Centralized, Market And Indicative Planning

Planned economy is one in which the state owns (partly or wholly) and directs the economy.While such a role is assumed by the State in almost every economy, in planned economies, it is pronounced: (for example in communist and socialist countries- former USSR and China till the 1970's.) In such a case a planned economy is referred to as command economy or centrally planned economy or command and control economy. (In command economies, state does the following

• Control all major sectors of the economy
• Legislate on their use and about the distribution of income
• State decides on what should be produced and how much; sold at what price
• Private property is not allowed)

In a market economy, it is the opposite- state has a minimal role in the management of the economy- production, consumption and distribution decisions are predominantly left to the market.) State plays certain role in redistribution. State is called the laissez faire state here. (It is a French phrase literally meaning "Let do.")

Indicative plan is one where there is a mixed economy with State and market playing significant roles to achieve targets for growth that they together set.) (It is operated under a planned economy but not command economy.

The difference between planned economy and (command economy is that in the former there may be mixed economy and while in the latter Government owns and regulates economy to near monopolistic limit.)

Command economies were set up in China and USSR, mainly for rapid economic growth and social and economic justice but have been dismantled in the last two decades as (they do not create wealth sustainably and are not conducive for innovation and efficiency.) (Cuba and North Korea are still command economies.)

Types of Planning

Imperative Planning

Type of planning where the Central Planning Authority decides upon every aspect of the economy and the targets set and the processes delineated to achieve them are to be strictly followed. This type of planning is mainly practiced in the socialist economies.

Indicative Planning

A system of planning in which the State sets broad parameters and goals for the economy. It is different from centralized planning as unlike in the latter, the State does not set Plan targets to the minutest details, but only broadly indicates the targets to be achieved. It was adopted in our country since the 8th Five Year Plan, as practiced in many developed countries.

Perspective Planning

It’s a planning for a long period of time, usually 15-20 years. As a highly specialized task, it is operationalised through the Five Year and Annual plans. In such form of planning, the planners formulate a perspective Plan that broadly defines the direction desired to be taken by the economy.

Rolling Plan

Under the scheme of rolling plans, there are three different steps. First, a plan for the current year, thatincludes the annual budget. Second, a plan for a fixed number of years, say three, four or five. It is revised e very year as per the requirements of the economy. Third, a perspective plan for 10,15 or 20 years.

Core Plan

As per this concept, the Planning Commission asks the States to submit their projected revenue estimates. On the basis of these estimates, Planning Commission determines the expenditure heads for State Annual Plans. This helps in keeping the Plan target to realistic limits and prevents diversion of funds from the priority items to the non-plan account.

Doctrine of Balanced Growth

To some it means investing in a laggard sector or industry so as to bring it abreast of others. To others, it implies that investment takes place simultaneously in all sectors or industries at once.  To still others, it means balanced development of manufacturing industries and agriculture. Balanced growth, therefore, requires balance between different consumer goods industries, and between consumer goods and capital goods industries.  It entails balance between vertical and horizontal external economics. Thus it aims at all sectors growing in unison.  For this, balance is required between the demand and supply sides.

The supply side lays emphasis on the simultaneous development of all inter-related sectors, which help in increasing the supply of goods.  It includes the simultaneous and harmonious development of intermediate goods, raw material, power, agriculture, irrigation, transport, etc. and all industries producing consumer goods.

On the other hand, the demand side relates to the provision for larger employment opportunities and increasing incomes so that the demand for goods and services may rise on the part of the people.  This side is related to supplementary industries, consumer goods industries, especially agriculture and manufacturing industries. 

When with the simultaneous setting up of all types of industries large number of people are employed, they create demand for each other’s goods.  In this way, all goods will be sold out.