UNIT 1: DEVELOPMENT PLANNING CONCEPT

THE EVOLUTION OF DEVELOPMENT THINKING

1.1 Introduction

The evolution of development thinking can be 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.

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 • 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 with in 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.

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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 latter 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.

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 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 (FDI) 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.

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The basic efficiency - equity trade offs 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

• Avoid dealing with large number and going towards a set of small number comparative
historical studies encompassing typologically ''neighboring'' countries.
• Need to pursue on the two-way relationship between growth and human development.
• Closer 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 economic planning

The idea of planning has a long history and goes back to the time of Pluto [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)

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 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 economics, 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). The intervening depression
reminded the state of the tragedy incompleteness of economic theory and public
policy.

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

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in the efficacy and economic planning in capitalist countries. Meanwhile there was an
attempt to plan economic life in Nazi German 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

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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.

1.2 PLANNING: CONCEPTS AND FEATURES

1.2.1 Definitions and Essentials

Planning is based fundamentally on two basic components and these are on predetermined goals
and predetermined means . There fore planning may be defined as an advance setting of ends and
means

Planning refers to an activity, which is comprised of ends, or aims, which a society wants to
achieve, and the means with which these ends are sought to be achieved. In the words of Lorwin
“Every plan is a programme of action which has two major element- a goal and a method. The
ends are set by planers, keeping in view the needs of the countries concerned as also the
possibilities open to them. The means to attain these ends, too, are described by the planners. The
ends and means are thus laid out before the action starts or before the plans is put in to
operations. note also, according to Lorwin, planning in general is a conscious effort to direct
human energy for the purpose of securing a rationally desirable end.

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1.2.2 Essentials
There are three basic elements that characterize planning.

A. Planning involves a conscious activities

It is an activity which is sought out in advance of the onset of action. The ends are laid out before
the action takes place. So are the means which are also described before hand. As such the
activity encompassed by a plan is thus one that is consciously directed.

B. Plans activity is time-bounded.

That is, it takes place over a given period of time. For example
i. In case of annual plan, the period is one year long
ii. For the medium term plan, the period is longer, usually five years or more

In this connection, an important point needs to be clarified. It is that the period is not just so
many years, but it has reference to a context. The period of five years covered by the eight plan
has for example its beginning, namely, 1 April 2005, and an ending namely 31 march 2006

C. It is related to a specific geographical area.

The area covered may be a village, a district, a region, a country, or even the entire world. This
attribute is inherent in the process of plan making itself. The ends to be achieved must relate to a
society bounded by a geographical area. Plans may be integrated- all village to district, to nation
or to the world.

1.3 PLANNING SYSTEMS

The three broad different systems of planning which have been adopted so far by several
countries

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1.3.1 Socialist Planning

The basic characteristic of these economies is that almost all the resources are owned by the
state. As a consequence, the entire activity is a planned one. The choice of ends and also that of
the means are exercised by the government. These ends and means have, of course, bean related
to specific needs and circumstances of these countries. These societies are largely under
developed in the early years of the twenties century, aimed at fast growth and strengthening of
the production base with rapid accumulation of capital- stock. Corresponding to these ends, the
means have been devised. These included the setting up of the state enterprises to make
investments as per the priorities laid out in the plans. Resources for investment come from the
government, collected mostly through taxes. The socialist planning thus involves total planning
at both the ends, namely goals and means. It is hundred present consciously directed activities.

This type of planning used to be practiced at the time of Derg or Mengistu Hailmariam regime
during the period of the year 1975 to 1990. Indeed, still those countries who claim to be a
communist or socialist in the world still practice this kinds of planning.

1.3.2. Capitalist Planning

The chief characteristic of this economy is that the ownership of most of the recourses is in the
private hands. For this reason market predominates. As a result, planning in these countries is
different from socialist planning both in terms of ends and means. Usually it is called indicative
planning. The objective of this countries consists of growth per se with emphasis on certain
goals like control of inflation, correction of balance of payments, employments etc. Planning
exercise are also directed towards identifying problems and bottlenecks in the economy. It is
also meant to achieve the aim of giving coherence to private economic decisions. As for means,
market is the major instrument while attracts resources to different lines. The government does
play it part, but it is largely to correct the malfunctioning of the market and reformation of the
system. Most of the instruments used by the government to intervene in the economic work
through prices, demand and supply in the market and are in the nature of supplements.
Occasionally governments intervene to regulate, and in a few cases, restricts the activity of the
market, and private sector to achieve some socially desirable aims. Over all, capitalist planning is
a consciously directed activity with some difference. It differs from socialist planning in kind.

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1.3.3 Mixed Economy Planning
The resource under this system, are partly owned by the state and partly owned by the private
sector, with the latter forming a considerable part, or sometimes even a major part of the
economy. The market in this economies accounts for a substantial part of the transactions. The
aims of the less developed countries are concerned with removal of backwardness. Here in the
planning spans such aspects as accelerating growth, strengthening of the capital stock, removal
of poverty and unemployment, and providing distributive justice to the people. As for means, the
market operates in certain specified areas. However, over all the market orientation of the
economy is tempered by the executive action of the state. This is carried through such devices as
licensing, regulation controls, etc. This instrument restricts the function of the market. The public
sector too, influences the economy in substantial manner, both because its sizes is very large, and
its products are of key importance for the economy. Economic policies of the government in
such important areas as money, taxation, interest, foreign trade, etc., have a power full effect on
economic activities leading them more towards the desired direction.

1.4 FEATURE OF DIFFERENCE

The difference in planned and market economy are discussed under institutional activity,
programmed actions; and rational social action.

Planning is an institutionalized activity, a programmed activity and a rational and a socialist

activity. In contrast to this a non-planed market activity has none of these attributes

1.4.1. Institutional Activity

The institutional requirement of planning stem from the functions which it involves. There are at
least the following four major functions, which need appropriate institution to perform them:
preparation of plans (for example planning commission, or planning department), making the
decisions regarding acceptance of the plans (For example the parliament of the country, or the
owners of plan like the managers, etc); executions or implementation of plans (for example a
given ministry) and financing of plans (for example ministry of finance, or donors like united
kingdom, or USAID, or European union, etc). Institutions for the performance of these tasks
differ in different country.

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1.4.2 Programmed Action
Another distinguishing feature of planning is that the action envisaged in the plan, is a
programmed one.

The programming of action under planning involves sorting out end to be achieved, as also
describing means where by these are to be attained. The ends are to be chosen. They are to be
listed in terms of their importance or priorities laid down. In respect of important objectives, the
ends are to be quantified or targets fixed. These are, for example, rate of growth, rate of capital
formation, reduction in the incidence of poverty etc. Similarly means to fulfill plan-aims have
also to be made explicit. These consists of resources, policies, and instruments. Several of the
means have also been quantified. Resources include both physical resources such as land, forests,
labor. etc., and financial recourses like saving of the government, private business, households,
foreign capital etc, Policies in respected the various sectors of the economy, like industry,
agriculture trade etc., are needed to ensure that the economy, moves in the direction envisaged in
the plan. The plan action is also programmed one in the sense that it is to take place in a time
period. Further, the plan actions are to confined to an area specified in advance of the action.
Thus a plan is programmed actions as the action envisaged takes places in the context of pre-
given aims and means, and is bound to a time- frame, and an area-frame.

In constant to the programmed actions of a plan, market involves action without a programmed.
The action in the market-economy is not a pre-conceived one, although each constituted of the
market does act in terms of its aims and means. For the economy as a whole, there is no pre-set
programme

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1.4.3 Rational Social Action
An important attribute of planning is that it is a rational social action. The goals chosen are
compatible with one another. In arriving at a final set of goals, several alternatives are weighted
and traded-off. The goals so chosen are also such as to match the recourse available over the
period of the plan.

The rational action draws upon the knowledge of economics and economic laws, as also from
other fields. Within the economic domain, economics provide techniques for preparing goals, for
making chooses in respect of the most cost effective production techniques, for comparing cost
and benefits of various projects etc. Economic law such as those which explain the behaviors of
consumption at different levels of income and prices, movements of costs with changing scales
of production, etc. enable planners to make scientific decisions about planned activities.

The planned activity, besides being rational, is also a socialized activity. Being concerned with
groups of people belonging to a society planning involves decision making at the public level.
Such matters as choices of goals, conceptions of means, and use of resource are of such nature
and magnitude that the planning authority alone can undertake these tasks. It is the planning
authority that can look beyond individual needs, and extend its vision to comprehend longer time
frame, longer areas, and bigger size of population. It is the public authority that can evaluate the
use patterns of resources in terms of social costs and social benefits. More over, it is, the public
authority that can give such direction to the economy as are acceptable to the society.

The activities in a market economy are, however, different in character. They are rational only in
the limited sense, namely in terms of maximization of private profits. The goals and means are
chosen by individual firms which suit each one. Since each one function independently of the
other, the out comes too is not known. The net result of all this is very often an irrational use of
resources, taking the form of booms, depressions, and wastages associated with imperfect
competitions, etc.

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1.5 PLANNING: NEED AND UNDERDEVELOPMENT

Reasons for adoption of Planning

1.5.1 Institutional Requirement

In a number of countries planning has been made use of to meet the institutional needs of the
people. Two sets of forces operated in this regard.
A. The socialist revolution that occurred in some countries
B. The end of colonialism marking the liberation of many countries

A. The socialist revolution that occurred in some countries

As to regard to socialists: Two imperatives have been at work in their decision to adopt planning.
i. The socialist ideologist: two aspects of this ideology may be mentioned.

a. Relates to social character of production. The production units are interdependent upon one
another, as each one produces only a part of the commodities. Further in many enterprise,
large number of workers work together. The exchange that links production with
consumption also point to the social attributes of production. A socialist society requires that
production should be directly linked to consumption. Such an objective requires planning for
its fulfillment.
b. Another aspects relates to capital accumulation: A socialist society, with no private
capitalists, needs planning to determine the pace and pattern of capital formation as per its
needs.
ii) a second imperative is the institution of public ownerships of resources. In the absence of
capitalists market, planning is needed as the only alternative to register peoples' needs and
plan production accordingly.

B. The end of colonialism marking the liberation of many countries

The countries freed from colonial yoke too needed planning for two important reasons.
i. It was taken as a symbol of their newly won sovereignty. Planning enabled them to identify
themselves with the common goals they wanted to achieve as also with the means for which
they were prepared to give their best.
ii. These countries with backwardness hanging round their necks like a mill-stone, wanted
planning to stage a dramatic break from the past. This become possible with plans which

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 gave to them not only the possibility of a bright future with high growth rates, rapid
industrialization, etc, but also they were also able to turn their backs on the past misery of the
humiliation of colonial rule.

1.5.2 Economic Consideration

Three kinds of arguments can be put forward.

A. To meet the changes that have characterized the modern economies.

o Change that has resulted in the separation of ownership from the management of
business. Now a days for example in capitalist countries shareholders take no decision
in respect of their share money invested in business. Nor do they have any hand in the
organizational matters of enterprises in respect of current needs and in many cases for
further expansion.
o Another change of significance is the greater integration of the various segments of a
modern economy. This provides a good format for budgetary and other government
economic policies to see the consequences of their policy both at micro-level and the
macro-level. To make these policies rational and effective, an economic plan is a
suitable instrument.

B. Relates to deficiency of markets. Planning is advocated to overcome these deficiencies. For

example, there is the cyclical depression, bringing into sharp relief the evil of unprofitable
production, when there is lot of unsatisfied wants, besides wastages associated with idle
capacity. Instability in the economy is another fact of the business cycle. Since the system
permits private property, it leads to perpetuation of unfair distribution of income, wealth, and
opportunities of life. and since money, not need, determines the use-pattern of resources, the
goods and services produced cater to those to those who have the money. Also market
economy is totally inadequate for certain jobs. Investments in big and long-gestation projects,
when whole countries instead of some factories are to be developed, are outside the capacity
and vision of individual entrepreneurs. These weaknesses of the market can be overcome by
planning. With ex-ante balancing of demand and supply, cycles can be done away with and
stability ensured. Provision can also be made for equitable distribution. And development of
a country can be undertaken, alongside a proper appraisal of projects, taking into account the
social costs and benefits.

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C. The availability of useful economic knowledge as also planning techniques for a rational use
of resources. These includes the application of basic theoretical ideas to many fields.
Example are national income accounting, input output systems, flow of fund accounts, balance
sheets etc.
- also cost-benefit analysis, etc
- several developments in the field of econometrics, mathematical economics, etc.
- forecasting techniques, model buildings, etc. which have facilitated the solution of
many economic problems
- the mathematical expressions of economic relations has enabled planners to use
computers to solve many complex problems.
In brief the knowledge explaining economic relations and quantification techniques have made
planning a scientific instrument for a rational use of resources.

1.5.3 Technological Factors

The modern technologies, because of their peculiar features that follow are such that their proper
use is dependent upon proper planning.

A. One characteristic of technologies is their indivisibility, that is these are not variable or
divisible to suit any scale of production, much less for a small amount of production. Mostly
these are viable when production is on a large scale. Hence to reap full benefits, it is
necessary that there should be large factor - supplies and there should be no risk in respect of
demand for their products. Both these requirements can be met with only by planning.
B. Technologies are constantly changing. These gives rise to two problems: modifying,
changing or replacing existing capital goods; and providing for their fast depreciation. To
meet both these problems with the least cost to society, planning is needed. Under it the cost
of scrapping the old and the benefits of the new can be examined together and a course with
net advantage to society adopted.

C. Another aspect is product-changes.

- In case these changes are demand-induced e.g., change in tests, cost to the society can be
minimized, if adequate time is given to producers to change their production pattern.

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 - In case product changes occur for technological reasons, cost to the society in the form
of upsetting the existing productive capacity, can be minimized by regulating the
production of new products, and ensuring demand for the future. To incorporate product
changes with the least cost, it is necessary to have a planning authority which can
oversee and bring out the appropriate changes.
D. Modern technology often affect not one but many lines of production simultaneously. In
order to ensure their use with least cost, it is necessary to undertake a variety of activities
simultaneously. For absorption of these technologies, planning is useful because it enables
one to take a wide view of the economy and also because under it one can ensure provision
for a variety of activities.

1.5.4 Pre-Requisite for Development

Planning is needed for various tasks involved in development.

A. One task, for instance is the organization of surplus for investment:

Left to market there can be no certainty about resources, as saving is dependent upon the
propensities of individuals whose time-horizons are short, who cannot think of huge
resource requirement for countries' development. Under planning, on the other hand,
political decisions can be taken in respect of the share of total resources that can be
allowed for consumptions. Again for collection of saving market instruments, namely the
rate of interest, alone cannot be dependant upon. Government will have to use a variety
of devices like taxes, price of public enterprises, etc. to mobilize surpluses.
B. A proper investment-pattern for maximum benefits is also possible under planning. Some
aspects of the investment allocation implied in such a pattern are: high priority to
machines which produces more machines so as to quicken the pace of capital
accumulation; quick expansion of infrastructural facilities to facilitate faster growth of
the economy; provision for the formation of human capital through investment in
education, training etc; and adequate increase in consumer-good industries to ensure
reasonable consumption to the people.
C. Development requires and planning assures the various balances in the economy for its
smooth functioning. These balances are of two types, physical and monetary.

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Physical balances concern outputs and involves consistency in the production of various
products. Monetary balances concerns the elimination of inflationary or deflationary situations.
These can be secured by ensuring balances between the demand for and the supply of
consumption-goods, between saving and investment goods, and between the foreign payments
and receipts.

D. Planning is also useful in achieving optimum development, i.e., with minimum costs and
maximum benefits. With the use of techniques like social cost-benefit analysis, as also
properly chosen technologies and appropriate distributional policies, etc., production can
be both least-cost and most satisfying.

1.6 UNDER DEVELOPED COUNTRIES AND PLANNING

Planning in underdeveloped countries is more necessary (because there are special features
which necessitate planning in that country), more difficult (there are certain factors that make
planning more difficult) and more attractive (countries present opportunities which are favorable
for planning).

1.6.1 Special Needs for Planning

There are special reasons why planning is necessary for the development of underdeveloped
countries.

Removing anti-growth milieu

One special consideration for the adoption of planning in these countries is the need to demolish
the set up that obstructs economic development. The absence of institutions such as for provision
for finance, for marketing, for training, for collection of data, for evaluation of projects, etc.
cannot be made good without government action.

The establishment if new industries and expansions of selected old industries have to be done by
some agency specially organized to look after this job.

Growth inhibiting agrarian structures need for their over haul surveys, legislation, implementing
agencies etc., which can be done by government.

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Allocation for education, medication, changing of attitudes, and similar efforts can be undertaken
and made effective only if these form part of plans which can coordinate action along various
lines in the pursuit of development objectives.

Overcoming smallness
Planning is also needed because many underdeveloped countries suffer from handicaps which
make them "small" for growth. It may be due to low per capita incomes, small size of a country
in terms of geographical frontiers, or population or paucity of natural resources. The solution to
these difficulties can be found through efforts made in the frame of the plans.

Making up for shortages in savings and investments

Another reason for resorting to planning is the need to make up the gross insufficiency in
savings. This requires efforts such as forcing more savings out of the existing national income by
taxation and some doses of deficit financing; stepping up sharply the marginal rate of saving;
expanding the public sector the augment savings; and organizing foreign capital. All these
measures necessitate the adoption of a coordinated set of policies directed towards such things as
reduction in the existing consumption, restriction on consumption from new incomes etc. These
require planning. In addition, planned efforts are needed to ensure increase in productive
investment. This requires direction existing less productive investment in to more productive
line, organizing investment in sectors where there are large gaps, attraction foreign investment,
creating favored environment for investors, etc. All these efforts can be productive if these are
spelt out in a proper plan.

Providing Development Services

Another special reason for which planning is needed is the insufficiency of government services
for development, which are normally taken for granted in developed countries. These services
pertain to: development oriented administrative services, provision of irrigation, electricity, roads
and communication, elementary public health measures, including drainage, drinking water, etc.
While these are necessary, governments in these countries find it difficult to provide them in
adequate quantities for wants of funds. The paucity of funds in due to poorness of the people.
Their government are thus driven to concern themselves with measures to increase national
income. For the achievement of this objective, they find planning a powerful instrument to
coordinate their policies and programs.

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More necessary than for developed countries
Planning is more essential for the development of under developed countries, than for the
developed countries.

In under developed countries require structural changes, the size of their economies is small,
have a problem of low savings, their investment size is low, compared to develops, thus have
compelling reasons to take the planning.

1.6.2 Special Difficulties in Planning

Unsuitable administration and personnel

Planning requires administration and personnel which are geared to the task of planning. How
ever, the situation in the underdeveloped countries is far from satisfactory.
Four major weaknesses:

a. The administrative climate, inherited from the colonial past, is more tuned to the maintenance
of law and order at policing functions rather than to the performance of economic activities.
Training and recruitment followed the same old practice.
b. In a member of these countries corruption at the administration level is rampant. As a result,
much of the development activities are impede and often improperly done.
c. The administrative personnel are largely incapable of undertaken entrepreneurial activity
which is very necessary at least in the initial stages of development in these countries where
there is no entrepreneurial class as such.
d. In respect of non -administrative personnel too, many of these countries are very deficient.
Such personnel as economists, statistician, mangers, negotiators, engineers, etc. to assess
resources, prepare plans etc, are also far from adequate.

Lack of Statistics
There are total lacks of relevant statistics. Information in respect of such things as resources
position, existing economy structure, past trends, etc., is scanty and patchy and in most of the
cases unrealistic. This makes the work of forecasting, plan-making, monitoring plan- progress
etc., little more than guess work, and wishful thinking. As such, let alone comprehensive
planning, partial planning cannot be practiced adequately.

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Unscientific attitudes and institutions
Most of these countries lack scientific culture, scientific values, and scientific institutions. The
dominant ethos springs from such irrational things as rituals, witch -crafts, traditions customs,
the old, caste, clan etc. These make for irrational thinking and irrational actions. People in
general do not have even faith in themselves. Nor do they feel masters of their future. The
agencies dealing with finance, trade, and manufacturing are rooted in subsistence living and
continue to perpetuate themselves in the same old grooves. There is thus no stirring for changes.
In such a situation, planning for change is really are extraordinary task.

Greater differentiae than for developed countries:

The difficulties which the underdeveloped countries are faced with are much greater than those
which the developed countries face. The developed ones have acquired enough experience in the
administration of things (have stock of administrative and non-administrative personal for
planning) have the requisite capacity to train the needed personnel( because of large education,
training and research facilities) and collected sophisticated statistics, acquired scientific attitudes
and institutions.

In the light of these, it is obviously very easy for the developed countries to undertake planning.
It is thus an irony of the present day reality that under developed countries, which need planning
most, are also the countries which are beset most with difficulties in planning.

1.6.3 Special attraction for planning

The economics of underdeveloped countries provide opportunities which are highly conducive to
planned efforts.

Public Enthusiasm
The one most important factor that provide a fertile ground for planning is the newly generated
enthusiasm of the people for it. They have seen miserable life, high living standards of the
colonizers, etc. so ambitious to improve it. For the sake of bright future, they are prepared even
to overlook incompetence, tolerate mistakes, and under go hardship.

Large possibilities
The planners also see great new possibilities of growth in their country. Their knowledge about
the resources and technologies practiced in advanced countries is of considerable significance in

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exploring and tapping their own resources. There are then exciting opportunities of undertaking
large scale projects like building of new factories, dams, roads, rails, etc, and building of new
institutions.

Favorable environment
The situation of the less developed countries provides, and ideal setting for planning. With a
small volume of foreign trade and few commodities entering trade, makes it easy for planning.
Being non industrial and largely agricultural in nature, these countries remain outside the orbit of
the cyclical upheavals which characterize industrially developed countries. These countries can
take on new projects easily as these do not involve replacement of the old, became there is
nothing to demolish.

Greater opportunities than in developed countries

While there are a member of attractions in the under developed economies which tempt planners
to plan, this is not so in the case of developed market economies. The main wishes of the
developed countries is not to seek change, but only to have more and more goods and service
with the status quo maintained. Opportunities for further development in these countries are
dependent upon research and development, rather than on making more investments or building
new projects etc. As such these countries do not feel compelled to go in for planning of the entire
economy as is the case with the underdeveloped countries. With deeply entrenched market
institutions, these economics are also not easily amenable to control and regulation which
planning implies. It, therefore, appears that planning in these countries is less attractive than in
under developed countries.

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