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Types of Economic Planning

Economic planning has become a craze in modern times. It initiates, controls and regulates the economic activities by the state, with a view to achieving well defined objectives within a given time period. The control by the state on economic activity is different in different countries. Let us discuss in brief the various forms of planning which are being practiced in various countries of the world.

General Planning and Partial Planning:

In general planning, a comprehensive and integrated plan is conceived, initiated and directed by a central authority. The plan covers all aspects of the economy and the central authority completely controls the investment and utilization of resources. As opposed to general planning, partial planning covers only some important sectors of the economy.

Financial and Physical Planning:

Finance is the key determinant of economic planning. In financial planning resources are allocated in terms of money. In financial planning the planners determine how much money will have to invested in order to achieve the predetermined objectives or targets. If sufficient financial resources back planning, it is easy to achieve targets laid down in that plan. By physical planning we mean as planning in which resources are allocated in physical terms.

For instance, to produce rice it may the target of current government in his next year planning to raise their rice production from 1000 to 3000 tons. Thus, to achieve such production levels how much water, how much land, how many labors etc., will be required. All this is the part of physical planning.

Functional Planning and Structural Planning:

Functional planning attempts its objectives within the existing socio-economic frame-work. Structural planning changes the existing order radically. Functional planning is only possible in capitalist economy. The advocates of structural Economic Planning on the other hand, think that planning and capitalism are incompatible. Dr. L.Y. Mises is of the view that “planning and capitalism are utterly incompatible.”

On the other hand, Prof. Landauer holds the opinion that planning and capitalism could be reconciled. We are inclined to agree with the latter view and hold that even capitalistic countries can have a measure of planning and benefit from its techniques in order to carry the economy forward on the road to economic progress or at least to eliminate serious imbalances in the economy.

Authoritarian and Democratic Planning:

In authoritarian planning, the government is the sole centralized agency which draws the plans and implements it. Planning is done by a central authority in centralized planning and it is done from the top. Each citizen producer or consumer, has simply to carry out the instructions or the job or duty assigned to him. It is more comprehensive, systematic and rigid and is more efficient. The type of planning that has been done in US.S.R. and Peoples Republic of China and other socialist countries is authoritarian planning.

In democratic planning, the plan is prepared by an expert body called the planning commission, which is outside the government or the executive and it is finally approved by a legislature which represents the people. It is based on the system of free enterprise, but economic activity outside the public sector is sought to be regulated and guided indirectly by providing incentives for investment through fiscal or monetary policies. This type of planning has been done in Pakistan, India and other democratic countries. Planning is started from the bottom in case of decentralized planning. e.g. each street committee of union council, Punchayet or Jarga may be asked to prepare a plan for the economic development of their locality and each industry and producer may be asked to prepare its own plan.

Indicative and Imperative Planning:

Indicative planning is a method of controlling the economy that includes the setting of long-term objectives and the mapping-out of programs of action designed to fulfill these objectives, using appropriate techniques.

Unlike a centrally planned economy indicative planning works through market price system. On the other hand, under imperative planning all economic activities and resources of the economy operated under the direction of the state.

Centralized and Decentralized Planning:

Centralized planning is a method of organizing the economy to produce goods and services under the control of the state with collective ownership of the means of production. In this term of planning, it is the state, which decides what goods and services are to be produced in accordance with its centralized national plan, In nutshell, the principle problem of the economy, what and how much is to be produced, how when and where it is to be produced, and to whom it is to be allocated, are actively decided by the authorities.

On the other hand, decentralized planning refers to the execution of the plan by central planning authority after consulting with the different sub-department. In this form of planning the diffusion of economic decision-making to many other decision-makers rather than concentrating such decisions-making centrally, In an economy it is achieved by adopting the price system, which devolves decisions to individual consumers and suppliers.

Corrective and Development Planning:

Corrective planning is the planning of developed countries. Such planning deals with removing imbalances and hurdles to achieve steady growth. Development planning is the issue of LDCs. It is the planning for increasing production, breaking vicious circle, removing poverty etc.

Induced or Indicative Planning:

Planning by inducement is also known as indicative planning. In this type of planning state tries to achieve objectives of planning in an indirect manner. In the private enterprise economy, where market mechanism is in full operation, the state offers certain inducement and incentives. This type of planning is practiced in predominantly capitalist economies like U.S.A. France and Netherlands.

Under this type of planning, fiscal and monetary policies are framed in a manner which stimulate investment without affecting the allocative function of the price mechanism. The sovereignty of the consumer remains intact. There is freedom of production under a few regulations and controls by the state.

Planning by Direction:

Planning by direction is used in those Societies where the state believes in force and compulsion and where individual choice and decisions can be subjugated to state decisions. It indicates the direct intervention of the state. The control on import, export, production of some goods, rationing and price control are examples of planning by direction Non-democratic and socialist states adopt this type of planning.


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