Introduction

There are various types of Economic Planning. There are so many types of plans as there are patterns of economic systems. There are some plans which are functional, structural, Indicative, Democratic and Decentralized planning, Physical planning, Regional and National Planning.

main types of economic planning

Democratic Planning

Individual Freedom is soul of democracy but central control is important in planning. Therefore democracy and planning were different concepts, yet for the nation’s economic development plan is implemented with co-operation of peoples. That we say that democratic planning is one of important types of economic planning in democratic system of Government.

Decentralized Planning

In Decentralized planning, the central authority only fixes the overall targets of production and investment, but considerable freedom is given to various bodies like State Government. On the different levels like state level and district level they fix their own production targets within national framework. There is freedom to fix the prices and wages. Such types of planning prevail in Great Britain and France.

Planning by Inducement

In this kind of Planning, there is no compulsion. The government uses persuasion to implement certain schemes of projects and tries to influence investment decisions by offering incentives to the entrepreneurs through fiscal and monetary policies. There is freedom for private enterprises to produce and to consume with suitable controls. This kind of planning may exist in a democratic set-up of a capitalist economy.
Planning by inducement is also called flexible planning. Because, there is a lot of freedom for the economy to undertake developmental programmes.

Regional and National Planning:

A national plan is a plan for the country as a whole, whereas a regional plan comprehends a particular region. In a vast country like India with a diversity of climate and physical resources, regional planning, concerned primarily with the economic development of a region, becomes inevitable.

Functional Planning and Structural Planning

Planning may be attempted within the existing socioeconomic framework or it may seek to change the economic structure radically. The former is known as functional planning and the latter structural planning. Functional planning attempts to modify or improve the existing structure or repair or rehabilitate it, if it is damaged of disrupted, e.g. Indian economy after the partition.

Functional planning assumes that planning is possible even in a capitalistic economy whereas advocates of structural planning think that planning and capitalism are incompatible.
Planning in India so far is functional. Even though the avowed object of Indian planning is to establish a socialistic pattern of society but no drastic or revolutionary steps have been taken to change radically the existing economic order. In the U.S.S.R. and China, on the other hand, planning has been structural because the very structural changes have been made in those economies.

Financial Planning

In financial planning the allocation of resources and measurement of resources is
made in terms of money. Physical planning implies the allocation of resources in terms of men, material and machinery, which we generally call the natural and human resources. In the first, finance is the key to economic planning. If sufficient finances are not available, the physical targets of any plan may be difficult to achieve. The outlay is fixed in terms of money and the estimates are made regarding the growth of the national income arising out of this outlay in financial planning. The finances are raised through taxation, savings and borrowings. In financial planning, a number of balances are worked out.

Limitations of Financial Planning

Financial Planning has many limitations, they are as below :
1. Financial resources are not unlimited. Very heavy taxation may adversely affect the propensity to save.
2. There is a vast non-monetized sector in underdeveloped economies as the people live on subsistence level and much of the produce is not brought to the market in such economies. The monetized sector is small. On account of the imbalance between these two sectors, shortages in supply are likely to result in an inflationary rise in prices thus upsetting physical targets.
3. If the shortages in supplies are made up through imports, the problem of balance of payments will become serious.
4. As Prof. Dobb says “ The problem of industrialization in backward countries is essentially not financial but a problem of economic organization” and availability of physical resources.

Physical Planning

In physical planning, on the other hand, an attempt is made to measure development effort in terms of factor allocations and product yields, so as to maximize income and employment. Here, we have to maintain physical balances between investments and outputs. Investment co-efficient are calculated.

Thus in physical planning, an overall assessment is made of the available real resources such as raw materials and manpower and how they are to be mobilized for avoiding bottlenecks. In short, physical planning concerns itself with physical targets with regard to agricultural and industrial production and transportation services. On the other hand financial planning deal with fixing of financial targets of incomes and investments.

Planning Under Mixed Economy

Mixed economy represents a half-way house between capitalism and socialism. If the private sector is wider, as in India, the system is akin to capitalism. But as the public sector expands, it approximates more and more to socialism. It is recognized that both the private and public sectors have a vital role to play in the growth of the economy. Not only does one assist the other but each exercises a check on the other. The private sector acts as a breaker on the bureaucratic tendency of the public sector and the latter on the monopolistic tendencies on the former.

In mixed economy a very comprehensive planning is out of the question. It is possible to plan the public sector programmer. Even in the organized private sector as in major industries, the plan can work. But in the organized rural sector, the planning authority feels seriously handicapped. That is why in India, the planners have been terribly let down by agriculture.

But British Government set an example in mixed economy when it nationalized the Bank of England in 1946 and also nationalized some services, e.g. civil aviation, inland transport, coal mines, electricity and gas etc. The system of mixed economy was ushered in France when it was liberated in 1945 and the Ministry of National Economy was established to work out a national plan. A General Planning Commission was also set up plan. We find in France decentralized control of production and investment over a wide field as well as centrally planned and coordinated programme of investment and development in basic and strategic industries. The State attitude is indicative in the former and imperative in the latter.

Mixed economy is a special feature of the underdeveloped countries. Democratic planning which is a cardinal principle of planning has a special appeal to the people in the emerging economies. It embodies virtues of both capitalism and socialism.

In the former Government owns and manages business enterprises and in the latter private enterprise is given a free hand subject to the requirements of the overall plan. As the First Five year Plan observes: “It is clear that in the transformation of the economy that is called for the state will have to play the means crucial role …… This need not involve complete nationalization of the means of production of elimination of private agencies in agriculture of business and industry. It does mean, however, a progressive widening of the public sector and a reorientation of the private sector to the needs of a planned economy” Again, “the private and the public sector cannot be looked upon as anything like two separate entities ; they are and they must function as parts of a single organization”. The foundations of mixed economy in India had been laid by the Industrial Policy Resolution of the Government of India in 1948 when certain industries were reserved to function in unison and are to be viewed as parts of single mechanism. The plan as a whole can go through only on the basis of simultaneous and balanced development in the two sectors…… In fact it is appropriate to think more and more in terms of interpenetration of the public and private sectors rather than of two separate sectors”

Limitations of Planning Under Mixed Economy

Even a mixed economy suffers from a number of limitations as shown below:-
(1) Simply because an industry is nationalized it does not mean the labor efficiency increases of there is a change in the attitude of labor for the better. On the contrary, experience shows that industries in the public sector are always in the red, incurring heavy losses.
(2) Planning in a mixed economy may not succeed, because public sector will always expand at ht expense of the private sector which is subject to all kinds of control.
(3) As Arthur Lewis says, “ The nationalization of industry is not essential to planning; a government can do nearly anything it wants to do by way of controlling industry without resorting to nationalization as in Nazi Germany.
(4) Unless there is a very strong government, the private enterprise has the power to disrupt the economy
(5) Nationalization is like wine. The workers want more and more nationalization as they are not satisfied with private management

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 first time in April 1978 under Janata Party rule and continued up to April 1980.
In the rolling plan, every year, three new plans are made:
(i) There is a plan for the current year which includes annual budget and the foreign exchange budget,
(ii) There is a plan for number of years say 3 to 5. It is changed every year keeping in view the needs 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 5 years plan and both are framed in 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. In this way, the rolling plan gives the benefits of both perspective and flexible planning.
But under rolling plan, long-term subjective cannot be achieved since the targets are revised every year. Such changes cannot maintain proper balances in the economy so as to achieve balanced development. Moreover frequent revision of the plan leads to 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.

Socialistic and Capitalistic Planning

In socialistic planning, the economy depends on economic planning. The central authority formulates a plan for the entire economy. Capitalistic planning is focused on the unplanned economic order which gains momentum from some invisible forces in the market. The main feature of this type of planning is the absence of a central economic plan.

Indicative and Imperative Planning

Indicative or Planning by Inducements

Planning by inducement is often referred to as ‘indicative planning’ or ‘market incentives’. In such type of planning, the market is manipulated through incentives and inducements. Accordingly, in this system there is persuasion rather than compulsion or deliberate enforcement of orders. Here the consumers are free to consume whatsoever they like, producers are free to produce whatsoever they wish. But such freedom of consumption and production are subject to certain controls and regulations. The consumers, producers and other factors of production are induced with the help of various fiscal and monetary devices. For example, if the planning authority wishes to boost the production of corn oil in Pakistan it will provide subsidies, tax holidays and loans to the firms involved in production of corn oil. To encourage savings and investment and discourage consumption a suitable package of fiscal and monetary policies can be introduced in the market. Therefore, the desirable results can be attained with the help of incentives and without the imposition of orders and instructions. Moreover, in such planning there is less sacrifice and less loss of liberty – economic as well as non-economic

Merits of Planning by Inducements

(a) Consumers’ sovereignty remain intact. Planning by inducements is more democratic as compare to planning by directions.
(b) There is a freedom of choice of profession.
(c) In planning by inducements, there is freedom of enterprise. Produces are free to produce whatever they like but within in the capacity of given rights.
(d) Planning by inducements is smooth and flexible. It is more popular because it enables to incorporate the changes in resources, technology and taste etc. even after the finalisation and implementation of plan.
(e) Under this sort of planning, the inertia attached with standardisation can be put to an end and producers are free to produce in accordance with the desire of consumers. Therefore, there is a variety of goods and services in the market.
(f) There are less administrative costs involved in planning by inducements.
(g) The problem of shortages and surpluses is solved as there is an existence of automated market system. The demand and supply is automatically adjusted and remain in balance under market economy.

Demerits of Planning by Inducements

(a) It also fails to achieve 100% targets of economic planning.
(b) Under planning by inducements, there are profit motives more than welfare of public. Private entrepreneurs care for those products which yield high profits. Products or services with less profit or no profit do not attract private entrepreneurs. Such products or services include education, health, defence, security, etc.
(c) The producers may find the government policies regarding economic affairs not attractive enough to follow. There may be disputes among entrepreneurs and the government regarding tax rates, investment policies, interest rates, etc.
(d) The mechanism of market economy may cause the prices to inflate esp. with reference to under-developed countries or in case of oligopoly where there is a shortage of certain products like petroleum and gas.
(e) There may be disharmony between labour and producer, and there may be serious industrial disputes.

three components or approaches regarding indicative planning

(a) Forecasting Approach: Under forecasting approach, the individuals are provided with the information, through making certain forecasts. Such forecasting serve as a guide to their decision making. The forecasting not only indicate about the feasible future, but they also specify a desirable future in terms of growth rate of the economy.

(b) Policy Approach: The second component of the indicative planning is concerned with policy approach. Through policy approach, the inconsistent policies of government departments are co-ordinated within a coherent model framework keeping in view the set objectives. Moreover, when once the policies are co-ordinated, they will provide guidelines to the people, consumers and producers.

(c) Corporate Approach: The third way to demonstrate indicative planning is through corporative approach. This approach is practised in France. Here the co-ordination function of indicative planning envisages at two level. In the first place, it requires co-ordination of the behaviour of economic groups like business enterprises and trade unions, etc. which hold power in the market. In the second place, it co-ordinates the relation between private and public activities.

Planning by Directions or Imperative planning

Imperative planning is the planning where the formulation and implementation of the plan is made by the central planning authority. It is also known as ‘directive planning’. Under imperative planning, it is the duty of the state to provide necessary supplies like raw material, machines, manpower and entrepreneurs as all such resources are owned by the state. Under socialist economies, where the imperative planning is in practice the planners always prefer future consumption over present consumption. Thus under imperative planning the priorities laid down by the planners always supersede those of masses. There is no consumer sovereignty under imperative planning.

This type of planning is practised in socialist countries like China, Former USSR, Cuba, North Korea, etc. Under planning by direction, there is one central authority which plans, directs and orders the execution of the plan in accordance with the pre-determined targets and priorities. It determines the production figures, delivery schedules, quotas regarding the production of the goods, price controls, use of foreign exchange and allocation of resources like labour, etc. amongst different competing uses. Thus, such planning is comprehensive and encompasses the whole economy. Planning by directions is similar to military or defence plans which are carried through orders and instructions. Thus the strategy of planning through directions coincides with the military strategy. Alongwith the disintegration of former Soviet Union, the methodology of planning by directions has received certain serious setbacks. Now most of the UDCs are tend to adopt market economic system.

Demerits of Planning by Directions

(a) Planning by direction is undemocratic since the people are ignored all along.
(b) It is bureaucratic and totalitarian. Under bureaucratic system, the individual’s sovereignty is completely abolished. Corruption, red tapism, VIP system, tyranny and austerity are the by products of bureaucracy.
(c) Rationing and control result in black marketing.
(d) There are shortages of some goods and as well as surpluses of other goods. That is, there is an imbalance in production output.
(e) This sort of planning is inflexible. Once the plan is prepared, there is no room for alterations in later phases of planning. A part of the plan cannot be changed without simultaneous changes in many interconnected activities. Planning by direction is so complex that it is impossible to change even a part of it as it will involve in altering the whole plan.
(f) The fulfilment of plan cannot be guaranteed, as the planning by direction is hampered by black marketing and corruption.
(g) Planning by direction also leads to excessive standardisation which impinges on consumer sovereignty. In other words, under planning by direction the goods produced are standardised lacking the variety. As in case of USSR, the produced TV, Fridges and Automobiles were identical having no differentiation.
(h) It also involves huge administrative costs, as the planning by direction involves in elaborate census, numerous forms and army of clerks.