Chapter No.71

P A RT - V I

SOME PROBLEMS OF DEVELOPMENT PLANNING

MEANING OF ECONOMIC PLANNING

There is no agreement among economists with regard to the meaning of the term ‘economicplanning’. The term has been used very loosely in economic literature. It is often confused withcommunism, socialism or economic development. Any type of state intervention in economicaffairs has also been treated as planning. But the state can intervene even without making anyplan. What then is planning? Planning is a technique, a means to an end being the realization ofcertain pre-determined and well-defined aims and objectives laid down by a central planningauthority. The end may be to achieve economic, social, political or military objectives. Therefore,“the issue is not between a plan and no plan, it is between different kinds of plans.”1

Professor Lewis has referred to six different senses in which the term planning is used ineconomic literature. “First, there is an enormous literature in which it refers only to thegeographical zoning of factors, residential buildings, cinemas and the like. Sometimes this iscalled town and country planning and sometimes just planning. Secondly, ‘planning’ meansonly deciding what money the government will spend in the future if it has the money to

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1. L. Robbins, Economic Policy and International Order, p. 6.

534 The Economics of Development and Planning

spend. Thirdly, a ‘planned economy’ is one in which each production unit (or firm) uses onlythe resources of men, materials and equipment allocated to it by quota and disposes of itsproduct exclusively to persons or firms indicated to it by central order. Fourthly, ‘planning’sometimes means any setting of production targets by the government, whether for private orpublic enterprise. Most governments practise this type of planning if only sporadically, and ifonly for one or two industries or services to which they attach special importance. Fifthly, heretargets are set for the economy as a whole, purporting to allocate all the country’s labour, foreignexchange, raw materials and other resources between the various branches of the economy.”And, finally, “the word ‘planning’ is sometimes used to describe the means which the governmentuses to try to enforce upon private enterprise the targets which have been previouslydetermined.”2

But Ferdynand Zweig maintains that ‘planning’ is planning of the economy, not within theeconomy. It is not a mere planning of towns, public works or separate section of the nationaleconomy, but of the economy as a whole.3 Thus planning does not mean piecemeal planningbut overall planning of the economy.Some of the definitions of economic planning are:Professor Robbins defines economic planning as “collective control or supersession of privateactivities of production and exchange.”To Hayek, planning means, “the direction of productive activity by a central authority.”According to Dalton, “Economic planning in the widest sense is the deliberate direction bypersons incharge of large resources of economic activity towards chosen ends.”Lewis Lordwin defines economic planning ,”as a scheme of economic organization in whichindividual and separate plants, enterprises, and industries are treated as coordinate units ofone single system for the purpose of utilizing available resources to achieve the maximumsatisfaction of the people’s needs within a given time.”In the words of Zweig, “Economic planning consists in the extension of the functions of publicauthorities to organization and utilization of economic resources...Planning implies and leadsto centralization of the national economy.”One of the most popular definitions is by Dickinson who defines planning as “the making ofmajor economic decisions what and how much is to be produced, how, when and where it is tobe produced, to whom it is to be allocated, by the conscious decision of a determinate authority,on the basis of comprehensive survey of the economic system as a whole.”Even though there is no unanimity of opinion on the subject, yet economic planning asunderstood by the majority of economists implies deliberate control and direction of the economyby a central authority for the purpose of achieving definite targets and objectives within a specifiedperiod of time.

NEED FOR PLANNING IN UNDERDEVELOPED COUNTRIES

1. To Increase the Rate of Economic Development. One of the principal objectives of planningin underveloped countries is to increase the rate of economic development. In the words ofD.R. Gadgil, “Planning for economic development implies external direction or regulation ofeconomic activity by the planning authority which is in most cases, identified with thegovernment of the state.”4 It means increasing the rate of capital formation by raising the levels

2. W.A. Lewis, The Principles of Economic Planning, 1954.3. F. Zweig, Planning of Free Societies, p. 14.4. D.R. Gadgil, Planning and Economic Policy in India, p. 88.

Economic Planning 535

of income, saving and investment. But increasing the rate of capital formation in underdevelopedeconomies is beset with a number of difficulties. People are poverty-ridden. Their capacity tosave is extremely low due to low levels of income and high propensity to consume. As a result,the rate of investment is low which leads to capital deficiency and low productivity. Lowproductivity means low income and the vicious circle is complete. This vicious economic circlecan only be broken by planned development. Two methods are open to underdevelopedcountries. One is planned development by importing capital from abroad which Zweig calls‘supported industrialization,’ and the other is by forced saving which he characterises as ‘self-sufficient industrialization’.2. To Improve and Strengthen Market Mechanism. The rationale for planning arises in suchcountries to improve and strengthen the market mechanism. The market mechanism worksimperfectly in underdeveloped countries because of the ignorance and unfamiliarity with it. Alarge part of the economy comprises the non-monetised sector. The product, factor, money andcapital markets are not organised properly. Thus the price system exists in only a rudimentaryform and fails to bring about adjustments between aggregate demand and supply of goods andservices. To remove market imperfections, to mobilise and utilise efficiently the availableresources, to determine the amount and composition of investment, and to overcome structuralrigidities, the market mechanism is required to be perfected in underdeveloped countriesthrough planning.3. To Remove Unemployment. The need for planning in underdeveloped countries is furtherstressed by the necessity of removing widespread unemployment and disguised unemploymentin such economies. Capital being scarce and labour being abundant, the problem of providinggainful employment opportunities to an ever-increasing labour force is a difficult one. It is onlya centralized planning authority which can solve this.4. Balanced Development of the Economy. In the absence of sufficient enterprise and initiative,the planning authority is the only institution for planning the balanced development of theeconomy. For rapid economic development, underdeveloped countries require the developmentof the agricultural and industrial sectors, the establishment of social and economic overheads,the expansion of the domestic and foreign trade sectors in a harmonious way. All this requiressimultaneous investment in different sectors which is only possible under development planning.(a) Development of Agricultural and Industrial Sectors. The need for developing theagricultural sector along with the industrial sector arises from the fact that agriculture andindustry are interdependent. Reorganisation of agriculture releases surplus labour force whichcan be absorbed by the industrial sector. Development of agriculture is also essential to supplythe raw material needs of the industrial sector.(b) Development of Infrastructure. The agricultural and industrial sectors cannot, however,develop in the absence of economic and social overheads. The building of canals, roads, railways,power stations, etc., is indispensable for agricultural and industrial development. So are thetraining and educational institutions, public health and housing for providing a regular flow oftrained and skilled personnel. But private enterprise in underdeveloped countries is notinterested in developing the social and economic overheads due to their unprofitability. It ismotivated by personal gain rather than by social gain. It, therefore, devolves on the state tocreate social and economic overheads in a planned way.(c) Development of Money and Capital Markets. Similarly, the expansion of the domestic andforeign trade requires not only the development of the agricultural and industrial sectors alongwith social and economic overheads but also the existence of financial institutions. Money and


capital markets are undeveloped in underdeveloped countries. This factor acts as an obstacle tothe growth of industry and trade. There is economic instability generated by international cyclicalmovements. Such maladjustments can only be removed by the state. It can decide upon thesetting up of a central bank and with its help a bill market, commercial banks and other financialinstitutions throughout the country. It is the planning authority which can control and regulatethe domestic and foreign trade in the best interests of the economy.5. Removing Poverty and Inequalities. The planning for development is indispensable forremoving the poverty of nations. For raising national and per capita income, for reducinginequalities in income and wealth, for increasing employment opportunities, for all-round rapiddevelopment and for maintaining their newly won national independence, planning is the onlypath open to underdeveloped countries. There is no greater truth than this that the idea ofplanning took a practical shape in an underdeveloped country and that this is the only hope ofthe resurgent underdeveloped countries of the world. The rapid development of the USSR, apoor country at the time of the October Revolution, bears testimony to this fact.To conclude with Prof. Gadgil, “Planning, therefore means, in a sense, no more than betterorganization, consistent and far-seeing of organisation and comprehensive all-sidedorganization. Direction, regulations, controls on private activity, and increasing the sphere ofpublic activity, are all parts of organizational effort.”5

PLAN FORMULATION AND REQUISITES FOR SUCCESSFUL PLANNING

The formulation and success of a plan require the following:1. Planning Commission. The first prerequisite for a plan is the setting up of a planningcommission which should be organised in a proper way. It should be divided and sub-dividedinto a number of divisions and sub-divisions under such experts as economists, statisticians,engineers, etc. dealing with the various aspects of the economy.2. Statistical Data. A prerequisite for sound planning is a thorough survey of the existing andpotential resources of a country together with its deficiencies. As Baykov puts it: “Every act ofplanning, in so far as it is not mere fantastic castle building presupposes a preliminary investiga-tion of existing resources.”6 Such a survey is essential for the collection of statistical data andinformation with regard to the total available material, capital and human resources of thecountry. Data pertaining to the available and potential natural resources along with the degreeof their exploitation, agricultural and industrial output, transport, technical and non-technicalpersonnel, etc. are essential for fixing targets and priorities in planning. It, therefore, requiresthe setting up of a central statistical organization with a network of statistical bureaux forcollecting statistical data and information for the formulation of the plan3. Objectives. The plan may lay down the following objectives: to increase national income andper capita income; to expand employment opportunities; to reduce inequalities of income andwealth and concentration of economic power; to raise agricultural production; to industrialisethe economy; to achieve balanced regional development; to achieve self-reliance, etc. The variousgoals and objectives should be realistic, mutually compatible and flexible enough in keepingwith the requirements of the economy.4. Fixation of Targets and Priorities. The next problem is to fix targets and priorities for achievingthe objectives laid down in the plan. They should be both global and sectorial. Global targets

5. Ibid.6. The Developing of the Soviet Economic System, p. 427.


must be bold and cover every aspect of the economy. They include quantitative productiontargets, so many metres million tons of foodstuffs, coals, steel, fertilizers, etc., so many kilowattsof power capacity, so many metres of railways and roads, so many additional training institutions,so much increase in national income, saving, investment, etc. There are also sectoral targetspertaining to individual industries and products in physical and value terms both for the privateand public sectors. Global and sectoral targets should be mutually consistent in order to attainthe required growth rate for the economy. This necessitates determining priorities. Prioritiesshould be laid down on the basis of the short-term and long-term needs of the economy keepingin view the available material, capital and human resources.Such schemes or projects which are required to be executed first, should be given top prioritywhile the less important should have a low priority. The scheme of priorities should not berigid but may be changed according to the requirements of the country. Thus “soundgovernmental planning consists of establishing intelligent priorities for the public investmentprogramme and formulating a sensible and consistent set of public policies to encourage growthin the private sector.”7

5. Mobilisation of Resources. A plan fixes the public sector outlay for which resources arerequired to be mobilised. There are various internal and external resources for financing a plan.Savings, profits of public enterprises, net market borrowings, taxation and deficit financing arethe principal internal sources of finance for the public sector. Net budgetary receiptscorresponding to external assistance relate to the external sources of financing the plan. Theplan should lay down such policies and instruments for mobilising resources which fulfil thefinancial outlay of the plan without inflationary and balance of payments pressures. At thesame time, they should encourage corporate and household savings of the private sector.86. Balancing in the Plan. A plan should ensure proper balance in the economy, otherwiseshortages or surpluses will arise as the plan progresses. There should be balance between savingand investment, between the available supply of goods and the demand for them, betweenmanpower requirements and their availabilities, and between the demand for imports and theavailable foreign exchange.Aggregate savings come from various sources such as voluntary savings, taxation, profits ofpublic enterprises, foreign remittances by nationals, etc. These must equal planned aggregateinvestment in fixed capital assets and inventories in the economy. The balance between thesupply and demand for goods requires balancing of the available supply of consumption goodswith their demand, of the supply of capital goods, materials and inventories with theirrequirements, of the supply of intermediate goods with their demand, and the proposedrequirements of exports of goods with their supplies. Balances are also required between planneddemand and supply of manpower, and between import requirements and the available foreignexchange during the plan period,In fact, two kinds of balances must be secured in a plan. The first is the physical balance whichconsists of balancing the planned increase in output of various goods with the amounts andtypes of investment. It also requires the balancing of the outputs of the various sectors of theeconomy. This is achieved through the input-output technique because the output of one sectoror industry is the input of the other for producing its output. Physical balancing is essential forthe internal consistency of the plan, otherwise such physical obstacles as lack of raw materials,manpower, etc. will develop in the economy. The second is the monetary or financial balance

7. W. A. Lewis, Development Planning, 1966.8. For problems of resource mobilisation refer to chapters in parts Four and Five of the book.


which consists of balancing the incomes of the people with the amount of goods available tothem for consumption, the funds used for private investment and the amount of investmentgoods available to private investors, the funds used for public investment and the amount ofinvestment goods produced by the public sector, and the balancing of foreign payments andreceipts. The lack of these financial balances will lead to disequilibrium in the supply and demandfor physical goods thereby leading to inflationary and balance of payments pressures duringplanning.7. Incorrupt and Efficient Administration. A strong, efficient and incorrupt administration isthe sine qua non of successful planning. But this is what an underdeveloped country lacks themost. Lewis regards a strong, competent and incorrupt administration as the first condition forthe success of a plan. The Central Cabinet in an underdeveloped country should not takeimportant economic decisions hurriedly without getting them properly examined from technicaladvisers. Competent administrative staff should be appointed in various ministries which shouldfirst prepare good feasibility reports of proposed projects before starting them. It should gainexperience in planning and starting a project, keeping it on schedule, amending it in case ofsome unexpected snags, and evaluating it from time to time. Without such administrativemachinery, development planning has no locus standi in an underdeveloped country. Lewis isvery emphatic when he writes, “In the absence of such an administration it is often much betterthat governments should be laissez-faire than they should pretend to plan.” The phenomenalsuccess of development planning in Russia can be attributed to “a highly trained and disciplinedpriestly order of the Communist Party. The economics of development is not very complicated;the secret of successful plan lies more in sensible politics and good public administration.”9

8. Proper Development Policy. The state should lay down a proper development policy for thesuccess of a development plan and to avoid any pitfalls that may arise in the developmentprocess. Lewis lists the following main elements of such a development policy: (i) investigationof development potential, survey of national resources, scientific research, market research; (i)provision of adequate infrastructure (water, power, transport, and communications) whetherby public or private agencies; (iii) provision of specialized training facilities, as well as adequategeneral education, thereby ensuring necessary skills; (iv) improving the legal framework ofeconomy activity, especially laws relating to land tenure, corporations , commercial transactions;(v) helping to create more and better markets including commodity markets, security exchanges,banking, insurance and credit facilities; (vi) seeking out and assisting potential entrepreneurs,both domestic and foreign; (vii) promoting better utilization of resources, both by offeringinducements and by operating controls against misuse; and (viii) promoting an increase insaving, both private and public.” The success of a development plan can be tested mainly byexamining various proposals under each of these heads. Good polices help, but they may notensure success. Lewis, therefore, likens development planning to medicine which in the handsof a good practitioner may perform useful tricks, “but it is still the case that many patients diewho are expected to live, and many live who are expected to die.”10

9. Economy in Administration. Every effort should be made to effect economies inadministration, particularly in the expansion of ministries and state departments. “The peoplemust feel confident that every pie that they pay to the government through taxation andborrowings is properly spent for their welfare and development, and not dissipated away.”11

9. W.A. Lewis, The Principles of Economic Planning, 1954 and Development Planning, 1966.10. Development Planning, pp. 22-2311. Shriman Narayan, Trends in Indian Planning, p. 36. Italics mine.


10. An Education Base. For a clean and efficient administration, a firm educational base isessential. Planning to be successful must take care of the ethical and moral standards of thepeople. One cannot expect economy and efficiency in administration unless the people possesshigh ethical and moral values. This is not possible unless a strong educational base is built upwhereby instructions are imparted both in the academic and technical fields. Without creatinghonest and efficient human beings in the country, it would not be feasible to undertake economicplanning on a big scale.11. A Theory of Consumption. According to Professor Galbraith,12 an important requirementof modern development planning is that it has a theory of consumption. Underdevelopedcountries should not follow the consumption patterns of the more developed countries. Thetheory of consumption should be democratic and “prime attention must be accorded to goodsthat are within the range of the model income that can be purchased by the typical family...Cheap bicycles in a low-income country are thus more important than cheap automobiles. Aninexpensive electric lighting system for the villages is better than a high capacity system whichruns equipment, the people cannot afford. Inexpensive radio sets are important, televisionbelongs to another day. Above all, nothing is so important, as abundant and efficiently producedfood, clothing and shelter, for these are the most universal of requirements.”12. Public Cooperation. Above all, public cooperation is considered to be one of the importantlevers for the success of the plan in a democratic country. Planning requires the unstainedcooperation of the people. Economic planning should be above party politics, but at the sametime, it should have the approval of all the parties. In other words, a plan should be regarded asa National Plan when it is approved by the representative of the people. For, without publicsupport no plan can be success. As Lewis states: “Popular enthusiasm is both the lubricating oilof planning and the petrol of economic development, a dynamic force that makes all thingspossible.”13

PROBLEMS OF DEVELOPMENT PLANNING

Development planning has to face the following problems:1. Inadequate Statistical Data. One of the major problems of development planning has beenthe inadaquacy of statistical data concerning all aspects of the economy. There are gross errorsin the estimation of accurate data in many fields of the economy, such as population, capital,labour, employment, input-output coefficients, exports and imports, etc.2. Problems of Macroeconomic Estimates. In a development plan, macroeconomic estimatesare made on the most desirable time path of total national product or income, total savings andtotal investment. For instance, at the time of formulation of the plan, these figures are knowsfor a base year. The problem is to find the optimum level of total savings or the saving incomeratio. The optimum level is that in which it is desirable to save more or less in the economy. Butit is not possible to arrive at such an optimum level of savings.3. Limitations of the Use of Models. Another problem is the use of models mostly of theTinbergen type. These models require specific targets and instruments to attain stated objectives.These objectives have to be made in some kind of index and there have to be as many instrumentsas there are independent targets. This is a complex process and also misleading, as the plan is

12. J.K. Galbraith, Economic Development in Perspective, 1962.13. Principles of Economic Planning, op.cit., p. 128.


often a political document of the ruling party. Further, targets and instruments are not reallyseparable as in the case of taxation, exchange rates, etc., though they change in the process ofplanning.4. Constant Prices. A development plan is based on the assumption that prices remain constantduring the plan period. In this case, estimates are likely to go awry because price changes areinevitable under development planning. Price changes may be related to internal factors, torise in exports or/and rise in import prices. Moreover, pricing of products and services are notlinked with the physical or financial outlays of the plan which make the calculation of physicalor financial targets and their achievements unrealistic.5. No control over Private Sector Plan. A development plan provides for schemes of allocationsfor both public and private sectors. Since the government is not in a position to fully control theprivate sector, the plan relating to the private sector is never implemented as per the physicaltargets and financial allocations. This creates problems for the success of the plan.6. Constant Capital-Output Ratio. A development plan assumes a constant capital-output ratio.The capital-output ratio is an important element on which the projections of a plan are based. Ittells that each addition to the capital stock leads to a proportional addition to the nationalproduct. In an underdeveloped country, the capital-output ratio is not calculable in a meaningfulway. In the earlier stages of development, it is usually more than assumed and as the economydevelops, it starts declining. Moreover, a country that uses large amounts of foreign capital, thecapital-output ratio may be considerably higher than the assumed ratio. If the country hascapital-intensive long-gestation projects, the capital-output ratio will be much higher.7. Problem of Fixed Relation between Factor Inputs and Outputs. A major problem in planmodels is that they assume a fixed relationship between factor inputs and outputs. In fact, theirrelationships are variable within a wide range. The inputs in underdeveloped countries arescarce. So the outputs are not rigidly related to such inputs. Rather, there are other importantfactors that affect outputs.8. Lack of Coordination between Plan Policies and Annual Budgets. There are manyinstitutional rigidities and scarcities in underdeveloped countries which lead to lack ofcoordination between plan policies and annual budgets. Consequently, the annual budget doesnot reflect and implement the plan policies. This is a serious problem of development planning.9. Problem of Balancing the Plan. Another problem is balancing of physical and financialplans and of different segments of the economy. It is not possible to attain internal consistencyin an underdeveloped country due to such factors as the availability of resources, technicalprogress, rate of investment, etc. The level of technology needed for achieving the various targetslaid down in the plan may be low. Unexpected failure of crops may restrict the supply of farmproducts. Industrial production may fall due to the shortage of power.10. Uncertainties. A development plan faces many uncertainties which make it difficult toimplement it. These may arise due to foreign exchange crisis or balance of payments problem,unreliable statistical data, inflationary pressures, international recession, internal unrest, disputeswith neighbouring countries, etc. Such uncertainties create problems in plan implementation.

PLANNING BY DIRECTION AND PLANNING BY INDUCEMENT

Professor Lewis draws a distinction between planning by direction and planning by inducementfor the purpose of mobilizing resources of the plan.


PLANNING BY DIRECTION

Planning by direction is an integral part of a socialist society like that of China and Russia. Itentails complete absence of laissez-faire. There is one central authority which plans, directs,and orders the execution of the plan in accordance with pre-determined targets and priorities.Such planning is comprehensive and encompasses the entire economy. As Lange has stated:“With regard to the socialist sector the national plan represents a binding directive. The targetsof the national plan and its financial provision represent orders to be carried out of the variousministries and the enterprises subject to them. They are duty bound to carry out the directivesof the plan.” The State holds the “commanding posts” in its hands by taking over the entireprivate industrial and agricultural sectors, and banking and transport. “Without suchconcentration the State would lack the means to carry out the tasks of the plan. Provisions inthe plan would be mere “pious wishes” without any guarantee of realization attached to them.”15

Its Drawbacks. But planning by direction has got some drawbacks.First, planning by direction is associated with a bureaucratic and totalitarian regime. There iscomplete absence of consumers’ sovereignty. People are not allowed to spend and consumeaccording to their choice. Even the right to choose one’s occupation does not exist. Both theconsumer and labour markets are determined by the planning authority. Rationing and pricecontrols are the main props of planning by direction which lead to corruption and nepotism.Thus there is no economic freedom. As aptly pointed out by Hayek, “Economic planning wouldinvolve directions of almost the whole of our life. There is hardly any aspect of it, from ourprimary need to our relations, with our family and friends, from the nature of our work to theuse of our relations, with our family and friends, from the nature of our work to the use of ourleisure, over which the planner would not exercise his conscious control.”16

Secondly, planning by direction is always unsatisfactory because the present economic system isexceedingly complex. In order to increase the output of a commodity, planning requires theincrease in the output of all complementaries or a reduction in the output of substitutes. Andwhen such decisions are to be taken in the case of innumerable commodities, it becomes anextremely difficult task, and targets are never fulfilled. As Lewis remarks, “In planning bydirection the result is always a shortage of some things, and a surplus of others.” Thirdly, planning by direction is always inflexible. Once a plan has been drawn, it becomesimpossible to revise any part of it, necessitated by circumstances. For, it is an extremely difficulttask to alter a part of the plan without altering the whole of it. So the plan has to be carriedthrough as an integrated whole despite the various pitfalls.Fourthly, as a corollary to the above, as the plan proceeds the fulfillment of targets under planningby direction becomes a difficult task. The more one tries to overcome the difficulties of planningby direction, the more costly the fulfillment of targets become in terms of resources.Fifthly, planning by direction develops what Lewis calls the ‘tendency to procrustean” (haveone type or size). It leads to excessive standardization because it makes production processeasy. A standardized product is manufactured without any varieties. Lewis maintains that“standardization is frequently an engine of progress, but it is also frequently the enemy ofhappiness, and in foreign trade it is in many lines fatal to success.” Moreover, production ofonly one type of standard good in each line of production is inimical to the growth of initiativeand enterprise. There is no urge to innovate.

15. O. Lange, Essays on Economic Planning, pp. 14-1616. F. W. Hayek, Road to Serfdom.


Lastly, planning by direction is a costly affair. It requires an army of clerks, statisticians,economists, and other trained personnel. Large funds are spent on conducting innumerablesurveys and censuses.Despite all these defects in planning by direction, the experience of China and Russia is a cleartestimony to the fact that this type of planning is the most effective technique for acceleratingthe growth rate of the economy.

PLANNING BY INDUCEMENT

Planning by inducement is democratic planning. It means planning by manipulating the market.There is no compulsion but persuasion. There is freedom of enterprise, freedom of consumptionand freedom of production. But these ‘freedoms’ are subject to state control and regulation.People are induced to act in a certain way through various monetary and fiscal measures. If theplanning authority wishes to encourage the production of a commodity, it can give subsidy tothe firms. And if it finds scarcity of goods in the market, it can introduce price control andrationing. In order to increase the rate of capital formation, the planning authority can thenundertake public investment and/or encourage private investment. It can adopt a suitablemonetary policy and at the same time a taxation policy which encourages investment anddiscourages consumption.Thus planning by inducement is able to achieve the same results as are likely to be achieved inplanning by direction but with less sacrifice of individual liberty.Its Difficulties. But planning by inducement is beset with a number of difficulties which maymake it less successful as compared to planning by direction.(i) It is maintained that the incentives offered may not be adequate for the producers andconsumers to act the way the state desires them to behave. It may upset the government plans.(ii) Since the actual working of the plan is left to the market forces, surpluses or shortages arebound to arise. Proper adjustment between demand and supply is difficult to achieve. Shortagesare frequent and they necessitate price control and rationing which are the forms of direction.In such a situation, planning by inducement merges into planning by direction.(iii) Similarly, monetary and fiscal measures alone are inadequate to induce planned developmentof the economy by raising the rate of capital formation. It is very difficult to raise the rate ofcapital formation in an underdeveloped country because of the low levels of income and saving.People have a tendency to utilize their savings in unproductive channels. On the other hand,planning by direction is more useful for this purpose.

CONCLUSION

Whether a country should adopt the method of planning by direction or planning by inducementdepends entirely on the system of government. A full-fledged socialist country will adoptplanning by direction. On the other hand, a capitalist economy will adhere to the technique ofthe planning by inducement.But both these planning techniques are complementary. They cannot be placed into water-tightcompartments. Both of them are indispensable and at the same time practicable inunderdeveloped countries. The state alone is incapable of developing the economy in suchcountries. It lacks not only in financial but also in administrative resources. So it leads theprivate sector to work and expand under its direction and control. For this, inducements can begiven in the form of subsidies and tax exemptions. Savings, investment, consumption and


productions can be directed into right directions. The state can obtain resources through deficitfinancing, borrowing and taxation. It can also set up basic and heavy industries and undertakesocial and economic overheads. Thus the best course for an underdeveloped country is to havea judicious blending of the two.India has adopted a middle course of action in her development plans, a mixed economy inwhich both planning by direction and planning by inducement are playing their respectiveroles.

FINANCIAL AND PHYSICAL PLANNING

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

FINANCIAL PLANNING

Finance is the main key to economic planning. If sufficient finances are available, it is not difficultto achieve physical targets. But without the stipulated financial resources, it is not possible tocarry the plan to its successful culmination. Financial planning is essential in order to removemaladjustments between supplies and demands and for calculating costs and benefits of thevarious projects. The Indian Planning Commission points out that: “The essence of financialplanning is to ensure that demands and supplies are matched in a manner which exploits physicalpotentialities as fully as possible without major and unplanned changes in the price structure.”17

In the case of financial planning “the outlay is fixed in terms of money and the estimates aremade on the basis of various hypotheses regarding the growth of the national income,consumption, imports, etc., to cover this outlay by taxation, savings and the increase in the cashholding. This consists in establishing an equilibrium between the incomes of the population—wages, incomes of peasants and others—and the amount of consumers goods which will beavailable to the population... Further it must establish equilibrium between that part of incomesof the population which will be used for private investment and the amount of investmentgoods made available to private investors. Finally, in the public sector a balance must beestablished between the financial funds made available for investment purposes and the amountof investment goods which will be produced or imported. In addition to these balances, it isnecessary to establish the balances of foreign payments and receipts.”18 Financial planning isthus thought to secure a balance between demands and supplies, avoid inflation and bringabout economic stability.Its Limitations. But this appears to be an exaggerated view, for financial planning has itslimitations in an underdeveloped country.First, measures to mobilize financial resources through taxation may adversely affect thepropensity to save.Secondly, in an underdeveloped country there is a vast subsistence non-monetized sector and asmall organized money sector. Thus there is bound to be an imbalance between the two sectors.This will lead to shortages in supplies and to an inflationary rise in prices. As a result, physicaltargets are likely to be upset.

17. Second Five-Year Plan, p. 16.18. O. Lange, Economic Development, Planning and International Cooperation, 1961.


Thirdly, it is possible that supplies can be increased through imports, but they will lead tobalance of payments difficulties from which underdeveloped countries already suffer.Fourthly, financial planning is not free from various bottlenecks, especially inflationary rise inprices. It is, therefore, more appropriate to use it in sectoral planning rather than in overallplanning.Lastly, financial planning is unsuited to an underdeveloped economy where this “means notmerely loss of potential income but also a threat to the character of balanced social developmentbecause it results in an insufficient provision of employment at average wages relative to theincrease in the population and thus increases inequality between those who are privileged toobtain employment and those whose needs both for work and income necessarily remain unmet.”

PHYSICAL PLANNING

Physical planning “is an attempt to work out the implications of the development effort interms of factor allocations and product yields so as to maximize incomes and employment.”19

“The physical balance consists in a proper evaluation of the relations between investment andoutput... Investment coefficients are computed. These coefficients indicate the amount ofinvestment and also the composition of that investment in terms of various kinds of goodsneeded in order to obtain an increase of output of a product by a given amount. For example,how much iron, how much coal, how much electric power is needed in order to produce anadditional ton of steel. On this basis, the planned increase in output of various products isbalanced with the amounts and types of investment. It is also necessary to balance the outputsof the various sections of the economy because the output of one branch of the economy servesas an input for producing the output of another branch.” Financial planning is only a means toachieve this end. Lack of financing to carry out an investment project in an underdevelpedcountry ordinarily does not reflect the lack of physical resources but in physical planning anoverall assessment is made of the available real resources such as raw materials, manpower,etc., and how they have to be obtained so that bottlenecks may not appear during the workingof the plan. Physical planning requires the fixation of physical targets with regard to agriculturaland industrial production, sociocultural and transportation services, consumption levels andin respect of employment, income and investment levels of the economy. There must be properbalances in the various targets set in the plan. Moreover, physical planning has to be viewed asan overall long-term planning rather than a short-term piecemeal planning. Professor Baloghstresses the importance of physical planning in these words: “The only politically sound andmorally responsible strategy involves steady pressure up to the limits of physical resources. Itinvolves hair-sharp sectoral balance and concentration of attention on the widening of supplybottlenecks as they arise. The soundness of a plan from a national point of view can be testedonly by the strain it causes. A lessening of strain, the accumulation, for instance, of foreignreserves, means that the system is not being driven to the utmost of its physical capacity.”20

Its Limitations. But physical planning has certain limitations in an underdeveloped country.First, the most formidable problem in such economies is the lack of statistical data andinformation with regard to the available physical resources. If physical targets are fixed beyondthe availability of resources on the basis of inaccurate data, planning will end in a fiasco.Secondly, another problem is that of balancing the different segments of the economy. It is not

19. Second Five-Year Plan, op.cit., p. 14.20. Notes on Indian Economic Strategy (Mmg. ISI).


possible to attain internal consistency of a high order in an underdeveloped country due to itsinherent structural difficulties. The country may not have reached that state of technology neededfor achieving the targets laid down. There may be unexpected failure of harvests thus restrictingthe supply of agricultural commodities. Or, industrial production itself may fall due to theshortage of power supply.Thirdly, such shortages in physical targets are bound to lead to inflationary pressures throughan increase in prices. An inflationary process is extremely harmful for an underdevelopedeconomy where levels of income and saving are already very low.Lastly, physical planning without financial planning is always a negation of planning in anunderdeveloped country. If plans are drawn on the basis of physical resources without anyregard to the availability of financial resources, plan targets can never be fulfilled. In India, dueto the lack of financial resources in the closing year of the Second Plan, the size of the plan hadto be pruned to the turn of Rs 200 crores, the extent of financial shortage.

CONCLUSION

Now the question is should an underdeveloped country adopt the technique of financial planningor physical planning? The answer to this question depends on the political structure of thestate. In socialist states like Russia, these is physical planning. Since there is the absence ofprivate property and all the resources belong to the state, finance never acts as a bottleneck.“Lack of finance to carry out an investment project reflects lack of physical resources to do so oran allocation decision to use these resources elsewhere in the national economy. The financialpart of planning is only an instrument of social accounting in a socialist state.” It is meant totranslate the values of inputs and outputs in terms of money to calculate costs, profits, incomesand prices. In a capitalist country, financial planning is as much important as physical planning. Both arecomplementary. Both are mutually consistent. For effective planning, both are needed together.As Mahalanobis pointed out: “The physical targets of production must be balanced in terms ofphysical quantities of raw materials, machinery, energy, transport, etc., and also in terms ofmanpower and of the flow of money. Incomes are generated in the very process of production,and supplies are utilized through market operations. Planning requires that aggregate incomeshould be balanced with expenditure, savings should match investments, and the supply anddemand of individual goods and services should be balanced in terms of money so as to avoidany inflationary rise in prices or undesirable shifts in prices, physical and financial planningare different asperts of the same reality.”Thus both the techniques are required to be integrated in development planning. Physical targetsshould be balanced in terms of the available financial resources, while larger financial resourcesshould be mobilized in order to fulfil physical targets for accelerating the pace of development.

PERSPECTIVE PLANNING AND ANNUAL PLANNING

The phrase ‘perspective planning’ refers to long-term planning in which long range targets areset in advance for a period of 15, 20 or 25 years. A perspective plan, according to the IndianPlanning Commission, “is a blueprint of developments to be undertaken over a longer period.”A perspective plan, however, does not imply one plan for the entire period of 15 or 20 years. Inreality, the broader objectives and targets are to be achieved within the specified period of time


by dividing the perspective plan into several short-period plans of four, five or six years. Comparedwith the perspective plan, the short-period plan makes for greater precision. It is easier to lookahead over short periods than over very long periods. Moreover, many unpredictable changescan vitiate the long-term data. Therefore, a perspective plan is always split up into short-termplans. Not only this, a five-year plan is further broken up into annual plans so that each annualplan fits into the broad framework of the five-year plan. Plans of either kind are further dividedinto regional and sectional plans. Regional plans pertain to regions, districts and localities beingfurther split up into sectional plans for agriculture, industry, foreign trade, transportation, etc.These sectional plans are divided into further sub-plans for each branch such as a plan for foodgrains, a plan for iron and steel, a plan for exports and so on. All these plans and sub-plans arerelated to the perspective plan. A perspective plan reflects long-term targets, while the currentplans and sub-plans are the necessary support for the former to achieve those targets. “Planningis a continuous process and cannot be isolated for short periods. Thus, the present Five- YearPlan is a projection and continuation of the previous plans, and it will lead to the subsequentplans. Planning is a continuous movement towards desired goals and because of this, all majordecisions have to be made by agencies informed of these goals and the social purpose behindthem. Even in considering a five-year period, forward and long-term planning has always to bekept in view. Indeed perspective planning is the essence of the planning process.”21

“The main purpose of a perspective plan is thus to provide a background to the shorter-termplans, so that the problems that have to be solved over a very long period can be taken intoaccount in planning over a shorter term. Above all one can express in a perspective plan thoseforces, the effects of which can be estimated with reasonable certainty over long periods. Theseinclude growth of population, the influence of education, which is only apparent over longperiods, and the growth of general technological factors which have been shown in the past asa measure of regularity. Factors that are exposed to rapid changes, such as harvest yields, whichare dependent on the weather, and other factors that are exposed to fruitous or irregularfluctuations cannot be, and for the most part also do not need to be taken into account.”22

Mahalanobis observes that perspective planning is necessarily a continuing process and hastwo broad aspects. One is current planning directed to projects included in the annual planswithin the framework of the five-year plan. The successive five-year plans themselves wouldhave to be fitted into a larger framework of perspective planning with a wide time horizon of10, 20 or 30 years or even more. Perspective planning would be primarily concerned with thetechnical and scientific aspects of long-term growth of the economy. Studies and researcheswould be directed to solving practical problems and would be broadly of a type of operationalresearch (although some problems of basic research would no doubt arise from time to time).This would call for the active cooperation of a large number of engineers, technologists,economists, statisticians and workers in practically all fields of both natural and social sciences.”23

There is Perspective Planning Division in the Planning Commission of India which is entrustedwith the task of perspective planning.The idea of perspective planning was mooted in 1920 with the launching of the first long-termplan for the electrification of Russia— the famous GOELRO plan. Up to 1958, Russia had beenhaving five-year plans for its economic development. But in 1959, it embarked upon a twenty-

21. Third Five-Plan. Italics mine.22. J. Tinbergen, Development Planning, 1976. Italics mine.23. P.C. Mahalanbis in Sankhaya, December 1955.


year plan for 1960-80, the target figures for 1959-65 having been regarded as an integral elementof their long-term plan for economic development. In India also, the five-year plans visualizethe problem of economic development from a longer perspective.Demerits of Perspective Planning. Planning for fixed periods is essential to start with becauseit goads the people and the government to move on the path laid down in the perspective plan.But it is not without certain serious demerits.First, such a plan is rigid because necessary or desirable adjustments to unforeseen changes orcorrections of errors may not be made, and the adaptations that are made will tend to occurabruptly between plan periods. Thus it is not feasible administratively.Secondly, “psychologically... the compulsion to revise the plan downward when no formalprovision for this is made can have demoralizing effects. This is illustrated by the experience inIndia after 1957, when those in authority issued contradictory statements and were even temptedinto pious falsification of the facts. This tended to spread confusion, cynicism, and defeatism inbusiness, in the administration, and among the public. More flexible planning could haveprevented some of the miscalculations of foreign exchange requirements and some of the faultsin the handling of import licences in the beginning of this period.” According to Myrdal,perspective planning should, therefore, be started during an experimental period.24

INDICATIVE PLANNING AND IMPERATIVE PLANNING

INDICATIVE PLANNING

Indicative planning prevails in France. This type of planning is not imperative but flexible.Planning in socialist countries is comprehensive in which the planning authority decides aboutthe amount to be invested in each sector, in fixation of prices of products and factors, and thetypes and quantities of products to be produced. There being rigidity in this type of planning ifthere is some distortion in one sector, it adversely affects the entire economy which cannot beremedied immediately. The French system of Planning is free from all such troubles because itis based on the principle of decentralization in the operation and execution of the nationalplans. It is known as indicative or soft planning as distinct from comprehensive or imperativeplanning.Indicative planning is peculiar to the mixed economy of France and is quite different from thetype of planning that prevails in the other mixed economies of the world. In a mixed economy,the public and private sectors work together. The state controls and regulates the private sectorin a number of ways so that the private sector may cooperate in fulfilling the targets and prioritiesof the plan. The usual methods to control this sector are licences, quotas, price and quantitydetermination of products, financial aid, etc. It has to work under the direction of the state. Butin indicative planning the private sector is neither rigidly controlled nor directed to fulfil thetargets and priorities of the plan. Even then, the private sector is expected to fulfil the targetsfor the success of the plan. The state provides all types of facilities to the private sector but doesnot direct it, rather indicates the areas in which it can help in implementing the plan. Indicative planning has been in use in France since the Monnet Plan of 1947-50. In the Frenchsystem of planning, the public sector comprises basic sectors like coal, cement, steel, transportation,fuel, fertilizers, farm machinery, electricity, tourism, etc. In these sectors, the fulfilment of

24. G. Myrdal, Asian Drama, 1968.


production and investment targets is imperative. Besides, there are certain basic actions whichare considered essential for the operation of the basic sectors and are, therefore, directly underthe state. They are: (i) the development of scientific and technical research including atomicenergy; (ii) reduction of costs through rationalization and long-term programming; (iii)specialization and regrouping of industrial concerns; (iv) market organization of agriculturalproducts; and (v) reconversion of old firms and retention of displaced manpower. In theremaining sectors of economy and even in the above fields where the private sector co-existswith the public sector, planning is indicative. It consists in the integration of individual planningefforts which, in isolation, are incapable of achieving their objectives.In the national plan, production and investment targets are laid down for both the public andprivate sectors. The basis of the national plans is the Economic Table which is made up of datapertaining to consumption, saving, investment, and foreign trade. This table shows the inputsand outputs of each sector of the economy. While framing the draft plan, the Commissariat auPlan (the French Planning Commission) discusses the plan with the representatives of the privatesector in a number of commissions, known as Modernization Commissions to give the plan itsfinal shape. There are two types of commissions, vertical and horizontal. The verticalcommissions discuss and finalize the activities of the various sectors of the economy, such asagriculture, coal, steel, manufacturing, power, transportation, housing, education, public health,social welfare, etc. The horizontal commissions, on the other hand, deal with various balancesin the economy between investment and saving, between income and expenditure of the state,between the inward and outward flows of foreign currency, and between financial and physicalestimates. In this way, the private sector becomes a partner in the economic plan and helps infulfilling the targets of the plan. The government provides incentives to the private sector throughgrants, loans, tax exemptions, etc. It gives guidance to the private sector instead of issuingdirections. The private sector relies on the market conditions for production .and investmentprogrammes. And if there is need for making adjustments in the plan due to changed marketconditions, they can be made even during its execution stage. Thus there is sufficient individualfreedem of choice and action in French planning. In fact, it presents a perfect compromisebetween freedom and planning, incorporates the merits of both the free market and plannedeconomies and successfully avoids their demerits.Criticisms. However, the success of indicative planning presupposes that “every branch ofactivity is promised the possibility of acquiring its production factors and selling its goods ona balanced market. The promise, however, is only kept if everybody plays the game. The promiseacts merely as an incentive. It is not binding on any body.” But the actual experience of indicativeplanning in France shows that firms do not play the game when the development programmedoes not coincide with their profit expectations. Often monopolistic organisations do not carefor the incomes policy laid down by the government and use their power for personal benefit.Moreover, under conditions of price inflation, the government interferes with the marketmechanism by resorting to direct controls instead of monetary and fiscal policies. Thus theworking of indicative planning in France casts doubts about its being a golden mean betweenfree market and planned economies.

IMPERATIVE PLANNING

Under imperative planning all economic activities and resources of the economy operate underthe direction of the state. There is complete control over the factors of production by the state.


The entire resources of the country are used to the maximum in order to fulfil the targets of theplan. There is no consumers’ sovereignty in such planning. The consumers get commodities infixed quantities at fixed prices. Often the commodities are rationed. Production of commoditiesis in accordance with government policies. What and how much to produce such decisions aretaken by the managers of firms and factories on the direction of the planning commission or acentral planning authority. Since the government policies and decisions are rigid, they cannotbe changed easily. If there is some bottleneck in fulfilling production targets at any stage, itadversely affects all related sectors of production. If managers of industries do not carry outproduction plans properly, production falls which undermines the entire production processin the economy. Imperative planning is in operation in China and Russia.

DEMOCRATIC PLANNING AND TOTALITARIAN PLANNING

TOTALITARIAN PLANNING

To many economists like Hayek and Lippman, planning is incompatible with democracy. Hayekgoes to the extent of saying that “what was promised to us as the Road to Freedom was in factthe High Road to Serfdom.” But Hayek has in mind totalitarian planning which is comprehensive.In totalitarian or authoritarian planning there is central control and direction of all economicactivities in accordance with a single plan. There is planning by direction where 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. There is absolutely no opposition tothe plan. People have to accept and rigidly implement the plan. Economic and political powersare polarised and social life is regimented. There is thus no democratic freedom in authoritarianplanning which is extremely rigid. But there are others who hold the view that “a plannedsociety can be far more free society than the competitive laissez-faire order which it has come toreplace.” Whatever be the degree of deliberate control and direction of economic forces intotalitarian planning, it is for making the economic system perfect, and maintaining stability,and achieving rapid growth. Moreover, as pointed out by Professor Myrdal, “I find no examplein history where democracy has been lost because of too much planning and state intervention,but plenty of examples on the contrary.”25 He, therefore, favours the Soviet type of planning forthe underdeveloped countries of South-East Asia because it is scientific and efficient as comparedto an unplanned economic system. Though authoritarian planning can help in achieving thetargets within the stipulated period and according to schedule, yet the price which the peopleof underdeveloped countries shall have to pay in the form of the loss of economic, social andpolitical freedoms is enormous. It is, therefore, better to have democratic planning and achievethe same results without, at the same time, sacrificing these freedoms totally.

DEMOCRATIC PLANNING

Democratic planning implies planning within democracy. In democratic planning, thephilosophy of democratic government is accepted as the ideological basis. People are associatedat every step in the formulation and implementation of the plan. A democratic plan ischaracterized by the widest possible consultations with the various state governments and private

25. G. Myrdal, An International Economy,1959.


enterprises at the stage of preparation. It seeks to avoid all clashes, and tries to harmonise allopinions that are for the welfare of the people. Cooperation of different agencies, and voluntarygroups, and associations plays a major role in its execution. The plan is fully debated in theParliament, and the state legislatures and in the private forums. The plan prepared by thePlanning Commission is not accepted as such. It can be accepted, rejected or, modified by theParliament of the country. Thus the plan is not forced upon the people from above. It is planningfrom below.Democratic planning respects the institution of private property. Nationalization is resorted tothe limited extent absolutely necessary, and reasonable compensation is paid in all cases. Pricemechanism is allowed to play its due role. The government only seeks to influence economicand investment decisions in the private sector through fiscal and monetary measures. The privatesector operates side by side with the public sector. There is healthy competition between thetwo for the fulfilment of the plan targets. Democratic planning aims at the removal of inequalitiesof income and wealth through peaceful means by taxation and government spending on socialwelfare and social security schemes. Individual freedom prevails. People enjoy social, economicand political freedoms.India is a unique experimentation in democratic planning. Planning in India is being carriedout under a democratic government which is elected under universal suffrage. There is noundue encroachment on the rights and liberties of the people in the execution of the plans.There is freedom to own private property and in the event of expropriation adequatecompensation is paid. Private sector co-exists with public sector. The latter operates under theguidance, help and supervision of the government. There is no force in the implementation ofthe five-year plans which are fully discussed and debated both within and outside the Parliament.People enjoy the fundamental rights of freedom of speech, association, occupation etc. Theplanning procedure in India is democratic.Criticisms. Critics are not lacking in characterising democratic planning as a myth. They opinethat democracy is not to be found anywhere, so there cannot be democratic planning either.Some sort of state intervention is inevitable even in democratic planning whereby economicfreedom becomes a farce. The institution of controls in various forms on consumption, productionand distribution viz., price controls and rationing, industrial licensing, monopoly regulation,import restrictions, state trading, etc., do not make for economic freedom. “India’s planning isof an imperative type in democratic context... .It is a half way house between command and freeeconomy, imbibing the disadvantages of both without the advantages of the either. It has itsinbuilt difficulties which hinder progress. Socialist economy can follow its own path of growth,capitalist countries their own, planned economy in a democracy operates between the two,divided between public and private sector. In India the relationship between the two has beenfar from ideal.”26

It is contended by Professor William Letwin that the Planning Commisssion in India does notpossess an autonomous status in the real sense of the term. It is a part of the ruling party. TheChairman of the Planning Commission is the Prime Minister. The National DevelopmentCouncil, the most important body, is already without constitutional and statutory authoritywhich derives its power from the simple fact that its members are the Prime Minister andopposition members, the chief ministers of all the states. “The resultant plan is politics. ThusIndian planning is democratic in constitutional form, in that the chief decisions are made by

26. K.N. Bhattacharyya, Planning: Economic and Economy, 1971.


elected representatives of the people, it is not democratic in substance.” We do not agree withProfessor Letwin because in democratic planning the plan must reflect the aspirations of themasses as represented by the ruling party in the Parliament.Thus Indian planning is democratic both constitutionally and in substance, for some sort ofcontrols and state intervention are essential for lifting the economy out of the morass and forthe welfare of the masses. It is, however, felt that Indian planning in its democratic set-upshould be indicative rather than imperative as has been the experience of France.

ROLLING AND FIXED PLANS

ROLLING PLAN

Professor Myrdal was the first economist to advocate a rolling plan for developing countries inhis book Indian Economic Planning in its Broader Setting. India did not experiment it for the firsttime in 1978. It was introduced for purposes of defence after the Chinese aggression in 1962and has been a great success in making the country almost self-sufficient in the manufacture ofsophisticated arms and ammunitions, frigates and aircraft, and helped to prepare it to facePakistan twice. It was introduced in Indian planning by the Janata Government on April 1, 1978and was given up on April 1, 1980 with the coming to power of the Indira Government.In a rolling plan, every year three new plans are made and acted upon. First, there is a plan forthe current year which includes the annual budget and the foreign exchange budget. Second,there is a plan for a number of years, say three, four or five. It is changed every year in keepingwith the requirements of the economy. It contains targets and techniques to be followed duringthe plan period, along with price relationships and price policies. Third, a perspective plan for10, 15 or 20 or even more years is presented every year in which the broader goals are statedand the outlines of future development are forecast. The annual one-year plan is fitted into thesame year’s new three-four- or five-year plan, and both are framed in the light of the perspectiveplan. For example, if planning is started in 1970 in a country, there would be three plans underthe technique of rolling plan: an annual plan for 1970, a five-year plan for 1970-75, and a 20-year plan for 1970-90. The broad aims and objectives are laid down in the 20-year perspectiveplan. When the plan starts in 1970, there will be an annual plan in every subsequent year, thatis, 1971, 1972 and so on. The five-year plan for 1970-75 will also roll on for the subsequentperiods by shedding each previous year so as to become a plan for 1971-76, 1972-77 and so on.Since planning is a continuous process, every year the plan is revised in the light of newinformation, improved data and improved analysis. “At each revision it will be well to lookinto the future a number of years which is determined by the nature of the factual circumstances....If five years is deemed to be a suitable horizon, this number of years may be applied at each ofthe yearly revisions in the sense, one would always be working in the beginning of a five-yearperiod.”Merits. The concept of rolling plan is devised to overcome the rigidities encountered in thefixed five-year plans. In the rolling plan, there are plan targets, projections and allocations thatare not fixed for the five-year period but are liable to revision every year in keeping with thechanging conditions of the country. It not only provides greater flexibility but also a clearerperspective and a better view of the priorities.Being flexible, a rolling plan is more realistic than a flexible plan. It takes into considerationsuch unforeseen natural and economic changes as floods, drought, war, hike in oil prices, etc.,


which may affect the economy adversely. Under a rolling plan, financial and physical targetscan be revised in keeping with such changes. But such revisions are not possible under a fixedplan. Thus the rolling plan combines the advantages of both perspective and flexible planning.Demerits. But critics are not lacking in pointing towards certain demerits of this technique ofrolling plan. They point out that since the targets are likely to be revised every year, it is notpossible to achieve the targets laid down in the plan within a fixed time period. Such frequentrevisions also make it difficult to maintain proper balances in the economy which are essentialfor its balanced development. Again, when the plan is continuously revised, it createsuncertainties in the private and public sectors of the economy. Both sectors lose the urge tomake changes in their production plans or to proceed in accordance with the previouly laiddown targets. To achieve bigger targets becomes out of question. Moreover, constant revisionsof the targets of the plan develop an attitude of non-commitment and apathy among the plannersand the public which do not augur well for the future development of such a country.Further, the success of the rolling plan depends on a strong communication system from thevillage to the headquarters of the planning body. This requires a large manpower base trainedin the collection of data at the village, block, district and state levels. The data are required to beprocessed. This necessitates the installation and operation of the latest computerised systemwhich is very costly and is difficult to operate in an underdeveloped country. Leaving asidethis aspect, the success of a rolling plan depends upon the extent to which data are collected,communicated and computerised regularly. It also depends on the ability of the planningmachinery to cope with the work of continuous revisions of the five-year plan every year in thelight of the changing natural or economic conditions. But it is not within the competence of theplanning machinery in an underdeveloped country to collect, communicate and computerisedata accurately and regularly throughout the year from different sectors of the economy.Again, for the rolling plan to be successful, “up-to-date knowledge of progress as well as theshortcomings in the implementation of projects are absolutely essential. Unfortunately, suchinformation is today so widely scattered that for all practical purposes it does not exist. And, atany rate, it is far from up-to-date and quite insufficient to roll the plan. To organise suchinformation and the capacity to use it is, therefore, the prime need. As this obviously cannot bedone overnight it would be advisable, to start with, for the rolling exercise to be confined toselected sectors in which the required information can be effectively organised.”These were the difficulties which led to the abandonment of this technique of rolling plan insuch underdeveloped countries as Burma and Mexico. But it has been a success in such developedcountries as Japan and Poland.

FIXED PLAN

In contrast to the rolling plan, there is a fixed plan for four, five, six or seven years. A fixed planlays down definite aims and objectives which are required to be achieved during the plan period.For this purpose, physical targets are fixed along with the total outlay. Physical targets andfinancial outlays are seldom changed except under emergencies. Planning in Russia and Indiais of the fixed type. Economic plans in Russia are of seven years, while they are of five years inIndia.Merits. Such planning has certain merits which make it superior to rolling planning.

1. One of the merits of this type of planning is that it fixes targets and priorities rigidly forachieving the objectives laid down in the plan. Targets are bold and cover every aspect of theeconomy. They are meant to be fulfilled both by the public sector and the private sector during


the fixed period of the plan. It is thus a challenge to both the sectors which make all-out effortsto achieve them through mutual cooperation and healthy competition.

2. It helps in maintaining proper balances in the economy. As the plan is for a fixed period,every effort is made to avoid scarcities of physical and financial resources. For this, prioritiesare laid down on the basis of the short-term and long-term needs of the economy in keepingwith the available material, human and financial resources. On the basis of the various prioritiesof the plan, monetary, fiscal and direct policy measures are adopted to maintain proper balancesin the economy. Such balances can be maintained under a fixed plan rather than in a rollingplan.

3. There is no element of uncertainty in this type of planning. The planning machinery, thepublic sector and the private sector are definite about the objectives and targets of the planwhich are to be achieved during a given plan period. They, therefore, do their best to achievethem within that period.

4. When there is a fixed plan with given objectives and targets, it ensures public cooperationand political will to make the plan a success. This is because people know and realise that thesuccess of the plan will bring manifold benefits to them by the end of the plan in the form ofrising incomes, larger employment opportunities, improved agricultural facilities, more powerfor agriculture and industry, etc.

5. Such a plan helps in reviewing changes in national income, investment, saving,consumption; and the performance of the different sectors of the economy in the previous plan.Consequently, the fields of success and failure are pointed out and efforts are made to have abetter performance and to overcome failures in the current plan. Plan evaluations are also madeduring the plan period. All this provides an opportunity to the planners to bring stability in theeconomy while the plan is still in progress.Demerits. Despite these merits, fixed plans, as they are in vogue in India, have certain demerits.

1. The fixed plans in India have no connection either with available physical or financialresources. The main aim has been to fulfil the financial targets by all means through deficitfinancing, heavy taxation, larger borrowings and through massive foreign aid, irrespective oftheir adverse effects on the economy. The actual achievements have always fallen short of physicaltargets. Spending huge sums without matching results in physical terms has led to distortionsin the price structure and availability of essential commodities. This has often led to Planholidays, as between 1966-68. Often a FYP (five year plan) is started on schedule but the actualplan is brought out after the lapse of 21/2 years, as was the case with the Fifth FYP. A mid-termappraisal is done after three years which is nothing but a post-mortem exercise, an exercise infutility. By the time this report is published, the next plan is due which is again delayed becausethe necessary figures relating to the various variables and sectors of the economy are not availablein time.

2. The present system of fixed plans fails to take into account unforeseen changes which mayoccur in the economy during the period of FYP. They may be natural forces, such as floods,cyclone or famine or economic such as hike in oil prices or external such as war. There may alsobe difficulties of achieving the targets or of obtaining resources as laid down in the plan. Arolling plan offers flexibility to such factors changing from time to time. Some discrepanciesare also likely to creep in between forecasts and actuality in the process of planning even in anordinary way. Thus there is always the need for a built-in capacity in the planning system tocorrect such mistakes.

3. Besides, a fixed FYP is unsuited for large projects which are not merely lumpy but have a


long gestation period of ten to fifteen years, such as river valley projects. Such projects spillover the FYP period and have to wait for fresh sanction at the beginning of the next FYP. Thisresults in the slowing of the pace of progress of the project. Therefore, such projects cannot betied down to a rigid framework of a FYP and need to be adjusted in a rolling plan.

4. Similarly, the problems of poverty and unemployment cannot be solved in a period of fiveyears. Right from the second FYP, our plans aimed at the eradication of these two scourges ofmodern civilisation but achieved little towards this direction. They are long-term problemswhich can be solved within the framework of a rolling plan in a perspective period of 10, 15 or20 years.

5. Last but not the least, the industrial development in India during the last 60 years ofplanning has been extremely uneven and unbalanced. In fact, industrial development has beenurban development as in advanced countries which goes against our socio-economic set-up.There has been concentration of industries in and around urban centres. There is thus the needfor a policy of balanced regional development which necessitates decentralisation of industriesnear rural and. backward areas. This is essentially a long-term problem which requires a rollingplan for its solution.

Conclusion. These demerits of fixed planning are not so serious as to discard it in favour ofrolling planning. Physical and finacial shortages are bound to arise in every type of planning.They are not peculiar to a fixed plan and they can be better faced and overcome during a fixedplan period. As regards the long-term problems of poverty, unemployment, inequalities andregional imbalances are concerned, they can be gradually solved within the framework of anumber of fixed plans. Projects with long gestation period can also be completed under two orthree plans. In fact, all long-term problems and projects form part of a perspective plan whichis contained in every five-year plan document. The present five year plan is a projection andcontinuation of the previous plans and it leads to subsequent plans. Thus all long-term problemsof an economy can be solved by a series of fixed plans.

PLANNING UNDER CAPITALISM AND SOCIALISM

PLANNING UNDER CAPITALISM

Planning under capitalism is not based on any central plan. In the absence of a central plan, themeans of production are owned privately. Production is also carried out by private enterprise.It is not planned by the government. Market prices are determined by market forces and are notset by the government. So under capitalist planning, the institutions of private ownership, privateenterprise and price mechanism continue to operate. Given these institutions, there is nocomprehensive planning under capitalism. The state plans on a limited scale “to harness self-interest to the service of the community as a whole, and to supplement the price system, as wellas ensuring that it works efficiently.27”To achieve these tasks, the government of a capitalist economy performs three functions: (1) Itadopts appropriate measures to maintain aggregate demand which is neither too smalll nor toolarge so that recession or inflation is avoided. For this, the government regulates the actions ofprivate enterprise. It establishes healthy monetary and credit institutions, and adopts fiscalmeasures in keeping with the economic situation of the country. (2) It prevents monopoly

27. F.W. Paish, Benham’s Economic, 8/e, p. 56.


concentration. Monopoly distorts the price mechanism under capitalism. It restricts output tokeep up prices so that less resources are employed. To check monopoly and monopolisticpractices, the government adopts anti-monopolistic measures and even nationalises some ofthe monopolistic corporations for the benefit of the community at large. (3) The governmentadopts measures for the satisfaction of communal wants in the form of public health measures,public parks, roads, bridges, museums, zoos, education, flood control measures, etc. All theseactivities of the government are not coordinated by any central plan.Thus planning under capitalism is confined to the regulatory activities of the government so asto avoid recession or inflation, to prevent monopoly concentration, to raise the standard ofliving of the people and to create conditions for the smooth functioning of the price mechanismwith a sufficient degree of competition.

PLANNING UNDER SOCIALISM

Planning under socialism is based on a central plan. There is a central planning authority orboard which formulates a plan for the entire economy. There is complete centralisation ofeconomic power in the central planning authority. It fixes the plan objectives, priorities andtargets. It organises and allocates the resources of the economy by deliberate direction andcontrol for the purpose of achieving definite objectives and targets laid down in the plan duringa specified period of time. The central problems of an economy, what and how much is to beproduced; how, when and where it is to be produced; and to whom it is to be allocated, areexclusively decided by it.The central plan has definite socio-economic objectives. These objectives may concern aggregatedemand, full employment, satisfaction of communal demand, allocation of factors of production,distribution of national income, amount of capital accumulation, economic development, andso forth.To achieve these objectives, the planning authority owns and controls the means of productionand distribution. All mines, farms, factories, financial institutions, distributing agencies suchas shops, stores, internal and external trade, means of transport and communications, etc. areowned, controlled and regulated by government departments and state corporations under theoverall supervision and control of the planning authority. Production in the different sectors ofthe economy is governed by priorities and targets of the plan. Production of consumer goods isgenerally governed by the preferences of consumers and the available commodities aredistributed to them at fixed prices. Under socialist planning, consumers’ sovereignty is confinedonly to the choice of socially useful commodities which the planning authority deems fit toproduce and provide to the people.The pricing process under socialist planning does not operate freely but works under the controland regulation of the central planning authority. According to Dickinson, socialist planningand the pricing process are not opposed to each other. Rather, they are complementary principlesof economic regulation. The former supports the latter in four ways: First, to give general directionto the socialist economy. Second, to make decisions where market indications are lacking. Third,to eliminate cyclical fluctuations in economic activity. Fourth, to deal with special emergencies.Thus the pricing process plays an important role under socialist planning even though pricesare fixed by the planning authority. There are market prices at which consumer goods are sold.There are also accounting prices on the basis of which managers decide about the production ofconsumer goods and investment goods, and also about the choice of production methods. Thepricing process does not regulate the plan. It is subservient to the central plan.


Conclusion. Socialist planning is superior to capitalist planning. The adoption of planningunder capitalism fails to bring economic efficiency, to avoid wastage of resources, to checkmonopolistic practices fully to reduce inequalities of income and wealth, and to avoid boomsand slumps. This is borne out by the experience of all capitalist countries. On the other hand,socialist planning provides greater economic efficiency because the means of production arenot left to the market forces. Rather, they are controlled and regulated by the planning authorityin the most efficient manner. Moreover, there is greater welfare due to less inequality undersocialist planning. The central plan aims at providing socially useful goods and services. As theplanning authority owns, controls and regulates all the means of production and distribution.Every citizen is paid his remuneration according to his ability, education and training, therebyreducing inequalities. Finally, under socialist planning, the planning authority is able to avoiddeflationary and inflationary trends by a better coordination of the actions of various producingunits and making full use of available resources.

CENTRALISED AND DECENTRALISED PLANNING

Planning may be centralised or decentralised. This division is made from the viewpoint of theexecution of plans. Under centralised planning, the entire planning process in a country isunder a central planning authority. This authority formulates a central plan, fixes objectives,targets and priorities for every sector of the economy. It takes all investment decisions inaccordance with the goals and targets of the plan. The principal problems of the economy, whatand how much is to be produced; how, when and where it is to be produced; and to whom it isto be allocated, are exclusively decided by this authority. The central planning authority controlsevery aspect of the economy. It fixes prices of all products and wages of all types of workers. Allanticipated financial product and factor imbalances that are likely to arise within the planningperiod, are sought to be corrected in advance by the planning authority.Oscar Lange rejects centralised planning because of its undemocratic character. The entireplanning process is based on bureaucratic control and regulation. Naturally, such planning isrigid. There is no economic freedom and all economic activities are directed from above.Shortages and mistakes arising during the course of planning are not likely to be rectified becauseof the absence of decentralised decision-making.On the other hand, decentralised planning refers to the execution of the plan from the grassroots. Under it, a plan is formulated by the central planning authority in consultation with thedifferent administrative units of the country. The central plan incorporates plans under thecentral schemes, and plans for the states under a federal set-up. The state plans incorporatedistrict and village level plans. Similarly, plans for different industries are formulated inconsultation with representartives of industries. But individual firms are free to take independentdecisions about investment and output policies, and so are individual farmers. Underdecentralised planning, prices of goods and services are primarily determined by the marketmechanism despite government control and regulation in certain fields of economic activity.There is freedom of consumption, production and enterprise under it. However, the planningauthority recommends to the central and state governments to provide certain incentives to theprivate sector. It also lays down areas of public sector activities.Decentralised planning is superior to centralised planning in that it provides economic freedomand flexibility to the economy. But its dependence on the market mechanism leads to shortagesor surpluses in the production of goods and services. They are likely to create problems for the


government because adjustments are difficult to make. For instance, shortages of goods lead toinflation and the adoption of price controls and rationing creates more problems. Further, it isnot possible to coordinate the decisions of the planned and unplanned sectors. This is one ofthe main reasons for distortions in the economy which lead to disequilibrium in the demandfor and supply of goods and services. Of the two, centralised planning provides cohesivenessto the economy whereas decentralised planning provides economic freedom and incentives tothe market economy.

CORRECTIVE PLANNING AND DEVELOPMENT PLANNING

A number of maladjustments arise in a capitalist economy. When the government plans andadopts various fiscal, monetary and direct control measures to rectify them, this is calledcorrective planning. If the economy suffers from inflationary pressures, the government adoptssuch corrective measures as a contractionary monetary policy, raising tax rates, reducingconsumption, investment and public expenditure. It may also adopt a surplus budgetary policy.In the event of a depression, corrective planning includes an expansionary monetary policy,reduction in tax rates, stimulation of consumption, increase in private and public investment,and a deficit budgetary policy. Excessive inequalities of income distribution and concentrationof monopoly power are also sought to be reduced under corrective planning. To reduceinequalities of income distribution, corrective planning requires the adoption of such measuresas imposition of heavier burdens on the higher income groups through death duties, steeplyprogressive income taxes, increased expenditure on public works and social security, etc. Tocontrol monopoly concentration, the government may encourage competitive small business,start public enterprises, pass anti-monopoly laws and even nationalise monopolistic industries.Planning in the United States and in other capitalist countries is of the corrective type.Development planning is meant to develop the economy as a whole. It involves “the applicationof a rational system of choices among feasible courses of investment and other developmentactions.”28 For this, it relies to a large extent on the market mechanism. Under developmentplanning, the government formulates a development plan for the whole economy. It includesconsideration of the most important economic aggregates such as total saving, investment,output, government expenditure and foreign transactions. It also explores sectoral relationshipsin the overall framework of the economy. In particular, it lays down investment priorities forthe public sector. Public investments cover the whole infrastructure of the economy includinginvestments in health, education and training. The private sector is considered a partner in thedevelopment efforts of the economy. The government does not use force on the private sectorto get the plan implemented. Rather, it provides incentives through monetary, fiscal and directcontrol measures. At the same time, the government adopts measures to restrict unproductiveactivities so that private investment is channelised into productive activities.Development planning is primarily related to the. development activities of underdevelopedcountries. Since such countries have a number of economic, social and political obstacles todevelopment, it is not possible to make development planning a success even by the best policies.Lewis observes in this connection: “Good policies help, but do not ensure success. Developmentplanning is in this respect like medicine; the good practitioner knows some useful tricks; but it

28. A. Waterstone, “Lessons of Experience,” in Leading Issues in Economic Development, Gerald M. Meier,(ed.), 2/e, 1970.


is still the case that many patients die who are expected to live, and many live who are expectedto die.”29

PLANNING IN A MIXED ECONOMY

Mixed economy is a compromise between the two economic systems, capitalism and socialism.It is a system which is free from the evils of both capitalism and socialism but integrates thegood features of both. That is why it is known as mixed economy which is a golden meansbetween capitalism and socialism. It is through planning that the merits of a socialist economyare imparted and the defects of capitalism are sought to be removed in a mixed economy. Planning in a mixed economy is not comprehensive in the sense of socialist plaiming. It dividesthe economy into public and private sector for the purpose of economic development. Thepublic sector is under the direct control of the government which regulates its production anddistribution. All services in which the profit expectations are low and investments are largewith long gestation period are operated under the public sector, such as rail, road and airtransport, power generation plants, posts and telegraphs, etc. There are in fact public utilitieswhich are operated by the state for public welfare. Besides, defence, atomic energy, heavy, basicand strategic industries are all operated in the public sector. The plan allocates investment, laysdown targets and fixes priorities for this sector.There is the private sector in which individuals manage what they own, usually in farming,industry and retailing. Keeping the public interest in view, the state regulates the working ofthis sector by giving suggestions, subsidies, credit facilities, raw materials, cheap power,concessional transport facilities, tax holidays, concessions, etc., and by administrative controlsand directions. If certain industries do not work satisfactorily or operate against public interest,the state nationalises them by paying appropriate compensation.A sector based on the principles of cooperation also exists in a mixed economy. It is usually tobe found in farming, dairying, consumer purchases, and in small manufacturing. The cooperativesector is organised by the people with the assistance of state cooperative agencies to reduceexploitative market tendencies and to inculcate spirits of cooperation and self-help.Merits. Planning in a mixed economy has the following merits:

1. Planning in a mixed economy is meant to provide all the freedoms of capitalism, such asfreedom of consumption, freedom of production, freedom of occupation, freedom to holdproperty, etc. But these freedoms cannot be enjoyed absolutely and at the cost of public welfare.So the government puts checks on these freedoms by proper regulation and control of sucheconomic activities as the production and distribution of essential commodities in order toprevent their hoarding and black-marketing, and even rationing them in the event of acuteshortages, of private property for an equitable distribution, of monopoly concentration ofeconomic power, etc.

2. The ultimate aim of planning in a mixed economy is to remove the evils of capitalism andto promote the maximum welfare of the people. These objectives are achieved through thevarious measures outlined above. Besides, to protect workers from capitalist exploitation, thestate passes labour laws and fixes minimum wages, working hours, etc. and provides socialsecurity in the form of life insurance, unemployment insurance pension, provident fund,maternity benefits, free education, recreational facilities, etc. The state also aims at reducinginequalities of income distribution through these measures.

29. W.A. Lewis, Development Planning, p. 23.


3. Planning in underdeveloped countries is primarily based on the concept of mixed economy.The main aim of such planning is to increase the growth rate of the economy, given the variouslimiting factors in such countries. For this, planning in a mixed economy envisages a high rateof capital formation through various monetary, fiscal and physical control measures; throughforeign aid, comprehencive exchange control and protective tariffs; and through public andprivate investments so that the economy develops in a balanced way. Thus planning in a mixedeconomy “affords the advantages of resolute government action in overcoming existing barriersto economic growth, does not involve an amount of central integration exceeding the capacityof its bureaucracy, and fosters a maximum of cooperation between private business andgovernment.”Demerits. Despite these merits, planning in a mixed economy is faced with certain problemswhich make it difficult to achieve the objectives and targets of the plan.First, there is non-cooperation between the two sectors. The experience of the working of mixedeconomies reveals that the government treats the private sector like a step-child and imposesmany restrictions on it. The private sector is taxed heavily. It has to operate under numerouscontrols and “bureaucratic capitalism”. On the other hand, the public sector is given preferenceover the private sector in all matters. Thus bitterness and non-cooperation develop between thetwo sectors which lead to the non-fulfilment of the plan targets. Since the private sector operateson the basis of the market mechanism, shortages lead to rise in prices which spread to thepublic sector. This is because both the sectors are dependent on each other for supplies of rawmaterials, intermediate products, etc.Second, planning in a mixed economy involves the expansion of the public sector wherebypublic outlay is increased. But enough financial resources are not available in an underdevelopedcountry to meet large plan outlays. This leads to deficit spending, thereby leading to inflationarypressures within the economy.Third, the public sector is a big burden on the financial plan. Bureaucratic control leads toinefficiency. There is over staffing of the personnel, red tapism, corruption and nepotism. As aresult, production falls and losses emerge. Moreover, the majority of public undertakings beingof long-gestation period and involving huge investments, they continue to operate under lossesfor a number of years. Thus shortages of goods continue which accentuate inflationary pressures.

PLANNING MODELS

Planning models have been increasingly used in underdeveloped countries for the drawing upof plans for economic development. A model expresses relationships among economic variableswhich explain and predict past and future events under a set of simplifying assumptions. Inother words, a model consists of a series of equations, each of which represents the associationamong certain variables. In this sense, a planning model is a series of mathematical equationswhich help in the drawing up of a plan for economic development. Broadly, a model may haveendogenous and exogenous variables. Endogenous variables are those whose values aredetermined from within the system such as national income, consumption, saving, investment,etc. On the other hand, exogenous variables are determined from outside the system such asprices, exports, imports, technological changes, etc. A planning model specifies relationshipsbetween endogenous and exogenous variables and aims at ensuring the consistency of theproposed plan for economic development. “It is meant to yield an optimally balanced collectionof measures, known as Model Targets, which can help the planning authority in the drawing of


an actual plan.” A UN study defines a planning model as that based on precise knowledge ofmedium and long-term economic aims, which is mathematically expressed in the form of apreference function and reflects the initial conditions of the economy including economic policymeasures already proposed and show the most probable path of economic development.30

Planning models are of three types: aggregate, multisector and decentralisation. Aggregativemodels trace the optimal paths of development overtime of such economy-wide aggregates asincome, saving, consumption, investment, etc. The Harrod-Domar Models and the Two-GapModels are of this type. But it is not possible to build highly aggregative models in UDCsbecause of the lack of accurate data and computational devices.Multisector models are designed which connect macroeconomic aggregates with the sectorsconstituting the operational content of the plan. The Mahalanobis Two-Sector and Four-SectorModels are of this type. Multisector models are also set in terms of input-output models. Theyare consistency models based on the Leontief inter-industry system. The Consistency Modelfor India’s Fourth Plan by Manne, Rudra and others, and the model of Indian Fifth Plan wereframed in terms of the input-output models. Further, optimising or linear programming modelsare also multisector planning models. They extend the consistency models of the input-outputtype to optimization of income or employment or any other quantifiable plan objective underthe constraints of limited resources and technological conditions of production. Such modelscan be static or dynamic. Static LP models solve the systems of equations for optimal solutionsin relation to a single year, while dynamic LP models explain the optimal growth path over theentire plan period.Decentralised models have sector or project level variables which are used to prepare modelsfor individual sectors or projects. Such models are useful in the early stages of a country’seconomic development when information is available for only individual sectors or projects.The usefulness of planning models in actual plan-making are: “(a) to provide a frame for thechecking of the consistency or the optimality of the official plan targets; (b) to provide a framefor the actual setting of targets; (c) to provide a frame for the evaluation and selection of projects;and (d) to provide an insight into the structure of the economy and its dynamics to help betterpolicy decisions.”31

30. UN, ECE, Development in the Construction and Use of Macroeconomic Models 1968.31. Ashok Rudra, Indian Plan Models, p. 201.

Chapter No.71

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