Types of Planning

Types of Planning

Centralized Planning : In a socialist economy (eg. Former Soviet Russia), there was centralized planning; it was planning by direction. In a socialist state, most of the means of production are owned by the State. All basic economic decisions such as whether priority is to be given for industrialization or for development of agriculture ; if it is decided to give importance to industrialisation, whether to give importance to basic and heavy industries or for consumer goods industries will be made by the central authority.

Planning by Inducement : In a democracy, Planning is done by inducement. For example, ours is a mixed economy where there is a public sector and a private sector. The government has to persuade the industries in the private sector to fulfil the goals of the Plan through inducements such as tax concessions and by providing incentives.

Indicative planning - In this type of planning, the government invites representatives of industry, and business and discuss with them in advance what it proposes to do in the Plan under question and indicates to them its priorities and goals. Then the Plan is formulated after detailed discussions with varied interests. Planning in France is a good example of indicative planning. After we embraced liberalization and privatization policies in 1991, even Indian planning, in a way, has become indicative planning.

Economic plans can also be divided into midterm plans, shorterm plans and perspective plans. Our Five Year Plans are in fact, midterm plans. Short term plans are Annual Plans. During the period of implementation, Five Year Plans operated by dividing them into Annual Plans. Perspective Plans are long term plans and the period ranges from 20 to 25 years. The Five Year Plans are formulated by taking into account the long term objectives of the Perspective Plan.

Rolling Plan : Unlike the Five Year Plan with fixed targets, in the case of the rolling plan, at the end of each year, targets will be fixed by adding one more year to the Plan. That is, without fixed targets for all the five years, depending upon the performance of the Plan in the current year, targets will be fixed for one more year. Like this, it will go on a continuous basis. That is the idea behind the rolling plan.

A great advantage of centralized planning is that plans can be implemented with great speed and targets and goals can be achieved. For example, by means of planning, former Soviet Russia transformed its economy, which was predominantly agricultural into a predominantly industrial nation, within a short span of 12 years. But a demerit of centralized planning is that as the State enjoys a considerable degree of monopoly, in the absence of competition, it is rather difficult to test the productive efficiency of state owned units. Under planning by inducement (democratic planning), though there is a good deal of freedom for people, because of the procedures and delays associated with the democratic process and because of Parliamentary democracy, there will be a lot of delay in the implementation of programmes and economic growth will be slow.