The Planning Process and the Annual Budgets: Some Reflections on Recent Indian Experience

In the light of a brief historical review of the essential objectives of the planning process, the credibility and consequences of the Seventh Five Year Plan are examined. It is argued that recourse to badly predicted but alarmingly large dozes of deficit financing, expenditure on certain subsidies and enormous increases in interest payments have been the direct corollaries of the technical plasticity and unprofessional urges of the planning process in recent years. After exploring the nexus between deficit financing and development, the changes (and turning points) in the rate of inflation between 1981 and 1986 are explained with the help of a simple relationship among the annual rates of increase in fiscally induced monetary expansion, real output and prices. The consequences of inflationary finance and excessive reliance on market borrowing for public debt, saving and investment as well as income distribution are briefly indicated. The deficiencies of the budget -making process and the growing irrelevance of the Reserve Bank in the control of money supply are highlighted and suggestions made to correct these defects.