Unit 2
Economic Planning in India
India’s commitment to planned economic development may be a reflection of our society’s determination to enhance the economic conditions of our people and an affirmation of the role of the govt in bringing about the growth performance through a range of social, economic and institutional means. The main objective of the Indian planning is to attain broad based improvement within the living standard of society at large. Rapid growth is important for expanding incomes and employment. It provides the specified resources to finance programmes of social uplift.
Economic Planning – Meaning and Features
The term ‘economic planning’ has been used very loosely in economic literature. Therefore the term has been often confused with communism, socialism or economic development. Economists aren't unanimous with reference to the term ‘economic planning’. Despite the aforesaid situation, efforts are made to elucidate the term in precise words.
Economic planning is that the making of major economic decision, what and how much is to be produced, and to whom it's to be allocated by the conscious decision of a determinate authority, on the idea of a comprehensive survey of the economic system as an entire .
Professor Lewis has mentioned six different sense during which the term economic planning is employed in economic literature. “First, there's a vast literature in which it refers only to the geographical zoning of things , residential buildings, cinemas and the like. Sometimes this is often called town and country planning and sometimes just planning. Secondly, ‘planning’ means only deciding what money the govt will spend within the future, if it's the money to spend.
Thirdly, a ‘planned economy’ is one during which each production unit (or firm) uses only the resources of men, materials and equipment allocated thereto by quota and disposes of its product exclusively to persons or firms indicated thereto by central order. Fourthly, ‘planning’ sometimes means any setting of production targets by the govt , whether for private or public enterprise.
Most governments practice this sort of planning if only sporadically, and if just for one or two industries or services to which they attach special importance. Fifthly, here targets are set for the economy as an entire , purporting to allocate all the country’s labour, foreign exchange, raw materials and other resources between the varied branches of the economy.
And, finally, the word ‘planning’ is usually used to describe the means which the govt uses to undertake to enforce upon private enterprise the targets which are previously determined.”
(i) it's concerned with survey and diagnosis of this economic scenario.
(ii) It defines policy and objectives to be achieved in future.
(iii) It presents a macroeconomic projection for the entire economy.
(iv) It formulates strategies through which objectives are to be achieved.
(v) It guides and directs the economy along side the trail of growth and development.
(vi) It creates productive capacity within the country.
Economic Planning in India- Definitions of Economic Planning
Some of the definitions of economic planning are:
Professor Robbins defines economic planning as “collective control or supervision of private activities of production and exchange.”
To Hayek, planning means, “the direction of productive activity by a central authority”.
According to Dr. Dalton, “Economic planning within the widest sense is that the deliberate direction by person’s responsible of large resources of economic activity towards chosen ends.”
Lewis Lordwin defined economic planning “as a scheme of economic organisation during which individual and separate plants, enterprises, and industries are treated as coordinate units of 1 single system for the aim of utilising available resources to realize the maximum satisfaction of the people’s needs within a given time.”
In the words of Zweig, “Economic planning consists within the extension of the functions of public authorities to organisation and utilisation of economic resources. . . . Planning implies and results in centralisation of the national economy.”
According to Dickinson who defines planning as “the making of major economic decisions-what and the way much is to be produced, how, when and where it's to be produced, to whom it's to be allocated, by the conscious decision of a determinate authority, on the basis of comprehensive survey of the economic system as an entire .”
Economic Planning in India – Essentials of Economic Planning
In order that economic planning could be successful, certain essential conditions are to be fulfilled.
These conditions are:
i. Well-Defined Aims and Objectives:
Every plan must be related to certain well defined aims and objectives. In democratic planning there must be a large measure of agreement within the community with reference to these aims and objectives.
Ii. Emerge Out of the Conscious Decisions:
Planning must emerge out of the conscious decision of a determinate authority.
Iii. Purposive Direction:
In a federal structure, where there's the diffusion of power and responsibility, there must be an overall unity of policy. The purposive direction, which planning involves, must come from the Central Government.
Iv. Carefully Fix the Targets:
The planning authority must carefully fix the targets without illusions on what's possible. If the targets are fanciful, the entire plan are going to be fanciful. And this is often as true whether the targets are overlarge or too small. Planners, who promise quite they will perform, throw everything out of drugs , in order that the economy might use also not be planned at all. Over-fulfilment is simply as much a proof of bad planning as is under-fulfilment.
v. Flexibility:
There should be some measure of flexibility in planning, which suggests that the plans are often revised and rephrased if circumstances demand it.
Vi. Appropriate Duration:
Planning very far ahead isn't desirable. A general five-year plan for the entire economy is not any quite a game, because it's impossible to foresee what will happen to productivity in five years.
Vii. Scrupulously Earnest and Determined:
Once the targets are carefully fixed, the govt must be scrupulously earnest and determined to realize the targets.
Viii. Adoption of Judicious Price Policy:
In order that the objectives and targets, laid down within the plan, could be achieved, there must be a judicious price policy, which can not only secure an allocation of the resources for creating the fulfillment of the targets possible, but also will maintain a particular balance between the varied classes of the community.
Ix. Enthusiasm:
In a democracy the govt should make the objectives and targets known to the people and make the ultimate acceptance or rejection of the plan, dependent on the will of Parliament. When the plan emerges in its final shape, the govt must attempt to enlist the active cooperation of the citizens in implementing the plan. Popular enthusiasm is both the grease of planning, and therefore the petrol of economic development,a dynamic force that nearly makes all things possible.
x. Efficient Administrative System:
Finally, there must be an administrative system efficiently and unimpeachable integrity, capable of discharging its responsibilities in reference to the execution of the plan.
At the time of independence, Indian economy was a backward economy. So as to maneuver the economy on the path of development, India adopted a model of planned economic development under the economy structure.
The main objectives of planning in India include the following:
(i) Increase in National Income:
This objective gets translated into a rise in not only the value , but also within the level of production and real per capita income.
(ii) Achieving Full Employment:
Unemployment is a curse in any society. It's more so when there's an inadequate Social Security or its total absence. Employment imparts dignity to human beings and is additionally a vital means of reducing poverty and inequalities. The target of planning wasn't to reduce inequalities by lowering the income levels of the richer sections but by raising the income levels of the poorer sections of the society.
(iii) Reduction in Inequalities of Income and Wealth:
India being a particularly poor country, inequalities of income and wealth translate themselves into absolute poverty and destitution. There are often no difference of opinion regarding the desirability of reducing such inequalities, particularly because they also cause inequality of economic opportunities.
(iv) Creation of a Socialist Society:
This was a clear and generally accepted objective inclusive-of there being equal opportunities of economic advancement for all sections of the society.
(v) Removal of Bottlenecks:
Removal of Bottlenecks within the way of economic growth like , low rates of saving and investment, inefficient technology, problems of balance of payments, absence of basic industries and insufficient infrastructure, etc. is additionally a crucial objective of the Indian planning.
(vi) Industrialization:
Indian plans have adopted a technique of industrialization of the economy with particular emphasis on heavy and basic industries. It also assigned a high priority to agricultural growth but in practice, agricultural and rural development received inadequate attention.
Some analysts are of the view that India, with its vast agricultural potential should have first targeting the development of agriculture and rural parts of the economy. Such an approach would have generated economic surplus needed for capital formation and investment.
(vii) Self-Reliance:
Our plans also aimed toward “self-reliance”. It deals with the freedom from the need to import and thus a policy of “import substitution” despite its cost. This objective should are taken to mean “ability to buy our imports through our export earnings”. Thus, we should always have added to our export capacity and competitive strength in international markets.
(viii) Precedence to Public Sector:
In our planned growth, public sector was assigned a place of precedence over the private sector so on acquire commanding heights of the economy and be during a position to use it for guiding the private sector along chosen lines. This was done while ignoring the very fact that public sector undertaking is inherently less efficient than private ones.
Thus, the essential objectives of India’s Five Year Plans are rapid economic growth, full employment, self-reliance and social justice. Aside from these basic objectives, each five- year plan takes into account the new constraints and potential/possibilities during the period and attempts to form the required directional changes and emphasis.
Planned economy has not been established in any country in a very day or in a year. Planning in practice features a history of its growth and alter over few decades. History of economic process in some countries reveals that planning has been painfully evolved and its growth or change is attributed to certain factors which have facilitated the expansion of planned economy in an increasing number of nations .
Its development is that the extensive and intensive. It's intensive within the sense that its process of perfection isn't complete. It's always subject to improvement. Its requirements are greatly changing, certain historical factors have profoundly favoured the event of planned economy. a range of factors have led to the adoption of planning in various countries.
The importance of economic planning could also be explained as follows:
i. Best Utilisation of Natural Resources:
Economic planning facilitates best utilisation of natural resources. By adopting the method of economic planning it's possible to utilise available labour and capital in the interest of nation which helps in maximisation of national output.
Ii. Growth in National and per capita Income:
The maximum level of production increases the amount of savings and investment which ultimately provide sufficient capital for economic development. Hence planned economy proves a crucial instrument for growth in national and per capita income.
Iii. Improvement in Living Standard:
The standard of living of India’s population is way below the required level. A subsistence segment of population fails to even meet their basic needs of life. The main reason responsible behind such a miserable situation has been low level of per capita income and social evils which may be improved by adopting the method of planning.
Iv. Balanced Economic Development:
The form of economic growth in India has always been unbalanced. While preparing industrial plan, more emphasis has been given to development of consumer industries whereas much is left remained to plan for development of basic industries. The method of planning could also be helpful in balanced economic development.
v. Full Employment:
The problem of unemployment are often scale-down by encouraging development of small and cottage industries within the country. It'll also reduce the pressure of population on agriculture. In India’s five-year plans, efforts are made to get more and more employment opportunities.
Vi. Equal Distribution of Wealth and Income:
In India, there exists serious inequalities within the distribution of income and wealth. a small minority of population is rolling in luxuries, while the vast masses of people are unable to form their both ends meet. The existence of plenty for the few amidst mass poverty is indeed the foremost undesirable phenomenon within the country and intensity of which may be minimised by adopting planned economy.
Vii. For Self-Sufficiency:
The initial process of economic development requires huge capital investment. By adopting the method of planning available capital resources are often best utilised within the interest of nation.
Objectives of Planning:
The objectives of planning are many and varied. These aims aren't a similar for all countries, not are they same for a similar country at all times.
Some major objectives of economic planning are:
(a) An improvement within the standard of living of the people through a sizable increase in national income within a short period of time;
(b) a large expansion of employment opportunities for the removal of unemployment and for creating jobs and incomes;
(c) a reduction in all sorts of social, economic and regional inequalities;
(d) An efficient utilisation of the country’s resources for faster growth;
(e) Removal of mass poverty within a definite limit through land reform, employment creation, and provision of educational and medical facilities;
(f) Attainment of self-reliance by reducing dependence on foreign capital and aid .
Importance of Planning:
The importance of planning lies within the fact that it's an instrument through which important socio-economic objectives, unrealisable under free private enterprise, are likely to be effectively realised.
In an underdeveloped country like India these objectives may be broadly grouped as:
(a) a better rate of growth than was being realised within the absence of the plan;
(b) A greater degree of economic equality than was possible under free enterprise;
(c) Fuller employment opportunities for the growing labour force of a country; and
(d) Larger provisions for capital formation as one of the principal instruments for accelerating the speed of growth.
(1). Direction and Inducement Planning:
(i) Planning by Direction:
Planning by direction is an integral a part of a socialist society. It assumes complete absence of laissez faire.
Therefore, it implies complete centralized planning with no features of a private economy. Under planning by direction, planning authority takes charge of the productive resources and use them in accordance with social priorities.
In other words, there's one central authority which plans, directs and orders the execution of the plan. Market forces aren't allowed to operate freely. Both saving and investment are strictly controlled by the design authority. The state holds the commanding posts in its hands by taking up entire private industrial and agricultural sectors and banking and transport. “Without such concentration, the state would lack the means to hold out the tasks of the plan. Provisions in the plan would be mere pious wishes without any guarantee of realization attached to them.”
Planning by direction is comprehensive and embraces the whole economic life of the country. Russia provides the simplest example of planning by direction. Under such planning, the targets for optimum planning are often realized. Full employment are often ensured. Oligopolistic and monopolistic tendencies can easily be eliminated.
Arguments against Planning by Direction:
1. It provides no consequence of actions:
Modern economic system is so complex that no planning authority can take quick and right decisions to tackle its old problems. Prof. Lewis says that, “in planning by direction, the result's always a shortage of something and a surplus of others.”
2. Imperfect Result:
It has also been noticed that planning by direction seems accurate and excellent at the time of formation but fulfillment is also upset because of some adverse circumstances, thus, it delivers imperfect and wrong results.
3. Inflexible:
In the case of direction planning, all schemes are finalized once for all and there's no scope for revision and modification. Thus, it becomes rigid. Prof. Lewis has rightly observed that “the price mechanism can adjust itself from day to day, the flow of money alters and prices and production respond, but the economy planned by direction is inflexible.”
4. Costly Affair:
Planning by direction requires the services of thousand of economists and an army of clerks for its implementation. In this way, it's costly affair to assign an outsized number of man power only for nothing while this job can simply be done by price mechanism.
5. Only Temptation for Higher Standardization:
No doubt, standardization is known engine of growth but, in fact, it's an enemy of happiness. It's going to be fatal just in case of foreign trade as a rustic can maintain foreign trade only if it's pioneering new ideas, inventing new goods and further making adjustment in its production to consumer reaction.
6. No Place for Consumer’s Sovereignty:
In direction planning, there's no place for consumer’s sovereignty. Both consumer and labour markets are determined by the planning authority.
(ii) Planning by Inducement:
Planning by inducement is according to democratic planning. It named the planning by manipulating the market. There's no compulsion and direction but only persuasion. Therefore, in planning by inducement, the state manipulates the market economy not by command but by providing inducement to secure its objectives.
The planning authority induces the people through monetary and fiscal measures and thru appropriate price policies to act in certain desired ways. In case, planning authority wishes to raise the extent of production, it can do so by granting subsidies. Similarly, control and rationing, is adopted just in case of scarcity.
Furthermore, so as to increase the speed of capital formation, planning authority can undertake public investments or encourage private investment. During a real sense, quantitative methods of credit control can help during a long way in maintaining the price level while qualitative method of credit control can help in diverting investment into desired channels.
Difficulties:
Prof. Lewis has acknowledged the following difficulties of planning by inducement:
1. Difficult to regulate Demand and Supply:
Shortage or surplus may be a common phenomena in an economy. Control and rationing could also be essential until supply is augmented to meet the increased demand. Under these circumstances, the efficiency of planning is judged not by excellence of the system of rationing and control . Shortages are often eliminated through control . However if planning by inducement isn't properly worked out, it merges into planning by direction.
2. Not Suitable to the need of Underdeveloped Countries:
Another difficulty of inducement planning is that it's not conductive to the need of less developed countries. In fact, these countries need faster rate of increase in investment and must enter desired channels. Therefore, the state must actively direct investment into such activities where social gain is bigger than the private gain.
3. Methods of Monetary and fiscal Control are Weak:
The instruments of monetary and fiscal control are too weak and mild to bring desired changes within the economy especially within the backward countries as its problems are quite different from the problems of well advanced countries.
(2). Democratic and Totalitarian Planning
(i) Democratic Planning:
Democratic Planning implies a system of economic order during which the authority that vests in the state is predicated on the support of common masses. The economists like Hayek and Lippman have acknowledged that planning is incompatible with democracy. Hayek says that “What was promised to us because the road to freedom was in fact the high road to serfdom.” Therefore, in democratic planning, the state doesn't control all the means of production and doesn't regulate economic operations of the private economy directly.
Features:
The main characteristics of democratic planning are as follows:
(i) As a consequence of democratic planning, mixed economy comes into being. Public and private Sectors operate side by side.
(ii) Central Planning Authority has direct control over Public Sector.
(iii) Private sector is indirectly controlled by the Central Planning Authority within the national interest through fiscal and monetary measures.
(iv) People enjoy economic, social and non secular freedom. People have freedom to conduct such economic activities as consumption, production, exchange, investments etc. within the national interest and social welfare of the community as an entire .
(v) People’s co-operation is sought within the preparation of the plan. There's close relationship between welfare of the people and economic activities.
(vi) one amongst the aims of planning is to co-ordinate the activities of public and private sectors.
(vii) People’s co-operation is sought in achieving the targets of the plan by giving them proper incentives.
(viii) Economic activities are conducted both to earn profit and promote welfare .
(ix) Under democratic planning there's importance both of price mechanism and government-decisions.
(x) Objectives of public sector and private sector are co-ordinated
(xi) it's quite flexible planning. There's enough scope to modify-the targets of private sector. Targets of Public Sector are subject to vary consistent with changed circumstances.
(xii) it's a bent of decentralization.
(xiii) Its main objective is to boost the quality of living of the people quickly. As such, consumer goods industries are given as much importance as heavy industries.
In democratic planning, the philosophy of democratic government is accepted because the ideological basis. Under this sort of designing , the choices of the private sector are influenced by incentives and partial controls through monetary and monetary policies. People are associated at every step within the formation and implementation of the plan. Unlike fascist planning, it's not based on force or coercion. In fact, democratic planning reconciles capitalism with government interference.
Since democratic planning may be a planning by the people, for the people and of the people, the state comes into the picture as a representative of the people but not as a separate identity. The state government gives wide publicity to understand the opinion of the people and tries its best to hunt the cooperation and active support of the people within the country. It seeks to avoid all clashes and tries to harmonies different opinions for the sake or welfare of the poor lots.
Therefore, different agencies, voluntary groups and other associations are closely linked and play pioneer role in its execution. Furthermore, the plan is fully debated within the Parliament, state legislature and within the private forums. The plan prepared by the planning commission isn't fully accepted but it also can be rejected or modified. Thus, the plan isn't forced from the above on the people but actually , it's planning from below.
(ii) Totalitarian (authoritarian) planning:
When planning is adopted under a planning, it's called totalitarian dictator. Under this planning, state fully controls the economic affairs, productive resources and economic decisions. The state is that the final authority in allocating the productive resources and it determines in accordance with the directions of the central authority.
The profits or production rather than being pocketed by the private capitalists attend the state for ameliorating the issues of the poor lots within the country. Totalitarian planning shows the entire socialization of entire economy . Under such planning, plans are formulated, controlled, financed and executed by the state and people need to do nothing in it. This sort of authoritarian planning has found within the writing of Maurice Dobb.
Features:
Totalitarian Planning has the subsequent features:
(i) Public sector alone functions in this type of planning. Government has full and direct control.
(ii) Central Planning Authority formulates a comprehensive plan for the whole economy.
(iii) there's no economic freedom and all economic decisions are taken by the govt .
(iv) People’s welfare are often sacrificed at the altar of rapid economic development of the country. Minimum needs of the people alone are catered to.
(v) Means of production are controlled by the govt that functions as an entrepreneur. Private enterprise has no place in it.
(vi) Economic decisions aren't taken by the market forces or price mechanism but by the govt .
(vii) there's no economic freedom. Government alone controls all economic activities.
(viii) All economic activities like foreign trade, foreign capital, investment and loan etc. are controlled by the govt .
(ix) it's a rigid planning. People are often pressurized by the govt for the achievements of the plan-targets.
(x) it's more comprehensive and efficient.
Regarding choice between democratic and totalitarian planning, some regard democratic planning as better because it gives complete freedom to consumers and producers. But this planning accelerates the pace of economic development slowly. Others regard democratic planning as imaginary since the interference by the govt is indispensable. On the opposite hand, under totalitarian planning, there are big sacrifices by the general public . But the pace of economic development is extremely fast. Prof. Myrdal has observed that ‘planning in any way has affected democracy’.
(3). Centralized and Decentralized Planning:
(i) Centralized planning:
The framing, adopting, executing supervising and controlling the plan is completed by central planning authority. Planning authority determines targets and priorities. It's the duty of the design authority to bring harmony within the planning process. This sort of planning comes from the top to the bottom. This plan determines the equality and cohesion. The central planning authority which determines the essential policies in sight of the regional and local needs.
All investment decisions are taken in accordance with goods and targets fixed by the central planning authority. All economic decisions like what to produce, the way to produce, where to produce and to whom it's to be allocated are exclusively decided by the central authority. All aspects of the economy are controlled by the central authority. Again the costs and wages also are fixed by the planning authority.
Oscar Lange criticized centralized planning because it isn't democratic in nature and character. The entire process of planning is regulated and controlled by authority. This planning is inflexible thanks to which it's less adaptability. There's no economic freedom at all. Further, the disequilibrium arising on account of centralized planning can't be easily corrected.
(ii) Decentralized Planning:
Under this planning, responsibility lies with local and regional officials who take economic decisions about the plan. In other words, this planning starts from the grass roots. In other words, this sort of planning is from bottom to top. Under this, plan is framed by the central planning authority by consulting different administrative units of the country.
The plan incorporates plans under central, state and local schemes. Also plans are prepared for various industries too. But individual firms are liberal to take their own decisions about investment and output. Prices are determined by market mechanism although there are government controls.
There is complete economic freedom in consumption, production and exchange. The most defect of decentralized planning is that there's no uniformity and coordination among different sectors of the economy. This plan has been adopted in England and France.
Choice between Centralized and Decentralized Planning:
Decentralized planning is superior to centralized planning. It provides economic freedom and adaptability within the economy. Dependence on market mechanism results into shortages or surpluses within the production of goods and services. The adjustment are often made only through government. If there are shortages of goods, it'll result in inflationary pressures.
These inflationary pressures are often controlled through price controls and rationing. But these create more problems than what they solve. Also it's impossible to coordinate the decision of the planned and unplanned activities. This might lead to disequilibrium within the demand for and supply of goods and services. Again decentralized planning provides economic freedom and incentives to the market economy while centralized planning provides cohesiveness to the economy.
(4). Functional and Structural Planning
(i) Functional planning:
Under functional planning, there's no got to build up new structure, rather the prevailing structure is corrected and modified. According to Zweig in his “The Planning of Free Societies’ has stated “Functional planning will only repair, not build a replacement , it'll improve the wave of the existing order, but not supersede it. It's a conservative, or rather evolutionary sort of planning which can not over turn the existing structure and moves only within its narrow border”. Thus functional planning brings no change within the economic and social set up.
(ii) Structural Planning:
In this sort of planning this social and economic structure is changed and a new structure emerges. Within the developing countries, there's a structure planning. Big economic and social changes are caused to usher into a new system.
For instance, shift from capitalist to socialism can be called a structural change. Structural planning can help in accelerating the pace of economic development. The Communist countries like Russia and China followed structural planning.
Choice between Structural and Financial Planning:
Indian planning is both structural and financial because under public sector, a new economic structure is built up where as under private sector, the prevailing structure is modified. There's not much difference in structural and financial planning. After sometimes structural planning turns into financial planning.
(5). General Planning and Partial Planning:
(i) General Planning:
It refers to planning of all activities in an economy. All sectors of the economy, namely, agriculture, industry, transport, irrigation, power, social services etc. are brought under its scope. The whole resources of the country are sought to be allocated among the different sectors.
(ii) Partial Planning:
It refers to the design of a particular sector of the economy. If planning during a country is confined only to agricultural sector, it's called partial planning. Under it, only a part of the entire investment is studied. It's a short- term method which is adopted to achieve a specific objective.
(B). On the basis of Time:
On the basis of time, planning are often classified into perspective and annual plans:
(6). Perspective and Annual Planning:
(i) Perspective Planning:
Perspective planning may be a long run planning where targets are fixed for long period say 15 to 25 years. But a perspective plan cannot mean one plan for the entire period. During a true sense, broader objectives are to be achieved during a fixed period by dividing the perspective plan into short-run plans of 4 to 6 years.
The long-run objectives are so divided into short- run that one by one all the objectives are achieved within the long-run. In other words, short run plans pave way for the achievement of long run motives. For instance in India, under five years plans, the objectives of employment and national income are determined on the idea of short and long-run.
According to J.Tinbergen, “The main purpose of a perspective plan is to produce a background to the shorter terms plans, so that the issues that need to be solved over a very long period are often taken under consideration in planning over short-terms”. The attitude plan has numerous administrative difficulties thanks to which the fulfillment of the objectives becomes difficult.
(ii) Annual Planning or Prospective Planning:
Annual Planning or short term planning refers to 4 to 6 years plans which are further divided into annual plans in order that each annual plan may slot in short-run plan and every short-run plan may ultimately fit in the long-run^ plan. Plans are further divided into regional and sectional plans. Regional plans are linked with regions, district and localities which are further divided into sectional plans for agriculture, industry, transport, foreign trade etc. The sectional plans are again divided for various branches like iron and steel, food-grains, exports etc.
(C) On the idea of Finance:
On the idea of finance, planning is assessed into physical and financial plans.
(7). Physical and Financial Planning:
(i) Physical Planning:
Physical planning is that where targets or objectives are fixed in terms of real physical resources. Plans also are formulated on the idea of real resources of the economy, i.e., the supply of natural, human, raw materials and capital resources. On the idea of those resources, the output targets are fixed. To quote second Five Year Plan, Physical planning, is an attempt to work out the implication of the development effort in terms of factor allocations and products yield so on maximize incomes and employment. Financial planning is followed as a mean to realize physical targets only. But the target under it, should be properly balanced. Further physical planning has got to be viewed as an over all long-term planning instead of a short-term planning.
Draw backs:
Physical planning has the subsequent drawbacks:
Lack of statistics:
In case of physical planning, there's lack of statistical data. The targets without adequate statisticscannot be achieved.
Inconsistencies:
It is difficult to balance different parts of the economy under physical planning. Because of structural difficulties, within the underdeveloped countries it's impossible to have internal consistencies.
Inflationary Pressures:
Shortages in physical targets cause inflationary pressures which is really very harmful for developing countries. The speed of savings will be low which results in low capital formation. Financial Planning Ignored. Physical planning can't be successful without financial planning. Just in case of India, due to lack of, financial resources in the closing year of (he second plan, the size of the plan had to be reduced.
(ii) Financial Planning:
Financial planning helps in removing disequilibrium between demand and supply to avoid inflation and to cause economic stability. Finance is that the basic key to economic planning. Without financial resources, physical targets can't be achieved. All objectives are fixed in terms of finance i.e, how much value , savings and investments are to be increased.
Limitations:
Financial Planning has the subsequent limitations:
(i) Mobilizing resources through taxation may badly affect the savings.
(ii) There are two sectors in underdeveloped countries i.e barter and monetary system. There's imbalance between the 2 sectors. It'll cause price-rise because of scarcities of supplies.
(iii) little question supplies are often raised through imports but this may cause deficit in balance of payments.
(iv) Financial planning isn't suitable for the developing countries.
(v) Financial planning are often successful as long as there are no bottlenecks. That way, it's necessary to use sectorial planning rather than over all planning.
(D) Other Types:
Other sorts of plans are discussed as under:
(8). Indicative and Imperative Planning:
(i) Indicative Planning:
Indicative plan isn't imperative but flexible. In socialistic countries, planning is comprehensive where planning authority decides about the investment in each sector. Planning authority fixes the costs of the products and factors. All it decides is what to produce and in what quantities to supply . As this planning is rigid, any deficiency in one sector would adversely affect the economy which can't be corrected easily.
Indicative planning is peculiar to the economy of France. But this is often quite different from the sort of planning which exists in other mixed economies. By mixed economy, we mean simultaneous working of public and private sector. It's the state which controlled the private sector in several ways, i.e. by quotas, price, licenses, etc. But under indicative planning, the private sector isn't rigidly controlled to realize the targets and priorities of the plan.
The state gives full assistance to private sector but doesn't control it. It, rather, directs the private sector in certain areas to implement the plan. This plan was utilized in France from 1947-50 as Monnet Plan. France’s experience shows that the firms don't play the sport when development programme doesn't coincide with profit expectations.
Generally monopolistic firms don't bother about government policies and use their power for private benefit. Same way under inflationary pressures, the govt resorts to direct controls instead of maintaining prices mechanism through monetary and monetary policies.
(ii) Imperative Planning:
It refers thereto where all economic activities and resources of the country operate under the direction of the state. The resources are optimally used by the state so as to achieve the targets of the plan. Consumer’s sovereignty is sacrificed under this sort of planning. The consumers get fixed quantities at fixed prices. The govt policies are rigid which can't be changed easily. Any change can adversely affect the economy.
(9)Rolling and fixed Planning:
(i) Rolling Planning:
Rolling plan was advocated by Prof. Myrdal for the development of developing countries. India experienced it for the primary time in April 1978 under Janata Party rule and continued up to April 1980.
In the rolling plan, each year, three new plans are made:
(i) there's an idea for the present year which incorporates annual budget and the foreign exchange budget,
(ii) there's an idea for number of years say 3 to five . It's changed per annum keeping in sight the requirements of the economy,
(iii) A perspective plan for 10 to 20 years or more is presented where broader goals are stated. The annual plan is fitted into same year’s new 3 to five years plan and both are framed within the light of perspective plan.
Rolling plan is framed with a view to remove rigidities. It considers the unforeseen changes like natural calamities or economic changes. Under this financial and physical targets are revised. During this way, the rolling plan gives the advantages of both perspective and flexible planning.
But under rolling plan, long-term subjective can't be achieved since the targets are revised every year. Such changes cannot maintain proper balances within the economy so on achieve balanced development. Moreover frequent revision of the plan results in uncertainties between both the public and private sectors. Further revisions of the targets make the attitude non-committal. This plan has been successful in Poland and Japan, but it failed in Mexico and Burma.
(ii) Fixed Planning:
Fixed planning is for a few fixed period, say four or five or six or seven years. a fixed plan fixes definite objectives which need to be achieved during the plan period. Physical targets and financial outlays don't change except under emergencies. Under this plan, targets are achieved which are laid down within the plan.
This plan helps in maintaining proper balance within the economy. Further, there's no uncertainty during this sort of planning. Fixed plan, with given objectives, ensures public cooperation. This sort of planning needs political will for its successful implementation.
(10). Socialistic and Capitalistic Planning:
In socialistic planning, the economy depends on economic planning. The central authority formulates an idea for the whole economy. Capitalistic planning is focused on the unplanned economic order which gains momentum from some invisible forces within the market. The most feature of this sort of designing is that the absence of a central economic plan.
(11). Flexible and Rigid Planning:
Flexible planning refers to the possibility of adjustment, readjustment in targets, output and resources. This type of designing is dynamic. Rigid planning deals with fixed targets which aren't subject to vary in any adverse circumstances of the country.
(12). Regional, National and International Planning:
Regional planning refers to the decentralized control exercised over the region of a specific country. When economic planning is applied for the state as an entire , it is referred to as national planning. International planning is meant for a state of affairs during which the resources of more than one country are the property of the countries as an entire .
