Socialist planners aggravated unemployment problem

The Print

2 days ago

Now the question is whether it is possible and advisable to plan to achieve full employment in the short period, and whether our planners bent upon establishing socialist pattern of society can achieve the same. It is now recognised that the two objectives of achieving maximum rate of economic growth and the attainment of full employment do not go together in the short period of time though they are compatible in the long run. In the words of Shri V. V. Giri, 'The primary object of democratic planning in India should be to absorb the surplus work force by so drafting the programme of development as to yield full employment.'
The same view persisted during the Third Five-Year Plan, 'Full utilisation of manpower resources can be achieved after a considerable period of development'. From these it is quite clear that the Planners have given a secondary importance to the employment aspect with the result that the backlog of unemployment is increasing from plan to plan.
Our Five-Year Plans are based on certain objectives and one of them is to achieve maximum utilisation of manpower in order to achieve full employment but one must say with regret that employment is not the main objective with our planners with the result that little attention has been paid to the need for maximising employment which has been regarded as the bye-product of economic development. This view can be seen from the following excerpts. At the time of Second Five-Year Plan it was stated by the Planning authorities that 'the problem of unemployment especially in an under­developed country like ours can only be solved after a period of intensive development in determining the programme for the next five years the prime consideration is that at least the deterioration in the unemployment situation should be arrested'.
The Directives in the Constitution envisage full employment and the right to work and live, but employment is full when everybody who wants to work can find it at established rates of pay. According to W. Beveridge, 'Full employment exists only when there are always more vacant jobs than unemployed men. It means that the jobs are at fair wages, of such a kind, and so located that the unemployed men can reasonably be expected to take them; it means, by consequence, that the moral lag between losing one job and finding another will be very short'.
It must be remembered here that in normal times 100% of the working population in employment can never exist; a minimum of unemployment is bound to exist but in our country unemployment problem has become a very serious problem next to exchange crisis; it was argued that free capitalist countries failed to achieve full employment and only socialist economy can do the trick but our socialist planners have aggravated the problem by adopting unrealistic fiscal policy.
By imposing direct as well as indirect taxes in the name of emergency and development incentives to save and invest have been greatly reduced. Employment cannot be increased without investment. Investment is based on the expectation of profit, which is a sine qua non of economic progress, but our Finance Minister has imposed super profit tax in the last budget so that the private sector will have no incentive to invest and as a consequence of this, employment will tend to fall.
The backlog of unemployment at the end of Second Plan in 1961 is reckoned at 9 million. The number of new entrants to the labour force during the Third Plan period (1961-66) will be as many as 17 million. The Planners are expected to provide employment opportunities for about 14 million people. Thus the reserve army of man-power at the end of the Third Plan will be as high as 12 million persons.
For this reason, the planners should give priority to the eradication of unemployment once and for all during the Third Plan. The Mahalanobis strategy, in this respect, has miserably failed because it was based on a wrong assumption, namely, that increasing purchasing power through investment in heavy industries in the public sector, and through expenditure on health, education, and social services, and, secondly, a planned supply of consumer goods could meet the increasing demand.
The problem of unemployment can be solved. This strategy would have been successful if capital were available in adequate quantity to expand the consumer goods industries when the development and expansion of heavy and basic industries were given top priority in the Second Plan period. The Planning Commission gave more emphasis on cottage and household industries rather than on large-scale consumer goods industries.
The problem of unemployment could not be tackled satisfactorily by the Planning Commission due to the absence of the creation of adequate new employment opportunities in large-scale industries producing consumer goods. The problem of unemployment would not have taken a serious turn during the Second Plan period if the planners had curtailed the volume of investment in heavy industries and released capital was utilised for the expansion of employment in the large-scale consumer goods industries. As a consequence of this policy the price level would have come down and the value of rupee would have gone up. During the Second Plan period the prices rose by 6 per cent per annum and this was mainly due to the large dose of deficit financing during the last two years of the Second Plan.
In the Third Plan we find that the Planning Commission has not attempted to frame a co-ordinated policy for creating employment opportunities for 26 million persons. The Planning Commission has chalked out a programme for creating employment for 14 million persons, but whether even this can be achieved or not is problematic. The imposition of super profit tax will certainly kill the incentive of the private sector to invest and this will aggravate the problem of unemployment in the Third Plan and the Fourth plan will begin with a backlog of unemployment not less than 15 million persons.
The major burden of reducing unemployment lies in raising the level of investment in the economy which is the key factor in increasing employment as well as to increase the tempo of economic development. To achieve this objective, the private sector should be given proper scope to play a vital role in the economic growth of our economy. The present policy based on ideological grounds should be reversed and then alone the twin problems of unemployment and rapid economic growth can be solved. The private sector should not be treated with indifference. Economic growth should not be the monopoly of the public sector alone. Rural as well as urban unemployment can be successfully tackled if labour intensive or capital saving techniques are adopted. This may lead to a slow progress in our planning but that is inevitable.
Planning aims at utilisation of available resources in the best possible manner to attain the higher standard of living. Economic growth of a country is as much dependent on the development of its people and the people who are denied employment are the people who are denied the chance of development. In a country like ours with large unemployed and underemployed manpower planning for employment is preferable because employment will bring about an increase in output. Abundant labour supply should be regarded as an asset rather than a liability in the sense that it presents opportunities for augmenting production. Because of this factor, employment planning has a greater significance in a country like India.
A suitable strategy for employment planning can be thought out only in regard to the future. In the Third Plan greater attention is paid to growth than to employment. The unemployment problem is bound to become serious and the Fourth and Fifth Five-Year Plans should give top priority to the employment problem. It is estimated that during the Fourth and Fifth Plan, addition to the labour force would be about 23 and 30 million. This reinforces the case for an active population policy. In the Third Plan, the Government has also failed to frame a realistic population policy to control the rate of growth of population.
The price policy has failed to keep the rising prices under control. In this respect, one cannot expect that the Government should be able to create employment opportunities for 14 million persons. In this regard, Japanese experience has a good bearing for India. In that country, the absorption of manpower in non-agricultural occupations has shown a very great rise in the inter-war period. This was mainly due to the labour intensiveness of Japanese small-scale units. This policy can be followed in our country by giving small-scale industries, which are employment-creating industries. They will not only create employment opportunities but will also increase the total supply of consumer goods, which is scarce in relation to demand. In these industries, the gestation period is shorter than in the large-scale heavy industries, which are capital intensive.
So the problem of unemployment can be eradicated in the next two Five-Year plans if top priority is given to the employment aspect instead of the growth aspect. Economic development and employment must go hand in hand and this can be achieved by adopting a free market economy. The planned economy has failed to solve the problem. West Germany and Japan have shown the way.
This essay is part of a series from the Indian Liberals archive, a project of the Centre for Civil Society. It is taken from the economic supplement of The Indian Libertarian and titled 'Planning and Employment in India', published on 15 April 1963. The original version can be accessed here.