method of financing will involve, practically every aspect of economic life will have to be so rigorously controlled by government that individual liberty and freedom of enterprise will suffer a temporary eclipse."
No other feature of the plan has been subjected to so severe or widespread a criticism as its financial aspect. Some of the criticisms are purely formal. For example, gold is said to be as much a country's internal capital as annual saving and therefore should not be classified as external finance. But the point of the classification is that gold is world money and a never-failing method of obtaining goods from abroad. Formally, it is also wrong to regard balance of trade as external capital. But here again the planners were right in regarding the balance of trade as available for further import of goods from abroad, on the assumption that export and import controls will continue in the planning period. Another important criticism, not so much from India as from Britain, is that the financial foundation of the plan is seriously shaky in so far as it relies upon sterling balances which may not be available for a considerable period after the war. The answer to this is that India has a right to expect that the question of unblocking sterling will be solved to her satisfaction, and that even if the balances are funded over a period, repayment will start immediately. If, for any reason, it is found that Britain cannot start the payment until, say, five years after the war, some arrangement should be concluded with the United States which would enable India to draw upon America until Britain is in a position to begin installment payments. As regards the 2 billion dollar foreign loan, India believes that her credit is so strong and the investment opportunites which she can offer the rest of the world are so vast that there would be no difficulty in getting even twice this amount.
The sharpest attacks have been directed against "created money." It is said that there is danger in resorting to created money in the period after the war, when the country is still in its inflationary phase. But in the context of economic planning, created money has no perils at all. Indeed, the planners went wrong in treating the subject from the traditional point of view in terms of created money, rather than in terms of planned savings. This defect has since been remedied by Mr. G. D. Birla, who pointed out in a clear and competent amplification of the plan that what is required is annual savings of about 16 percent, and that what they are called does not matter. He believes that such savings are practicable. Since the plan gives special attention to the supply of consumption goods in the initial period, savings of 16 percent may be achieved without imposing excessive or unequal burdens upon the poor, provided price control and rationing are effective. The plan does not discuss the question of how the savings would be raised, but it obviously expects that several methods will be followed -- taxation, direct restrictions on consumption, allocation to reserves in state-owned and controlled businesses, special allowances from taxation in reporting allocations to reserves, etc. The real issues are, first, how much control will be required to put through the financial scheme, and, second, how much control can or should the public stand?
In a final chapter the plan sketches in broad outlines the three five-year periods into which the scheme of economic development has been divided. In the first five-year period the distribution of capital among basic industry, consumption goods industries, communications and services gives equal importance to the first two, and allocates smaller amounts to the latter two. In the second five-year period basic industry is to receive another and still larger appropriation; in the third stage the social services are to be allocated the largest amount, and the development of communications also receives special attention.
This, then, is the substance of the Bombay Plan. It rests on one or two basic assumptions and does not pretend to be a complete program. It assumes that details will be elaborated by a National Planning Committee to be set up by a national government enjoying the confidence of the people, and that the plan will be executed by a supreme economic council. The scheme also postulates the economic unity of India as an essential condition of effective planning.
It has many a gap. It leaves for further examination such important questions as the methods to be used in putting the plan through, and the principles on which industry is to be organized. Will industry be owned and directed by the state or by private enterprise? Or to what degree will the two principles be blended? And how is income to be distributed among the various sections of the people so as to guarantee to all the basic minimum which is the fundamental idea of the whole plan? And yet, in spite of all the omissions, the plan has rightly exerted a powerful appeal. It has made the country planning-conscious. And that the foremost industrialists of the country should go on record as being willing to subject themselves to a certain degree of social and economic control is itself no small gain.
To the outside world the natural questions are: (1) Is this merely a paper plan, large-sounding but empty of content and unlikely to be adopted? (2) Is it practicable in the sense that the financial, technical and material resources necessary for its success are within reach? (3) If it succeeds, what effect would it have on the economy of the rest of the world? In particular, is so rapid an economic development of India advantageous from the American point of view? These are highly important questions to which some answer should be attempted here.
The plan is not a mere paper plan. Its influence is already apparent in the various schemes of postwar economic reconstruction prepared by the Government of India, and in the appointment of Sir Ardeshir Dalal, one of the signatories to the Bombay Plan, as head of the Government's Planning and Development Department. Within the framework of the existing constitution, but with the hope of obtaining powers of coördination and central control, the government has prepared a fairly comprehensive plan embracing the development of agriculture, forests, fishery and transport and the provision of education, sanitation, public health and other social services. Unlike the Bombay Plan, these proposals have no overall objective and are perhaps somewhat pedestrian in their methods. But there is no reason to think that the results of government planning would differ very materially from the goals set by the Bombay Plan. Both aim, for example, at doubling agricultural output, doubling transport facilities, liquidating illiteracy, providing sanitary and medical facilities and increasing industrial output. Only in respect of housing is the government scheme pitifully inadequate.
Whatever the political conditions of the country are after the war, economic reconstruction of one kind or another will be undertaken. But the speed with which it is done will depend upon whether India is independent and can initiate and execute plans herself, and upon the kind of constitutional setup the country has. Central planning, central coordination and central direction are necessary for successful economic development; but it is impossible to say whether the provinces and states in the future Government of India will agree to subject themselves to so much control. There is no reason to think that the reconstruction scheme prepared by the industrialists is unsound or impracticable. The writer ventures to say that, contrary to general opinion, the financial shortcomings of the plan are not the most serious ones. India is fortunately placed in this respect. Her internal financial resources are vast and untapped, her foreign balances substantial; loans from abroad may safely be expected. The more serious problem is one of administrative and technical personnel and lack of knowledge, of "know-how." It is here that the need for close coöperation between India and the west, particularly the United States, is most essential. India must send out at least a few hundred men every year for training in all spheres of economic activity, and she must arrange to bring American engineers, technicians, chemists, businessmen and administrators to India. Another limitation on the plan is the rate at which capital investment can be absorbed into Indian economy. Absence of one or two essential factors can hold up any scheme, and India's planning period may have to be extended beyond 15 years. It is also possible that some goals are set too high -- that in agriculture, for example, unless there is to be radical reform of land-tenures and some form of collective farming. But despite all doubts and difficulties there is no warrant for the view that the plan is inherently impracticable.
A sudden transformation of India's economy would, of course, have a deep and far-reaching impact, but India's economic development will have nothing but a favorable effect on the rest of the world. India does not propose to adopt self-sufficiency as her goal, although her special geographical and strategical position in southeast Asia will no doubt influence her to become more self-sufficient than in the past. The immediate effect of her economic reconstruction will be a great impetus to imports from abroad, particularly from America -- perhaps the only country that can meet the demand. After she attains a fair degree of industrialization, the nature of her import and export trade will alter, but experience has shown that trade tends to radiate among industrial countries. Industrialized India will foster wider and larger international trade. A mounting standard of living for India's millions will exert not a little power on the export possibilities of the rest of the world.
There are important reasons why Britain and especially America should encourage India's scheme of postwar economic reconstruction. For a year or so after the war America may be fully engaged in meeting her own backlog demand, but subsequently India's demand will be a factor strengthening world economy and enabling America and Britain to maintain full employment. The fear that with American machinery India will build up industries which will ultimately damage America's markets or reduce her competitive power is unreal. The character of trade will alter with time, but at every stage there will be cost differences of hundreds of articles which will compel trade to flow from and to both regions. India's economic development will contribute to economic expansion and fuller employment both within her own borders and abroad.
[i] "The 'Bombay Plan' for India's Economic Development." Bombay: The Commercial Printing Press, 1944.