Chapter 5 Planning for Development

PLANNING FOR DEVELOPMENT

Planning: Definitions

Hayek - “The direction of productive activity by central authority.”

Dalton – “Planning is the deliberate direction by persons in charge of large resources of economic activity towards chosen ends.”

Features of planning –

1. Conscious efforts – in an unplanned economy various decisions regarding what to produce, how to produce and when to produce are all decided y mechanism. Planning means a conscious effort by the government to take various economic decisions. So that the economy is directed in and in some areas controlled in a particular direction.

2. Economic variables – Planning involves influencing various economic variables like consumption, saving, investment, etc. There are the variables at macro level i.e. for the whole economy. E.g. the total income of the country is Rs. 80000 crores of which the savings is 10%. Supposing this savings is to be increased by 2% then certain policy decisions will have to be taken by the government and this will be done through planning process.

3. Country of region – The planning process may be carried out for the whole country or for a particular region. E.g. In India planning is carried out by the central government for the whole country. State government, city corporations, municipalities, etc also carry it out.

4. Time schedule – The planning is for a particular time period. It may e for 5 years or 10 years or some times it is for 15 years. In India the time frame adopted is five-year plan and within this the annual plans are prepared.

Need for Planning

1. Inadequacy of the market mechanism – Markets in the LDCs are faced with imperfections and structural shortcomings in commodity markets, factor market and capital and money markets. They have various deficiencies. So planning is made necessary in LDCs.

2. Elimination of instability – Market economies are unstable and suffer from wide fluctuations. Progress is not possible under such circumstances. The objective therefore is usually expressed as steady progress, which means progress without fluctuations. This is made possible by the way of planning.

3. Resource mobilization and allocation – LDCs are under a severe resource constraint. They have very limited financial as well as skilled manpower resource. They cannot afford to waste those resources. To avoid the wastage planning is necessary.

4. Equitable distribution of income – Some of the LDCs have high-income inequalities. Planning can be used as an instrument of equalizing opportunities, wealth and income.

5. Harmonizing wage-relations – Price mechanism can ensure a harmony of wage relations only under conditions of perfect competition and full employment. Planning can ensure the utilization of labour in such a way as to create more demand for the labour of the disadvantaged sections.

6. Coping with major economic changes – Natural calamities, political instability, eruption of violence, etc. are some of the changes that cannot be foreseen. These non-economic changes generate economic changes. The planning authority with the all the resources in materials, men and money at its command can however cope up with such changes.

7. Wastes of competition and duplication of services – When competition is not perfect, it breeds several wastes like cutthroat competition, price wars, wasteful sales promotion, etc. All these wastes can be avoided with judicious planning.

8. Externalities – Damage to excessive use of non-restorable resources, health-hazards caused by productive activities to the workers are some of the externalities. In planned economy, social costs and social benefits are given due consideration.

9. Creating a climate – Preparation of a plan incorporating a detailed statement of national economic goals and social objectives create a climate for a change. It can give a purpose to the actions of the people. A plan of national campaign against poverty, ignorance and disease may create the climate to fight for the common cause.

10. Trade and aid – In foreign trade, plan serves a useful purpose. Once the whole plan is ready the magnitude of trade becomes clear. The govt. can enter into bilateral trade agreements with other countries.

Formulation or preparation of plan / Steps in planning

Usually the different countries may adopt different ways of planning. There will be diversity in planning. However there are few steps, which are more or less common in the planning process. Usually formulation of plan includes the following steps.

1. Central planning authority – Each country has to set up machinery, which will formulate and implement the planning process. In India we have a planning commission which is headed by a prime minister and which is responsible for the various aspects of planning. This planning commission includes various experts like economists, financial experts, politicians, and other government officers.

2. Survey of the Economy – A plan has to be based on a proper survey of the economy. Including the strengths and the weaknesses of the economy, availability of resources and its utilization, etc. Usually this survey is carried out on an annual basis. In India we have CSO (Central Statistical Organization) in different states, which is responsible for carrying out the survey.

3. Setting objectives – The planning process should have certain objectives, which are to be fulfilled or achieved. These objectives are laid down in relations to future development of the economy. Thus objectives can be to increase the employment or reduce unemployment, to decrease poverty, etc. these objectives must be realistic and flexible so that if required necessary changes can be carried out in the objectives.

4. Priorities and targets –Once the objectives are decided the priorities and the targets have to be laid down. E.g. the objectives may be to increase the employment level. Within this the priority may be to increase the employment for rural people or to increase the employment for women. The target gives a definite number for achieving the objectives.

5. Strategy- The word strategy is a military word. Indicating the technique of reaching a particular point. In the planning process different strategies would be required for achieving different objectives. These strategies are to be planned, implemented and properly discussed. A proper strategy will help in achieving the target.

6. Internal consistency and balance – The strategies which are decided should be internally consistent and properly balanced otherwise it may lead to shortages and surpluses. The balance in planning process includes the physical and financial balance. The physical balance will try to ensure that the outputs of various sectors of the economy are properly balanced. Otherwise it will lead to a situation of non-availability of raw material, manpower, etc. the financial balance refers to balancing of income and savings to the supply of goods and services.

7. Mobilization of resources – In order to implement the plan various resources are required. The sources of finance include taxation provident fund, deficit financing, etc. the planning process has to ensure how much amount will be collected from each of these sources. A planning process also has to consider how the private sector will be able to mobilize the different resources.

8. Choice of planning a model – For implementing the plan for the economy various planning models are available. The right type of planning model will have to be selected which includes – a) Aggregate Growth Model – In this model the aggregate Growth of the whole economy is considered. B) Sectorial projection model – In this model the whole of the economy is divided into sectors and planning is carried out respectively for the sector. E.g. agricultural sector, industrial sector, etc. c) Comprehensive inter industry model – This is the most sophisticated model in which activities of all productive sectors of the economy are inter related. Each industry is considered a producer of output and at the same time a user and input from other industry. Depending upon the level of development of a country a country may se more sophisticated model. India makes use of this sophisticated model.

9. Plan period – The planning process is for a particular time period. It may be for 5 years, 10 years or 15 years. In India the time frame adopted is 5 year plan in which the annual plan can also be there in order to ascertain whether the targets are being achieved or not.

10. Efficient administration- A plan may be prepared but if it is not implemented n a right and efficient manner then the targets and objectives will not be achieved. Proper implementation of plan requires strong, efficient and non-corrupt administration.

11. Evaluation – A plan prepared and implemented must be periodically evaluated. It may become necessary to change the targets in certain situations. The reasons of not achieving the targets will have to be discussed and this reasons will to be considered into future planning.

Limitations of Planning:

In spite of several arguments in favour of planning many economist like Killick say that “It is doubtful whether plans have generated more useful signals for the future than would otherwise have been forthcoming.” In other words, the experiment of planning in most of the LDCs over the past few decades has not fulfilled the expectations of the people. Here are the limitations of planning.

1. Deficiencies in plans and their implementation – Plans are over-ambitious. They look like election manifestoes, promising too many things within a short span of the plan period. There arises a gap between plan formulation and implementation.

2. Insufficient and unreliable data – The quality and reliability of the data decides what will happen to the plan. The situation becomes worse if trained economists and statisticians are not available.

3. Unanticipated economic disturbances – LDCs are greatly dependent upon external variables like inter-national price changes, trade fluctuations, import-export policies of developed countries, etc. Beside that uncertainties arising out of calamities like wars, floods, droughts and so on. All these factors render even short-run forecasting difficult.

4. Institutional weaknesses - The planning process of the LDCs suffer from several institutional weakness like separation of the planning agency from the implementers, the lack of continuous dialogue among planners, administrators and political leaders. In addition, there are weaknesses like incompetent and corrupt administration, red-tapism, resistance to innovation and change, inter-departmental rivalries, etc.

5. Lack of political will – The ultimate cause of plan failures is largely attributed to a lack of commitment and political will on the part many Third world leaders and high level civil servants. A political will requires unusual ability and political courage to challenge the various vested groups and to persuade them for the planning and completion of the plan.

6. Reduction in lines of control – Planning in India is only indicative. It gives guidelines. Several institutes, firms and individuals implement the plan. The success of such a plan can be ensured through various lines of control wherein, the decisions like what to produce, how to produce, how much to produce, fro whom to produce are taken by private individuals. With the adoption of economic reforms and the policy of liberalization, all these lines of control have considerably weakened and some of which have actually be discarded.

7. Socio-cultural Barriers – In an open economy working in close co-operation with other countries of the world existing at various levels of development, the social-cultural aspects achieve great importance. The competitiveness of an economy depends upon the quality of population not only in terms of education and health but also in terms of motivation, work culture and work ethic. In absence of these Indian planning is bound to face hurdles at every step.

8. The hazard of population growth – A rapidly growing population forces several limitations upon planning. The growing numbers for satisfying their minimum needs takes away the additional income resulting from growth. This adversely affects the rates of saving and investment. The growing dependency burden also dampens the efforts of development. Finally the planning collapse.

9. Inherent drawbacks of public sector – Public sector and government departments have to go by rules. Public accountability demands this. But this fact entails red-tapism, delays, and misuse of power and increases corruption.

10. Allocating real resources – How to allocate men, machines, land, electricity, steel and imported goods is not decided properly. Only allocation of money is not the real resource. All the above mentions should be allocated properly. But this is not possible for want of control.