4 • SOCIAL SCIENTIST
monsoons and other climatic factors entirely unconnected with planning. Industrial production also steadily increased because economic planning facilitated, notwithstanding serious limitations of government policies, a more expedient use of the resources hitherto unutilized.
INFLATION
Finances of the First Plan
At the same time, deficit financing was undertaken in a somewhat wary manner. Although in the first year of the plan there was a surplus, the magnitude of the total deficit during the first four years was Rs 240 crores. External assistance utilized during the first year of the plan was of the order of Rs 64.9 crores and Rs 45.6 crores in the second year. But in the third and fourth years it came down to Rs 18.5 crores and Rs 16.0 crores respectively. During the first four years 71.39 per cent of the plan expenditure was financed from budgetary resources, 10.77 per cent from external icsources, and 17.84 per cent from deficit financing. The proportions of external resources and deficit financing in the total outlay during the first four years, although moderately high, did not lead to an inflationary price rise, because of greater availability of industrial raw materials of agricultural origin, foodgrains and other farm and industrial products, so that aggregate demand lagged behind aggregate supply.
But the situation changed abruptly in the last year of the First Plan because expenditure greatly exceeded available investment resources and 52.51 per cent of plan finance was drawn from external assistance and deficit financing. The magnitude of the deficit (about Rs 292 crores) exceeded the total deficit incurred during the first four years of the plan (Rs 240 crores). There were a few crop failures due to irregular monsoons. Consequently, an inflationary rise in prices began from the middle of the last year of the First Plan. It is quite evident that the dynamic equilibrium of expanded reproduction,1 which appeared to have been restored at least partially during the first four years of the plan, suddenly reached the point of breaking down in the final year. The sudden abnormal rise in the proportion of deficit financing in the total plan finance was definitely the result of government's economic policies in total disregard to planned development, directed at strengthening the class rule of the bourgeoisie and landlords, led by the big bourgeoisie. The balance of power between these classes, as Mundle points out,2 compelled the government to depend on sources other than the surplus value appropriated in either industry or agriculture for mobilizing investible resources.
Class Bias in Taxation
During the First Plan, India already possessed a moderately well-established taxation machinery that could be effectively utilized for the pressing needs of developmental finance. But the government, because of its class character, was not at all interested in tapping the urban and