India - Recent economic developments and current prospects

RESTRICTED Report No. AS-71a This report was prepared for use within the Bank. In making it availabhe to others, theRBank assumes no responsibility tn them for the accuracy or completeness of the information contained herein. | INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT RECENT ECONOMI C DEVELOPMENTS ANn Cr.TjRET2 NT PR2OS.PEC.TS 'OF INDIA February 20, 1959 Department of Operations South Asia and Middle East  CURRENCY EQUIVALENTS 1 Indian Rupee - U.S. $0.21 1 U.S. Dollar -- Rs. 4.762 Rs. 1 b - t2in .rni1in  F 0 R E I 0 R D This report is the outcome of a visit to India in January 1959 by two rmembers of the Bank's staff. It gives a brief account of recent developments in the Indian econo- mic situation, concentrating upon topics which will be of special concern to the participants in the I4arch 1959 meeting on India's foreign exchange situation. For a fuller treatment of particular subjects reference may be made to the Banks economic report of July 1958 (AS-68a), or to the report of the International Honetary Fund on the 1958 consultations with India (February 1959). The section of the report dealing with the balance of paynents is based upon detailed estimates and projections prepared by the Government of India in January 1959. These correspond with similar calculations, made some eight months earlier, which were the basis of discussion at the first meeting on India's foreign exchange situation in August 1958. The two sets of calculations are referred to in the report as the Mav 1958 and the January 1959 forecasts. The Tnrl;inn hlii9ozt is p rosrntP(9 at. thp Pndl of Fehrn - ary. Revenue and expenditure figures for 1958-9 quoted in the report are estima>tes given at the time of the last bud get. Provisional figures for the current fiscal year, eniding Miarch be available by the time of the March mieeting. The Second Five-Year Plan covers the Period April 1, 1956-4 to i,T&srch 31, 1961.  - ii - CONTENTS Pge Foreword Summary & Recommendations I. Scope of the Plea 4 II. Internal Finance and Prices 7 III. Progress of Agriculture & Industry 11 IV. Balance of Payments 13 ADpendices I. India's Export Earnings by Principal Commodities 17 II. Estimated Disbursements during the Second Five-Year Plan of Foreign Aid aql rea,dv committed9 18 TTT_ Thrr9Ttq Jyt.F,-nql Tflht. ITIo India n "nCi+inal I Ct A ) ComMposition 19 B)-D) Protected Debt Service by Main Categories 20-22  SMTPY AND RECOi9V NDATIOMS 1. While there has been no fundamental change in the situation during the last few months, the atmosphere of crisis which overhung the Indian economy in the summer of 1958 has been largely dissipated. For this, two factors have been chiefly responsible. One was the excellent rice harvest in the autumn and the prospect of an almost equally good wheat harvest at the end of the winter. The other was the outcome of the August meeting on India's foreign exchange igtuaWtion, with its promise of fresh aid and the reasonable hope that the foreign exchange gap during the remainder of the Second Plan-period would be bridged. 2. The Indian economy has moved into a phase of consolidation, after the sharp burst of investment activity--both public and private--in the first two years of the Second Plan. The rate of investment in the public sector has levelled off, and in the private sector there is evidence of a distinct decline. W1hether this is due to the progressive tightening of commercial imports since the beeinning of 1957. or whether a pause wqas to be expected in any case, is a matter of dispute between the business com- munitv and the authorities. However. anart from cotton textiles which have been undergoing a recession, industrial production continued to ex- pand until the autumn of 1958 There mav have hben a falling off since then, with the restriction of imports and the depletion of stocks, but the figures are not yet available. 02 1fflT; + h a or {A 4 mr. ninA A,+; mo- lnt nr_.n 'A, n +c C- ho rAh__ r -v. s.,l 1 1 vi n v .4.. v . 4.ln . _t whJ4j q , rh.