Types of Planning: Imperative and Indicative Planning

What is meant by economic planning?

Indian economy may be recovering faster than anticipated: Oxford Economics  - The Financial Express

After the Soviet Union pioneered national planning, several more countries followed suit, though with varying techniques and practices.

Though there are many different types of planning, the most significant one is based on the sort of business (i.e., state economy, mixed economy). Planning has been categorised into two sorts over time, depending on the type of economic system in place in the country.

Types of Planning

1. Imperative Planning:-

  • It refers to the planning process used by state economies (i.e., socialist or communist). This type of planning is referred to as directive or target planning. There were two basic types of such planning.
  • All economic decisions were centralized in the hands of the state in the socialist system, with community ownership of resources (except labour). All resources were to be owned and used by the state in the communist system (i.e., China in the past) (including labour).
  • As a result, communist China served as the finest example of this type of planning. Even after Stalin’s enactment of agricultural collectivisation in 1928, only 94 percent of Soviet peasants were able to participate in the process.
  • The following are the basic characteristics of such planning:
    (I) The plan establishes numerical (i.e., quantitative) growth and development targets. In the next 5 or 6 years, for example, five lakh tonnes of steel, two lakh tonnes of cement, 10,000 kilometers of national highways, 5,000 elementary schools, and so on will be produced/built.
    (ii) Because the state owns the resource ownership rights, the above-mentioned projected targets are very likely to be met.
    (iii) There is essentially no role for the market, no price system, and all economic choices are made by the state/government in a centralised manner.
    (iv) There is no private sector participation in the economy; the government is the sole source of revenue.

This type of planning was used by the Command Economies. As a result, such economies as the USSR, Poland, Hungary, Austria, Romania, and others, as well as China, are known as Centrally Planned Economies. Essentially, it was the exodus of some of the world’s greatest economists from the Soviet Bloc to the United Kingdom and the United States that sparked a thorough examination and debate on the nature and purpose of planning in command economies.

After WWII, many of these economists returned to their home countries to serve and, in some cases, suffer the revolution there. In the postwar era, it was their clear and current economic thought that laid the groundwork for the concept of a mixed economy. One of them was Oskar Lange, a famous Polish economist who suggested and created the term “market socialism” in the 1950s after returning home to serve as Chairman of the Polish State Economic Council (similar to India’s Planning Commission). Not just Poland, but also other state economies at the time, rejected his market socialist views.

After the Cultural Revolution (1966–69) in China, which caused an economic slowdown in the country that had embraced a soviet-style central planning system after 1949, this sort of planning achieved its pinnacle. China decentralized a huge degree of economic power under Deng Xiaoping (1977–97) when he announced the open door policy in 1985 to preserve the economy.

Under the communist political framework, China’s open door policy was an endeavor toward’market socialism’ (a popular student demand for political reform in favour of democracy was ruthlessly repressed in Tiananmen Square in 1989). In 1985, the Soviet Union, led by Mikhail Gorbachev, embarked on a process of political and economic reforms known as prestroika (i.e., restructuring) and glasnost (i.e., openness) in order to salvage the state economy’s failed economic experiments.

From 1989 onwards, several East European economies adopted similar economic changes. By the late 1980s, the whole world of state economies had shifted to a market economy. Since then, none of the countries have adhered to the principle of mandatory planning.

2. Indicative Planning

The start of Soviet planning, the concept of planning drew the attention of the democratic world over the next two decades. Some of these economies began to implement national planning at some point.

The nature of their planning was distinct from command economies because they were neither state economies nor communist/socialist political systems. Economists and academics have dubbed this type of planning “indicative planning.” The following are the distinguishing characteristics of suggestive planning:
(i) Unlike a centrally planned economy (where countries adopt imperative planning), suggestive planning works with rather than substitutes the market (price system).
(ii) In addition to declaring numerical/quantitative targets (as is done in imperative planning), the economies declare a set of suggestive economic measures to achieve the plan’s objectives.
(iii) the illustrative nature of economic policies presented in such planning essentially encourages or discourages the private sector in its economic decision-making process.

  • Following its conversion to a mixed economy during the mid-1940s, France launched its first six-year plan in 1947, which became known as the Monnet Plan (he was the first chairman of the General Planning Commission and the then Cabinet Minister for planning in France). Later on, the term “Monnet Plan” came to mean “indicative planning.
  • ” The government had chosen eight key industries as the basis of development in which the nature of planning was almost mandatory, i.e., under state monopoly. This plan is also known as basic sector planning (these sectors were owned by the private sector till 1944 when France went for their nationalisation). Other economic activities were available to private participation, necessitating a specific type of governmental planning.
  • Both France and Japan have had remarkable success with suggestive planning. The National Plan, which began in 1965 and was abandoned in 1966 after being overtaken by events, was the first attempt at national planning in the UK (a balance of payment crisis resulting in a deflationary package of measures). Since then, the United Kingdom has never gone for planning.
  • Though the United States was the first to adopt economic planning as a tool for economic advancement (with the Tennessee Valley Authority at the regional level in 1916), it never went for a comprehensive national plan. In the 1940s, some economists advocated for the implementation of national planning.
  • If we look at the Presidential Reports, which occur at regular intervals, we may see a reflex of suggestive planning in the United States. These reports are just ‘benchmarks’ in the area of resource utilization and government announcements of its goals—basically, they are attempting to urge the private sector to work toward public goals.
  • Any growth target could only be met through suggestive planning, as practiced by the mixed economy, if the public and private sectors cooperated together. This is why, in addition to the plan aims, governments must declare a set of suggested measures to encourage and urge the private sector to accelerate their economic operations toward the plan targets.
  • After second world war, practically all newly independent countries followed the path of planned growth. Despite the fact that they followed an overarching paradigm of suggestive planning, several of them had a strong preference for imperative planning. The overwhelming tilt toward imperative planning, like in India, could only be rectified once the economic reform movement began in 1991.
  • Today, because the globe is dominated by mixed economies, every country’s development planning must be purely suggestive. Following the revival of the role and necessity of the market in promoting growth and development through the Washington Consensus (1985), the World Trade Organisation (1995), and the Santiago/New Consensus (1998), only indicative planning has remained possible, with the state playing only a minor role in the economy, particularly in areas of social importance (nutrition, healthcare, drinking water, education, social security, and so on).
  • Depending on the point of view we are considering, there are numerous other styles of planning. Planning could be regional or national, for example, from a territorial standpoint. Planning might be central, state, or local from a political standpoint. Similarly, planning has been divided into centralised and decentralised categories in terms of participation.
  • Planning can be long-term or short-term, depending on the time frame (in relative sense). Likewise, planning can be both sectoral and geographical. While sectoral planning focuses on a single economic sector (such as agriculture, industry, or services), spatial planning focuses on the geographic framework (which seeks to influence how people and activities are distributed in space).
  • The ‘value system’ of the society—systems and normative planning—is one key classification of planning that has been in the news for the past few years. The systems approach to planning is primarily value-neutral, with a strong focus on economic development. Socio-cultural elements aren’t given much weight in it, and it’s all about achieving the pre-determined objectives.
  • This became the most popular planning method around the world since it was in line with modern-day democratic ideas such as secularism, equality, and other democratic goals. The most essential aspect of this strategy was that it was socially neutral. Because India’s socio-cultural diversity was so great, such a planning method was ideal.
  • The value-based approach to planning is the normative approach. This planning procedure adheres to the target population’s value system, which is highly diverse in its approach to development. The world mainly avoided this planning technique, and it was never tested at a macro level until the first decade of the twenty-first century.
  • With the increasing acceptance of behavioural economics, normative approaches are gaining traction around the world. After two major international events—first, the publication of the first World Happiness Report (2012), and second, the World Development Report 2015 (World Bank), with the latter highlighting the importance and impact of including behavioural dimensions of people in formulating public policies—it gained a greater level of recognition among experts and policymakers.
  • The Government of India’s Economic Survey 2010–11 is the first document to propose for a normative approach to planning in India. It is considered that until a government-run program or scheme can connect with the community’s habits, traditions, and ethos, its acceptability will not be high enough among the target demographic. Establishing an empathetic contact between the programs/schemes and the target population is increasingly regarded as a critical part of policymaking and planning. The experiences of India and other countries throughout the world have influenced this shift in thinking.
  • The Planning Commission was superseded with the NITl Aayog by the Indian government in January 2015. (a policy think tank). If we look at the new body’s functions and guiding principles, we can see that India has officially shifted to normative planning—the new body must follow a development model that is “all-encompassing, all-inclusive, and holistic.” The NITI Aayog has also been requested to help the country tap into the vigor and energy of the foundations of our ethos, culture, and nourishment as part of this process.
  • In recent years, we’ve seen the government use nudges to change people’s behavior in order to achieve a targeted socioeconomic outcome aimed at development—that is, utilizing behavioral insights to formulate economic policies. Normative planning encompasses all of these policy initiatives.

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