Importance/Need/Role/Justification/Rationale of Economic Planning:
In the under-developed countries of the world, there is a strong and powerful conviction about economic planning. The importance of economic planning can be viewed by the following reasons:
1. To remove unemployment:
To remove unemployment and disguised unemployment in LDCs, economic planning has been emphasized. Most developing countries are characterized by labor abundant and shortage of capital for the provision for employment opportunities are merely a tough task. To cope these difficulties centralized planning is the only solution.
2. Better utilization of resources:
To make better utilization of available resources economic planning has been advocated. As in the case of LDCs it has been observed that resources are either being underutilized or misused. To reap the benefit of optimum utilization of resources economic planning becomes necessary.
3. Fare distribution of income:
Fare distribution of income is also an important task of economic planning. LDCs often suffer from the problem of income inequalities, which creates a huge gap between the rich and the poor.
To remove these gaps and make the equal distribution of income, a planned economy is advocated. As a result, it will remove the class confliction and ensure equalization of opportunities in all respects.
4. Market Imperfection:
To overcome market imperfection in LDCs economic planning is argued. In such countries, the product, factor, money and capital markets are not well organized and perfect. To eliminate these imperfection and price distortions in LDCs because of ignorance and unfamiliarity with the market, sound economic planning is needed.
5. Per Capita Income:
Per-capita income in LDCS is often lower as compared to developed countries. To raise the per-capita income, a rapid increase in income is obviously necessary. Thus, it is the responsibility of authorities to make such plans, so that task of high-income level can be achieved.
6. To Eliminate Poverty:
Poverty in LDCS is also a barrier in the way of economic development. People due to poverty have not saved power and MPS remains low, which leads to low investment and low capital formation. It may lead a number of problems such as the flight of capital and balance of payments etc. thus, to overcome these problems effective measures are required which are only possible with the help of strong economic planning.
7. Unfavorable balance of payments:
Unfavorable balance of payments and trade are acute problems in LDCs. This unfavorable situation in domestic and foreign trade adversely affects the economic growth and development process. It is the duty of state to make different plans to support the economy in such undesirable conditions.
8. Diversification of economy:
Diversification of the economy is the most desirable task of economic planning. LDCs mostly depends upon the agriculture sector, which is usually operated with old methods of cultivation and technological ages. These factors affect per acre yield adversely. To uplift the process of growth and development sound economic planning is required.
9. To overcome economic disparities:
To overcome economic disparities, that are one of the acute problems of LDCs. Economic planning is justified. Contribution of all sectors is essential for economic prosperity; the government should play his vital role to take strong steps so that national solidity could be ensured.
10. Low rate of capital formation:
A low rate of capital formation is also a hurdle in the economic progress of LDCS like Pakistan. As saving and investment are the main components of capital formation, unfortunately, they are not increasing with a desirable rate is such countries. Thus, the government should ensure fiscal and monetary measures to encourage saving and investment to achieve the goals of economic development. In this regard, economic planning can be helpful.
11. State Is the Superior Authority:
Economic planning is advocated, on the grounds that the state is a superior authority and it has a better idea about the economic problems of the people. It can, therefore, utilize the available resources in the best interest of the people. Thus, planning and development is a serious matter and cannot be left to the discretion of private individuals and enterprises.
12. Proper Co-ordination:
In an unplanned economy, millions of producers work in an independent and isolated fashion without bothering as to what the other businessmen are doing. The decision taken by some or most of them may be irrational, short-sighted, self-frustrating, and socially disastrous. The presence of a planning authority can coordinate the working of individuals and entrepreneurs in a proper way. So, the economy can be set on the right lines and the country can progress at the highest possible growth rate.
13. Optimum Utilization of Resources:
In an unplanned economy, private enterprise is guided solely by the profit motive regardless of social benefits or costs. In a planned economy, there will be a proper distribution of resources between the production of essential and non-essential goods. It is the planning authority which encourages the former and cuts down the later.
14. Protection of Labour:
In an unplanned economy, labor-legislation alone cannot protect labor and harmonies wage relations. A planning authority must step in to regulate the economic growth of the country to ensure that workers get the fruits of their labour and that all the able Persons are gainfully employed.
15. Elimination of Wasteful Competition:
Planning eliminates wasteful competition among producers. The huge expenditure on nonproductive means like advertisement and distribution are also eliminated. A planned economy avoids the duplication of staff and machinery.
16. Reduction of Economic Inequalities:
Shocking economic inequalities are marked feature unplanned economy. Inequalities result in heart burning and social tensions, Reduction of qualities in income, wealth and economic opportunities is, therefore, the top aim of the modern state. The achievement of this aim is impossible without the instruments of planning.
17. Eliminating Instabilities:
In an unplanned economy, the private enterprise itself produces trade cycles, unemployment, and miseries. It is now generally agreed that the planning of economic activities goes a long way to smoothen the violent oscillations and swings in business. Thus, planning is a powerful instrument for eliminating business fluctuations.
18. Creation of Major Economic Changes:
In an unplanned economy major economic changes cannot be brought about only by the private enterprises. Such changes e.g. industrial revolution or rationalization movement are bound to turn the economy topsy-turvy. The planning authority with its resources of men and money can meet all such situations and can control the disturbing factors. A planned action to facilitate, stimulate, guide and control the means of production brings major economic changes and ensure quick economic growth.
19. Favoring the Terms of Trade:
The volume and direction of foreign trade in a country admittedly plays an important role not only in economic development but also in determining the level of general well being in a society. It is the state which through planning can control the volume and direction of foreign trade, so that the terms of trade remain favorable and the countries move rapidly on the path of economic development.
20. Eliminating Social Costs:
It is only possible through planning to keep down or eliminate the social costs which usually take the form of industrial diseases, industrial accidents, pollution, unsanitary conditions, overcrowding, and cyclical employment, by taking over the industries and extending the range of public ownership into various sectors of the economy.
21. Prevention of Artificial Shortages:
Large profits are gained by businessmen through trusts, cartels, price agreements, and market sharing in an unplanned economy. The planning authority can smack such designs by positive actions in favor of the community Planning discourages such malpractices through planned production and proper supply of goods and by the nonfluctuating price system.
22. High Rate of Capital Formation:
Planning results in a high rate of capital formation. The planning authority, as the custodian of the national interest, takes a far-sighted view. It can look more to the distant future than to the immediate present. So, planning makes optimum allocation of the country’s resources. It can, therefore, secure a far greater rate of capital formation than is possible in an un-planned economy.