Report of a e ** -.International Bank foi Reconstructionand Development at the request ofthe Government of Ceylon:10776V1nv Economic;Development ofI CEY-LON INDIA MADRASCOLOMBOCEYLONINDIANOCEAN*1~~~~_ _._

$7.50The EconomicDevelopment ofCEYLONReport of a MissionOrganized by theINTERNATIONAL BANK FORRECONSTRUCTION ANDDEVELOPMENTat the request ofthe Government of CeylonCeylon today faces a challenge. For somegenerations past her productivity has main-tained a lead in the race with her population.Now, largely because of the virtual elimina-tion of malaria during and since the war, therate of population growth in Ceylon is oneof the fastest in the world. The Governmentand the people, therefore, face the task ofexpanding and diversifying the country'ssources of production fast enough to main-tain and improve their standard of living-now among the highest in Southern Asia.In this thorough and detailed report onCeyton's economic potentialities, the Missionhas faced up to this challenge, setting forthrecommendations for a six-year developmentprogram (beginning in October, 1953)which it believes will meet the needs ofthe growing population and add permanentstrength to the economy. These recommenda-tions include the government's organizationaland fiscal policies as well as specific develop-ment programs in the fields of agriculture,colonization, power, industry, transportation,communication, public health, education, andtechnical assistance.Of primary importance is an increase inagricultural production-first through im-provement in the yields of rice and other food(Conlinued on back flap)

THE ECONOMICD E V E L O P M E N TOFCEYLONReport of a Mission organized by theINTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT at the request of theGOVERNMENT OF CEYLONWBGPublished for the International Bank forReconstruction and Development byTHE JOHNS HOPKINS PRESS

The Johns Hopkins Press: BaltimoreOxford University PressGeoffrey Cumberlege: LondonCopyright 1953, The Johns Hopkins Press

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The Economic DeveloPment of Ceylon

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The MissionSIR SYDNEY CAINE, K.C.M.G.Chief of MissionLEOPOLD BARANYAI Adviser on FinanceERIC BEECROFT Assistant to Mission ChiefFRANCANTONIO BIAGGI Adviser on PowerJEAN R. DE FARGUES Adviser on Irrigation and WaterResourcesPAUL T. ELLSWORTH Chief EconomistWILLIAM M. GILMARTIN EconomistFRANCIS W. GODWIN Adviser on Industry and MineralResourcesARIE KRUITHOF Agricultural EconomistJOHN D. M. LUTTMAN-JOHNSON Adviser on Transportation andCommtunicationsAMOLAK R. MEHTA Adviser on Public HealthJOHN F. V. PHILLIPS Adviser on AgricultureSecretaries:ELIZABETH P. DALLASMYRTLE C. TIMMINSV

INTERNATIONAL BANK FORRECONSTRUCTION AND DEVELOPMENTWASHINGTON 25, D. C.OFFICE OF THE PRESIDENTJuly 3, 1952The Honorable J. R. JayewardeneMinister of FinanceColombo 1, CeylonMy Dear Mr. Minister:I take pleasure in transmitting the report of the Mission toCeylon organized by the International Bank for Reconstructionand Development at the request of the Government of Ceylon.The Bank hopes that the Report will help to extend and accele-rate Ceylon's progress in economic development and that it willbe widely read and discussed. You will understand, of course,that the Executive Directors and the Management of the Bankhave not reviewed the Mission's recommendations in detail, andthat they are therefore transmitted to you as the views of theMission, not those of the Bank itself. We believe, however, thatthe Mission's Report deserves serious consideration and can helpthe Ceylon Government substantially in determining the generallines of the country's future development program and the eco-nomic policies and administrative arrangements necessary forcarrying out that program.The Bank will follow with interest the action taken in connec-tion with the Report, and will be prepared, if desired by theCeylon Government, to discuss any questions arising from it, andto consider how the Bank can best help in the future developmentof Ceylon.It is my sincere hope that the Report may be of positive andlasting benefit to your country.Sincerely yours,vii

INTERNATIONAL BANK FORRECONSTRUCTION AND DEVELOPMENT1818 H STREET, N. W.WASHINGTON 25, D. C.June 10, 1952Mr. Eugene R. BlackPresidentInternational Bank for Reconstruction and DevelopmentWashington 25, D. C.Dear Mr. Black:I am pleased to submit herewith the Report of the Mission toCeylon organized by the International Bank at the request of theGovernment of Ceylon. Our conclusions and recommendations arebased on studies made by the Mission in Ceylon during the latermonths of 1951.On behalf of the Mission I should like to express our thanksfor the cooperation and assistance which the Mission receivedfrom Ministers and officials of the Ceylon Government and fromprivate persons everywhere in Ceylon. We are particularlygrateful for the assistance received from Mr. J. R. Jayewardene,the Minister of Finance, under whose auspices the Mission wasarranged, and the staff of the Ministry; and for the great interestwhich was taken in the work of the Mission by the late PrimeMinister, Mr. D. S. Senanayake, and Mr. Dudley Senanayake,at that time Minister of Agriculture and now Prime Minister.I must also express my great personal appreciation of thework done by the individual members of the Mission, who dis-pla'ed the greatest keenness and industry in applying the wealthof their varied experience in other parts of the world to Ceylon'sspecial problems. The Mission also owes a debt of gratitude tothe many members of the Bank's staff who have assisted us withinformation and comment during the preparation of the Report,and, not least, to those members of the staff who have borne theburden of typing successive drafts. While in Ceylon we benefitedViii

from frequent contacts with members of the FAO team now inthe country and other specialists serving there under technicalassistance schemes.It is the sincere hope of the Mission that the recommenda-tions of the Report will help the Government of Ceylon in itsgreat task of ensuring the further development of the country'seconomy, and of improving the standard of living of its growingpopulation.Yours sincerely,ix

IntroductionOn May 9, 1951, the Government of Ceylon requested theInternational Bank for Reconstruction' and Development to sendan over-all mission to Ceylon to survey the development poten-tialities of the country with special consideration to be given tothe following fields of economic activity:I. Agriculture, particularly rice cultivation, mixed farm-ing, dairying, colonization and resettlement.II. Irrigation.III. Fisheries.IV. Forestry.V. Minerals.VI. Power.VII. Industrial Development.VIII. Inland Transport and Shipping.IX. Vocational Training.X. Health, including Housing and Water Schemes.XI. General Economic and Financial Survey, including-(a) Public Finance.(b) Money and Banking.(c) Savings and Investment.(d) Balance of Payments.In particular the Government desired to have advice on thedevelopment program to be drawn up for the six-year periodafter the expiration of the current six-year plan, that is,'commenc-ing October 1, 1953 and ending September 30, 1959.After discussion the Bank agreed to organize such a mission.Two other international agencies cooperated in the selection ofthe personnel. The principal agricultural member of the Missionxi

was nominated by the Food and Agriculture Organization of theUnited Nations, which also undertook to pay a portion of hissalary and expenses. The World Health Organization nominatedthe specialist in health.The Mission arrived in Ceylon on October 6, 1951, and re-mained in the country until the second week of December. Duringtheir stay the members of the Mission travelled widely about thecountry, and every important area, including all the principaldevelopment projects, was visited by at least one member of theMission. Local staff were provided by the Ministry of Finance,under whose general auspices the Mission worked. Extensive usewas made also of the resources of many other government depart-ments and agencies, whose cooperation was generously given, andthe Mission benefited particularly from the help of the specialliaison officers who were appointed by each of the departmentsmainly concerned. The Mission takes this opportunity to expressits gratitude not only to government officials in Ceylon but to themany people in private positions who helped them in their work.This Report is presented in two parts. Part I reviews the basicproblems of Ceylon's economy and sets out the main lines whicheconomic development may be expected to follow, together withthe problems besetting such development. It puts forward definiteconclusions both as to the size of the investment program for whichCeylon can afford to budget in the six years 1953-59 and suggestsspecific allocations in the various fields. Finally it indicates, withbrief explanations, the chief practical recommendations of theMission whether as to innovations in organization, changes in gov-ernment policies or particular development projects.Part II analyzes in considerably greater detail the backgroundand the problems arising in specific fields of development. It notonly reviews more fully the reasoning, conclusions and recom-mendations of Part I, but also mnakes many additional suggestionsof individual importance but more limited application.xii

ContentsPagePart One: A PROGRAM OF DEVELOPMENT1. The Problem in Its Setting ................................ 12. Development of Material Resources .......... ...... 223. Development of Human Resources .................. 534. Organization and Stimulus .............................. 695. Financial Resources Available ........................ 886. Programs and Priorities .................................... 1067. Summary of Recommendations ........................ 120Part Two: SELECTED FIELDS OF DEVELOPMENT8: Foreign Trade and Commercial Policy ............ 135I. The Structure of Ceylon's Trade ............ 135Summary ...................................... 135Exports ...................................... 136Imports ...................................... 137Balance of Trade .............................. 138Terms of Trade .................................. 139Direction of Trade ............................ 141II. Balance of Payments ............................ 142External Assets .................................. 144III. Com-mercial Policy ................................ 145The Tariff ................ 145Exchange Control .146Control of Imports and Exports . 147Industrial Products Act .1499. Money, Banking and Public Finance ................ 152I. Monetary and Bankihg Structure .......... 152Background .................................... 152X 1

CONTENTSChapter PageMoney Supply .................................. 154The Banking System .......................... 158Insurance . ........................... 163Capital Market .................................. 165II. Public Finance .................................... 168General Structure .............................. 168Future Prospects ................................ 175General Taxation .............................. 177Financial Control .............................. 183Food Subsidies . ...................... 184Budget System .................................. 186Conclusions ..................................... 187III. Recommendations .................................. 18910. Cooperatives and Rural Development .............. 198Cooperatives .................................... 198Rural Development .......................... 20511. Agriculture ....................... .............. 209I. Background ..................................... 209Today's Problem ................................ 209Recent History and Development ...... 210II. Natural Endowment ............................... 214Climate ............... ..................... 214Soils ............... ..................... 215W ater Supply ................................... 216Natural Regions ................................ 217The Man on the Land ........................ 224III. Present and Future Agricultural Prod-ucts ...................... .............. 226Major Export Crops ....................... ... 227Tea ....................... ............. 227Rubber .................................... 235Coconut ..................................... 243Other Commercial Crops ............. ..... 255xiv

CONTENTSChapter PageFood Crops ................. ........... 285IV. Pastures and Livestock .......................... 316Pasture and Fodder .................... ...... 316Livestock ............................ 322V. Forests ............................ 331History ............ ................ 331Utilization ............... ............. 332Protection Forests ............................ 333Commercial and Domestic Forests .... 333Dry Zone Forest Management ........... 334Cooperative Afforestation .................. 334Plantings in Gaps in the Forest ........ 335Wet Zone Forest Management .......... 335Forest Research ........................... 335Education ............. .............. 336Future Objectives .......................... 336Staffing for the Future ...................... 338General Observations ........................ 339Suggestions .............. ............ 340VI. Special Problems and Policies .............. 343Pests and Diseases .......................... 343Water Conservation ........................... 350Soil Conservation .......................... 351Dry Farming .................. ......... 356Land Tenure ................ .......... 359Survey of Land Use Potential ............ 365The Problem of Personnel ................ 369Agricultural Education and Research 371External Technical Assistance .......... 374VII. Summary of Principal Recommendations 375Individual Products .......................... 375General Problems ............................ 380VIII. Cost of Recommendations .................... 382xv

CONTENTSChapter Page12. Colonization ................ .................... 384General Features ................................ 384Normal Schemes ................................ 385Special Development Projects ............ 387The Pattern of Land Development .... 388Selection of Colonists ................... ..... 391The Finance of Colonization .......... .. 391Other Issues of Policy ................... ..... 394The Gal Oya Project .......................... 395Summary of Recommendations ........ 39813. Water Resources and Irrigation ................ ...... 399I. Physical and Hydrological Background 399Geography and Geology .................... 399Rainfall ............................... 400Hydrology ............................... 402II. Irrigation ............... ................ 411Possibilities and Projects .................. 411III. Administration ............................... 434Organization of the Irrigation Depart-ment ............. .................. 434Staff ............................... 435Operation ..................... .......... 438Maintenance and Revenue .............. .. 439Mechanical Equipment ...................... 440IV. Flood Control ...................... ......... 441V. Drainage and Salt Water Exclusion ...... 444VI. Planning and Surveys . ............................ 447Planning Section ............................... 447Surveys .......................... 449VII. Summary of Recommendations ............ 450Planning and Surveys ........................ 450Administration and Training ............ 451xvi,

CONTENTSChapter PageProgram of Development Works,1953-59 ........................... 45214. Power .............................................................. 453I. The Present Supply Position ................ 453The Government Electrical Undertak-ing Department (EUD) ................ 453Municipal and Other Public Supplies 457Private Supplies ............................... 459II. Future Trend of Consumption .............. 462Normal Growth ............................... 462Availability of New Power ................ 463New Industries ............................... 465Conclusions on Consumption Trends.. 468III. How to Meet Power Needs .................... 469Introduction ............................... 469Potential Hydroelectric-Power inCeylon ..... - 470Individual Hydroelectric Schemes .... 473Proposed Construction Time Schedule 481Further Studies of Hydroelectric De-velopment ..... 486Development of the EUD DistributionNetwork .... 488IV. Techniques of Construction .................... 491Electric Installations ...................... 491Overhead Lines . ..................... 492Communications .............. ........ 492V. Costs and Rates ........... ........... 493Costs ...................... 493Rates and Tariffs ...................... 497VI. Organization and Personnel .................. 500Personnel .... 501VII. Recommendations and Suggestions ........ 502xvii

CONTENTSChapter Page15. Industry .................................... 505I. Present Aims and Trends ................ ...... 505Today's Industrial Picture ............ .... 505Government Industrial Policy .......... 507II. Factors Influencing Industrial Develop-ment .................................... 514Capital .................................... 514Industrial Credit ................................. 517Management .................................... 519Industrial Technology ........................ 520Labor ............... ..................... 521Raw Materials .................................... 524III. Criteria for Selection of Industries ........ 527The Role of Industry ................... ..... 527Basic Elements ................................... 528Suggested Criteria .............................. 529IV. Some Present and Potential Industries .... 531Beer .................................... 532Bottle Caps .................................... 533Buttons ......................... ........... 534Canned Goods .................................... 534Cement .......................... .......... 535Chemicals .................................... 537Clay Products .................................... 542Coconut (Dessicated) ................... ..... 543Coconut Oil .................................... 544Coir Fiber ..... 546Confectionery and Chocolate ............ 548Dairy Products ......... .......... 550Drugs ................... 552Fertilizer ................... 552Fish ................... 554Glass ................... 556Leather ................... 559xviii

CONTENTSChapter PageMachinery and Shops .................. 561Meat and By-Products .................. 562Minerals ...... ............. 564Paper .................. 568Rice .................. 570Rubber Goods ........ .......... 571Salt .................. 572Shoes .................. 573Soap ... 576Soft Drinks ...... ............ 576Steel .................. 577Sugar and By-Products .................. 580Tannins ................... 581Tea .................. 581Textiles .................. 583Tobacco Products ........... ....... 585Vegetable Oils (Other than Coconut) 587Wheat Flour ....... ........... 588Wood Products ................... 590Cottage Industries ........... ....... 594Miscellaneous Industries .................. 595V. Summary of Principal Recommendations 597Broad Industrial Policy .................... 597Types of Industries Suitable ............ 598Individual Industries ........................ 60016. Transportation . . ..................... 607I. General Survey ............................. 607II. Ports and Harbors ............................. 608Colombo ............... .............. 609Galle .......... ................... 621Trincomalee ............................. 624Northern Ports ............................. 626Capital Requirements for Ports andHarbors ................. 627xix

CONTENTSChapter PageIII. Inland Waterways ................................ 629History ................. ............... 629Administration and Finance ............ .. 629Traffic ............... ................. 629Future of Canals and Waterways ...... 629IV. Railways ............... ................. 630Description and Administration ........ 630Finance ................. ............... 636Equipment ................................ 640Extension of Railway Network .......... 644General Improvement to the RailwaySystem .................... ............ 650Electrification of the Colombo Sub-urban Service ................................ 651V. Roads and Highways ............................ 653Present Position and Administration 653Highway Improvements .................... 660New Roads and Highways ................ 663Capital Requirements for Highways 665VI. Road Transportation .............................. 666General ................... .............. 666Passenger Transportation .............. .... 667Freight Transportation ................... ... 669VII. Civil Aviation ................................. 671History ................... .............. 671Air Ceylon ................................. 672Air Ceylon, Ltd ................................. 673Foreign Air Lines .............................. 676Traffic ................ ................. 676Fares and Rates ................................ 678Finances ...................... ........... 678Ceylon Air Academy ........................ 678Development Program ................... ... 679Future of Ceylon Civil Aviation ........ 681xx

CONTENTSChapter PageVIII. Telecommunications .............................. 682History .................. ............... 682Overseas Communications .............. .... 683Domestic Communications ............. ... 683Finances ...................... ........... 685Expert Study ................................. 686Future Development .......................... 686VHF Radio Relay Systems ............. ... 689IX. Sea Transportation ................................ 690Coastal Shipping Service .............. .... 691Capital Requirements ........................ 693X. Regulation and Development of Trans-portation ...... 693Ceylon Ports Authority ...................... 694XI. Summary of Recommendations ............ 694Ports and Harbors ............................ 694Waterways ...................... ........ 696Railways ................ .............. 696Roads ............ .................. 697Civil Aviation .............................. 698Telecommunications .......................... 698Sea Transport .............................. 69817. Public Health ........... .. ................. 700I. Introduction ................... ........... 700II. The State of Public Health .................... 701Vital Statistics ........ 701Morbidity (Sickness) Rates .............. 704III. The Population Problem of Ceylon ...... 707The Natural Increase ........................ 707Government Policy ............................ 710IV. Administrative Services and Training ofPersonnel ................................ 711Departmental Organization .............. 711Training of Personnel ........................ 717xxi

CONTENTSChapter PageV. Hospitals and Maternity Homes ........... . 720General Hospitals .............................. 721Health Clinics ............................... 725Maternity Homes ............................... 726VI. The Health Unit System ........................ 729Maternity and Child Welfare Work 731Environmental Sanitation ............... ... 732VII. Specific Problems-Nutrition, Malariaand Tuberculosis .......................... 734Nutrition .................... ............ 734Malaria ................. ............... 737Tuberculosis ................................ 741VIII. Environmental Sanitation ................... ... 743General ................... .............. 743Water Supply ................................ 745Conservancy, Drainage and SewageSystems ............................ ..... 750Housing ................................. 752Legislation on Public Health Matters 755IX. The Ayurvedic System of Medicine ...... 755Popular Support ............................... 755History ............... ................ 757Theory ............................... 757Official Recognition .......................... 759Training . .............................. 759Research .................. ............. 761X. Summary of Recommendations ........... . 762Family Planning ............................... 762Mortality Among Children .............. .. 762Administration ............................... 762Training .................. ............. 763Hospitals, etc . .............................. 764Health Units ............................... 764xxii

CONTENTSChapter PageNutrition ...................... ........... 765Malaria .................. ............... 765Tuberculosis .................................. 765General Sanitation ............................ 766Water Supplies ................................. 766Housing ................................. 766Ayurvedic Medicine .......................... 76618. Education ..................... ............. 768I. The Challenge to Education .............. .... 768Present System ................................. 768Curriculum ...... 769Knowledge in Action ........................ 771Education and Enterprise .................. 773II. Educational Reforms ............................ 777Primary and Secondary Education .... 777Vocational Training .......................... 780III. Teaching Staff ..................... ....... 782IV. University Education ............................ 786V. Recommendations ............................ 78719. Technology ............................ 790I. Background and Needs ........................ 790II. External Technical Assistance .............. 791Coordination .................. .......... 791Selection ............. ............... 791Cooperation ............................. 792Understanding ............................. 794III. Domestic Technologists .......................... 795IV. Research and Development .797Present Activities .797The Real Need .798The Mexican Prototype .799Proposed Institute for Ceylon . 803INDEX .. 809xxiii

TablesPageOccupational Grouping of Gainful Workers, 1946 Census - 9Gross National Product, July 1, 1950-June 30, 1951 .......... 10Gross National Product by Sources, 1950-51 .............. ........ 12External Assets, December 1951 ........................................ 92Possible Investment Programs .......................................... 93Proposed Six-Year Development Expenditures of Ceylonunder the Colombo Plan .......................................... 107Recommended Development Program, 1953-59 ............ ...... 112Development Program 1953-59-Agriculture ............. ....... 114Development Program 1953-59-Power ............................ 115Development Program 1953-59-Transport and Communi-cations .......................................... 116Proposed Distribution of Supplementary DevelopmentFunds up to Rs. 400 Million if Available Later .............. 119Selected Imports: Percent of Total Imports ............... ......... 137Foreign Trade .......................................... 139Price Indices and Terms of Trade ....................... 140Trade with the U.S. and Canada ..........................................142Net Balance of Payments Position on Current Account-1938 and 1947-1951 ......................... ................. 143Net Balance of Dollar Payments on Current Account, 1949-51 .......................................... 144External Assets, June 30, 1951 .......................................... 145Money Supply .......................................... 155Changes in Money Supply by Sources ................................ 156Changes in Money Supply, Prices and Wages .............-....... 157Selected Balance Sheet Items of Commercial Banks ............ 160Position of Long-Term Finance Institutions ............... ......... 163Savings and Time Deposits .......................................... 164xxv

TABLESPagePolicies, Premiums and Assets of 34 Life Insurance Com-panies .......................................... 164Government Bonds by Type of Ownership ................ .......... 166Structure of Capital Yields and Interest Rates ............ ........ 167Public Expenditures and Revenues ...................................... 169Current Expenditures and Food Subsidies ................ .......... 170Distribution of Capital Expenditures .................................. 171Net Cash Operating Deficit .......................................... 172Distribution of Revenues ........................ .................. 173Budget Estimates 1951-52 .......................................... 175Tax Liability on Earned Income of a Married Man withTwo Children ............ .............................. 178Year-End Consolidated Balance Sheet of Commercial Banks 191Current Government Expenditures ...................................... 193Government Revenues and Net Current Expenditures ........ 194Government Capital Expenditures and Over-all Surplus orDeficit .......................................... 195Revenue of the Government .......................................... 196Tea Estates in 1951 ................ .......................... 229TI'ransfer of Tea Estates ........................ .................. 230World Production and Consumption of Rubber ........... ....... 235Rubber Acreage by Classes of Holdings .................. .......... 238World Exports of Oils and Oilseeds by Leading Producers 245Estimated Coconut Production, 1925-50 .............................. 251Production of Paddy in Selected Years .............................. 286Estimated Cost of Agricultural Recommendations, 1953-59 383Areas of Land at Different Levels ...................................... 400Average Monthly Rainfall .......................................... 401Drainage Basins and Mean Annual Run-off .............. .......... 403Classification of Watersheds by Size .................................. 408Annual Discharges at Principal Rivers .............................. 409Average Monthly River Flows .......................................... 412Irrigation Department Revised Program of Works-1947-53 418Irrigation Department-2nd Six Year Program-1953-59 421xxvi

TABLESPageExpenditure of the Irrigation Department, Selected Yearsfrom 1899 .......................................... 422Main Categories of Irrigation Expenditure, 1947-48-1949-50 .......................................... 423Flood Records of Principal Rivers ...................................... 442Installed Electric Capacity in KW ...................................... 454Amounts of Power Generated in Different Countries .......... 459Consumption of Selected Industries and Railroad Transport 466Estimated Potential Hydroelectric Power ................. ......... 470Classification of Hydroelectric Schemes by Head Pressure 471Laksapana I and IIA Output, Assuming Minimum RiverFlow and Different Load Factors .................................... 475Tentative Schedule for Development of New Power Re-sources by EUD ............... ........................... 484Hydroelectric Plants ................ .......................... 495Average Rates .......................................... 497Comparative Prices of Power .......................................... 498Port Utilization Comparison .......................................... 610Colombo Shipping ............... ........................... 611Colombo Imports .......................................... 612Colombo Exports .......... 613Colombo Port-A inual Revenue and Expenditure ............ 614Colombo Port-Annual Recurrent and Special Expenditures 614Colombo Port-Loan Fund Expenditure ...................... ....... 615Estimated Costs of Recommendations, Ports and Harbors .. 628Railway Traffic, Revenue and Operating Expenses ............ 634Ceylon Government Railway-Comparison of Prewar andPostwar Coaching Fares and Rates ................................ 638Ceylon Government Railway-Comparison of Prewar andPostwar Goods Traffic Rates .......................................... 639Railway Rolling Stock, September 1951 ................... ......... 640Railway Estimates, 1951-52-Loan Fund ................... ......... 650Proposed PWD Highway Classification ...................... ....... 658PWD Highway Estimates, 1951-52 .................................... 661xxvii

TABLESPageScheduled and Nonscheduled Highway Freight Rates ........ 670Typical Haulage Rates for Estates an(d Large Shippers ........ 670Civilian Air Traffic ............... ............................ 674Total Airline Traffic for Selected Years .................... .......... 675Total Airline Traffic, 1.949, 1950 .................................... 676Air Ceylon "Dakota" Traffic ........................................... 677Air Ceylon "Skymaster" Traffic .......................................... 677Anniual Expenditure by Departmenit of Civil Aviation ........ 678Air Ceylon Financial Results ........................................... 679Civil Aviation Development-Estimated Cost ........... ......... 680Doniestic Communicatioiis Plant ........................................ 684Faults on Telephone and Telegraplh Trunk Lines ......... ..... 685Telephoiie and Telegraph Operating Results ........... ......... 686Telecommunications Development Program, 1953-59 ........ 687Recorded Sales of Vessels .................................. ......... 692Summary of Capital Requirements (Transport and Com-munications), 1953-59 .................................. ......... 699Birth and Death Rates, 1945-50 ........................................ 702Comparative Birth and Death Rates of VarioLus Countries .. 703Hospital Patients, 1945-50 ........................................... 704Natural Increase of Population, 1945-50 ............... ........... 707Comparative Density of Population in Various Countries .. 708Medical Personnel Targets ........................................... 718Hospital Beds, 1950 ................. .......................... 721Malaria Morbidity, 1936-50 ........................................... 738Provision of Latrines .................. ......................... 751Estimated Cost of Five-Year Program for Institute for Ap-plied Research .............. ............................. 806xxviii

Charts and GraphsFacing Page1. Mean Monthly Discharges of Selected Rivers, Ceylon .. 4102. Output Load at Laksapana Power House .................... 4563. Load Graph, Jaffna City ........................................... 4564. Load Graph, Galle ............................. .............. 4565. E.U.D. Anticipated Load Curve ................................ 4566. Total Load Graph, Kankesanturai Power Station, Octo-ber 1951 .............. ............................. 4567. Recent Average Ceylon Output of Rubber, Tea andCoconut ............ ............................... 4568. Ceylon Hydroelectric Scheme, Stage II.A .................. 4749. General Priority Rating for Ports and WaterwaysProjects ........................................... 062810. Ceylon Government Railway-Total Number and Costof Staff ............ ............................... 63211. Ceylon- Government Railway-Passenger and GoodsTraffic and National Population ............................ 63412. General Priority Rating for Ceylon Government Rail-way Projects ....... 65213. Example of Highway Development in Stages .65814. Rate of Births, Deaths and Natural Increase-Ceylon 70215. Infant Mortality Rate .70416. Maternal Death Rate .70417. Total Number of Indoor Hospital Cases .70618. Estimated Population Growth .70619. Deaths under Five Years of Age-Various Countries 70820. Rate of Births, Deaths and Natural Increase-VariousCountries .... 708xxix

MapsFacing Page1. Physical Map of Ceylon .......................................... iii2. Distribution of Rural and Urban Population ............ 83. Land Utilization ................... ....................... 124. Location of Some Actual and Proposed DevelopmentProjects ............ .............................. 1225. Natural Regions of Ceylon ........................................ 2126. Average Annual Rainfall .......................................... 2147. Average Rainfall-S.W. Monsoon ............................ 2148. Average Annual Temperature ..................................... 2159. Soils of Ceylon ................ .......................... 21610. Provisional Geological Map ........................................ 22411. Crop Distribution Index .......................................... 22812. Catchment Areas ................... ....................... 40313. Irrigation Schemes ......................... ................. 42014. Distribution of Hydroelectric Potential .................... 47015. Proposed High Tension Grid ...................................... 48816. Port of Colombo-Development Project .................... 61017. Galle Harbor..............: ... 62218. Trincomalee Harbor .................. 62419. Railways and Airports .................. 63020. Highways .................. 65421. Telephone System .................. 68422. Telegraph System .................. 68623. Provincial, District and Special Hospitals ..................... 72024. Various Health Units ............ .................... 726xxxi

UNIT MEASURESNOTE ON CERTAIN UNITS USED IN THIS REPORTCurrency1 Ceylon Rupee = Is. 6d. sterling - $0.21 U.S.1 sterling = $2.80 U.S.(Rs. 1,000,000 = 75,000 = $210,000)WeightUnless otherwise stated, English loing tons and correspondingunits are used throughout.1 hundredweight (cwt.) = 112 lb.1 ton = 20 cwt. = 2240 lb.xxxil

PART ONEA Program of Development

1. The Problem in its SettingTHE CHALLENGECeylon today is passing through a very significant period ofher history. Four years ago, after more than four centuries ofrule successively by Portuguese, Dutch and British, she obtainedpolitical independence. Almost simultaneously there emerged anew economic problem.This problem is not one of correcting maladjustments alreadybecome critical, but rather of forestalling a clearly seen threatof such maladjustments in the future. For some generations pastCeylon's productivity has maintained a lead in the race withpopulation. Now the odds in the race are shifting. There isgrave doubt whether increasing production in the old patternscan, any longer keep up with a greatly accelerated populationgrowth. Government and people therefore face the task of ex-panding and diversifying the country's sources of production fastenough to maintain the tempo of progress.In the past 75 years the population of Ceylon has trebled. Yettypical living standards, while low in comparison with the West,have been maintained and 'almost certainly improved; at presentthey are among the highest in Southern Asia. This advancementof the levels of national well-being has been achieved by a virtualrevolution in Ceylon's agriculture over the past century, ac-companied by a limited industrialization. The revolution has lainin organized large scale production and processing of agriculturalcommodities for export-specifically tea, rubber, and coconutproducts. A hundred years ago only the last of these was of realsignificance in the island. Today the three utilize about two thirdsof the developed agricultural land of Ceylon, and contribute overthree quarters of the total value of agricultural production.1

THE ECONOMIIC DEVELOPMENT OF CEYLONImportant as these export crops are, they are iio more vitalthani the rice and diverse crops consumed locally. These, indeed,are the principal means of livelihood for a large part of thepopulation and meet a major share of Ceylon's food require-ments. Their present cultivation, however, lacks the dynamiicelemenits necessary to supp0ort the steady populationi incr-ease; forthis. an ever greater recoturse to the export sector of agriculturehas been necessary. Thuts Ceylon has become increasingly depend-enlt UpoIn imports for food and other goods, while the means topay for these has been supplied by the risilln outpult of exportcrops.Today's most active currents of economic life and incomeflow from productioll of the main exports, together with theirassociated industries and services, and the domestic and importtrade which they finanice. Yet the old momenturmi in this sectoris unlikely to be maintainied. Although tea and rubber outputhas actually expanded over the past decade, the first is approach-ing the limit of available land suitable for its cultivation, andthe second faces an uncertaini world market which could easilymake part of the present productioni unlprofitable. Aging palmgroves threaten to diminish coconut production.To be sure, opportuLtities remaini for futrther improvementsin productioni and yields of the mlainl export crops. The less im-portant export crops, too, can be niore fully developed, and newones introduced. Export agriculture must certainly continue asthe mainstay of Ceylon's economy; but while it may not be threat-ened with absolute decline, its future growth will be slowver thanheretofore.Meanwhile the island continiues to add to its population-notat the earlier pace, but at a rate which is nowv one of the highestin the world. This accelerated growth is mainly attributable toa loxvered death rate, accomplished by the virtual eliminationl ofmalar-ia during, and since the war. As a result, an annual popula-tion increase of about 2.4'%, must be assumed as a basic factorfor the coming decade.2

THE PROBLEM IN ITS SETTINGThe danger of population growing faster than total output isall the more serious because of Ceylon's food situation. Well overhalf of her rice supplies are imported, mainly from Burma andSiam. Apart from possible political disturbances, there has, eversince the war, been a serious deficiency in world rice supplies.Ceylon's supplies of food of all kinds per head of population are,in fact, already lower than prewar, and the world shortage islikely to continue for many years.Thus, while science and medicine have opened up new vistasof better health and living standards, they have, against a back-ground of adverse world developments, brought a serious eco-nomic challenge to the people and government of Ceylon. Thecountry can no longer rely upon expansion of its traditionalexports to keep production and population on a parallel courseand to enable it to go on importing a high proportion of its food.The government has accepted the challenge and is vigorouslyseeking greater productive efficiency and a wider range of eco-nomic activity in order to preserve the progressive force formerlysupplied by the spread of estate cultivation.PHYSICAL ENVIRONMENTCeylon is a tropical island of 25,000 square miles just off thesoutheastern tip of the Indian subcontinent. Its location, topog-raphy and climate have played unusually influential roles inthe dramatic story of its development.A topographic map ' of the island suggests the shape of ahat. The crown of mountains, rising to peaks of seven or eightthousand feet in the south-central region, is surrounded on allsides by a brim of level coastal lands which are narrow-to theeast, south, and west but which extend out like a visor into alarge tapering plain pointing toward India in the north. Therivers flow in a radial pattern from the mountains to the sea.The central highlands jut into the moisture-bearing winds, andSee.Map No. 1.3

THE ECONOMIC DEVELOPMENT OF CEYLONcause the southwest monsoon to spill most of its generous supplyof rainfall on the windward slopes and lowlands in the southwestquarter of the island. Here the abundant moisture and steadytropical temperatures have fostered the agricultural developmentwhich has been the foundation of Ceylon's economy in moderntimes.In the remaining three quarters of the island, including thelong, level northern plains, the combination of winds and moun-tains has been less benevolent. This region, while often calledthe "Dry Zone," is actually dry onil by comparison with the"Wet Zone" in the southwest corner. But its rainfall, whichreaches 50 to 75 inches a year, is mainly concentrated in theseason when the milder winds from the nortlheast and convectionalrains dominate the island's climate. At other seasons there arelong dry peiiods when the flow of water drops sharply in thelarger rivers and disappears entirely in the smaller streams andreservoirs. Then evaporation is heavy, and soils dry out.HISTORY AND POLITICAL DEVELOPMENTExcept in a few areas, this so-called Dry Zone has been largelyneglected in modern times. Its difficult physical environment plusits endemic malaria have been forbidding barriers to settlementand cultivation. Yet the northern plain of this region was thelogical avenue for the earliest migrations into the island fromIndia. It was here, rather than in the more inviting climate ofthe Wet Zone, that Ceylon developed the highly advanced ancientcivilization whose ruins still testify to the remarkable levels ofdevelopment in the arts, religion, technology and civil organiza-tion first achieved more than 2,000 years ago.This ancient culture was built on rice production, whichflourished in the unfriendly environment of the Dry Zone bymeans of complex, ingenious and extensive irrigation works whoseremainis are still to be seen over wide areas of the island. Howfar these old engineering achievements constituted a unified sys-4

THE PROBLEM IN ITS SETTINGtem and how many actually functioned during any one periodare not known, since the ruins seen today are the accumulationof various times and stages in the development of ancient andmediaeval Ceylon. Nevertheless, these irrigation works and therice economy which they supported represented a striking victoryover the natural disadvantages of the drier region.The tides of this ancient kingdom, founded by the Sinhaleseof North Indian Aryan origin, ebbed and flowed for centuries.Periods of peaceful accomplishment were interrupted by suc-cessive invasions from the Tamil kingdoms of South India, andby prolonged times of internal rivalry, conflict and disorder. Warand neglect gradually took their toll of the irrigation works andthe society which they supported and, after a last great revivalof Ceylon's eaily culture toward the end of the twelfth century,decay was uninterrupted. The Sinhalese retreated finally to theprotective mountains and the southwest, abandoning the rest ofCeylon, save for a few pockets of settlement, to the jungle andthe anopheles mosquito.Ceylon in this era of decay was an easy conquest when thepeoples of the West began to open up sea-borne trade with theEast. Its situation at the southern tip of India, about midwaybetween the African coast and the great East Indian Archipelago-the famous Spice Islands across the Bay of Bengal-gave itobvious importance as a port of call. It was occupied, partly orwholly, first by the Portuguese in the early 16th century, thenby the Dutch in the 17th century, and finally by the British atthe close of the 18th century.During the periods of Portuguese and Dutch administrationthe economy of Ceylon was essentially one of small peasantagriculture, concentrated largely on rice and other foodstuffs;some additional crops were traded with the outside world, suchas coconuts, cinnamon, and to a lesser extent tobacco and cotton.Development of Ceylon's agricultural resources for export onan extensive scale began only within the past century. Coconutproduction, which increased sharply during this period, was5

THE ECONOMIC DEVELOPMENT OF CEYLONprimarily a Ceylonese undertaking and was mostly in small hold-ings. Other major developments were carried out principally byBritish capital and enterprise. The earliest large individual agri-cultural investments were in coffee, which flourished until the1880's when production was virtually destroyed within a fewyears by the spread of a fungus blight. Interest of the largeplanters quickly shifted to tea estates. Tea cultivation soon ex-ceeded the acreage formerly in coffee and continued to expand,to become by far Ceylon's most valuable crop. The rubber estateshave been a development of the past fifty years.During the interwar period the economic history was one ofconsolidation rather than of new enterprise. That period and thelater years have been more significant for Ceylon's politicaldevelopment.By a series of changes spreading over more than a generationand accomplished with remarkably little violence or ill feeling,Ceylon has advanced from a purely colonial status to one ofcomplete political independence within the Commonwealth. Evenbefore the final step in 1948, internal affairs had been almostwholly under the control of Ceylonese Ministers for a numberof years; in fact the group which formed the first cabinet of thenew regime, under the late D. S. Senanayake, had been associatedsince 1931 as the effective leaders of the government. There is,therefore, a record of stability unrivalled in southern Asia. Thepeaceful changeover meant also that the new regime inheritedunimpaired a soundly based, competent and honest administrativemachine.The same standards of orderliness in politics are still main-tained. Political life in Ceylon is not dull: there are a numberof active parties, more than one of them professing Marxian viewsof one variety or another. But their disputes are conducted with-out physical violence, and there seems little disposition to attemptany major social revolution. There are conflicts and strainsbetween the different racial and religious groups but they havenot hitherto led to mass violence.6

THE PROBLEM IN ITS SETTINGTHE PEOPLECeylon's population is an interesting mixture of various racialand religious groups, who have preserved a substantial measureof cultural distinctiveness while living side by side with an unusualdegree of communal tolerance.More than two thirds of the people are Sinhalese descendant;of the early Aryan migrations from northern India. They speakSinhalese and their predominant religion is Buddhism. The largestminority group, about 20% of the total population, are the Tamilsof South Indian Dravidian ancestry who speak Tamil and by andlarge are Hindu in religion. Origins of the predominant Tamilpopulation of the extreme north of the island go back to the earlyinvasions from South India. Another large bloc of Tamils arelaborers on the tea and rubber estates who came in when thoseestates were being developed.The group known locally as "Moors" constitutes about sixpercent of the population. Mostly Moslems, these people stemfrom the Arab traders who were active in Ceylon even before thearrival of the Portuguese. The remaining population includesEurasians, Malays, Europeans and the aboriginal stock of theisland, the Veddahs.While racial and religious groupings correspond closely inCeylon, there is also a substantial Christian population, mainlyRoman Catholic, which cuts across ethnic lines. Almost 10% ofthe population are Christians mostly living along the west coastof the island.Map No. 2 shows how Ceylon's population is concentrated inthe southwest quarter of the island. This includes, the city ofColombo and most of the country's other important urban centers.It contains about two thirds of the total. cultivated area, and mostof the industry. Residents of this area represent about 70% ofthe total population and the density reaches over 700 per squaremile. Here the pressure of numbers on the lands of the country-side is severe, especially in peasant agriculture.Outside of this southwest section there are only two pockets7

THE ECONOMIC DEVELOPMENT OF CEYLONwhere agricultural conditions have encouraged concentrated settle-ment. These are the Jaffna peninsula at the extreme northern tipof the island, and a narrow belt along the center of the east coast,particularly in the vicinity of Batticaloa. Together they includeperhaps 10%7t of the total population.Broadly, about 80%,o of Ceylon's people occupy only arounda third of the area of the island. The remainder are scatteredthinly over the Dry Zone. They are found in small settlementsnear rivers and artificial lakes or "tanks"; in isolated villageswhere they earn a meager livelihood on1 the fringes of the jungle,or from shifting clearings; or increasingly, and more hopefully,in the new organized settlement areas now being built up.The rate of growth of Ceylon's population in recent years isstrikingly high. At the time of the most recent census of 1946the population was 6,657,000. Since then it has grown to an esti-mated 7.75 million at the end of 1951, or at the extremely rapidpace of about 2.8%/c a year. Between the census years 1931 and1946 the average annual rate was only about 1.7%. The startlingchange reflects a drop of almost 40%o in the average death rate,while annual births have remained at the normally high levelof between 35 and 40 per 1,000 persons. As mentioned earlier,the remarkable success in reducing mortality is largely attribu-table to the achievements of the recent anti-malarial campaign;reported malaria cases have been reduced from an average of2,660,000 during 1937-1946 to about 700,000 in the past fewyears.In the next decade or so the crude birtlh rate is expected tofall a little owing to changes in the age composition of the popu-lation. But allowing for that and assuming continuance of thepresent low death rates, population is expected to increase at anaverage annual rate of about 2.4%, reaching about 10,000,000by 1962 and 12,700,000 by 1972.Ceylon's people are predominantly rural. Urban residentsrepresent only about 15%,o of the total. Among the gainfullyoccupied (Table I) more than half are engaged in agriculture,8

MAP 2CEYLON* - ~~~~DISTRIBUTION OFRURAL AND URBAN. POPULATION1946< } *. "'N ~~~~~~~~~~~~EACH DOTREPRESENTS1,000 PERSONS250 ,OOOPERSONS62,500PERSONS*< ....:.I.1 V . ,.COLO8 _ W.0 10 20 30 40 50".DA . APRIL 1952 MILES

THE PROBLEM IN ITS SETTINGand the proportion would be still larger if the wives and minorsof peasant families who make a subsidiary contributioni to farmincome were included.TABLE IOCCUPATIONAL GROUPING OF GAINFUL WORKERS, 1946 CENSUSNumber(thousands) PercentAgriculture 1,339.1 51.3Forestry and fishing 42.3 1.6Industry and mining 286.5 11.0Trade, transport, banking, etc. 552.5 21.1Professions and public anddomestic services 390.9 15.0Total 2,611.3 100.0Actually, the agricultural population may be separated intotwo broad categories according to the fairly distinct segmentsinto which agricultural activity in Ceylon is divided. In the firstgroup are the employees on the large estates, mainly tea andrubber. The second consists of the small-scale peasant cultivators.Workers on estates of over 20 acres and with more than 10 em-ployees may be estimated at about 45,', of the gainfully employedin agriculture. The greater part of farm employment is in thecultivation of small holdings. These produce rice, fruits, vege-tables and a variety of other foodstuffs for domestic use; theyalso cultivate by far the largest part of the coconut acreage, about40% of the rubber lands, and grow practically all of such lessercash crops as cinnamon, citronella, tobacco, and cacao. The im-portance of small-scale cultivation to the agricultural populationis even greater than census figures indicate, since those enumeratedin the peasant sector consist for the most part only of the principalhousehold earners, whereas the estate worker category covers allpaid employees, including many wives and minors, as well asfamily heads.9

THE ECONOMIC DEVELOPMENT OF CEYLONOUTLINES OF THE ECONOMYThe Natioual ProductOfficial estimates of Ceylon's gross national product arenecessarily inexact, since reliable statistical information is scanty.Recent data made available by the Central Bank indicate a figurefor 1950-51 of approximately Rs. 4,450 million. Table II showsthe components of this estimate.TABLE IIGROSS NATIONAL PRODUCT, JULY 1, 1950 - JUNE 30, 1931(in millions of rupees at market prices)1. Net value of exports 1,8552. Rice produced and consumed in Ceylon 1543. Other foods produced and consumed in Ceylon 4804. Industrial products produced and consumed in Ceylon 2635. Personal services 2466. Trade and transportation in imports and in food, non-government handled 4637. Earnings in other trade and manufactures 698. Public utilities 439. Professions 2210. Private education 2511. Rents of houses 11212. Gross domestic investment:Housing 67Business 202Government 23313. Current government expenditures 23214. Interest and bank services 5715. Factor incomes from abroad 3516. Indirect taxes 4517. Minus imports of investment goods:Tools and implements 6Building and engineering supplies 145 -151Total 4,452Note: Strictly speaking, this table portrays gross expenditure on nationalproduct rather than gross national product. But since the two10

THE PROBLEM IN ITS SETTINGcome to the same thing if properly calculated, we use the shorterand more familiar term. Most of the individual items in this tableare based on recorded data or upon sample surveys, and are prob-ably reasonably accurate. Exceptions are the figure for domesticrice, which reflects a very rough estimate, that for rents of housesand the components of domestic private investment. No data direct-ly reporting this activity are available, so indirect estimates hadto be employed. The figure for business investment is the outcomeof deducting certain assumed percentages from the original grossfigures for the various types of business activity. These are: 5%o ofitems 1, 7, 8 and 10, 2% of item 2 and 8%o of items 4 and 6.Investment in housing reflects estimates of the number of housesand of the average life and rents of different categories.With gross national product at Rs. 4,452 million, the percapita figure is Rs. 570 (equivalent to U. S. $120). Next toMalaya, this is the highest in Southern Asia, and compares favor-ably with any country in Ceylon's stage of development. Thelevel of investment, at 11.3% of gross national product, is like-wise highly creditable. The average for Southeast Asia does notexceed 5%, for Latin America it is about 8%, and in WesternEurope in 1938 it was 12%. Nor is investment by any meanssolely governmental. More than half of the total is private, andthis sector comprises an important element in Ceylon's presentand future prospects for progress.Together, peasant and estate agriculture constitute the coreof Ceylon's economy. Not only are they the mainstays of employ-ment, but the production, processing and distribution of agri-cultural products furnish directly about half of the island's income-and even more if 'we consider the varied economic activityindirectly related to or supported by these pursuits. Much ofsuch industrial development as has taken place has been in thefactories and mills preparing tea, rubber, coconuts and rice forexports or domestic consumption.Of total gross national product, about Rs. 2,400 million or55% represents the estimated value of output attributable to theproduction and handling of agricultural commodities grown in11

THE ECONOMIC DEVELOPMENT OF CEYLONCeylon. Table III shows how different sectors of the economycontribute to the total.TABLE IIIGROSS NATIONAL PRODUCT BY SOURCES, 1950-51PercentProduction, Processing and Distribution of DomesticAgricultural ProductsFor export 42.1For domestic consumiiptioni 12.9Other Domestic Goods and ServicesFactory and cottage industry, fisheries, construction,etc. (including government investment) 17.2Trade and transport (other than in domestic agri.cultural products) 11.3Professions, finance, personal service 7.9Government services 5.3Rents 2.5Income from Abroad 0.8Total 100.04gricultureThese figures demonstrate not only the prominence of agri-culture, but also its high degree of concentration upon exportcrops. Out of a total developed agricultural area of about 3.5million acres, tea accounts for more than 560,000, rubber about660,000, and coconuts arotiid 1,000,000 acres. As seen in Map 3,cultivation of export crops dominates the Wet Zone and spreadsfrom the coast up into the highlands in a fairly well defined pat-tern. There is a belt of coconut groves nearest the sea, tea atthe higher elevations and rubber in the intermediate levels. Teais grown almost exclusively on extensive estates, largely foreignowned and operated. Such estates also produce over half therubber and some of the coconuts. Probably two thirds of the valueof agricultural exports comes from large-scale cultivation.While the remaining rubber and most of the coconuts are12

MAP 3KonkesonturQ;CEYLONO'c' LAND UTILIZATIONPADDYIZ -COCONUT1 1 1 - Z % * 82 t 3 ~~~~~TEARUBBERc \ ,g,* I nkulomtX * * !If +< | - | OTHER CULtIVATIONSZj- . - FOREST RESERVESAGRICULTURAL RESEARCHfti > it gS g/ 4AND EXPERIMENT STATIONS1 ; > -- (t w e l al Trincomaleegl IuIroovopUrt 2 i r * A &^t $I.BaR. API 1 9a o omu2aChillgwNegomo2 v> t o *COLOMBOq U erifi ,w i'% a >- , '> ; 2iW3R- P O tt U~~~~~~~~~~~~~~~~~ottVilI 0 s d _- r\$ss5rnchcramaAmboSonqsodo /G oll/ngng lla.sB.R.rl AP'RIL 1952 aclere MILES

THE PROBLEM IN ITS SETTINGcultivated on small holdings, the most characteristic crop of thesmall-scale peasant sector is rice. Most of the rice and otherpeasant crops are also grown in the Wet Zone, but in hundredsof thousands of small patches scattered among the estates, espe-cially in the well-watered valleys. This is true up to elevationsof about 3,000 feet; the lands above this altitude really forma separate sector of the Wet Zone, cultivated almost entirely bythe tea planter because growing conditions do not suit the smallscale cultivator.The ubiquitous tiny rice plots add up to a total of over600,000 acres which, after allowance for double cropping, pro-vide a total effective rice area of about 900,000 acres a year.The average peasant rice holding is less than a single acre, andonly 8,000 rice farms are larger than 10 acres.Such "postage stamp" cultivation prevails over the wideassortment of other typically peasant crops. Most of these arefoodstuffs for domestic consumption, but a few like cacao, cinna-mon, citronella, and tobacco are cash crops. Excluding rice andthe principal exports, in the aggregate these varied productsoccupy around half a million acres. About half of this acreageconsists of individual plots so small as to be classified in officialstatistics simply as "town and village gardens." These are never-theless important, furnishing reliable local sources of such tropi-cal foodstuffs as jak fruit, bread fruit, coconuts, plantains, anda variety of other fruits, vegetables, pulses and small grains.The pressure of population on the land-becoming steadilymore acute in the Wet Zone in the absence of substantial agri-cultural opportunities elsewhere in the island-is reflected in thefractional scale of Ceylon's peasant farming. The land has beenminutely sub-divided among successive generations of peasantfamilies, until today typical holdings are far below an economi-cally satisfactory size. The consequences are chronic under-employment and poverty, heavy indebtedness, absentee ownershipand insecurity of tenure, and the presence of a large element oflandless agricultural laborers among the peasant population.13

THE ECONOMIC DEVELOPMENT OF CEYLONThese circumstances, coupled with the extreme conservatism ofthe smallholder, tend to perpetuate the inefficiency and low pro-ductivity of peasant cultivation and raise formidable obstaclesto the introduction of improved farming techniques.It would appear that the land hunger of the small cultivatorhas been somewhat aggravated by the absorption of agriculturallands into the large estates; but this is perhaps more fanciedthan real. By far the greater part of the tea land is at elevationsbeyond the reach of typical peasant crops. Much of the rubberland is otherwise unsuited to-rice. Hence no more than a partof the estate development can have been a real obstacle to exten-sion of peasant farming. The expansion of rubber, and evenmore of coconuts, has in fact involved participation of the smallcultivator. Almost certainly, such additional pressure on the landas may have arisen from the growth of estates has been more thanoffset by increased employment in nonagricultural occupationsdirectly or indirectly connected with the development of estateproduction.IndustryOutside of agriculture, the fields of activity whose economicimportance has grown most rapidly during Ceylon's recent historyhave been those associated with foreign and domestic commerceand the professions, government and domestic service. Thesenow provide about a third of the island's employment and atleast as large a share of its national income.Industrial production, other than the processing of the leadingagricultural commodities, accounts for most of the remainingemployment and output in Ceylon, but its development to datehas been quite limited. Probably more than half of the incomeand employment classified as industrial represents essentiallyhandicraft activity. Manufacturing, aside from the preparationof tea, rubber, coconut products and rice, is confined to a fewmoderate-sized plants producing salt, cement, cotton textiles, soap,shoes, cigarettes, machinery for the tea and rubber estates, glass-ware, beverages, matches and plywood, together with numerous14

THE PROBLEM IN ITS SETTINGbut quite small establishments making such things as pottery,bricks, cigars, rope, nets and miscellaneous handicraft products.While it is no guide to ultimate possibilities, the list of readilyapparent and easily exploitable industrial raw material resourcesis quite short and the research and investigation necessary touncover promising additions have been negligible. The islandhas no known deposits of coal or petroleum. The first step in thedevelopment of hydroelectric potentialities has only just beencompleted. Iron ore deposits are substantial but badly scattered.Promising ilmenite and monazite sands are as yet unutilized. Theonly minerals of commercial significance at present are graphite,limestone, precious and semiprecious stones, glass sand and vari-ous ceramic clays; small quantities of mica are also mined hap-hazardly. In the most favorable area for timber resources, theWet Zone, much of the exploitable forest has been replaced bycultivation. In the Dry Zone, natural growth covers much ofthe area but a great deal of it is low growing jungle and small,poorly developed evergreen and deciduous timber, by nature andlocation not attractive as a commercial possibility.The island has a small fishing industry along most of thecoastline, but its resources are poor and provide a most meagrelivelihood. The continental shelf of the Indian subcontinent sur-rounds the island, and the consequent shallow waters offer onlya limited catch within the short off-shore distances within reachof the primitive techniques of the fishing community.Foreign Trade and FinanceEssentially, then, most of the economic eggs of Ceylon arein a very few baskets. The fortune of a few agricultural exportcommodities in world markets has become the most importantsingle determinant of the year-to-year material well-being of theisland. Fluctuations in the prices of tea, rubber and coconutproducts have a major effect not only on Ceylon's balance ofpayments but on the national income as a whole, including govern-ment as well as private income. The high degree of specialization15

THE ECONOMIC DEVELOPMENT OF CEYLONin agriculture has brought large foreign earninlgs but with tlhemcorresponding risks of instability.This participation in foreign trade has of course involved aparallel growth in Ceylon's overseas expenditures. The popula-tion relies on imports for more than half of its rice, practicallyall of its flour and sugar, and a large volume of other foodstuffsas well as manufactured goods, raw- materials and fuels. On aper capita basis the volume of imported consumer essentials hasremained fairly constant, and this has meant a steadily risinglevel of imports to supply the minimum needs of the growingpopulation .Nevertheless, the economy of Ceylon has normally functionedon an even keel. Prices of tea, by far the most important export,are less erratic thtan those of rubber and coconut products andthey exert a steadying influienice on export earnings. And a risingexport volume has usually left enough margin to take care ofprice fluctuation and still maintaini a foreign trade surplus,despite growing import requirements and adverse terms of tradein the war and postwar period. Imports for consumption fluctuatein sympathy with export earnings, and total imports exceededexports in only two of the past 25 years. The trade surplus hasgenerally beenl about adequate to cover the normal net invisiblepayments arising from investment income and personal remit-tances, witlh only minor plus or minus deviations from a balancedinternationial payments position.Ceylon's internial finanices have been similarly kept in balance.In the postwar world of lopsided budgets the Government ofCeylon has consistently covered its ordinary expenditures fromrevenues, leaving a surplus to meet at least part of the capitalexpenditures for development.PATTERN OF DEVELOPMENTThe Postwar ProgramsImmediately after the end of the war, the Ceylon Governmentcommenced a program of accelerated capital investment and16

THE PROBLEM IN ITS SETTINGdevelopment. On the attainment of political independence in1948, this was given more precise form in the Government's firstsix-year program, designed to cover the years 1947-53. Theaims of that program were sotnd. Valuable work already doneunder it includes completion of the first stages of the large multi-purpose development in the Gal-Oya valley, much other irrigationwork, improvement of Colombo Port and many new schools,village dispensaries, etc.This accelerated development has been paid for without inany way threatening the financial stability of the country. Thatthis is so is due to the sound policies pursued by the Central Bankof Ceylon in the monetary field and to the prudent and skillfulhandling of the government budget by the Minister of Finance.Thanks to their policies and to reasonably favorable exportmarkets, the development expenditure has been entirely coveredby net surpluses of revenue over ordinary expenditure plus re-ceipts from internal loans; and the external costs of developmenthave been met without significant reduction of external exchangereserves.ObjectivesIn Ceylon as everywhere the primary object of developmenitis higher average real income and therefore higher output perhead. Previous discussion has shown how large a task it is toattain a rate of production increase higher than-not merely instep with-the rate of population increase.But we must not yield to the temptation of thinking that highermaterial standards are the answer to all social problems andoverride all other objectives. True, the social stresses which existin Ceylon appear to be primarilv the simple stresses of poverty.If the Ceylonese worker or peasant is discontented he thinks interms of better opportunities to earn a living on the land or inurban employment, not of social revolution. It has been the basicobject of all recent government policies to provide those oppor-tunities for better living. The individual in Ceylon has, however,17

THE ECONOMIC DEVELOPMENT OF CEYLONother objects besides material advancement. Though he maythink somewhat enviously of the higher material standards of theWest, he does not want to attain these standards by sacrificingother values inherent in his own social traditions, customs andculture. We shall have many occasions to point out where mate-rial and cultural objectives clash. It does not follow that cherishedcultural traditions and long standing social habits must alwaysgive way. On the contrary, it is essential that the way of life tobe built up in Ceylon shall be not merely a better one materially,but one spiritually satisfying to the Ceylonese people.Basic AssetsWhat has Ceylon got to work with in trying to increase heroutput? And what does she chiefly lack?Her first asset-and overwhelmingly the most important inthe long run-is her people themselves, whose very increase isan opportunity as well as a threat. There is an old saying that"with every mouth the Lord sends a pair of hands"; but theaphorism is deceptive and dangerous if it generates complacency.Additional hands are useless without land and rawl materials towork upon; without tools, equipment and power to work with;and without trained technical guidance and organization to directtheir work.Ceylon has something of these other necessary factors of pro-duction. She has substantial, if not unlimited, unused land andsome raw materials. There is a basis (though no more than abasis) of social capital-transport network, ports, schools andhospitals-and a modest amount of industrial plant. There issubstantial hydroelectric power capacity still to be developed.There is a sound framework of government. And there is at leasta rudimentary technical knowledge of the country and its poten-tialities and of the best skills and techniques of production.These facts point clearly and obviously to the main channelsfor the fuller use of the natural resources of the country, follow-ing and extending the work of the past and the present. In18

THE PROBLEM IN ITS SETTINGexisting agricultural production the high standards of the bestestates must be maintained and the efficiency of the less well runestates and especially of the smallholders greatly improved. Theunused lands of the Dry Zone must be opened up by irrigation,jungle clearance, settlement of colonists, and provision of trans-port and other necessary services. Every encouragement shouldbe given to the growth of sound manufacturing industry and tothe effective utilization of the raw materials available in theisland. As an essential basis and supplement to these improve-ments of production, the hydroelectric potential needs to be har-nessed, and transport and other general services improved andexpanded.Special Features and ProblemsThese lines of development have special characteristics whichwe believe have very important effects on the nature of the plansto be made. The changes to be looked for in Ceylon, althoughobvious, are not simple. It is not a mere matter of installingcapital equipment and transport facilities to develop rich mineraldeposits already known to exist; or of throwing open new landsto settlers who need only a skeleton of communications to developthose lands with well-established techniques. Nor is the task of im-provement of agricultural methods a simple matter of importingsuperior techniques which have been perfected and proved else-where. In many cases, especially in the farming of the drierareas, techniques suited to the peculiar conditions of Ceylon havestill to be discovered by experimentation and research. Evenwhere it is reasonably clear what improvements in technique aredesirable, conservatism and complexities of the social structure(e.g. the system of land tenure) may obstruct their adoption bypeasant cultivators. On the industrial side, both the proper utili-zation of raw materials already known and the introduction ofnewly discovered ones require research, survey and, in the caseof many agricultural materials, a period of practical experi-mentation.19

THE ECONOMIC DEVELOPMENT OF CEYLONThe first consequenice of these characteristics is the necessityof preliminary survey and research in nearly all fields and ourdetailed recommenidationis contain a series of specific proposalsfor physical and social surveys and for a large expansion ofresearch activity.A second consequence is that education in its broadest sensemust play a very important role. Not only is there today a seriousdeficiency of technically trained men and women at all levels;a change is required in the wvhole bias of education in order toencour age receptivity to the new ideas and improved methodsessential to increased output. Included in the general field ofeducation is the large task of the Department of Agriculture,assisted by Cooperative and Rural Development Societies, ofspreading knowledge of new methods among the hundreds ofthousands of peasant farmers.Thirdly the role of Governmenit has special importance. Thetasks of survey, research and education already mentionied mainlyfall to the government. Similarly, the basic structure of socialcapital, including the general communicationis network, is inCeylon primarily a government responsibility. In the develop-ment of the Dry Zone, irrigation and jungle clearance are funda-mental and can only be undertakeni by an agency with wideauthority. It is conceivable that these tasks could be executed bya private corporation receiving large grants of land, but sucha method of operation would certainly not today be thought toler-able in Ceylon, and the main task of organization therefore restswith the government. It follows that the closest attention is neededto the machinery of governmenlt for planninig and execution ofdevelopment work.But although there is so much to be done by the governmenitin providing the basis of progress, it is perhaps nowhere moreevident than in Ceylon today that development cannot proceedin detail without a great deal of private activity and a true part-nership between government and private enterprise. The extentof current private investment has already been noted. We believe20

THE PROBLEM IN ITS SETTINGit needs to be increased. In agriculture and indeed in ruralactivities as a whole, there is large scope for private corporateactivity through cooperatives and rural development societies aswell as continuation of the present roles of commercial com-panies; and the development of new industries offers an equallylarge scope for private energy and ingenuity.With these problems in mind we have grouped our detailedexamination of development prospects under the headings ofmaterial resources, human resources and organization.2]

2. Development of Material ResourcesTrue economic development comes about through balanced,parallel achievement in various departments. A few spectacularprojects in one field or another will not accomplish it.The different lines of creative endeavor are like so manydraft oxen hitched together. Each must help the others. Somelead, others follow; some are bigger and stronger and can pullharder than the others. If half want to go a different way, wecan unhitch them; if one wants to outdistance the others, we canlet him; but then the remaining ones cannot move the wagon asfast-or perhaps not at all.In our analogy the main lines of productive development,agriculture, industry and their associated activities, are the oxen.Monetary and fiscal policies, organization, and the like are thewheels of the wagon. One wheel out of order can stop the wagon,or at least slow it downv. But a full set of good wheels will notmake it go; the oxen do that.Elsewhere we discuss the wheels. In this chapter the Missionattempts to indicate, in general, its observations on Ceylon's prin-cipal avenues of material development and what might be donein each for a balanced program of progress during the six-yearperiod 1953-59. Wherever possible we suggest quite specificgoals; these-though they may disappoint the most optimistic-are what we believe to be possible, though not easy, of achieve-ment. Where precise targets of achievement cannot be set becauseprogress depends upon the unforeseeable results of research orsurvey, reaction of private enterprise or other unpredictable fac-tors, we suggest what we believe will be the most profitabledirection of development.For actual accomplishment, of course, general observations22

DEVELOPMENT OF MATERIAL RESOURCESare not enough. All of the subjects dealt with here are treatedin far greater detail in the individual chapters of Part II, whosehundreds of practical recommendations on specific matters mayin the aggregate constitute most of the value of this report.AGRICULTUREAgricultural advancement is essential, first to relieve Ceylon'sdangerous dependence upon external sources of food. But italso offers the greatest avenue to an increase of total nationalwealth in any near future. It must set the pace in tomorrow'sdevelopment, even if other activities may in the more distantfuture come to rival it.With some overlapping of interest, Ceylon's agriculture di-vides itself into three fairly distinct sectors. First is the cultivationlooking solely to export, dominated by tea and rubber and mainlya plantation or "estate" economy in the higher lands of the south-west. The second might be termed the wet farming sector, con-sisting typically of peasant agriculture and concentrated especiallyin the lower lands of the southwestern quadrant. Rice and otherfood crops are its mainstays; but it includes the bulk of thecoconuts, about half of which are exported directly or indirectly.The third sector is the dry zone, largely uncultivated, where theproblem remains one of winning the land back from the jungle.Of Ceylon's total area of about 16.25 million acres, 6.75million are considered suitable for agriculture in some form.Tea, rubber and coconuts occupy 2.25 million acres of this; riceand miscellaneous crops now use another 1.25 million. About3.25 million acres await development.Export AgricultureThe value of the three export crops, tea, rubber and coconuts,can hardly be overstated. Without the foreign exchange whichthey earn Ceylon could not buy the food she imports to feed halfher population. She could not buy the wide range of manufac-tured goods which are an integral part of the higher standard23

THE ECONOMIC DEVELOPMlENT OF CEYLONof living to whichi her people aspire, and slhe could not buy thecapital goods on which hier plans of future development depend.Of the three, tea is the most important-well exceeding in exportearnings the other two combined-and is most completely anestate industry. Coconuts, the smallest of the "IWig three," arepredominantly a product of small holdings.Main emphasis in this sector should be placed on mainitainingand improving efficiency and output. Techlnical improvemenitsare proceeding wvell at the hanids of the estate managements. Con-tinuLed support of the excellent Tea Research Institute is urged,and this institution could profitably extend its studies toward theprocessing side of the industry. Althoughl the market would justifyincreased acreage, there is little chance of it since most of thesuitable tea land is already planted.For rubber the outlook is different. On the one hand thereis Iltclh more room for improvement in technical efficiency, byplanting higlher yielding types and by greater attentioni to tappingtechniques and wvater conservation. On the other hanid, a netexpansioni of acreage, for which land could no doubt be found,is not recommended. Natural rubber is likely to be faced withincreasingly hard market conditionis in the future, as both pro-duction andl competitioni from syntlhetic increase, and Ceylon willneed to concentrate on lowering her costs if she is to retain eventhe present export sales. On many of the estates interplanitingwith cacao is recommended.Transfer of fo