Economic Planning

Structure of economic planning bangladesh

1. ECONOMIC PLANNING

2. Planning is a technique, a means to an end being the realization of a certain predetermined and well defined aims and objectives laid down by a central planning authority.

3. Economic planning is the widest sense is the deliberate direction by person in charge of large resources of economic activity towards chosen ends. Dr. Dalton

4. Need for planning in Underdeveloped countries

5. Increase the rate of economic development. It means increase the rate of capital formation by raising the level of income saving and investment. To improve and strengthen the market mechanism. To remove market imperfection, the available resources have to mobilize and utilize efficiently, to determine the amount and the composition of investment, and to overcome structural rigidities. Removing widespread unemployment and disguised unemployment.

6. Developing agriculture sector along with industrial sector. Developing the economic and social overhead. Removing the poverty of nation

7. PLAN FORMULATION AND REQUISITES FOR SUCCESSFUL PLANNING.

8. 1. Planning commission First prerequisite Should be organized in a proper way Divided and subdivided into a number of division and sub division. 2. Statistical data Prerequisite for sound planning Survey of the existing potential resources of a country together with deficiencies. Finding information about natural resources, human resources. Setting up a statistical organization

9. 3.Objectives Increase national income per capita. Expand employment opportunities. Reduce inequalities of income. Raise agricultural production. Industrialize the economy. Achieved blanched local development. 4.Mobilisation of resources. A plan fixes for public sector resources need to be mobilized. Internal resources and external resources Plan must be conscious about inflationary and balance of payment pressure. Encourage corporate and household savings.

10. 5 .Balancing in the plan A plan should be careful about balance in the economy otherwise shortage and surplus will arise . Two types of balance physical balance, monetary or financial balance. 6.Proper development policy Development policy to avoid any pitfalls that may arise in the development process. Prof Lewis indicated following elements 1.provision for adequate infrastructure.2.investigation of development potential.3.provision of specialized training facilities. 4.improving the legal framework 5. helping to create more and better market. 6.promoting better utilization of resources.

11. Incorrupt and proper administration Economy in administration An education base A theory of consumption Public cooperation Besides those

12. It implies complete centralized planning with no feature of private economy. There will be one central authority , which is responsible for plans, direct and orders the execution of plan Russia is the best example of planning by direction Planning by direction :

13. Arguments against planning by direction. It provides no consequence of actions. Imperfect result. Inflexible. Costly affair. Only temptation for higher standardization No place for consumer sovereignty

14. Planning by inducement: Democratic planning. It refers to the planning by manipulating market. Manipulating not by command but by providing inducement to secure its objectives. Induces people through monetary and fiscal measures and appropriate price policies .

15. Difficulties: Prof. Lewis point out following difficulties: Difficulties to adjust demand and supply. Not suitable to the requirement of underdeveloped countries. Methods of monetary and fiscal control are weak.

16. Democratic Planning : It implies a system of economic order in which the authority that vests in the state is based on the support of common masses. Planning by direction is incompatible with democracy. In democratic planning, the state does not control all the means of production and does not regulate economic operations of the private economy directly.

17. Features of democratic planning: As a consequence of democratic planning, mixed economy comes into being. Public and Private Sectors operate side by side. Central Planning Authority has direct control over Public Sector. Private sector is indirectly controlled by the Central Planning Authority in the national interest through fiscal and monetary measures.

18. People enjoy economic, social and religious freedom. People have freedom to conduct such economic activities as consumption, production, exchange, investments etc. in the national interest and social welfare of the community as a whole . People’s co-operation is sought in the preparation of the plan. There is close relationship between welfare of the people and economic activities. One of the aims of planning is to co-ordinate the activities of public and private sectors. People’s co-operation is sought in achieving the targets of the plan by giving them proper incentives.

19. Economic activities are conducted both to earn profit and promote social welfare. Under democratic planning there is importance both of price mechanism and government-decisions. Objectives of public sector and private sector are coordinated. It has a tendency of decentralization.

20. Its main objective is to raise the standard of living of the people quickly. As such, consumer goods industries are given as much importance as heavy industries. It is quite a flexible planning. There is enough scope to modify-the targets of private sector. Targets of Public Sector are subject to change according to changed circumstances.

21. Totalitarian planning When planning is adopted under a planning, it is called totalitarian dictator. State fully controls the economic affairs, productive resources and economic decisions. Totalitarian planning shows the complete socialization of entire national economy

22. Features of Totalitarian planning Public sector alone functions in this type of planning. Government has full and direct control. Central Planning Authority formulates a comprehensive plan for the entire economy. There is no economic freedom and all economic decisions are taken by the government. People’s welfare can be sacrificed at the altar of rapid economic development of the country. Minimum needs of the people alone are catered to.

23. Features of Totalitarian planning Means of production are controlled by the government that functions as an entrepreneur. Private enterprise has no place in it. Economic decisions are not taken by the market forces or price mechanism but by the government. There is no economic freedom. Government alone controls all economic activities. All economic activities like foreign trade, foreign capital, investment and loan etc. are controlled by the government. It is a rigid planning. People can be pressurized by the government for the achievements of the plan-targets. It is more comprehensive and efficient.

24. Choice between democratic and totalitarian planning: Democratic planning I t gives complete freedom to consumer and producer. Accelerate the face of economic development slowly. Totalitarian planning There is big sacrifice by people. The face of economic development is very fast.

25. Centralized planning: The framing, adopting, executing supervising and controlling the plan is done by central planning authority. This type of planning comes from the top to the bottom. This plan determines the equality and cohesion. All investment decisions are taken in accordance with goods and targets fixed by the central planning authority. All economic decisions are exclusively decided by the central authority.

26. Arguments against centralized planning: It is not democratic in nature and character. Regulated and controlled by authority. Inflexible. There is no economic freedom at all. The disequilibrium arising on account of centralized planning cannot be easily corrected .

27. Decentralized Planning: Plan is framed by the central planning authority by consulting different administrative units of the country. This type of planning is from bottom to top. The plan incorporates plans under central, state and local schemes. Prices are determined by market mechanism even though there are government controls. There is complete economic freedom in consumption, production and exchange.

28. Arguments against decentralized planning: There is no uniformity and coordination among different sectors of the economy.

29. Choice between Centralized and Decentralized Planning: Decentralized planning is superior to centralized planning. It provides economic freedom and flexibility in the economy. I n centralized planning plan is formulation by central authority on the other hand in decentralized planning plan is formulated by central authority by consulting with related administration.

30. Functional planning: Under functional planning, there is no need to build up new structure, rather the existing structure is corrected and modified. “Functional planning will only repair, not build a new, it will improve the wave of the existing order, but not supersede it. It is a conservative, or rather evolutionary type of planning which will not over turn the existing structure and moves only within its narrow border”. Zweig… Thus functional planning brings no change in the economic and social set up.

31. Structural Planning: In this type of planning the present social and economic structure is changed and a new structure emerges. Structural planning can help in accelerating the pace of economic development. The Communist countries like Russia and China followed structural planning.

32. Choice between Structural and Financial Planning: There is not much difference in structural and financial planning. After sometimes structural planning turns into financial planning. Indian planning is both structural and financial because under public sector, a new economic structure is built up where as under private sector, the existing structure is modified

33. General planning: It refers to planning of all activities in an economy. Agriculture, industry, transport, irrigation, power, social services etc. The entire resources of the country are sought to be allocated among the different sectors.

34. Partial Planning: It refers to the planning of a particular sector of the economy. If planning in a country is confined only to agricultural sector, it is called partial planning. It is a short- term method which is adopted to achieve a particular objective.

35. Perspective Planning: Perspective planning is a long run planning where targets are fixed for long period say 15 to 25 years. The long-run objectives are divided into short- run that one by one all the objectives are achieved in the long-run. The perspective plan has so many administrative difficulties due to which the fulfillment of the objectives becomes difficult.

36. Annual Planning or Prospective Planning: Annual Planning or short term planning refers to 4 to 6 years plans which are further divided into annual plans so that each annual plan may fit in short-run plan and each short-run plan may ultimately fit in the long-run plan. Plans are further divided into regional and sectional plans.

37. Physical Planning: Physical planning is that where targets or objectives are fixed in terms of real physical resources. Plans are also formulated on the basis of real resources of the economy, i.e., the availability of natural, human, raw materials and capital resources. Financial planning is followed as a mean to achieve physical targets only. But the target under it, should be properly balanced.

38. Draw backs of physical planning Lack of statistics. Inconsistencies. Inflationary Pressures.

39. Financial Planning: Financial planning helps in removing disequilibrium between demand and supply to avoid inflation and to bring about economic stability. Finance is the basic key to economic planning. All objectives are fixed in terms of finance i.e. how much national income, savings and investments are to be increased.

40. Limitations of financial Planning Mobilizing resources through taxation may badly affect the savings. There are two sectors in underdeveloped countries i.e barter and monetary system. There is imbalance between the two sectors. It will lead to price-rise due to scarcities of supplies. No doubt supplies can be raised through imports but this will lead to deficit in balance of payments. Financial planning is not suitable for the developing countries Financial planning can be successful only if there are no bottlenecks. That way, it is necessary to use sectorial planning rather than over all planning.

41. Indicative Planning: Indicative plan is not imperative but flexible. Planning authority fixes the prices of the products and factors. All it decides is what to produce and in what quantities to produce. Mixed economy means simultaneous working of public and private sector. It is the state which controlled the private sector in different ways, i.e. by quotas, price, licenses, etc. But under indicative planning, the private sector is not rigidly controlled to achieve the targets and priorities of the plan.

42. Imperative Planning: It refers to that where all economic activities and resources of the country operate under the direction of the state. The resources are optimally used by the state in order to achieve the targets of the plan. The consumers get fixed quantities at fixed prices. Any change can adversely affect the economy.

43. Rolling Planning: Rolling plan was advocated by Prof. Myrdal for the development of developing countries. In the rolling plan, every year, three new plans are made: There is a plan for the current year which includes annual budget and the foreign exchange budget, 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, 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.

44. Rolling plan is framed with a view to remove rigidities. It considers the unforeseen changes like natural calamities or economic changes. But under rolling plan, long-term subjective cannot be achieved since the targets are revised every year. This plan has been successful in Poland and Japan, but it failed in Mexico and Burma.

45. Fixed Planning: A fixed plan fixes definite objectives which have to be achieved during the plan period. Fixed planning is for some fixed period, say four or five or six or seven years. Physical targets and financial outlays do not change except under emergencies. This plan helps in maintaining proper balance in the economy. This type of planning needs political will for its successful implementation.

46. 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.

47. Flexible and Rigid Planning: Flexible planning refers to the possibility of adjustment, readjustment in targets, output and resources. This type of planning is dynamic. Rigid planning deals with fixed targets which are not subject to change in any adverse circumstances of the country .

48. Regional, National and International Planning: Regional planning refers to the decentralized control exercised over the region of a particular country. When economic planning is applied for the nation as a whole, it is known as national planning. International planning is meant for a state of affairs in which the resources of more than one country are the property of the countries as a whole.