CHAPTER- TWO

Classification of Planning: Meaning,

1
 2.1 Types of Planning
Planning takes different forms on the basis of:
Time period, Geographical area, Institutions affected,
Media of planning, Extent of activities covered, Mode
of executing plans etc.
The main types of planning are the following:
1. Authoritarian and Democratic Planning
In authoritarian planning, the government is the sole
centralized agency which draws the plan and implements
it. It is more comprehensive, systematic and rigid.
In democratic planning, the plan is prepared by an expert
body called the planning commission, which is outside
the government or the executive and
 It is finally approved by legislature which represents the
people.
 It is based on the system of free enterprise, but economic
activity outside the public sector is sought to be regulated and
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guided indirectly by providing incentives for investment
2. General and Partial Planning
General planning: A comprehensive and
integrated plan is conceived, initiated and executed
by a central authority
It covers all aspects of the economy and the central
authority completely controls the investment and
utilization of resources
Partial planning: a sort of piece-meal planning in
which the plan covers only some important
sectors of the economy.
3. Functional and Structural Planning
Planning may be attempted within the existing
socio-economic framework and it is called
Functional Planning
3It may be attempted by changing the existing order
radically and it is called Structural Planning
4. Planning by Inducement and Planning by
Direction
Sometimes countries try to achieve objectives of planning
in an indirect manner. There is private enterprise
throughout the economy and market mechanisms in full
operation. The State just offers certain inducements
and incentives.
For instance, predominantly capitalistic economy like the
American
There is compulsory planning or planning by direction
under a central directing authority.
A. Planning by inducement
It is often referred to as indicative planning.
The planner either subsidizes production or controls
prices.
The first acts on the supply side and the latter on the demand
side
4Thus cheaper price is an inducement for the consumer and
This is planning through the market mechanism.
There is a narrow sphere for State control.
The basic idea is that the market controls the
entrepreneur and State can control the entrepreneur
by controlling the market.
The State tries to manipulate the market by means
of incentives and inducements through price
fixation, taxation and subsidies
The government seeks to influence economic and
investment decisions by offering incentives to
entrepreneurs via fiscal and monetary policies but
does not control or regulate the functioning of
the economy directly.
Planning by inducements avoids swollen
bureaucracy.
5It is planning by persuasion rather than
However, immobility of resources imposes serious limitations on
planning by inducement.
Thiscreates shortages which cannot be eliminated
merely by price control and rationing.
Measures have to be taken not only to distribute
supplies equitably but also to augment supplies.
The merits of indicative planning are:
Consumer's sovereignty remains intact
There is freedom of enterprise
It is flexible
It is democratic.
Demerits
It fails to achieve the objectives of planning or targets of
production
The private entrepreneurs care more for profit than for the
growth of the economy
The fiscal and monetary policies of the government are not
so
6 successful in the under­developed countries; controls lead
Cont….. Demerit
The producers may not find the incentives offered by
the state attractive enough
The working of the market forces fail to bring about
proper adjustment between demand and supply and
thus create imbalances in the economy.
B. Planning by direction
It implies minute and detailed instructions being
given both to producers and consumers.
Thus a list of all commodities to be produced with
the quantity of each has to be prepared as well as
a separate list for each of the complements and
substitutes.
Planning by direction is very comprehensive. It
covers the entire economy. There is complete
concentration of economic authority in the
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Conti…. Planning by direction
There is one authority which is in sole charge of
planning, directing and execution of the plan in
accordance with pre-determined targets and
priorities.
Only planning by direction can guarantee the
success of the plan, otherwise the targets would
turn out to be mere wishes.
 This means that the economic plan should have at
its back the full authority of the state not merely in
planning but also in its implementation or
execution.
Shortcomings:
It is undemocratic since the people are ignored all
along.
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It is bureaucratic and totalitarian and, as such,
Cont… Shortcoming
Owing to the complexity and many-sidedness of modern
economic system, planning by direction does not yield
satisfactory results.
There is bound to be shortage of some and surplus of
other commodities
This sort of planning is bound to be inflexible; no
part of the plan can be altered affecting the whole
plan.
The fulfillment of the plan cannot be anticipated,
because conditions keep changing. Black markets
emerge to overcome the imperfections of the plan
Planning by direction also leads to excessive
standardization which impinges on consumer's
sovereignty.
9It also involves huge administrative costs-
5.Centralized Planning and
Decentralized Planning
Centralized planning: planning is done by a
central authority.
It is done from the top.
Each citizen has simply to carry out the
instructions or the job or duty assigned to
him.
Decentralized planning: plan from the
bottom. Each village, - (village council) may
be asked to prepare a plan for the economic
development of the village and each
industry may be asked to prepare its own
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plan.
6. Physical and Financial Planning
We may fix the size of investment in terms of real
resources, known as physical planning or in terms of money,
known as financial planning.
Financial resources will have to be translated into real
resources for money as such serves no purpose.
If adequate finance is not available, it can be created
through deficit financing.
In under­developed-countries, there always exist unutilized or
under-utilized resources, for instance, uncultivated land,
unemployed labor, hoarded wealth, etc.
These resources can be mobilized by creating money.

A. Financial Planning
The planners determine how much money will have to be
invested in order to achieve the pre-determined objectives
or targets
11
Total outlay is fixed in terms of money on the basis of
different conditions.
 Italso includes the revenue from taxation, borrowings and
savings which will be used to mobilize the required resources
 There has thus to be an integration between physical planning and
financial planning.
 The essence of financial planning is to ensure that the demands and
supplies are matched.
 Finance holds the key to the success of a plan.
If the country is able to raise adequate financial resources, the success
of the plan is assured.
Limitations:
 An attempt to raise taxes to too high level will adversely affect the
capacity of the people to save.
 Owing to smallness of organized money sector and the existence of a
larger non-monetized sector the estimates of financial resources may go
wrong
 Imbalances between the monetized and non-monetized sectors may
result in shortages and in inflationary pressures.
Hence financial planning is more suitable for sector planning than for
over all planning.
 Financial planning may not provide for the expansion of employment
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opportunities at a scale so as to absorb the new entrants to the labor
B. Physical Planning
The planning authority has to work out how much land, labour,
materials and capital equipment will be required to implement
the plan and achieve the targets set out for it.
It makes for concreteness in planning. It is an input-output
analysis.
Thus it implies proper evaluation of the relationship
between investment and output.
The planners have to determine the amount of investment and
work out its composition in terms of the various goods and
services required to' obtain a certain increase of output of
product.
Financial planning is only a means to achieve the various targets
laid down in the plan.
Thus, in physical planning, we make an overall assessment of
the available real resources and devise ways and means to
mobilize them in amounts sufficient to enable us to achieve the
various targets of production.
13
These targets are laid in physical terms but the various targets
Difficulties
In the under-developed countries adequate and
reliable statistics regarding the various types of real
resources are lacking. It becomes really difficult to lay
down the targets with any degree of certainty.
To build up a sound sectoral balance is also a
tight and that is why when the plan is being
implemented all sort of stresses and strains,
bottle­necks, shortages and gluts and inflationary
pressures appear to thwart the planners' effort.
Physical planning is not enough to prepare a
sound plan for economic development. It has to
be supplemented with financial planning. Lack of
adequate financial resources have been a major
cause of the failure on planning in many
Countries.
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7. Rolling and Fixed Planning
A. Rolling Planning
Every year three new plans are made and acted upon
First, there is a plan for the current year which includes the
annual budget and the foreign exchange budget.
Second, there is a plan for a number of years, say three, four
or five. It is changed every year keeping with the
requirements of the economy. It contains targets and
techniques to be followed during the plan period, along with
price relationships and price policies.
Third, a perspective plan for 10, 15 or 20 or even more years
is presented every year in which the broader goals are
stated and the outlines of future development are forecast.
The annual plan is fitted into the same year's new three-, four-
or five-year plan, and both are framed in the light of the
perspective plan.
For example, if planning is started in 1970 in a country, there
would be three plans under the technique of rolling plan: an
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annual plan for 1970, a five-year plan for 1970-75, and a 20-
Rolling planning …….cont….
The broad aims and objectives are laid down in the 20-
year perspective plan.
When the plan starts in 1970, there will be an annual
plan in every subsequent year that is, 1971, 1972 and
so on. The five-year plan for 1970-75 will also roll on for
the subsequent periods by detaching each previous
year so as to become a plan for 1971-76, 1972-77 and
so on.
Since planning is a continuous process, every year the
plan is revised in the light of new information, improved
data and improved analysis.
If five years is deemed to be a suitable horizon, this
number of years may be applied at each of the yearly
revisions in the sense one would always be working in
the beginning of a five-year period.
16
The concept of rolling plan is devised to overcome the
Rolling planning …….cont….
In the rolling plan, there are plan targets, projections
and allocations that are not fixed for the five-year
period but are liable to revision every year in keeping
with the changing conditions of the country.
It not only provides greater flexibility but also a
clearer perspective and a better view of the priorities.
Being flexible, a rolling plan is more realistic than a
fixed plan.
It takes into consideration such unforeseen natural
and economic changes as floods, drought, war, hike
in oil prices, etc. which may affect the economy
adversely.
Under a rolling plan, financial and physical targets
can be revised in keeping with such changes.
Thus the rolling plan combines the advantages of
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both perspective and flexible planning
Demerits of technique of rolling plan
Since the targets are likely to be revised every year, it is
not possible to achieve the targets laid down in the plan
within a fixed time period
Frequent revisions also make it difficult to maintain proper
balances in the economy which are essential for its
balanced development.
Again, when the plan is continuously revised, it creates
uncertainties in the private and public sectors of the
economy
Moreover, constant revisions of the targets of the plan
develop an attitude of non-commitment and apathy among
the planners
B. Fixed planning
It refers to the unchanging period of time for which a plan
is prepared
For example, a plan for a period of five years, 1975-80, will be
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a plan for this period alone.
Fixed planning …….cont….
While the fixity of period is the basis of this type of
planning, it also implies that the targets that have
been formulated quantified are equally fixed. So are
the means that have been designed for the
purpose.
The plan thus is unchangeable for the period of five
years. Fixity on both the time period and the targets
is the distinguishing feature of fixed plans.
Sometimes important changes can be incorporated
in fixed plans due to:
a. Resources may fall far short of needs
b. International development may upset
calculations in respect of foreign resources
Physical targets and financial outlays lays down
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definite aims and objectives which are required to
 Merits of fixed plan…
It makes for boldness in planning i.e. under such a
planning one can design for higher objectives with larger
resources, with little fear of their being destroyed down.
It ensures effective implementation:- presupposes
commitment to the plan.
It provides for stability in the economy: - it imparts
certainty to the system.
It act as performance-test to check on the efforts made
and success/ failure
There is a “checking” mechanism built into the system.
Every one will therefore be subjected to scrutiny.
There is bound to be disciplined thinking and action in
respect of the formulation of policies and their execution.
Pitfalls
Weaknesses arise from the inflexibility of such plans. Plan
targets are rigidly fixed. Changes cannot be easily made.
20
Wastage of resources prevails if the plan gets out of tune
8. Long-term, medium-term and short term planning
Based on the division of time it covers 10, 15, 20 and even
more years for long-term, medium term extends over 3 to 5
years and even up to 7 to 10 years. Short-term relate to
short period as one year.
A. Long-term plans
becoming quite popular these days to take a longish view
of the future.
The statistical techniques now available make it possible to
forecast.
Characteristics of long term planning
1. Greater freedom of choice: the number and intensity of
constraints on choices are much less in long-tem planning
2. Broadened scope: - It is possible to over-reach the narrow
frame of purely economic considerations and to explore
social and human implication of economic development.
It may be feasible to overcome the narrow boundaries of
national planning and plan in the international context.
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3. The resource availability, even discovering a new
resource, over a longer period is much greater and more
flexible than in a short period.
Such a comprehension of resource availability makes for
greater freedom of choice in respect of planned
activities as compared to medium term and short-term
planning periods.
Purpose of long term planning
In the first place it provides a vista vision of the future.
This period is long enough to allow for structural changes
to take place and to work themselves out (civilization,
societies and modern science and technology).
Such a long range frame of time thus enables one to
encompass economic and non-economic movements.
In the context of this future vision, planners perceive
objectives and availabilities of means for a society in the
light of its philosophy or ideology which inspires the
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lifestyles of that particular society.
Merits of long-term planning
Besides the important purpose which long-term planning
serves, it has certain merits, among these; one may mention
three principal beneficial implications.
A.Educative: - long term planning provides an opportunity of
informing and explaining to the public the major problems
that are posed by the future society.
B.Explanatory: - is helpful in enlightening the decision makers
and those who are to implement the plans. Besides,
perspective plans make it possible to assess the long-term
implications of medium term and short-term decisions.
C.Stimulant: - Long-term plans by making obvious future
choices and by reducing uncertainties enable decision-makers
to act boldly in respect of decisions for shorter term plans.
Public opinion too gets adequately stimulated because
perspective plans open up prospects for progress and reduce
incomprehension of the implications of the present.
Such knowledge on the part of the public reduces hesitations
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in respect of short-term plans.
 Limitations of long term planning
 The future is uncertain
 In case this type of planning is confined to prognostic forecasting no
firm thinking on the subject will be possible.
 Medium-term plans
 They extend from three to ten years.
 They fall between the long-period and short-period plans.
 They have a two-fold significance.
 First, they act as link between the long period and the short-period plans
 Second, these plans draw upon the horizon outlined in the long-term
perspective plan, and at the same time present a framework for drawing
up short period plans.
 Rationale
 Economic reason
The period coincides with the business cycle which is around
seven years.
Development activities like road building, training man power,
raising of saving as percentage of national income fall under
this type of planning
The period is enough for planners to remedy mistakes in the
24
early years of planning.
Political reason
It helps in securing peoples’ cooperation in the
implementation of plans.
Helps to bring forth the better enthusiasm for
sacrifices to achieve the plan objectives.
Psychological reason
Under this planning period adults can well see the
results of their efforts.
Indicative
They are generally indicative in nature, and provide
the framework for the action to be embodied in
short-term plans.
In other words, these plans are not operational.
 Though indicative, many if not all, of the plan
objectives are quantified. In fact, the performance
25
during annual plans is evaluated more in terms of
Short-term plans
Short-term plans are also annual plans because the
action for the period of one year is linked with the
budgets of government usually presented after
every one year.
Controlling plans: these plans are also called
controlling plans mainly for two reasons.
Government gets authority from parliament to
spend money which is usually for one year.
It is during this one-year period that resources are
actually matched to requirements or targets. Thus
the actual operation of any plan is controlled in
the one-year document.

26
9. Classification of planning based on spatial or
geographical difference
A. Regional planning
Is carried out within the framework of national
scheme to better meet the special needs of a
region and the wants of its population.
Regional planning has a two-fold dimension
a.It is part of the national plan
b.It is a plan on its own merit.
Some scholars view regional planning as a one-
dimensional scheme.
According to this view, regional planning is
planning for a region and the national economy
comes into the picture only to be controlled for
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the purposes of executing a regional plan
Rationale
Special needs: - there are special needs
of regions which require separate
treatment because they are not properly
or fully dealt within national plans.
 Special capabilities: - certain regions
are endowed with special capabilities like
the availability of certain types of labor,
or skill or certain natural factors like
proximity to shortest sea routes to other
countries, etc.
Regional Differences: Regional
difference in terms of levels of economic
28
B. National planning
Has two essential features which make it
possible to identify it from the others:
a.It is conterminous with the political boundaries
of a nation.
b.There is one political regime that has a full
control over the entire area.
Rationale
It is the only sort that must exist before one can
even legitimately speak of regional or
international planning.
The resources of a country are effectively
utilized in the sense that politically it becomes
possible to make full use of national resources.
29
C. International planning
It concerns countries at the world level.
If all the countries plan the use of their resources through a
single agency with political authority it can be considered
as World planning.
Any planning effort among countries may be called
international planning. The sphere of activities planned
depends upon the extent to which the participant countries
agree.
Activities covered: - The scope differs with differences in
the activities covered and the number of countries
involved.
From the angle of activities covered, one can distinguish
two distinct patterns in extreme forms with so many falling
in between the two.
In an extreme pattern, one may conceive of countries
merging into one another, giving rise to a new politico-
30
economic unit. This amounts to pooling of all resources,
At the other extreme can be another form, under which
the participant countries retain their individuality in
terms of economic policies in respect of trade and
exchange, but join hands in planning one or a few
activities.
Example:-1 COMECON (the council) for mutual
Economic Association of the communist or socialist
countries.
Example2:-Coffee Board
Number of countries: - the number of countries,
depending upon the size of the participating countries,
fixes the area falling under international planning. In
other words, it determines the scope of planning
horizontally or geographically. Example
I. Food and Agricultural Organization
II. COMECON:- related to a limited number of countries
31
III. Colombo plan: - association of south and South East
Cooperation and mutual Assistance: - In actual
practice, international planning has been in most cases
confined to two forms.
In one form there are groups of countries, each group
planning for its members in respect of activities they
have agreed upon or for mutual assistance. Example
COMECON, Colombo plan etc
The other form is where in certain activities are planned
at the world level largely through UN agencies. Planning
is confined to those activities agreed upon. Execution is
mostly left to member countries of the UN or that of the
group dealing with those activities.
International planning is thus mostly in the nature of
cooperation and mutual assistance among member
countries.
.

32
Conditions necessary for the success of
international planning
I. Limited objectives: - It is extremely difficult to
cover all the activities of nations.
Because of the differences in the levels of
development, economic, cultural and historical
conditions, each county cannot develop fully by
delegating all the powers of planning to a single
international agency.
Thus, international planning should begin with
limited objectives; increase its scope slowly
alongside the reduction in economic levels of
member countries.
II. International apparatus: - an apparatus for
the preparation of world plans should be instituted
in consultation with potential member countries
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10. Sectoral and Area planning
A. Sectoral planning
Meaning: - It refers to planning in terms of the sectors of an
economy. These sectors can broadly be divided into
Primary
Secondary
Tertiary
Primary sector- Agricultural crops like food grains and some
plantation crops
Secondary sector- Manufacturing industrial like steel industry,
cotton textiles etc
Tertiary sector- service sector
Sectoral planning can also be divided into consumer goods
and capital goods producing sectors.
The basis of sectoral planning is the division of the economy
into sectors of economic significance in respect of production
and consumption.
34
Planning for these sectors is not bounded by geographical
 Rational
Planning in terms of sectors is the only way to comprehend the
totality of economic life.
Changes in the economy can be incorporated in plans by
providing for adequate inputs, institutional reforms and policy
prescriptions.
Economic activities are conceived in terms of the sectors of the
economy. Sectoral planning supplements area planning.
Area Planning
Meaning: - It is planning in geographical terms.
In the plan the schemes included are bounded by the limits of space.
That space may be conterminous with the boundaries of a village or a
cluster of villages, or a district, or a region etc.
The programs are location or area specific.
The area plans focus on the economy of the block. For this
reason, it is called area planning. This is to be distinguished
from the sectoral plans which are in essence technological
divisions of an economy into sectors. The area plans are
smaller unit plans linked with larger unit plans. Sectoral
35
plans are not bounded by areas within a country.
Rationale
Area planning is of immense significance to a large-
sized country of the continental dimensions. The
likelihood of such a country inhabited by people of
different tastes and living patterns etc.
Area planning allows the fuller exploitation of the
potentials of the areas fixed for micro-plans.
 Area planning makes planning viable not only at
the small area level but also imparts strength and
substance to the bigger area or national plans.
Area planning is necessary for the achievement of
certain specific objectives.
Examples of Area planning
Drought prone area program
Hill area Development program
36
Integrated rural area development program
Stages of economic planning
There are four well defined stages

1- Plan formulation
The first stage in planning is the formulation of the
general objectives of the plan and their definition in
quantitative terms.
It is possible that the task of formulation of general
objectives may be attempted by the government itself
and sometimes leaves the task to the planning
commission.
The definition of the general objectives in quantitative
terms or the drafting of the plan is a task which is left to
be performed by the planning commission.
The planning commission has the necessary data at its
disposal.
The planning commission works out the economic plan for
37
the country and presents it to the government for final
2. Plan adoption
 The adoption of the plan is the function of either the parliament or the
government.
 In principle, the parliament or the government can make any changes
they like in the plan. But do not introduce any drastic or far reaching
changes
Any substantial or far-reaching changes effected anywhere in this
document will upset the entire plan and necessitate its reformulation
by the planning commission
 As soon as the plan is adopted by the parliament or the government, it
becomes a law. It then becomes the statutory obligation of the
government to execute the plan.
 The position regarding the formal status of plans differs from country to
country.
The national development plans of all socialist countries are approved
by their legislatures other authorities and have the force of a law.
The plan targets are mandatory on all executing agencies. Sanctions
are provided in the laws for non–execution of plan targets.
Several countries with mixed economies also provide for the
enactment of their plans as laws even though they are generally
38 binding only on the enterprises under the direct control of the central
government.
3. Plan Implementation
As pointed out above, the planning commission is only an
advisory body having no power to implement or execute the
plan.
The execution of the plan is the responsibility of the
government.
The various government departments and agencies take
the necessary measures to execute the plan.
These departments and agencies maintain continuous
cooperation with the planning commission which is the final
authority as far as the interpretation of the provisions of the
plan is concerned.
Every plan has to be constantly changed during its execution
to adapt it to new requirements and new situations.
In the words of Lewis:
Implementation of a plan is more difficult than making it.
Making a plan is an exercise of imagination while
39 implementation is a struggle with reality. The plan must be
modified continually to cope with changing facts.
4. Plan evaluation
The supervision of the fulfillment of the plans is
one of the fundamental prerequisites of planning.
Planning cannot be considered as good unless it
takes in to account the course of the fulfillment
of the plan.
The supervision of the plan calls for an
independent body of experts and technical
accountants unconnected either with plan
formulation or plan execution.
This body should evaluate plan fulfillment in a
strictly impartial manner.
It should boldly bring to the notice of the
government the failures and drawbacks which
40
it detects in the course of its evaluation.