2. MEANING OF ECONOMIC PLANNING
• Planning is a technique it means to an end being the realization of certain pre-
determined and well defined aims and objectives laid down by a central planning
authority
• Professor Lewis has referred to six different senses in which the term planning is
used in economic literature.
3. • First there is an enormous literature in which it refers only to the geographical
zoning of factors, residential buildings, cinemas and the like. Sometimes this is
called town and country planning and sometimes just planning.
• Secondly planning means only deciding what money the government will spend in
the future, if it has the money to spend.
• Thirdly a planned economy is one in which each production unit uses the resources
of men, materials and equipment allocated to it by central order.
• Fourth planning sometimes means any setting of production targets by the
government. Whether for private or public enterprise.
4. • Fifth, here targets are set for the economy as whole maintaining to allocate all the
country's labour, foreign exchange raw materials and other resources between the
various branch's of the economy.
• Finally the word planning is sometimes used to describe the means which the
government uses to try to enforce upon private enterprise the targets which have
been previously determined.
• Professor Robbins defines economic planning as collective control or
supersession of private activities of production and exchange’’.
5. NEEDS FOR PLANNING IN UNDERDEVELOPED COUNTRIES
• Principal objectives of planning in underdeveloped countries is to increase
the rate of economic development.
• D.R.Gadgil, “Planning for economic development implies external
direction or regulation of economic activity by the planning authority
which is in most cases, identified with the government of the state.”
• It means increasing the rate of capital formation by raising the levels
saving and investment. But increasing the rate of capital nation in
underdeveloped economies is be set with a number of difficulties. People
are poverty-ridden
6. • The rationale planning arises in such countries to improve and strengthen the market mechanism.
• The planning is necessity of removing widespread unemployment.
• For developing the agricultural sector along with industrial sector arises from that agriculture and
industry are independent.
• The expansion of domestic and foreign trade requires not only the development of the agricultural
and industrial sectors along with social and economic overheads but also existence of financial
institutions.
• The planning for development is indispensable for removing the poverty of nations.
7. • Two methods are open to underdeveloped countries.
– One is planned development by importing capital from abroad which calls
“supported industrialization’’ and
– other is by force saving which characterizes as “self-sufficient industrialization’’
8. PLAN FORMULATION AND FUNDAMENTALS FOR
SUCCESSFUL PLANNING
The formulation and success of a plan requires the following
• Planning commission: The first prerequisite for ’’plan is the setting up of planning commission which
should be organized in a proper way.
• Statistical data: A prerequisite for sound planning is a through survey of the existing a potential resources
of a country together with its deficiencies.
• Objective: the plan may lay down the following objectives like
To increase national income and per capita income,
To expand employment opportunities,
To reduce inequalities of income and wealth
To raise agricultural production.
To industrialize the economy.
9. • Fixation of target and priorities: To fix targets and priorities for achieving the
objectives laid down in the plan.
• Mobilization of resources: A plan fixes the public sector outlay for which
resources are required to be mobilized.
• Balancing in the plan: A plan should ensure proper balance in the resource
mobilization.
• Incorrupt and efficient administration: A strong, efficient and incorrupt
administration is required for successful planning. But this is what an
underdeveloped country lacks the most.
10. • Proper development policy: The state should lay down, proper development policy
for the success of a development plan and to avoid any pitfalls that may arise in the
development process.
• Economy in administration: Every efforts should be made to effect economies in
administration, particularly in the expansion of ministries and state departments.
• An education base: For a clean and efficient administration a firm educational base
essential
11. • A theory of consumption: According to professor Galbraith an
important requirement of modern development planning is that it has a
theory of consumption. Underdeveloped countries should not follow the
consumption patterns of the more developed countries.
• Public cooperation: Above all it is considered to be one of the
important levels for the success of the plan in a democratic country.
12. PLANNING BY DIRECTION
• Planning by direction is an integral part of a socialist society like that of the
soviet union. There is one central authority which plans, directs and orders
the execution of the plan in accordance with pre-determined targets and
priorities.
13. PLANNING BY INDUCEMENT
• It is democratic planning. It means planning by operating the market. There is no
compulsion but encouragement. There freedom of enterprise. Freedom of
consumption and freedom of production.
• It is able to achieve the same results as are likely to be achieved in planning by
direction by with less expense of individual liberty.
14. FINANCIAL PLANNING
• Financial planning refers to the techniques of planning in which resources are
allocated in terms of money while physical planning pertains to the allocation of
resources in terms of man, machinery.
15. PHYSICAL PLANNING
• It is an attempt to work out the implication of the development efforts in terms of
factor allocation and product yields so to maximize incomes and employment.
16. INDICATIVE PLANNING
• It prevails in France. Planning in socialist countries is comprehensive in which
the planning authority decides about the amount to be invested sector in
fixation of prices of products and factors and the types and quantities of
products to be produced.
• The system of planning is free from all such troubles because it is in the
principle of decentralization in the operation and execution of the national
plans. It is known as indicative or soft planning.
17. ROLLING PLANNING
• Professor Myrdal was the first economist to advocate a rolling plan for developing
countries.
• It was introduced in Indian planning by the Janata Government on April 1, 1978.
• In rolling plan every year the new plans are made and acted upon
• There is a plan for the current year which includes the annual budget and the foreign
exchange budget.
• There is a plan for a number of years, say three, four or five. It is changed every
year in keeping with the requirements of the economy. It contains targets and
techniques to be followed during the plan period.
18. FIXED PLANNING
• In contrast to the rolling plan, there is a fixed plan for four, five,
six years. A fixed plan lays down definite aim and objectives
which are required to be achieved during the plan period.
• For this purpose. Physical targets are fixed along with the total
outlay. Physical targets and financial outlays are rarely changed
except under emergencies.
19. PLANNING UNDER CAPITALISM
• It is not based on any central plan. The production is also carried out by private
enterprise.
• It is not planned by the government. Market prices are determined by market
forces and are not by the government.
• So under capitalism planning the institutions of private ownership, private
enterprise and price mechanism continue to operate
• There is no comprehensive planning under capitalism.
20. PLANNING UNDER SOCIALISM
• It is based on central plan.
• There is a central planning authority or board which formulates a plan for the
entire economy.
• There is complete centralization of economic power in the central planning
authority.
• It fixes the plan objectives, priorities and targets
21. PLANNING MODELS
• Planning models have been increasingly used in LDCs for the drawing
up of plans for economic development.
• A model expresses relationship among economic variables which
explain and predict past and future event under a set of simplifying
assumptions
• It consists of a series of equations each of which represents the
association among certain variables.
22. • Planning models are three types: Aggregate, Multisector and Decentralization.
• Aggregative models trace the optimal path of development overtime of such
economy-wide aggregates as income, saving, consumption, investment, etc...
• Multisector models are designed which connect macroeconomic aggregates with
the sectors consisting the operational content of the plan.
• Decentralized models have sector or project level variables which are used to
prepare models for individual sectors or projects.
