Chapter One

Development Planning:
1. Introduction
1.1. THE EVOLUTION OF DEVELOPMENT THINKING
The evolution of development thinking is summarized in to three different
periods:
 The Early Post War Consensus
 The Washington Consensus
 The Oscillating Search for Silver Bullet
1.1.1. The Early Post War consensus
This period covers immediately after cease of World War II up to the end
of 1960's and beginning of 1970's. This is the interesting period for the developing
world because it gets attention by academicians how growth and development
could be achieved in these countries. That is why in the 1950's and 1960's,
the previously neglected sub-fields of Development Economics were rediscovered.
Available economic models seemed to offer only limited insights into the practical
problems facing the so-called Third World. The dominant one-sector macro models of
the day, from Keynesian to Harrod-Domar to Solow seemed to have relatively little
relevance for societies not primarily concerned with business cycles or steady state
properties.
The period, for ease of understanding could be looked into five important sub- periods.
a. Dualism
It attracted due attention during the 1950s and 1960s. The components under dualism
are:
Sociological dualism: Boeke, 1953 is the major proponent. The central theme of
sociological dualism was differences between western and non-western objectives and
cultures are the major source for dualism.
Technological dualism: Higgins, 1956 is the major proponent. Differences
between variable factor proportions in the traditional sector and fixed coefficients in
modern sector as major source for dualism.
Physiocrats: viewing land as the source of all wealth, agricultural surplus
supporting
the non-agricultural sector.
Classical dualism: Ricardo and Lewis 1951 are major proponents. Surplus
labor
as potential for growth when transferred from agriculture to non-agriculture. Lewis
also asserts dualism in labor markets (competitive wage in non-agriculture versus
institutional wage in agriculture as basis for dualism).
b. Need for Balanced Growth (structuralism)
Rosenstein Rodan, 1943 and Nurkse, 1953 and others emphasized the need for balanced
growth not only between agriculture and non-agriculture but also within each sector, so
that Say’s law could come in to play and both shoes and socks should be produced to fill
both the demand and supply sides.
c. International Trade Scene
Prebisch, 1962 stated that the international trade scene painted in colors and was
unfriendly for development and demanded for equitable exchange.
d. Interventionist State
The current theoretical thinking indicates that there is strong inclination to
turn to the intervention state as a key instrument for development. The reasons that this
was considered as key instrument for development are first pre-colonial
independent countries want to exercise their own development agenda. At home the
interventionist felt the need to create infrastructure, and the institutions required to
permit the functioning of a national entity.
Second industrialization was synonymous with development (2nd industrialization
revolution). The motivation was to promote industry, with relatively less attention
paid to what was viewed as a stubbornly stagnant agriculture portrayed as a drag
on the economy, and with peasants seen as non-responsive to prices and profit
opportunities.
A logical accompaniment of these views were PLANNING MODELS, focusing on the
flow of resources, domestically financed investment supplemented by foreign capital and
paying relatively little attention to changes in the behavior of the system or the relevance
of technology.
The planning models used were:
 Planning for resources: such as Simple Harrod Domar and Mahalonobis
models. These models are all silent on price, and foreign exchange rate
flexibility. The predominant view of policy makers at that time was that growth
and efficiency should take priority and the issues of equity, poverty alleviation,
etc. should be taken care of at a later date.
 Multi - sector production function with multiple inputs and variable (Input-Output
models, Social Accounting Matrix). The real focus of planning shifted from
resources focus to devising strategies for policy change to
accommodate the changing requirements of transition.
e. Technology in generating growth
Solow, 1957 and Kuznets, 1955 contribute to emphasize the importance of technology in
generating growth. This provided a new point of departure for neo-classical growth
theory, not only replacing Harrod-Domar with a substitutable production
function, but also enthroning exogenous technology change. They introduced
critical elements like Research & Development (R and D), patents and other forms
of scientific endeavors leading to new growth theory. It was, however, Kuznets
1971, though mainly concerned with describing modern growth rather than
analyzing the transition process in getting there, which provided another essential
ingredient focused precisely on the developing world at the end of the post-war
consensus era. Kuznets was interested in why some developing countries were
successful and others not and placed major emphasis on the sources of structural change
over time as between agriculture, industry and services. He viewed policy as either
basically accommodative or obstructive to the play of underlying economic forces and
did not view it as an exogenous variable
1.1.2. The Washington Consensus
It is undoubtedly unfair to attribute the realization that policy change is the key ingredient
of successful development to the international financial institutions. It rather would give
more credit for the realization that prices matter more and that macroeconomic stability
matters less.
The major contributors of the idea are: Little, Scitovsky, and Scott 1970,
Bhagwati 1978,
Krueger 1978, Cohen and Ranis, 1971, among others, who insisted that a re-structuring
of the
rails of development was needed.
The main ingredients of the consensus are:
- Privatization and unified and competitive exchange rates
- Simultaneous liberalization of financial markets (domestic and international)
- Relative openness to Foreign Direct Investment and gradual deregulation of control
systems
- Emphasize on R and D
- Changes at micro level: labor market productivity, legal, financial and other
institutional
reforms
- Program lending changes in to structural adjustment lending. Both program and
structural
adjustment lending were subject to debates ranging from cost effectiveness of the
resources
spent to all the way the conditionality lists imposed on internal affairs of the
recipient
country.
1.1.3. The Oscillating Search for a Silver Bullet
Viewing per capita income growth as the key objective has been questioned
for
sometimes. Serious mainstream attention has been given to the distribution of
income, to
the extent to which private income poverty is reduced and to the extent to which
public
income poverty (the distribution of public goods) is being addressed. The
public income
poverty can be seen through various human development dimensions like
infant
mortality, life expectancy, literacy as fundamental objectives of development.
The basic
efficiency - equity tradeoffs led to redistribution with growth approach of
development.
The controversial relationship between growth and income poverty alleviation
is that
growth is a necessary but not sufficient condition for poverty reduction.
Theoretical Revisionism
Recently with the advancement in theoretical thinking and problems faced in
global
relations, there arises a need to revise some theories. These are:
New Trade Theory: the challenge to openness (globalization) and favoring
import
substitution (infants) leads to the two-way relationship between growth and
human
development.
Recent emphasize of development economists are on: micro foundations
of
development issues (women household decision making; poor performance of
land,
labor and credit markets) and micro-credit organizations and NGO's in
developing
countries.
Best Guesses as to the Way Forward

oAvoid dealing with large number and going towards a set of small
number
comparative historical studies encompassing typologically ''neighboring'' countries.
oNeed to pursue on the two-way relationship between growth and human
development.
oCloser look on the pros and cons of decentralization and its relation to
democratization
and decision making by the broader body politics.
1.2. Historical Background of Planning and Economic Planning
The idea of planning has a long history and goes back to the time of Plato [the first
person who
talked about organized planning]. It was later developed, shaped and molded by eminent
thinkers
and writers both in the western and eastern camp. However, the idea of economic
planning in its
modern form is comparatively new. It is the 20th century phenomena.
Ideologically, the evolution is from three perspectives:
1. Planning in Eastern Europe (socialist perspective)
2. Planning in Western Europe (capitalist perspective)
3. Planning in underdeveloped countries (mixed economic perspective)
1.2.1. Planning in Eastern Europe
During the 19th century, intellectual theorists, thinkers and writers in the Eastern Europe
became
fed up with the inquiry and contradictions of pure capitalism. Therefore, they developed
the idea
of state intervention to set matters right and to prevent inequalities resulting from
capitalism (free
economy) a solution to the fallacy of laisser-faire. But it was only state intervention that
was
advocated. There was no mention of economic planning and how to interrelate was
ambiguous
(although they realized that laisser-faire was not working). In 1928 the Soviet Union gave
the
idea of economic planning a real shape when it formulated its first five year plan. The
main
objective of the socialist (Soviet) plan was to achieve the rapid transformation of a
backward
agriculture sector (traditional sector) into a modern industrial sector.
1.2.2. Planning in Western Europe
There could be several factors that necessitate planning in Western Europe, among others
wars,
great depression of 1930th , expansion of markets, and specialization. In Western
economies, a
series of the above historical development led to the coordination of economic policies,
i.e.,
planning. These are:
a. The development of science and technology not only made material progress possible,
but
also they made planning possible as well improve computation facility;
advances in
management theory (organization coordination)
b. In the 1930’s, the capitalist world was in the midst of the biggest depression in the
world
history. Capitalism failed an utter collapse and its inherent contradiction came up to
the
surface. Economic growth collapsed and acute misery poverty well experienced by
people.
Therefore, economist and politician favored economic planning as a remedy for these and
other economic ills. People’s mind now turned to economic planning as panacea for their
economic ills while Keynes writings also in a way strengthen the belief in the efficacy
and
economic planning in capitalist countries. Meanwhile there was an attempt to plan
economic
life in Nazi Germany and Fascist Italy during the time (thirties). Note: - The objective of
the
economic planning in the West was basically different from that of the Soviet Union. The
purpose of planning in Nazi Germany was primarily to build up the war potential rather
than
improving the living standard of the people.
c. The outbreak of World War I and II necessitates the proper and efficient planning of
economic resources for successful prosecution of the war. [For coordinated management
of
scarce resources]
d. In the post war period, the war devastated countries of Europe were compelled to
resort to
economic planning to rehabilitate themselves owing to:
 As a condition for receiving assistance under the Marshal plan, the USA insisted
upon
these countries to formulate their rehabilitation plan covering almost every sector of the
economy.
 The USA itself has recognized the significance of economic planning when it
adopts an
economic program called the “new deal” to come out of the suffering from great
depression in thirties.
e. The growth of markets and increased specialization led to increased interdependence
among
economic activities and to greater economic externalities, which lead to
adoption of
economic planning. There is a need to intervene public agencies to rectify the
negative
externalities.
f. The development of democracy also lead to the adoption of planning in order to rectify
social
inequalities people could vote for those who experience an interventionist approach
1.2.3. Planning in Underdeveloped countries
Economic planning was considered as important panacea (remedy) for underdeveloped
countries
in their desire for industrialization. They want to achieve rapid growth in short period of
time.
Economic planning, therefore, was considered as a tool to achieve rapid economic
development
However, the development (evolution) of planning took a different course (path) than the
rich
countries in the following reasons:
a. In Less Developing Countries, planning was considered as an ideology rather than
a
means because in these countries planning was considered as a desire (expression)of
many things, such as:-
Desire of self control
Desire (expression) of independence
Expression of self-determination.
Then planning as a political and cultural goal
b. New leaders (elites) emerged when they got independence with new vision (ideas).This
brings new decision making capacity, which is to mean colonial administrators were gone
and these new leaders have to plan because it was considered as a
potential tool
(instrument) to survive and prosperity. However, the then planning was not as a result of
popular participation (bottom up planning). It was up down planning to express the need
of the leaders who control the political structure – they dictate the plan. Planning here
was not as a consequent of industrialization, which is the inverse of the
Western,
developed countries.
1.3. The Meaning of Economic Planning
1.3.1. Planning
Planning is making of major economic decisions, such as the national income, income
distribution, the saving rate, the investment rate etc.
Planning is the coordination of economic activities via conscious effort. It is a
supplement to
market forces. In most cases, price signals are misleading. As a result of this there should
be a
certain particular apparatus that coordinates economic activities in the economy.
Planning is a process of cognition and compromise. The very aim of planning is to
compromise
the different conflicting interests and to understand the desire of the economy by singling
out
social needs.
Planning is an institutionalized activity by or on behalf of a certain authority for:
a) The preparation of decisions and action to be taken by the central authority
b) The coordination of decisions and actions by lower echelons of the economy as
between
themselves and the central authority for giving the development of the entire economy
and its constituent parts so as to achieve certain goals for the economy.
Lewis Lordwin in his 1945 article entitled “time for planning” clearly stated that
Planning, in
general, is a conscious effort to direct human energy for the purpose of securing a
rationally
desired end.”
A development plan is a general statement of economic policy. National development
plans are
further disaggregated into a set of sectoral plans. A development plan or program is
therefore, a
wider concept than a project. It may include one or several projects at various times
whose
specific objectives are linked to the achievement of higher level of common objective
1.3.2. Economic Planning
There is no agreement among economists with regard to the meaning of the term
economic
planning. The term has been used very loosely in economic literature. It is often confused
with
communism, socialism or economic development. Any type of state intervention in
economic
affairs has also been treated as planning. But the state can intervene even without making
any
plan.
What then is planning?
Planning is a technique, a means to an end being the realization of certain predetermined
and
well-defined aims and objectives laid down by a central planning authority. The end may
be to
achieve economic, social, political or military objectives. The idea underlying
planning is a
conscious and deliberate use of the resources of the community with a view to achieving
certain
targets of production. The State, through a planning authority, takes the
responsibility of planning. It represents a complete break from the policy of laissez-
faire.
A planned economy is one in which each production unit (or firm) uses only the
resources of
men, materials and equipment allocated to it by quota and disposes of its product
exclusively to
persons or firms indicated to it by central order. 'Planning' sometimes means any
setting of
production targets by the government, whether for private or public
enterprise. Most governments practice this type of planning if only sporadically,
and if only for one or two industries or services to which they attach special
importance. Here targets are set for the
economy as a whole, purporting to allocate all the country's labor, foreign
exchange, raw
materials and other resources between the various branches of the economy.

“Planning is neither the preparation of a list of schemes nor is it a political idealism; it is

rational, wise and scientific method for achieving certain socio-economic
goals and
objectives.”
Ferdynand Zweig maintains that planning is planning of the economy, not within the
economy. It is not a mere planning of towns, public works or separate section of the
national economy, but of the economy as a whole. Thus planning does not mean
piecemeal planning but overall planning of the economy.
Some of the definitions of economic planning given by other academicians are:
Professor Robbins defines economic planning as "collective control or supervision of
private
activities of production and exchange."
According to D.R. Dalton, "Economic planning in the widest sense is the deliberate
direction by
persons in charge of large resources of economic activity towards chosen ends."
Lewis Lordwin defined economic planning, "as a scheme of economic organization in
which
individual and separate plants, enterprises, and industries are treated as coordinate units
of one
single system for the purpose of utilizing available resources to achieve the
maximum satisfaction of the people's needs within a given time.
In the words of Zweig, "Economic planning consists in the extension of the functions of
public
authorities to organization and utilization, of economic resources. Planning implies and
leads to"
centralization of the national economy.
One of the most popular definitions is by Dickinson who defines planning as the making
of
major economic decisions on:
 what and how much is to be produced,
 How, when and where it is to be produced, and
 to whom it is to be allocated
Even though there is no unanimity of opinion on the subject, yet economic
planning as understood by the majority of economists implies deliberate control and
direction of the economy by a central authority for the purpose of achieving definite
targets and objectives within a specified period of time.
As a working definition Planning is a technique or a means to achieve an end. End refers
to
certain predetermined target (well defined objective). End might be achieving:
Economic objectives,
social objectives or military objectives or both
The main point is not to have plan or not to have plan but what kind of plan do we need
to
achieve the objectives. Intervention of state in all economic activities is
inevitable, i.e.;
government do intervene in an economy in one way or another. But what matter are the
degree,
type and nature of intervention.
1.3.3. Objectives of Economic Planning
In this section, you will study about some of the possible ways in which planning could
be
superior to market forces. Under planning there are wider opportunities of formulating
objectives
as compared to those available under market. Further public oriented objectives are
possible
generally under planning whereas this is not easy under market.
1. Wider Opportunities: - In the market system, decisions about what and what not to do
are
limited by two factors.
i. the short life-span of individuals
ii. the limited amount of resources that an individual can command
To an extent that limitations are reduced by joint action on the part of individuals through
such
organizations as joint-stock companies, but these are never as long-range in vision and as
large in
resources as those of a community taken as a whole. As a result of these limitations,
economic
units in a market economy opt for small and short-gestating investments,
requiring small
amounts of resources whose fruits can be reaped in the life time of an individual.
Besides, there is, in general, a preference for the production of consumption goods as
they give
immediate satisfaction to individuals, whereas in particular long-gestating investments
would
be of use to others- the unborn individuals belonging to the distant future.
The above-mentioned limitations, however, just do not exist in planning, where the
resource user is the community as a whole.
This is so because of two reasons.
1. a community, unlike an individual never dies
2. the resources of a community are larger
This makes it possible for a community to visualize a longer and larger horizon, as
compared to
that in the case of individuals, making the number of opportunities greater in
the case of
community than of the individual.
2. Public-Oriented Goals
Planning enables the community to use resources socially, as against individually under a
market
system. The production of goods meant for social consumption like education, health
services,
parks, etc is possible only if undertaken by public authorities. In a market economy, such
goods
are not relevant. In a market economy, production of those goods whose demand is
backed by
money offer takes place (i.e., production is profit-driven, profit incentive). Even anti-
planners
concede the need and desirability of public goods by public authorities. The market
system takes
cognizance only of market- backed wants (depending largely on the
institution of private
property) and totally ignores non-management how so ever genuine and important they
may be.
This point needs no further stressing except to mention the fact that in richest capitalist
countries
on this earth, while luxury goods abound, hunger and poverty still stalk in those nations.
When it
is said that planning makes resource-use social, it is implied that society decides how
much of
individual wants, and how much of social wants can be satisfied with given resources and
further
how much of the productive capacity should be earmarked for future society, and how
much for
the present society.
3. Bigger Resources
Another decisively superior rating of planning arises from the fact that the resources
available
under it are far more than the private operators can organize in the same set of
circumstances.
This point can be established with reference to the following three principal ways, in
which
larger resources became available,
A. No Wastage
Planning need not and should not involve frittering away of resources as is the case in a
market.
In a market system the wastage of resources occurs in the form of existence of idle
capacity
during the depression phase of business cycle, as also the misdirection of resources on
account of
selling costs ( transaction cost ) under imperfect competition.
In planning there is no question of a business cycle because demand and supply are
balanced in
advance. As a result of this, there is no occasion for the capacity to remain idle.
Moreover, there
are no competitors but only partners in planning. Thus, there is no question of selling
costs
involving misdirection of resources in senseless advertising, salesmanship etc. Therefore,
the
resources which remain in actual use and in proper use are more than in a market
economy.
B. Larger means and variety
The amount of resources available under planning is larger on account of the larger
means to tap
resources. This is so because plans include all types of resources regardless of the fact
whether
these are profitable in the market sense or not. In a market system, the total quantum of
resources
equals the sum of individual resources. Besides, these resources are by and large those
which are
available in money-form like savings in banks, share money, Profits etc. In planning,
however,
the available resources include not only the total available with the individuals,
voluntarily
parted within the form of deposits, equities, etc. but also those which the government can
secure
over and above these through the use of compulsory devices like taxes, deficit financing
etc.
C. Future Resources
The planning authority can enlarge the future horizon of resources by adopting a certain
type of
production activity. A government can opt for a program which makes available more
resources
in the future.
4. Langer Production
In a planned economy total production of goods is bound to be a bigger quantity than that
under
a market economy largely for the following three major reasons:
a. Larger resources
b. Superior use- pattern ➾ more capital goods and less consumer goods are produced
under
planning because the community is immortal whereas investors are myopic.
c. Higher Capital- out put ratio: - this results from the less underutilized capacity and in
case of
perfect planning, no idle capacity. This occurs because demand and supply are balanced
ex-
ante
5. Better Technique: - In planning, as compared to a market economy, there are
opportunities
to use any technique, provided it is in social interest, say large production.
6. Faster Growth: - Planning is superior to market in bringing about a faster rate of
growth.
This is because of
i. Policy decision
ii. Larger saving
E.g. China experience
7. Responsive to Big Task
Planning is responsive to big tasks during emergencies as opposed to
market forces. The
operation of the free market does not address national tasks and national emergencies,
say; it
cannot mobilize people to the war front when a country is invaded by intruders.
E.g. National Tasks and national emergencies which cannot be foreseen like organizing a
war.
1.4. The Need for Planning
Planning has been introduced in different countries for different reasons.
In socialist countries, where revolutions preceded and public ownership of resources
followed, planning became an institutional need of the system
In non-socialist countries, with private ownership, several factors have necessitated the
use of
the instrument of planning.
In underdeveloped countries, development needs have been predominant in popularizing
planning.
Though one can describe many different factors for the adoption of planning, the major
ones
are:
a) Institutional
b) Technological and economic
c) Development
A) Institutional Requirement
The use of planning in socialist countries is inherent in their situation. One aspect of this
is the
abolition of private ownership in the means of production and its
replacement by state
ownership. Another aspect is the character of ideology that has inspired people in this
structural
change of ownership.
For newly independent countries of Asia, Latin America, and Africa in which national
resurgence
has preceded the winning of freedom, and where, for the sake of economic independence
and for
enacting the break with the past economic slavery, planning has been found to be the
most
effective institutional medium.
i. Public Ownership: - once means of production are owned by the state, as is the case in
all
socialist countries, the need for planning emerges automatically. It is both because state
as
owner of resources must decide about their use, and because the ideology, which
inspiring
all-out state ownership, requires it
ii. Use of resources by state. The change in the ownership pattern, from private to public
is
associated with the demolition of the alternative market mechanism for the
use of
resources.
iii. Replacing obstructive capitalism: - according to Marxian philosophy,” Capitalism
bears
the fruits of its own destruction.” Marx predicted that capitalism is doomed
to fail
because of the inherent weaknesses in the system itself.
B) Ideological considerations
Apart from public ownership of the means of production, the ideology that motivates
socialist
countries also requires for its practice the instrument of planning.
a) Social character: - i.e. production is social in nature. The veil of money as a medium of
exchange stops.
b) Capital: - money capital Profit is replaced by deliberate decisions in respect of the rate
and pattern of capital formation.
C) National Resurgence
Planning, as an institutional means also came handy to those who sought the fulfillment
of the
national aspirations of countries recently liberated from centuries of colonial rule. Almost
all
such countries adopted planning right from the inception of their independence.
I. Symbol of sovereignty: - apart from the dire and urgent need for telescoping
development
into a few years, newly independent countries found in planning a symbol of asserting
their
liberation and sovereign status.
Development planning enabled these countries to set their common goals and gave them
a sense
of being sovereign in respect of what to do and how to do it.
II. Break from the past: - These countries with backwardness hanging round their necks
like a
mill-stone, wanted to stage a dramatic break from the past. They wanted to achieve
higher
growth and industrialization and put their minds off from past misery and
the humiliation
associated with it. With a pre-vision of a bright future outlined and even quantified in
plans, they
were able to turn their back on the past. The vistas (hopes) of future opened up in the
plans made
them look to the past only to draw lessons, and to mobilize efforts commensurate with the
task
ahead.
D) Technological and Economic Factors
Technologies of modern times are of such nature, and involve so much expense that their
fuller
utilization requires that they be used in a planned way. Equally important are the
economic

factors, associated mostly with the inadequacy and malfunction of market economies,
which
necessitate the use of planning techniques to overcome these deficiencies.
i. Technological Reasons

. Technological Reasons
Modern technologies, because of certain characteristics, can be put to proper use if there
is
planning on a national scale.
Characteristics of modern technologies
- Indivisibility, Adjustability, Product changes & Mass production
ii. Economic Reasoning
The need to overcome the deficient functioning of the market system
Recent knowledge of economies and the perfection of planning techniques.
 Separation of management, Integration of economies, Market deficiencies,
Market
inadequacy, Economic knowledge
1.5. The Shortcomings of planning
As a tool, planning could not be a remedy for all economic, social and other ills.
Broadly the limitations could be on: concepts, coordination, action, follow up. The
specific
limitations observed on planning are:
 Planning heavily depend on reliable data. If there are unreliable data, the
potential benefits
of planning will be undermined.
 The problem of discontinuity. Planning models don’t deal with random shocks
(natural
hazards, social changes and human intervention). Plans work effectively when social and
economic development unchanged (unfolds) continuously.
 The problem of uncertainty (natural, market, state and war, international).The
problem with
uncertainty could be minimized by adopting probabilistic models but planning models are
not using such methods.
 Inflation: price instability would reduce the use of planning models.
Therefore, the use (favoring) of planning should be in line with the above limitations.
1.6. Stages of planning
There are four well defined stages through which an economic plan has to pass for its
successful
working.
1.6.1. Plan formulation
The first stage in planning is the formulation of the general objectives of the plan and
their
definition in quantitative terms. It is possible that the task of formulation of general
objectives

1.6.2. Plan Adoption

The adoption of the plan is the function of either the parliament or the government. In
principle,
the parliament or the government can make any changes they like in the plan. But these
bodies
usually do not introduce any drastic or far-reaching changes in the draft of the plan. The
reason isthat the plan is a comprehensive, coherent and well-knit document. Any
substantial or far-reaching changes effected anywhere in this document will upset the
entire plan and necessitate
its reformulation by the planning commission. In light of this, the parliament or the
government
makes only minor changes at the time of plan adoption.
As soon as the plan is adopted by the parliament or the government, it becomes a law. It
then
becomes the statutory obligation of the government to execute the plan.
The position regarding the formal status of plans differs from country to country.
Generally,
speaking, the national development plans of all socialist countries are
approved by their
legislatures, other authorities and have the force of a law. The plan targets are mandatory
on all
executing agencies. Sanctions are provided in the laws for non – execution of plan
targets.
Several countries with mixed economies also provide for the enactment of their plans as
laws
even though they are generally binding only on the enterprises under the direct control of
the
central government.
There are two clear advantages in giving the plans a legal status.
Firstly, the enactment of a plan into law raises its status in the eyes of
political leaders,
government officials and the general public thereby increasing the chances for its
fulfillment.
Secondly, it ensures continuity in the plan. This is advantageous in a country where
governments
change frequently. Succeeding governments are more likely to implement the plan if it
has been
enacted into a law than if it has only been approved by an earlier government as an
expression of its economic policy.
As against this, there are two disadvantages in putting a development plan on the statute
book.
Firstly, if the plan is enacted into a law, it will lack the desired flexibility which is an
essential
feature of a good plan. Secondly, if the plan is submitted to the legislature
for approval,
amendments may be introduced to it which disrupts the internal balance and consistency
of the
plan

1.6.3. Plan Implementation

As pointed out above, the planning commission is only an advisory body. It has no power
to
implement or execute the plan. The execution of the plan is the responsibility of the
government.
The various government departments and agencies take the necessary measures to
execute the
plan. These departments and agencies maintain continuous liaison with the planning
commission
which is the final authority as far as the interpretation of the provisions of the plan is
concerned.
Every plan, however, well – drawn it may be, has to be constantly changed during its
execution
to adapt it to new requirements and new situations. In the words of A. Lewis
“Implementation of
a plan is more difficult than making it. “ Making a plan is an exercise of imagination,
while
implementation is a struggle with reality. Before crossing the Atlantic, the pilot of an
aircraft
plots his course in relation to expected weather and winds. Once aloft, reality is found to
differ
from expectation. The plan must be modified continually to cope with changing facts.”
1.6.4. Plan Evaluation
The supervision of the fulfillment of the plans is one of the fundamental
prerequisites of
planning. Planning cannot be considered as good unless it takes into account the course
of the
fulfillment of the plan. If the plan is not bound up with plan fulfillment, it becomes a
mere scrap
of papers.
The supervision of the plan, however, calls for an independent body of experts and
technical
accountants unconnected either with plan formulation or plan execution. This
body should
evaluate plan fulfillment in a strictly impartial manner. It should boldly bring to the
notice of the
government the failures and drawbacks which it detects in the course of its evaluation.
1.7. The Rationale for Planning in Developing Countries
Developing countries need economic planning in order to achieve the following
objectives:
A) Increase the Rate of Economic Development
One of the principal objectives of planning in underdeveloped countries is to increase the
rate of
economic development. In the words of D.R. Gadgil, "Planning for economic
development
implies external direction or regulation of economic activity by the planning authority
which is,
in most cases, identified with the government of the state.
It means increasing the rate of capital formation by raising the levels of income, saving
and
investment. But increasing the rate of capital formation in underdeveloped economies is
beset
with a number of difficulties. People are poverty-ridden. Their capacity to save 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. Low productivity means low
income
and the vicious circle is complete. This vicious economic circle can only be broken by
planned
development. Two methods are open to underdeveloped countries. One is planned
development
by importing capital from abroad which Zweig calls 'supported industrialization, and the
other is
by forced saving which he characterizes as self-sufficient industrialization.

B) Improve and Strengthen the Market Mechanism

The rationale for planning arises in such countries to improve and
strengthen the market
mechanism. The market mechanism works imperfectly in underdeveloped countries
because of
the ignorance and unfamiliarity with it. A large part of the economy
comprises the non-
monetized sector. The product, factor, money and capital markets are not organized
properly.
Thus the price system exists in only a rudimentary form and fails to bring about
adjustments
between aggregate demand and supply of goods and services. To remove market
imperfections,
to mobilize and utilize efficiently the available resources, to determine the
amount and
composition of investment, and to overcome structural rigidities, the market
mechanism is
required to be perfected in underdeveloped countries through planning.
C) Reduce Unemployment and Disguised Unemployment
The need for planning in underdeveloped countries is further stressed by the
necessity of
removing widespread unemployment and disguised unemployment in such economies.
Capital
being scarce and labour being abundant, the problem of providing gainful
employment
opportunities to an ever-increasing labour force is a difficult one. It is only a centralized
planning
authority which can solve this. In the absence of sufficient enterprise and initiative, the
planning
authority is the only institution for planning the balanced development of the economy.
For rapid
economic development, underdeveloped countries require the development of the
agricultural
and the industrial sectors, the establishment of social and economic overheads, the
expansion of
the domestic and foreign trade sectors in a harmonious way. All this requires
simultaneous
investment in different sectors which is only possible under development planning.
d) Enhance the Linkage between the Agricultural and Industrial Sectors
The need, for developing the agricultural sector along with the industrial sector arises
from the
fact that agriculture and industry are interdependent. Reorganization of
agriculture releases
surplus labour force which can be absorbed by the industrial sector. Development of
agriculture
is also essential to supply the raw material needs of the industrial sector.
e) Create Social Overhead That Enhance Agricultural and Industrial Growth
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 the training and educational institutions,
public
health and housing for providing a regular flow of trained and skilled personnel. But
private
enterprise in underdeveloped countries is not interested in developing the social and
economic
overheads due to their un-profitability. It is motivated by personal gain rather than by
social gain.
It, therefore, devolves on the state to create social and economic overheads in a planned
way.
f) Expand Domestic and Foreign Trade
Similarly, the expansion of the domestic and foreign trade requires not only the
development of
the agricultural and industrial sectors along with 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 to the growth of industry and
trade.
There is economic instability generated by international cyclical movements.
Such
maladjustments can only be removed by the state. It can decide upon the setting up of a
central
bank and with its help a bill market, commercial banks and other financial
institutions
throughout the country. It is the planning authority which can control and regulate the
domestic
and foreign trade in the best interests of the economy.
g) Eradicate poverty
The planning for development is indispensable for removing the poverty of nations. For
raising
national and per capital income, for reducing inequalities in income and wealth, for
increasing
employment opportunities, for all-round rapid development arid for maintaining their
newly won
national independence, planning is the only path open to underdeveloped countries. There
is no
greater truth than this that the idea of planning took a practical shape in an
underdeveloped
country and that this is the only hope of the resurgent underdeveloped countries of the
world.
The rapid development of the USSR, a poor country at the time of the October
Revolution, bears
testimony to this fact. To sum up in the words of Professor Gadgil Planning for
economic
development is undertaken presumably because the pace of direction of development
taking
place in the absence of external intervention is not considered to be satisfactory and
because it is
further held that appropriate external intervention will result in increasing considerably
the pace
of development and directing it properly. Planners seek to bring about a rationalization,
and if
possible and necessary, some reduction of consumption, to evolve and adopt a long-term
plan of
appropriate investment of capital resources with progressively improved techniques, a
program
of training and education through which the competence of labor to make
use of capital
resources is increased, and a better distribution of the national product so as to attain
social
security and peace.
Planning, therefore; means no more than better organization, consistent and
far-seeing
organization and comprehensive all-sided organization. Direction, regulations,
controls, on
private activity, and increasing the sphere of public activity, are all parts-of
organizational effort.
h) Self-sufficiency in Food and Raw Materials
As a preparation for more systematic and intensive planning, it may be considered
necessary first
to make the country self-sufficient in food and essential raw materials. That would
provide a
solid and sound base for the economy and prepare it for further building up. Many
developing
countries concentrate or give priority on agricultural development. Dependence on
foreign food
is dangerous. The first duty of a nation is to feed its people. Political freedom may prove
a farce
without freedom from foreign food, especially when war clouds may be hovering
overhead. It is
understandable, therefore, that this objective may take precedence over other objectives
when a Plan is being conceived.
i) Reduction of Inequalities
It is now realized that political equality is illusory unless it is accompanied by economic
equality.
Glaring inequalities of wealth, income and opportunities are shocking to the
democratic
conscience. Socialism is in the air; it has a very wide appeal in modern times. In poor
countries,
it is a painful sight that the masses of people should be on the border line of starvation,
whereas a
few rich people should be rolling in all conceivable luxuries. It is natural, therefore, that
the
planners, who are custodians of general welfare, should so shape their plans so as to
make the
poor people less poor and the rich a little less rich, so that the gap between the two is
narrowed
down as much as is humanly possible. The Indian planners have before them the
establishment
of socialistic pattern of society as one of the objectives.
1.8. 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 planning commission which should
be
organized in a proper way. It should be divided and sub – divided into 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 potential resources
of a
country together with its deficiencies. As Baykov puts it, “Every act of planning, in so far
as it is
not mere fantastic castle building presupposes a preliminary investigation of existing
resources.”
This kind of survey is essential for the collection of statistical data and information with
regard
to the total available material, capital and human resources of the country. Data
pertaining to the
available and potential natural resources along with the degree of their exploitation,
agricultural
and industrial output, transport, technical and non –technical personnel etc. are essential
for
fixing targets and priorities in planning.
3. Objective
Some of the objectives of an economic plan include:-
- Increasing national income, Expanding employment opportunities, reducing
inequalities of
income and wealth, increasing agricultural production, industrializing the economy,
Achieving
balanced regional development and self –reliance and so on
4. Fixation of targets and priorities
After objectives are laid down, targets and priorities for achieving the objectives should
be fixed.
The targets should be both global and sectoral. Global targets must be bold and cover
every
aspect of the economy. They include quantitative production targets,
additional training
institutions and increasing national income, saving and investment. Sectoral targets
pertain to
individual industries and products in physical and value terms both for the private and
public
sectors. Global and sectoral targets should be mutually consistent in order to attain the
required
growth rate for an economy.
5. Mobilization of resources
A plan fixes the public sector outlay for which resources are required to be mobilized.
There are
various internal and external resources for financing a plan. Savings, profits of public
enterprises,
net marketing borrowings, taxation and deficit financing are the principal internal sources
of
fiancé for the public sector. Net budgetary receipts corresponding to external assistance
relate to
the external sources of financing the plan.
6. Balancing in the Plan
A plan should ensure proper balance in the economy; otherwise shortages or surpluses
will arise
as the plan progresses. There should be a balance between saving and investment,
between the
available supply of goods and the demand for them, between labor force requirements
and their
availabilities, and between the demand for imports and the available foreign exchange.
7. Incorrupt and efficient administration
A strong, efficient and incorrupt administration is the sine qua non (main essential
feature) of
successful planning. However, underdeveloped countries suffer from lack of strong,
efficient and
incorrupt administration.
8. Proper development policy
The state should lay down a proper development policy for the success of a development
plan
and to avoid any pitfalls that may arise in the development process. Professor Lewis lists
the
following main elements of such a development policy:
a) investigation of development potential survey of national resources,
scientific research,
market research;
b) provision of adequate infrastructure (water, power, transport, and communications)
whether
by public or private agencies;
c) provision of specialized training facilities, as well as adequate general education,
thereby
ensuring necessary skills;
d) Improving the legal framework of economic activity, especially laws relating to land
tenure,
corporations and commercial transactions.
e) helping to create more and better markets, including commodity markets, security
exchanges,
banking, insurance and credit facilities;
f) seeking out and assisting potential entrepreneurs, both domestic and foreign;
g) promoting better utilization of resources, both by offering inducements and by
operating
controls against misuse; and
h) Promoting an increase in saving, both private and public. The success of a
development plan
can be tested mainly by examining various proposals under each of these heads.
Good
policies help, but they may not ensure success. Lewis, therefore likens development
planning
to medicine which in the hands of a good practitioner may perform useful tricks, but it is
still
the case that many patients die who are expected to live, and many live who are expected
to
die.
9. Economy in administration
Every effort should be made to effect economy in administration. The people must feel
confident
that every pie that they pay to the government through taxation and borrowings is
properly spent
for their welfare and development, and not dissipated a way.
10. An education base
For a clean and efficient administration, a firm educational base is essential. If a plan is
to
succeed, it must take into account the ethical and moral standards of the people. One
cannot
expect economy and efficiency in administration unless the people possess high ethical
and
moral values. This is not possible unless a strong educational base is built
up whereas instructions are imparted both in the academic and technical fields.
11. A theory of consumption
Underdeveloped countries should not follow the consumption patterns of the more
developed
ones. In other words, underdeveloped countries should be free from
demonstration effect. Inexpensive and durable goods are preferable in areas inhabited by
low-income earning people.
12. Public cooperation
Planning requires the unstinted cooperation of the people. Public cooperation is
considered to beone of the important ingredients for the success of the plan in a
democratic country. Economic
planning should be above party politics, but at the same time, it should have the approval
of all
the parties. In other words, a plan should be regarded as a national plan when it is
approved by
the representatives of the people. Without public support (popular enthusiasm), no plan
will be
successful