Plans of Economic Planning

Economic planning is a resource allocation mechanism that is based on a computational procedure for solving a constrained maximisation problem through an iterative process. In contrast to the market mechanism, planning is a mechanism for allocating resources between and within organisations. 

Economic planning, as a socialist allocation mechanism, replaces factor markets with a procedure for direct allocations of resources within an interconnected group of socially owned organisations that comprise the productive apparatus of the economy.

How did Economic Planning came into practice?

Historically, the concept of central economic planning was associated with criticism of capitalism as an anarchistic and greed-driven system. Marxist critics did not give much thought to how the economy would be run after capitalism was abolished; most of them claimed that organising the society that would follow would be simple. When the new Soviet government gained control of all means of production in 1917, it had no idea what to do next. 

The Soviet Union’s evolution of central economic planning has many methods were tried and discarded, and new ones were introduced.

Financial and physical planning

Financial planning allocates resources in terms of money, and it is critical to eliminate misalignments between supply and demand. As a result, it is critical in maintaining a balance between supply and demand, as well as controlling inflation, in order to achieve economic stability in the country.

The allocation of resources in physical planning is done in terms of men, machinery, and materials. An overall assessment of the available resources is performed to ensure that bottleneck situation are avoided during plan execution. It is regarded as a long-term planning procedure.

Economic Planning Is Required Because

The following factors highlight the importance of economic planning in India:

1. To achieve consistent economic growth in a free market economy.
2. To eliminate unemployment, poverty, and social inequalities.
3. To provide infrastructure services such as banking, electricity, water, transportation, and communications.
4. To properly allocate resources between current and future needs.
5. Achieve balanced regional development.

Induction-based planning

Induced planning is consistent with democratic planning. It was a reference to market manipulation planning. There is no coercion or direction, only persuasion. As a result, in planning by inducement, the state manipulates the market economy not through command but through the provision of inducement in order to achieve its goals.

The planning authority induces people to act in certain ways by using monetary and fiscal measures, as well as appropriate price policies. If the planning authority wants to increase production, it can do so by granting subsidies. In the event of scarcity, price control and rationing can also be used.

What is fixed Planning?

Fixed planning is for a set period of time, such as four, five, six, or seven years. A fixed plan establishes specific goals that must be met during the plan period. Except in the case of an emergency, physical targets and financial outlays do not change. This plan achieves the goals that are outlined in the plan.

This plan contributes to the economy’s proper balance. There is also no uncertainty in this type of planning. A predetermined plan with specific goals ensures public cooperation. This type of planning necessitates political will in order to be implemented successfully.

Difficulties in Development planning

Despite increasing professionalism in the formulation of development plans on paper, developing countries’ practical performance in implementing development plans of any complexity has not been very encouraging. Development plans, no matter how elaborately formulated on paper, rarely get past the first and most obvious practical hurdle, namely how to equate the total amount of investable resources required to meet the plan’s target rates of economic development with the total supply of investable resources. 

This stems from the practice of beginning with a minimum “politically acceptable” target rate of economic growth while optimistically assuming that the problem of providing the necessary resources will somehow solve itself. This is the polar opposite of realistic planning, which should begin with the supply of available resources and work backwards to determine the maximum possible rate of economic growth that can be obtained from these resources.

Conclusion

Economic planning, as a socialist allocation mechanism, replaces factor markets with a procedure for direct allocations of resources within an interconnected group of socially owned organisations that comprise the productive apparatus of the economy. Financial planning allocates resources in terms of money, and it is critical to eliminate misalignments between supply and demand. The allocation of resources in physical planning is done in terms of men, machinery, and materials. This is the polar opposite of realistic planning, which should begin with the supply of available resources and work backwards to determine the maximum possible rate of economic growth that can be obtained from these resources. The primary goal of planning is to exert control over an economy’s private sector. Economic planning refers to the rational arrangement of a country’s economic resources for a specific purpose.