First day of Foundation Course: Excerpts of the Lecture delivered on 9 June, 2013

What are the different types of planning?

There are several varieties of economic planning. We mention some of them below.

(i) Planning by direction and planning by inducement:

Professor Lewis draws a distinction between planning by direction and planning by inducement.

Planning by direction

Planning by direction is an integral part of a socialist society like that of the erstwhile Soviet Union. It entails complete absence of laissez faire. There is one central authority which plans, directs and orders the execution of the plan in accordance with predetermined targets and priorities. Such planning is comprehensive and encompasses the entire economy.

Drawbacks

Firstly, planning by direction is associated with a bureaucratic and totalitarian regime. There is complete absence of consumers’ sovereignty.

Secondly, planning by direction is always inflexible. Once a plan has been drawn it becomes impossible to revise any part of it.

Thirdly, planning by direction develops what Lewis calls the ‘tendency to procrustean’. It leads to excessive standardization. A standardized product is manufactured without any varieties. Lewis maintains that “standardization is frequently an engine of progress but it is also frequently the enemy of happiness”.

Lastly, planning by direction is a costly affair. It requires an army of clerks, statisticians, economists, and other trained personnel.

Planning by inducement

Planning by inducement is democratic planning. It means planning by manipulating the market. There is no compulsion but persuasion. There is freedom of enterprise, freedom of consumption and freedom of production. But these ‘freedoms’ are subject to state control and regulation. People are induced to act in a certain way through various monetary and fiscal measures.

Difficulties:

 (i) The incentives offered may not be adequate for the producers and consumers to act the way the state desires them to behave. It may upset the government plans.

(ii) Since the actual working of the plan is left to the market forces, surpluses or shortages are bound to arise.

(iii) Monetary and fiscal measures alone are inadequate to induce planned development of the economy by raising the rate of capital formation.

(ii) Indicative planning and imperative planning:

Indicative planning:

Indicative planning is peculiar to the mixed economy of France. In a mixed economy, the public and private sectors work together. In indicative planning the private sector is neither rigidly controlled nor directed to fulfill the targets and priorities of the plan. Even then, the private sector is expected to fulfill the targets for the success of the plan. The state provides all types of facilities to the private sector but does not direct it, rather indicates the areas in which it can help in implementing the plan. In the French system of planning, the public sector comprises basic sectors like coal cement steel, transportation, fuel fertilizers farm machinery electricity tourism, etc. In these sectors the fulfillment of production and investment targets is imperative.

Imperative planning:

Under imperative planning all economic activities and resources of the economy operate under the direction of the state. There is complete control over the factors of production  by the state. The entire resources of technology country are used to the maximum in order to fulfill the targets of the country are used to the maximum in order to fulfill the targets of the plan. There is no consumers sovereignty in such planning.

(iii) Democratic planning:

In democratic planning, the philosophy of democratic government is accepted as the ideological basis. People are associated at every step in the formulation and implementation of the plan. A democratic plan is characterized by the widest possible consultations with the various state government and private enterprises at the stage of preparation. It seeks to avoid all clashes and tries to harmonies all opinions that are for the groups and associations plays a major role in its execution. The plan is fully debated in the parliament, and the state legislatures and in the private forums.

Democratic planning respects the institution of private property. Nationalization is resorted to the limited extent absolutely necessary and reasonable compensation is paid in all cases. Price mechanism is allowed to play its due role. The government only seeks to influence economic and investment decision in the private sector through fiscal and monetary measures. The private sector operates side by side with the public sector. India is a unique experimentation in democratic planning.
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