Concept of Economic Planning

Planning Defined
Planning may be defined as the conscious and deliberate
choice of economic priorities by some public authority.

It is the making of major economic decisionswhat and how

much is to be produced, and to whom it is to be allocated by
the conscious decision of a determinate authority, on the basis
of a comprehensive survey of economic system as a whole.

The two main constituents of the concept of planning are:

a system of ends to be pursued, and
knowledge as to the available resources and their optimum
allocations.
 The main steps of planning
Formulation of objectives or goals;

Fixing targets to be achieved and priorities of production

of each sector of the economy;

Mobilization of the financial and other resources required

for the execution of the plan;

Creation of the necessary organization or agency for

execution of the plan; and

Creating assessment machinery for assessing the progress

made.
 Forms of Planning
1. Authoritarian and Democratic Planning

In authoritarian planning, government is the sole centralized

agency, which draws the plan and implement it. It is more
comprehensive, systematic, rigid and efficient.

In democratic planning, the plan is prepared by an expert

body called planning commission which is outside the
government or the executive and is finally approved by
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 and monetary policies.
 Forms of Planning
2. Planning by Inducement and Planning by Direction
Planning by inducement is often referred to indicative planning.
The state tries to manipulate the market by means of incentives
and inducements through price fixation, taxation and subsidies.
The government seeks to influence economic and investment
decisions by offering incentives to entrepreneurs via fiscal and
monetary policies but does not control or regulate directly the
functioning of the economy.

Planning by direction is very comprehensive. It covers the entire

economy. There is complete concentration of economic authority
in the state. There is one authority, which is in sole charge of
planning, directing, and execution of the plan in accordance
with the pre-determined targets and priorities
 Forms of Planning
3. Centralized and Decentralized Planning

Centralized planning 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. The apex planning body
makes centralized plan. In India centralized plans are prepared
by the Planning Commission and approved by the parliament.
Central authority executes the plan through its subordinate staff.

In case of decentralized planning, plan is prepared from the

grassroots level. For instance, each village panchayat may be
asked to prepare a plan for the economic development of the
village and each industry may be asked to prepare its own plan.
Out of these plans, an integrated plan may then be evolved.
.
The lower government works as a coordinate not subordinate to higher
government in decentralized planning.
 Forms of Planning

4. Physical and Financial Planning

In physical planning, the planning authority has to work out

how much land, materials, capital equipment will be
required to implement the plan and achieve the targets set
out for it. The targets are laid in physical terms e.g. so many
tons of steel, food grains, coal, etc.

In case of financial planning, the planners determine how

much money will have to be invested in order to achieve the
pre-determined objectives or targets.