Types of Economic Planning

Directional Planning

Countries, which believe in socialism, followed the directional type of planning. The targets of plans are pre-determined and executed with the help of the government in power. In this form of planning, all the important positions and decisions are taken by the state. In this type of planning, all things are under control of state including, financial institutions, industrial sector, transport, and infrastructure.

Faults of Planning by Direction

• It involves bureaucratic system, which is time consuming, and there is lack of clarity.
• People are not allowed to do job of their choice and are not even allowed to spend and consume as per their wish.
• Markets are under controls of state
• Planning by direction is a very rigid process and there is very less flexibility because of absence of accountability towards consumers and producers.
• Planning by direction is goal oriented which state wants to achieve at any cost due to which it becomes very tough and sometimes there is exploitation of resources and manpower which can lead to unrest.
• Planning by direction can lead to standardization of process, which can result into similar production capacities and processes which diminish innovation.

Planning by Inducement

Planning by inducement is an independent planning. Process of production, forming the enterprise and various patterns of consumption by the people are regulated and controlled by the state. The government in power forms various monetary and fiscal policies to effectively regulate the economy. If the authority wants to promote any industry it can provide subsidy to that industry and its ancillary industries. If authority finds that there is black marketing or scarcity of a particular commodity in market, they can take measures to control price and starting rationing of that commodity. For increase, the capital it can take up investment and encourage private investors. It can adopt a suitable monetary policy and can finetune taxation in the system to increase or decrease consumption.

Faults in Planning by Inducement

• As in this type of planning market forces are free therefore situation of scarcity of commodity arises and measures of rationing and price control taken by authority.
• Monetary and fiscal policies are insignificant to induce development of the economy by raising the rate capital formation. In an under developed country rate of capital formation is low due to level of income and saving.

Perspective Planning

Perspective planning contains plans for longer period of time: 20 to 25 years. A perspective plan is an outline of development to be undertaken over a longer period in a phased manner. A perspective plan does not mean a single plan will take place for entire period of 20 years. In this planning, targets are framed for particular time period, for example, five years plan in India.They are also known as short period plan. They can be further divided into annual plans. These five-year plans generally maintain continuity. They can be further bifurcated as regional plan which pertains to state and districts.

Faults of Perspective Planning

• In perspective type of planning plans are made for long period so they are quite rigid that it is very tough to do necessary adjustment for advancement of the plan.
• Administrative problems are main concern for this kind of planning as perspective planning highly efficient bureaucracy to implement the plans.

Indicative Planning

Indicative planning is a flexible kind of planning. It is also known as soft planning as it is different from comprehensive or imperative planning. It works on decentralized principles in the completion target plans. There is minimum rigidity in this structure of planning.

In Indicative planning, the targets for public sector are mandatory while for private sector they are only indicative. But it does not mean that the government cannot use its power to influence the private sector in the desired direction.It was initially used in countries like France and Japan.

Fault of Indicative Planning

As indicative planning can only influence the players involved in economic planning, and if all players concerned are not performing as per the expectations, the indicative can turned out to be disaster.As in this planning there is not much of an authority, some monopolistic players can go for personal benefit without caring about overall system which can cause inflation in the economy.

Imperative Planning

Under imperative planning, the government in power directs and control all the economic activities and resources in the economy. All resources are used with high efficiency to complete set targets of the plan. In such planning, consumers get fixed amount of a commodity at fixed price. Rule and regulations, set by the government, is followed in the production of a commodity so that supply of the commodity can be kept on checked for surplus and scarcity in the market. Since government decision and policymaking is very rigid they are to be followed by the players. This kind of planning is in use in countries like Russia and china.

Democratic Planning

In Democratic planning, the basic ideology is to form the democratic form of government. Plans are prepared according to the requirement and needs of the people. A democratic plan is characterized by discussion with various parties involved in the economy: different government agencies, private parties or enterprises. This discussion will take place at the level of preparing the plan. The plan will be debated at the Parliament of a country. Main motive of democratic planning is eradicating inequalities of income and wealth. People enjoy social, economic freedom.

Fixed Planning

In this planning, plans are prepared for fixed period of time. The objectives and targets of fixed plan are to be achieved with in the plan period. While finalizing the budget outlay, the physical targets should be keep in the mind. Physical target and spending on these targets are often not changed except during an emergency. They are used in India.

Faults of Fixed Planning

• There is no correlation between available resources and with planning. The main aim is to complete financial targets by foreign aid, heavy taxation, large borrowing irrespective of it ill effects on economy.
• This system of planning fails to take into account future changes in the world economy or any other natural calamity.
• This type of planning is not suitable for projects, which have long execution time frame, which is more than the particular plan period as they will spread into more than one plan the intensity of their execution will also change.

Centralized Planning

Under centralized planning, the centralized Authority plans and formulates all planning activities in the country. The authority fixes target for all industries and fix priorities for all sectors. It takes all the investment decisions according to the goals and targets set in the plan.

Faults of Centralized Planning

• Centralized planning has authoritative and undemocratic characteristic, having bureaucratic control and regulation.
• The mistakes and shortcoming of the planning is not likely to be rectified.

Decentralized Planning

In decentralized planning, the plans are executed at grassroot level. In this scheme of planning, plan is prepared by central authority with discussion all the administrative units in the country whether at state level, district level. Plans for industries are prepared with full discussion with all the major representative stakeholders in the industries. But individual firms are free to take decision on their investment and output prices. There is a freedom for production and consumption under decentralized planning.

Faults of Decentralized Planning

• Its reliance on the market mechanism leads to shortages or surpluses in the production of goods and services.
• It requires lot of adjustment from government for problem in supply side.
• It is very tough to have coordination between planned & unplanned sectors.