Economic Plan­ning: Imperative and Indicative Planning

Socialism and economic planning go hand in hand. In other words, planning is synonymous with socialism.

But in a capitalist society, plan­ning is rather incompatible. This is because in a capitalist society since markets work and no one, as such, gives any direction of what to do and what not to do.

That is why capitalist plan­ning differs from socialist planning where government works and directs everything.

In view of this, it is said that capitalist planning is essentially a planning not by direction and command but by inducements. In contrast, so­cialist planning is essentially planning by di­rection and command and not by inducement and incentives to private sectors. A socialist planning is then called imperative planning as the central planning authority performs all economic activities in the best interests of the society.

Thus, we find two types of economic plan­ning : imperative planning or directive plan­ning, and indicative planning or planning by inducement.

1. Imperative Planning:

(i) Features of Imperative Planning:

Under this type of planning, economic decisions are made through a central planning authority instead of a market system. Allocation of re­sources, the mix of output and the distribu­tion of output among the people (i.e., ‘What, How and For Whom’ problems) are deter­mined centrally in accordance with the pre­determined plans and targets.

In fact, admin­istrative control and regulation from the cen­tral planning authority flows in all directions. Failure in any front is scanned very meticu­lously and people involved in failing to achieve plan targets of any commodity and services are subject to serious scrutiny and even punishment. Because of control over the available resources of the country by the state, resources are allocated in such a way that pro­duction becomes maximum, people get goods and services in fixed quantities at fixed prices, and welfare of the nation gets maximised.

Under imperative planning, there is the ab­sence of institutions of private property, com­petition and profit motive of industrialists, etc. It is because of the absence of these institu­tions and the presence of the state in directing and regulating economic activities, the plan­ning authority formulates and implements plans in the best interests of the country.

The aims of the economy are decided by the state and not by the consumers. “The in­terdependence of all production processes and the complete absence of guidance through price variations make it imperative that op­eration plan should pass the test of mutual consistency of input and output for all enter­prises and collectives. After all, more than anything else, planning means balancing.”

In reality, such type of planning does not exist. Although some people say that impera­tive planning was in operation like the erst­while USSR and Eastern Europe and China till mid-1980s. But we have seen that the So­viet state could not direct the entire produc­tion side of the economy. Further, dilution of imperative planning of the Soviet and the Chi­nese variety took place under the impact of some sort of market-based principles.

(ii) Advantages:

Anyway, imperative plan­ning is comprehensive as it includes the en­tire facet of an economy. Having full control over the available resources, implementation of plan becomes easier and highly effective. As a result, plan targets never remain unful­filled.

Thus, economic activities, under im­perative planning, are carried out so as to maximise production and welfare of the peo­ple. Secondly, the government controls all pro­ductive forces and replaces market mecha­nism and profit motive by central plan and command. Production is carried out not for profit but for the general well-being of the soci­ety.

(iii) Deficiencies:

But imperative planning suffers from some deficiencies. It is often ar­gued that under this kind of planning neither consumers nor producers enjoy any freedom and sovereignty. They behave in the way the state wants. Further, imperative planning based on bureaucratic controls and regulations and direction is undemocratic in character.

Often force and repressive measures are taken by the state for not failing to fulfil the plan targets. Perhaps the proximate reason for the relatively poor working of imperative plan­ning is the enormous size of the central plan­ning which is not easily manageable through centralisation.

2. Indicative Planning:

(i) Features of Indicative Planning:

Indica­tive planning or planning by inducement is found in capitalist countries as well as in mixed economies, like India. After the termi­nation of the Second World War (1939-45), indicative method of planning was advocated in capitalist countries. Indicative planning was attempted first in France. French planning had some sort of success as it attempted to fulfil the desires and expectations of the people with no force or compulsion.

Thus, the essence of indicative planning is that it recognises not only consumers’ sovereignty but also produc­ers’ freedom so that the targets and priorities of the plans are achieved. It then involves a middle path of planning mechanism and mar­ket mechanism—a kind of coordination be­tween private and public activities.

India’s Eighth Plan was unique in the sense that it attempted to manage the transition from a centrally planned economy to a market-ori­ented economy without tearing the socio-cultural framework of the country, or to be more specific, our social commitments to the under- previliged sections. The Eighth Plan men­tioned that planning would have to be reoriented so as to make it indicative.

Under indicative planning those industries and sectors are identified where future growth is to be encouraged. Its endavour will be to develop the core sector through allocation and optimal utilisation of funds. The plan must provide the broad blueprint for achieving the essential social and economic objectives and indicate the direction in which the entire economy as well as its various sectors and sub- sectors should be moving.

Thus, identification of these areas and channelling the resources to those areas are an integral part of planning. The Eighth Plan concentrated on building a long term strategic vision of the future and set forth the priorities of the country.

On the one hand, for the public sector, the Eighth Plan in­tended to examine in details the alternatives and identify the specific projects in various sectors. On the other hand, for the rest of the economy, it worked out sectoral targeted and tended to provide promotional stimulus to the economy to grow in the desired direction.

This means that under indicative planning, the central planning authority in India’s case, the Planning Commission plays an in­tegrative role and helps in the development of a holistic approach to policy formulation in certain critical areas of development like en­ergy, human resource development, manage­ment of balance of payments, etc. But indica­tive planning does not intend to reduce the importance of the role of the state.

The state shoulders primary responsibility for the de­velopment of both physical infrastructures and social infrastructures. Besides, central plans are linked up with the state plans since both the partners have responsibilities in all the areas. This indicative planning is tanta­mount to corporate planning. Finally, the plan­ning authority plays a mediatory and facilitating role for managing the economy.

Keeping all these features of indicative planning in mind, we can say that India’s Eighth Plan is unique in relation to earlier plans. It assigns a special role and respon­sibility to planning. “It is a plan to salvage the process of planning and to reorient it to meet the needs of a vastly changed national and international scenario. It is more a manager’s plan than an abstract economist’s plan of cli­ches and pious wishes.” This kind of planning goes on and the Eleventh Plan is in progress.

(ii) Advantages:

Indicative planning has one distinct advantage. It supposedly increases productivity because each sector of the economy pushes its own contribution to a point that previously would have been con­sidered too dangerous. This is achieved with­out abolition of the private enterprise, with­out command and without sacrificing any one of the advantages of the market economy.

Indicative planning is, thus, a perfect compro­mise a system between freedom and planning that enjoys the advantages of both the market and the planned economies, while successfully avoiding the disadvantages usually connected with these pure systems.

We now conclude our discussion by pin­pointing the essential features of Indian plan­ning system:

(1) It is centralised in its formu­lation.

(2) It is decentralised as far as execu­tion of plans is concerned.

(3) It is partly di­rective and partly indicative.

(4) It is demo­cratic in character.

(5) It is developmental in character.

(6) Finally, the planning process is a continuous one.

(iii) Weaknesses:

The basic weakness of this type of indicative planning has been pointed out by an expert. He says; “Every branch of activity is promised the possibility of acquir­ing its production factors and selling its goods on a balanced market. The promise, however, is only kept if everybody plays the game. The promise acts merely as an incentive. It is not binding on everybody. Firms are not dis­pensed from working out their valuations and choosing their own attitudes. But they cannot do so in a better informed manner.”

In short, indicative planning has not yet been proved to be a perfect compromise be­tween market and plan. The danger exists that it may do more harm than good through in­flation, unemployment, monopolistic trends and direct controls.