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Chapter: 12th Economics : Economics of Development and Planning

Types of planning

Economic planning is a process under which attempts are made to achieve desired targets of economic development within a specified period of time.

Types of planning

Economic planning is a process under which attempts are made to achieve desired targets of economic development within a specified period of time. There are different types of planning which differ in ideology and the procedure in execution.

1. Democratic Vs Totalitarian:

Democratic planning implies planning within democracy. 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 governments and private enterprises at the stage of preparation. The plan prepared by the Planning Commission is not accepted as such. It can be accepted, rejected or modified by the Parliament of the country.

Under totalitarian planning, there is central control and direction of all economic activities in accordance with a single plan. Consumption, production, exchange, and distribution are all controlled by the state. In authoritarian planning, the planning authority is the supreme body. It decides about the targets, schemes, allocations, methods and procedures of implementation of the plan.

2. Centralized Vs Decentralized: Under centralized planning, the entire planning process in a country is under a central planning authority. This authority formulates a central plan, fixes objectives, targets and priorities for every sector of the economy. In other words, it is called ‘planning from above’.

Centralization Vs Decentralization

Under decentralized planning local organizations and institutions formulate, adopt, execute and supervise the plan without interference by the central authorities. In other words, it is called ‘planning from below’.

3. Planning by Direction Vs Inducement: Under planning by direction, there is a central authority which plans, directs and orders the execution of the plan in accordance with pre-determined targets and priorities.

Under planning by inducement, the people are induced to act in a certain way through various monetary and fiscal measures. If the planning authority wishes to encourage the production of a commodity, it can give subsidy to the firms. Thus, planning by inducement is able to achieve the same results as under planning by direction but with less sacrifice of individual liberty.

4. Indicative Vs Imperative Planning: Indicative planning is peculiar to the mixed economies. It has been in practice in France since the Monnet Plan of 1947-50.

In a mixed economy, the private sector and the public sector work together. Under this plan, the outline of plan is prepared by the Government. Then it is discussed with the representatives of private management, trade unions, consumer groups, finance institutions and other experts. The essential function of planning is coordination of different economic units. The state provides all types of facilities to the private sector. The private sector is expected to fulfill the targets and priorities. The state does not force the private sector but just indicate the areas of operation and targets to be fulfilled. In short, the planning procedure is soft and flexible.

Under imperative planning, the state is all powerful in preparation and implementation of the plan. Once a plan is drawn up, its implementation is a matter of enforcement. The USSR President Stalin used to say, ‘Our plans are our instructions’. There is complete control over the entire resources by the state. There is no consumer sovereignty. The Government policies and procedures are rigid. China and Russia follow imperative planning.

5. Short, Medium and Long term Planning: Short-term plans are also known as ‘controlling plans’. They encompass the period of one year, therefore, they are also known as ‘annual plans’.

The medium-term plans last for the period of 3 to 7 years. But normally, the medium term plan is made for the period of five years. The medium-term planning is not only related to allocation of financial resources but also physical resources.

Long-term plans last for the period of 10 to 30 years. They are also known as ‘perspective plans’. The basic philosophy behind long-term planning is to bring structural changes in the economy.

6. Financial Vs Physical Planning: Financial planning refers to the technique of planning in which resources are allocated in terms of money while physical planning pertains to the allocation of resources in terms of men, materials and machinery.

7. Functional Vs Structural Planning: Functional planning refers to that planning which seeks to remove economic difficulties by directing all the planning activities within the existing economic and social structure.

The structural planning refers to a good deal of changes in the socio-economic framework of the country. This type of planning is adopted mostly in under developed countries.

8. Comprehensive Vs Partial Planning: General planning which concerns itself with the major issues for the whole economy is known as comprehensive planning whereas partial planning is to consider only the few important sectors of the economy.

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