IE/U4 Topic 2 Economic Planning-Importance of Planning for Economic Development
Economic planning is often regarded as technique of managing an economy. When the structure of an economy becomes complex and subject to rapid change and transformation (due to population growth, discovery of resources, industrialisation, etc.) some sort of advance thinking becomes necessary to resolve that complexity and to prepare the economy for those changes. Such preparation is called planning.
Most often that not an economic plan is regarded as a programme of action. It may also be taken to mean an instrument for regulating a free private enterprise economy. The regulatory measures may vary from country to country.
They may leave either too much or too little a degree of freedom to private enterprise. This may hamper the working out of the plan. Many plans leave their programmes incomplete because they hesitate to exercise their regulatory functions. They are little more than a list of public development projects.
Many other plans perform their regulatory functions with such seriousness and severity that their programmes of action are completely jeopardised. In such planned economies any sort of enterprise ceases to exist. The correct plan is one in which a comprehensive and consistent programme of action is sought to be implemented by carefully harnessing enterprise for the success of the plan.
It should be noted that a plan is just a programme of action, it is not a guarantee for action. In short, a good plan is one which makes adequate provisions for and ensures that its targets are properly fulfilled.
Objectives of Planning:
The objectives of planning are many and varied. These aims are not the same for all countries, not are they same for the same country at all times.
Some major objectives of economic planning are:
(a) An improvement in the standard of living of the people through a sizable increase in national income within a short period of time;
(b) A large expansion of employment opportunities for the removal of unemployment and for creating jobs and incomes;
(c) A reduction in all types of social, economic and regional inequalities;
(d) An efficient utilisation of the country’s resources for faster growth;
(e) Removal of mass poverty within a definite time limit through land reform, employment creation, and provision of educational and medical facilities;
(f) Attainment of self-reliance by reducing dependence on foreign capital and foreign aid.
Importance of Planning:
The importance of planning lies in the fact that it is an instrument through which important socio-economic objectives, unrealisable under free private enterprise, are likely to be effectively realised.
In an underdeveloped country like India these objectives may be broadly grouped as:
(a) A higher rate of growth than was being realised in the absence of the plan;
(b) A greater degree of economic equality than was possible under free enterprise;
(c) Fuller employment opportunities for the growing labour force of a country; and
(d) Larger provisions for capital formation as one of the principal instruments for accelerating the rate of growth.
In the language of Gunnar Myrdal, “A main element of every national development plan is a decision to increase the total amount of investment, aimed at raising the productive powers of the country, and to procure the capital formation necessary for this purpose.”
The usefulness can be gauged only by examining the extent to which it succeeds in removing the ills of unregulated free enterprise, while simultaneously realising the above goals. In underdeveloped countries like India an economic plan is to be looked at not as a substitute for private enterprise.
Rather it is to be taken as the only instrument through which enterprise can spread to non-traditional forms of economic activity.
In countries like India the most important objective of an economic plan is to bring into being new forms of production by accelerating capital formation. This will surely raise the overall productivity of the economy and thus raise people’s income by providing them adequate employment opportunities, and thus remove the problems of mass poverty.
Prima facie, the over-populated underdeveloped countries often suffer from capital starvation. In other words, there is always a shortage of all types of productive capital equipment in such countries. So most people have to depend on land. Under-employment and unemployment are just a reflection of this.
Economists like Nurkse and Lewis believe that the only way to provide gainful employment opportunities and better living standards to the masses is to equip them with more capital. The accumulation of capital must proceed at a pace which would closely correspond to the rate of population growth and productivity change.
It is thus clear that the basic aim to economic planning in a backward country like India is to achieve in different ways a more rapid of capital formation than what would have been possible under private enterprise. “The success of the plan”, says Prof. D. Bhattacharya, “is to be judged mainly by the advance it registers in respect of capital formation as compared with the period before the plan was launched.”
In short, only planned economic development can hope to achieve a rate of growth which is politically acceptable. The most fundamental objective of planning is to alter the pattern of resources use and, if possible, to intensify such use in such a fashion as to achieve certain socially desirable goals.
For an LDC like India the most important goal is the removal of mass poverty and growing unemployment by putting resources more effectively into use. In other words, planning must focus its attention primarily on the task of improving the pattern of resource use, for raising incomes and improving the pattern of income distribution.
10 Objective of Economic Planning of India
1. Economic Development:
The main objective of Indian planning is to achieve the goal of economic development economic development is necessary for under developed countries because they can solve the problems of general poverty, unemployment and backwardness through it.
Economic development is concerned with the increase in per capita income and causes behind this increase.
In order to calculate the economic development of a country, we should take into consideration not only increase in its total production capacity and consumption but also increase in its population. Economic development refers to the raising of the people from inhuman elements like poverty unemployment and ill heath etc.
2. Increase Employment:
Another objective of the plans is better utilization of man power resource and increasing employment opportunities. Measures have been taken to provide employment to millions of people during plans. It is estimated that by the end of Tenth Plan (2007) 39 crore people will be employed.
It has been the objective of the plans that the country becomes self-sufficient regarding food grains and industrial raw material like iron and steel etc. Also, growth is to be self sustained for which rates of saving and investment are to be raised. With the completion of Third Plan, Indian economy has reached the take off stage of development. The main objective of the Tenth Plan is to get rid of dependence on foreign aid by increasing export trade and developing internal resources.
4. Economic Stability:
Stability is as important as growth. It implies absence of frequent end excessive occurrence of inflation and deflation. If the price level rises very high or falls very low, many types of structural imbalances are created in the economy.
Economic stability has been one of the objectives of every Five year plan in India. Some rise in prices is inevitable as a result of economic development, but it should not be out of proportions. However, since the beginning of second plan, the prices have been rising rather considerably.
5. Social Welfare and Services:
The objective of the five year plans has been to promote labour welfare, economic development of backward classes and social welfare of the poor people. Development of social services like education, health, technical education, scientific advancement etc. has also been the objective of the Plans.
6. Regional Development:
Different regions of India are not economically equally developed. Punjab, Haryana, Gujarat, Maharashtra, Tamil Nadu, Andhra Pradesh etc. are relatively more developed. But U.P., Bihar, Orissa, Nagaland, Meghalaya and H.P. are economically backward. Rapid economic development of backward regions is one of the priorities of five year plans to achieve regional equality.
7. Comprehensive Development:
All round development of the economy is another objective of the five year plans. Development of all economic activities viz. agriculture, industry, transport, power etc. is sought to be simultaneously achieved. First Plan laid emphasis on the development of agriculture. Second plan gave priority to the development of heavy industries. In the Eighth Plan maximum stress was on the development of human resources.
8. To Reduce Economic Inequalities:
Every Plan has aimed at reducing economic inequalities. Economic inequalities are indicative of exploitation and injustice in the country. It results in making the rich richer and the poor poorer. Several measures have been taken in the plans to achieve the objectives of economic equality specially by way of progressive taxation and reservation of jobs for the economically backward classes. The goal of socialistic pattern of society was set in the second plan mainly to achieve this objective.
9. Social Justice:
Another objective of every plan has been to promote social justice. It is possible in two ways, one is to reduce the poverty of the poorest section of the society and the other is to reduce the inequalities of wealth and income. According to Eighth Plan, a person is poor if the spends on consumption less than Rs. 328 per month in rural area and Rs. 454 per month in urban area at 1999-2000 prices. About 26 percent of Indian population lives below poverty line. The tenth plan aims to reduce this to 21%.
10. Increase in Standard of Living:
The other objective of the plan is to increase the standard of living of the people. Standard of living depends on many factors such as per capita increase in income, price stability, equal distribution of income etc. During the period of Plans, the per capita income at current prices has reached only up to Rs. 20988.