THE ECONOMIC WEEKLY SPECIAL NUMBER JULY A Rudra

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1 THE ECONOMIC WEEKLY Perspective A Rudra Planning Longterm planning and perspective planning are words by now familiar in India. That does not mean that any such plan has been made for India; (if something like that has indeed been made, it has at least not been made public). Lest there be any misunderstanding, let me make clear what I mean by a "Perspective Plan'. It is a plan for a fairly long period, say 15 or 20 years, less detailed and less concrete than plans actually implemented schemewise (which are usually of duration between 3 and 7 years) and less abstract than mere statistical projections based on more or less simple econometric models. It is neither a fully worked out plan nor just a theoretical exercise, but a framework within which concrete short term plans can be fitted. THE purpose of a perspective plan is to set a 'perspective' for the short term plans. The short term plans, so worked out, would be such as to lead to certain long term results. The short term plans in themselves may fail to satisfy any conditions of optimality; the whole series of them would, however, satisfy some such conditions applicable to a wider horizon of time. It is clear that such a short term plan should share some of the qualities of both a concrete short term plan as well as that of a theoretical long term projection. The principal feature of a concrete short term plan is what may be termed its horizontal harmony. That is to say, the schemes and targets for the different sectors are such that they do not cause any bottlenecks for each other. On the other hand the principal feature of an abstract theoretical projection is what may be called its vertical harmony; that is to say, harmony as between the projections for the different points of time. It is obvious that a perspective plan must exhibit both horizontal as well as vertical harmony. Being not Just a theoretical projection, a perspective plan must consider a fairly large number of sectors. At any given time there must be harmony between the activities in the different sectors, so that the plan must exhibit horizontal harmony at each time point, or at least for each small time interval into which the plan period can be broken up. At the same time there should be vertical harmony. Such harmony should exist not only for all the sectors taken together but for each sector individually. That is to say, the development within each sector should be such as to satisfy some conditions of long term optimality. Experts' Plans In planning literature, one comes across two types of long term plans neither of which satisfies the specifications of a perspective plan as given above. There are long term plans which satisfy the condition of vertical balance but totally lack any horizontal dimension. Such plans usually deal with only a single sector at a time and consequently there cannot be any question of sectoral balance. These are plans prepared by technical experts. The first example that comes to mind is the electrification plan of the early Soviet planners which received such powerful backing from Lenin. In India there have been various such plans for the development of roads, education, health etc. Whenever one talks about a programme of eliminating malaria or doing away with illiteracy or making full use of water resources, one is thinking in terms of long term plans of this type. The Community Development and National Extension Programme of the Government of India are also in a way long term plans of this type. The Atomic Energy Commission in regard to the development of atomic power or the Rubber Board in regard to replanting of rubber plantations obviously follow similar plans. If a country wants to develop its foreign trade in a planned way, that has also, to some extent, to be a long term plan of this type. The few examples that have been just given leave no doubt about the importance of such specialised long term plans as distinct from general plans, long term or short term. Take elimination of malaria. If such an objective Is to be realised, it is necessary to have a clear cut and well-planned programme of action spread over a number of years; 981 it is not possible to arrive at such a well-planned programme from any general overall considerations regarding income or employment or any other macro-variables. Even if malaria control be regarded as a sector in a general frame work, the programme that would result, if the actions to be taken in the field were determined entirely as functions of some general overall variables, would consist of a series of heterogeneous actions rather than a single homogeneous plan. Similarly, no long term programme of development of health services or educational facilities or atomic energy for peaceful use can be worked out by mere planners or economists without the help of experts with thorough knowledge and experience in the respective fields. It is really the job of educationists and health service officials and atomic scientists. But precisely because such plans lay more emphasis and more importance on technical aspects rather than economic ones, are made in isolation for one sector at a time and are the works of specialists and not economists or planners, they cannot serve the purpose of perspective plans, even if one has a bunch of such long term plans drawn up for all the sectors. Such a bunch of long term plans will totally lack any horizontal harmony: the conditions of sectoral interdependence will not be respected, the fundamental balances (that between the demand and supply of commodities, that between savings and investment, etc) will not be observed. Also the techniques used in the different sectors will not and cannot correspond to any notion of optimality for the economy as a whole. Econometrician's Plan Let us now consider the other type of long term plan, namely

2 THE ECONOMIC WEEKLY that of the econometrician. This is on the whole a mathematical exercise. The economy is considered in an abstract form; it is treated as composed of a finite number of sectors; a large number of equations and relations are written down connecting the levels of output, investment, employment in the different sectors in a given year or a number of successive years. The problem of investment allocation, technological choice and all other problems of long term planning is attempted to be solved once for all within the frame-work of this model at one stroke: all that is necessary is to solve the system of equations so as to satisfy sonic optimality condition or conditions. The problem really reduces to one of linear or non-linear programming, Several attempts have been made in India at this type of long term plan making by both Indian and foreign econometricians. As a matter of fact some of the most distinguished econometricians of the world have tried to assist India in this matter. (Let us recall that Indian planners have had the benefit of advice from such masters in the subject as Jan Tinbergen and Ragnar Frischh However this particular approach does not seem to have led any where, planning in India has been left practically unaffected by all these essays. Partly of course it is accounted for by the unsatisfactory conditions obtaining in India for practical application of this type of econometric models. The models are usually very complicated and in order to use them, it is necessary to use giant calculating machines not many of which are available in India. Then, in orderto obtain practical results from these models, it is necessary to feed the calculating machines with data regarding all sorts of technological coefficients, most of which are difficult to obtain for India. But apart from these practical difficulties, there are serious weaknesses in the approach itself. It is very much to be doubted whether a set of figures and a set of simple mathematical relations can ever represent reality, whether of a particular section or of the whole of an economy. They cannot possibly take full account of all the factors that have to be taken into consideration in the preparation of an experts' plan for a particular sector. Their use cannot therefore result in the same vertical harmony within each sector as is assured by the expert's plans; as a matter of fact, it would be quite possible and even likely that an econometric plan which would assure the optimum development of income or employment or some such macro-variable over a period of time, would do so at the cost of disharmonious or deformed growth within individual sectors. This would mean that despite all the theoretical charms of the model, practical planning would not be possible on its basis. Even if it were possible to take account of all the relevant factors connected with each sector in a complex mathematical model, the approach would remain open to criticism on the ground of the method used for arriving at the optimum solution. The method is that of maximising a particular variable or a 'preference function'. It is to be seriously doubted that by the maximisation of a simple mathematical function of a number of variables, one can obtain a result that would correspond to the most desirable of the possible courses of action. The entire approach is designed to yield a result that would be objectively optimum. Rut this search for an objective optimum itself is based on a misunderstanding. No One Single Goal If in planning one were to have a single goal like the maximisation of steel production in a given year or that of employment at the end of ten years etc, it would be possible to have a so called preference function that would faithfully translate the planners' preferences. One would, however, be quite mad to make a long term plan with the single objective of maximisation of any one variable however important, at a particular point of time or over a given period of time. No particular variable (be it employment or production of steel or total surplus in the economy), no particular time point, no particular length of period (be it five years, ten years or fifteen years) can have so much importance as to be able to determine in this manner the entire long term plan for an economy. 982 The planner cannot but have a large number of desirable ends in view; he may want to increase employment as well as income; develop steel production as well as chemical industries; educational facilities as well as health facilities, and so on. To choose any one of them for maximisation might result in giving to the others a treatment that would not be acceptable to any practical planner. The econometrician does not of course choose just one variable out of the possible alternatives. His solution, a false one, is to construct a function of all the variables involved (the socalled preference function) and maximise it. The idea is to so construct the function that it gives to each variable just the amount of weight it carries in the planner's mind in relation to the others. Thus a preference function might look as follows: 5 times steel output plus 2.3 times number of schools plus 2.9 times number of N E S Blocks plus... etc. The econometrician feels triumphant for being able to get round the problem of having a multiplicity of desired ends in this elegant manner. An examination however shows that, such a preference function cannot possibly lead to any objectively optimum solution; for subjective considerations enter into the very construction of the preference function itself. How in practice to decide upon the weights to be given to the different variables? It may be desired that steel production be given more importance than opening of new N E S Blocks; but how can one decide that the importance should be in the proportion of 5:2.9? Such a decision cannot but be a purely subjective act. The whole thing therefore does not lead to any more objective results than one would have, if one were to choose from among a few rival courses of action in a purely subjective fashion: looking at them from different angles, mentally weighing up the pros and cons and making a decision in a more or less arbitrary fashion. A Unified Approach The expert's long term plan fails to provide a long term perspective to the short term planner because it lacks the qualities of the econometrician's long term plan, namely horizontal balance and optimality from the economic point of view. The econometrician's long term plan on the other hand fails to deliver the goods for lacking precisely the qualities that are the strong points of the experts' plans, namely vertical harmony in sectoral program-

3 THE ECONOMIC WEEKLY mes from the technical point of view. It would appear that we would have what we are looking for if a marriage could be effected between the two approaches. We shall now proceed to investigate if and how such a marriage could be effected. Let us assume the economy to consist of 'n' sectors in all. The sectors may correspond to the different -heads under which the plan is discussed in India (e g, Irrigation, Power, Industry, Health, Education, Railways, Agriculture etc}. That is to say the sectors are such as to correspond to the different executive departments of government rather than different economically significant divisions of the society. We shall imagine that a long term plan is drawn up for each such sector by experts. Let the plan for the sector 'A' be designated by 'A' = [A(t 1 ) A(t 2 )A...A(t n )] where t 1, t 2 t n are successive time intervals stretching over the plan period. A(t 1 )stands not for just one or more than one figure but a complex of concrete targets and programmes of action to be achieved during the interval i Similarly, let (B) - [B(t 1 ), B(t 2 ) B(t n ) I be the plan for.sector B. As we have mentioned before there are two reasons why one cannot merely put together long term plans like (A), (B), (C) etc to produce a perspective plan. Firstly, as they have been made independently, there is not to be expected any co-ordination between the programmes A(t), B(t), C(t) etc which are supposed all to be implemented during the same period 't'. Secondly, the technological choices involved in the expert's plans (A), (B), (C) etc may be the best choices possible from the experts' point of view but need not necessarily be so from the overall economic point of view. Intersector Balance We shall concentrate first of all on the problem of achieving horizontal harmony between the parallel long term plans. As to this there seems to be an easy way out. It is after all not necessary to bring in the suffix 't' at all! An expert's long term plan can be drawn up without fixing definitely the dates by which the different stages of the plan are to be fulfilled. Such a plan will consist of a large number of separate programmes with a certain amount of technical interdependence between them. Also, each programme is capable of division into a numbr of stages. The time element need enter the problem solely in the capacity of ordinal relations among the different stages of each of the programmes. Let us give an example. Consider a long term plan for rural electrification. The plan can foe divided into a number of programmes relating to the different regions to be served. The programmes need not have any data marks at all. The engineering details may be worked out in an outline fashion for all of them without knowing when each region will be connected up and over what time the works will last. Each regional programme can however be divided with advantage into a number of stages; thus the first stage may be the provision of industrial power alone; the second stage that of street lighting and the third stage that of domestic power. Similarly, the long term plan for the development of water resources may be divided first into a number of programmes each relating to a particular river valley. Each programme can be again divided up into a number of stages depending on engineering considerations. Thus, the plan for sector A may be represented by a matrix as follows; when A a, A b, A C etc stand for the different programmes belonging to the long term plan (A) and A a (1), A a (2), A b (1), A b (2) etc for the different stages of the programmes A a, Ab etc. We shall have similar matrices for each of the sectors, B, C, D etc. The elements of the matrices are the bricks with the help of which a unified long term plan can now be built up. The work consists in arranging the elements of the matrices in a time schedule such that in the bunch so formed of dated programmes, there would be both horizontal as well as vertical balance. In order to assure vertical balance within each sector, all that 983 need be done is to observe the simple rule that a later stage of a particular programme of a particular sector should not come before an earlier stage of the same programme. That is to say, a unified long term plan thus built up would look something like this: 3 A a (3), B a (4) D a (3), D b (1), E a (1) It is to be noted that in any one period more than one stage of a programme may be Implemented, or a particular programme might not figure at all. As to maintaining horizontal harmony, the arrangements over time of the long term plans have to be such that the different programmes or the different stages of different programmes belonging to different sectors taken up for implementation during the same time interval satisfy a number of conditions. (Thus, at each time point demand and supply must be approximately equal, whether it is for consumer goods or capital goods or raw materials; investment carried out in the period must equal savings created during the same etc). If we have to set down here all the conditions that would have to be satisfied if horizontal harmony is to be maintained, we could fill the whole page with symbols, coefficients and equations. That is. however, not necessary. It need only be stated here that all the variables entering into the balance equations can be calculated on the basis of the elements of the matrices (A), (B), (C) etc corresponding to any given time point and that a solution to the problem exists; that is to say it is not impossible to put together at the same time point elements from the matrices (A), (B), (C) etc in such a way as to satisfy all the balance conditions. Technological Choice The really difficult as well as interesting problem is the one of technological choice. In our approach experts are at the first instance asked to make dateless long term plans. But they have to be guided in the matter of preference to be shown in technological matters. Otherwise different experts would proceed according to different principles, which could hardly be expected to be such as to conform to the criteria the planner would like to have in the interest of the economy taken as a whole. The dis-

4 THE ECONOMIC WEEKLY cussions that have up till now taken place on the question of technological choice have mostly been carried out In a manner as to be applicable to only single elements of the matrices we have considered. Thus, one considers an element like Ab(3) which stands for a particular stage of a particular programme, e g, that of creating additional capacity of production of a given quantity in a certain productive sector. Associated with such a programme is a certain capital expenditure and certain potentials of production, employment and surplus. The ends that are sought, however, do not relate to any one programme or even any one sector, but to all the sectors taken together; further, they refer to not just a single point of time but to a long period. Thus one may desire to solve the unemployment problem at the shortest possible time or maximise the level of per capita income by the end of a specified number of years. When such are the ends it is of course no use talking in terms of a model that is applicable to a single programme only, or just a stage of a programme. Attempts have been made not to face the problem by saying that the same arguments can be used with regard to the entire economy taken as a whole. That, of course, is correct. But the problem remains essentially unresolved. One has finally to choose techniques for individual programmes; the question is, how to deduce from results applicable to the whole economy concrete results valid for specific programmes in specific sectors? No satisfactory answer has yet been given to this question. What can be established very easily is that it is not sufficient to reproduce the conditions applicable to the entire economy for individual programmes; nor conditions applicable to an extended period for any given point in that period. This negative demonstration however does not go far enough. There must be found some rules for action. Short and Long Run Before deciding upon the rules of action, one has to be clear about one's ends. In the short run, different results are obtained by maximising output or employment or surplus for a given amount of capital or by minimising capital, any one of the above items being given. The differences, however, vanish when a long period is considered. The same techniques that would create a large increase in income would also create a large volume of employment and are the same as those that would generate a large mass of surplus. Hence, the problem of having more than one desired end does not really arise. It is quite satisfactory to lay down that the problem of technological choice should be solved in such a way as to maximise the total accumulation of capital resulting from surplus during the course of a long term period. We may divide the problem into two parts. Firstly we may consider the techniques utilised in the implementation of a programme; and secondly, the techniques embodied in the installations brought about by the programme. Thus, let us consider the programme of setting up a hydro-electric project. The first technique mentioned is the technique used in the very construction stage of the project; the second technique mentioned is the technique of generating electricity in that period. Similarly imagine a telephone exchange. There would be, on the one hand, alternative techniques that could be used in the setting up of the building and installations; there would be, on the other, different types of installations involving very different labour requirements for getting the same amount of work done. The question of technology in the two cases differs in that the results in terms of income or employment or surplus In the first case are of a strictly limited duration and in the second of a recurrent character. In the case of construction works, the costs to consider with respect to the fulfilment of a given programme are (i) the expenditure on works proper, and (ii) the cost of procuring machinery and other aids to construction works which do not all get used up in the fulfilment of a single programme. The costs to consider in the other case are (i) the value of capital installation set up and (ii) the recurrent cost for utilising the installations to their full capacity. Minimum Cost Principle It would seem that the problem of translating the task of maximising the total surplus for the whole economy over a long period of time into technological choices for indi- 984 vidual programmes could be tackled by adopting some kind of a principle of Minimum Cost for the long term programmes taken as a whole. Every long term plan might be so drawn up as to make Its total cost a minimum. By 'total cost' we mean the sum of all types of cost involved in the realisation of a given long term plan. While in the short run, the different items of cost cited at the end of the preceding section have to be treated as separate variables, there is the advantage in, the case of long term plans that such costs may be treated as additive. Let us, for example, consider a long term plan for the development of roads. It would draw up a picture of road networks as desired to be realised in the long run. In its cost calculations we shall have two items: the cost of works proper and the cost of purchasing construction equipment. For a long term plan these two can be added together to obtain the total cost; for, the equipment locked up in the implementation of the long term plan may be considered as becoming completely eaten up by it. In the short run, however, only a portion of the equipment gets used up and therefore one. is obliged to consider the cost in terms of two variables, both of which cannot be minimised at the same time. It should be noted that our suggestion does not boil down to the usual procedure of including in short term cost calculation the depreciated part of fixed capital and minimising this cost per unit of output. We are not insisting on unit-cost minimisation as such, but total cost minimisation for a long term period, and that means that we are allowing for the possibility of certain stages of a programme or even certain entire programmes belonging to a long term plan being run on non-minimum cost bases in the interest of the entire long term plan being fulfilled at the minimum total cost. Here, yet another point deserves attention. We are considering experts' plans for Individual sectors. As such, the time over which the plan Is to extend and for which cost is to be minimised need not be arbitrary as in the case of econometrician's long term plans. The length need not be the same in the case of each sectoral long term plan. Each long term plan may

5 THE ECONOMIC WEEKLY have a period l e n g t h related to the technical time lags of the sector concerned. Thus, it takes about 5 years to set up a steel factory; about 7 or 8 years to complete a g i a n t hydro-electric project; 7 years to replant a rubber plantation; 6 years to t r a i n a doctor a n d 3 years a nurse; ten or eleven years to educate a c h i l d upto the secondary stage; a n d so on. W h e n such techn i c a l t i m e lags are ignored a n d a n econometrician's comprehensive l o n g term plan is drawn for an arbitrary period, say, 15 years, the m a x i m i s a t i o n o r m i n i m i s a t i o n operations cannot give s a t i s f a c t o r y results f o r i n d i v i d u a l sectors. B u t the expert's l o n g t e r m plans f o r the steel indust r y o r hydro-electric power, o r r u b ber p l a n t a t i o n s or h e a l t h services or education can t a k e in each case an appropriate l e n g t h as the p l a n period; as a result, m i n i m i s a t i o n of cost f o r the f u l f i l m e n t of the p l a n w o u l d m a k e sense n o t o n l y f r o m a theoretical p o i n t of v i e w but also f r o m the point of v i e w of the experts in the respective fields, We have g i v e n above the example o f a l o n g t e r m p l a n f o r roads. T h a t is a case where o n l y one type of technological p r o b l e m arises, t h a t relating to construction. But long t e r m p l a n i n productive fields w o u l d give rise to b o t h the types m e n t i o n e d earlier. T a k e l o n g t e r m p l a n n i n g f o r the development o f f i s h eries. Such a p l a n w o u l d first l a y d o w n targets o f p r o d u c t i o n for a l l the years of the p l a n. T h e n it w o u l d w o r k o u t the requirements o f means of p r o d u c t i o n, means of preservat i o n, means o f d i s t r i b u t i o n a n d various e x t e r n a l economies. These could be f u r t h e r reduced to equipm e n t for c a t c h i n g fish, (e g, b o a t s ) ; equipment for the m a n u f a c t u r e of equipment f o r c a t c h i n g fish (e g, boat b u i l d i n g m a c h i n e s ) ; construct i o n w o r k s (e g, harbours, boat building yards; etc.) But in calc u l a t i n g the t o t a l cost of the plan, not only are the costs a r i s i n g f r o m a l l these items to be included, b u t also the labour cost i n v o l v e d i n the p r o d u c t i o n o f f i s h corresponding to the targets set. M i n i m i s a t i o n o f cost t h u s w o u l d i n t h i s case be equivalent to m a x i m i s a t i o n o f the q u a n t i t y "accumulated surplus m i n u s t o t a l investment i n f i x e d c a p i t a l ". I t should a g a i n be noted t h a t t h i s approach w o u l d n o t necessarily give the same result as t h a t of " m i n i m u m period of recuperation o f c a p i t a l invested"; f o r in the l a t t e r approach, the time f a c t o r is made variable a n d thus has no positive role to play, whereas in our approach we are a l l through keeping the t i m e period fixed at a l e n g t h h a v i n g some spec i a l technical significance f o r the sector in question. No claims are made p r o a c h sketched above s a t i s f a c t o r y answer to o f technological choice. 985 f o r the apas g i v i n g a the problem I t has, h o w - ever, one q u a l i t y which many a theoretically satisfactory econometric approach lacks, n a m e l y t h a t I t faces squarely the fact t h a t no recommendation about technological choice in general has a n y value, unless it can be t r a n s l a t e d i n t o concrete steps to be t a k e n by specialists a n d experts concretely p l a n n i n g for the different sectors of the economy.