FEATURES AND TYPES OF

PLANNING IN
DEVELOPING NATIONS

Comparative Economic Planning

 Lesson Objectives:
• Identify the various types of economic
planning;
• Generate ideas in enumerating the relevance of
development models to economic planning ;
and
• Appraise the features of economic planning in
Less Developed Countries.
TYPES OF PLANNING IN LESS
DEVELOPED COUNTRIES

Pointed out by Jhingan (2011)

 1. Planning by Direction and Planning by
Inducement
• Is an integral part of a socialist society
• It entails complete absence of laissez-faire
• There is one central authority which plans, directs, and orders the execution of the plan in
accordance with pre-determined targets and priorities.
• Such planning is comprehensive and encompasses the entire economy.
• Planning by inducement is democratic planning. It means planning by manipulating the
market. There is no compulsion but persuasion. There is freedom of enterprise, freedom
of consumption and freedom of production. But these freedoms are subject to state
control and regulation.
• People are induced to act in a certain way through various monetary and fiscal measures.
• Thus, planning by inducement is able to achieve the same results as are likely to be
achieved in planning by direction but with less sacrifice of individual liberty
 2. Financial Planning and Physical Planning

• Financial planning refers to the technique of planning in which resources are allocated in terms of
money
• Financial planning is essential in order to remove maladjustments between supplies and demand and
for calculating costs and benefits of the various projects.
• Thus, financial planning is thought to secure a balance between demands and supplies, avoid inflation
and bring about economic stability.
• Physical planning refers to the allocation of resources in terms of men, materials and machinery. In
physical planning, an overall assessment is made of the available real resources such as raw materials,
manpower, etc., and how they have to be obtained so that bottlenecks may be eliminated during the
plan.
• Physical planning requires the fixation of physical targets with regard to agricultural and industrial
production, socio- cultural and transportation services, consumption levels and in respect of
employment, income and investment levels of the economy.
• Physical planning has to be viewed as an overall long-term planning rather than a short-term piecemeal
planning.
 3. Perspective Planning and Annual Planning

• Perspective planning refers to long-term planning in which long range targets are set in
advance for a period of 15, 20, or 25 years. A perspective plan, however, does not imply
one plan for the entire period of 15 or 20 years. In reality, the broader objectives and
targets are to be achieved within the specified period of time by dividing the perspective
plan into several short-period plans of 4, 5 or 6 years. Not only this, a five year plan is
further broken up into annual plans so that each annual plan fits into the broad framework
of the five-year plan. Plans of either kind are further divided into regional and sectoral
plans.
• Regional plans pertain to regions, districts and localities and sectoral plans pertain to
plans for agriculture, industry, foreign trade etc.
• Annual planning can also be incorporated into a budget which is made by a country
yearly
 4. Indicative Planning and Imperative Planning

• This is the French system of planning which is based on the principle of decentralization in the
operation and execution of the national plans. This type of planning is not imperative but flexible. In
indicative planning the private sector is neither rigidly controlled nor directed to fulfil the targets and
priorities of the plan. Even then, the private sector is expected to fulfil the targets for the success of the
plan.
• The state provides all types of facilities to the private sector but does not direct it, rather indicates the
areas in which it can help in implementing the plan. On the other hand, under imperative planning all
economic activities and resources of the economy operate under the direction of the state.
• There is complete control over the factors of production by the state. The entire resources of the
country are used to the maximum in order to fulfil the targets of the plan. There is no consumers
sovereignty in such planning. Decisions about what and how much to produce are taken by the
managers of firms and factories on the directive of the planning commission or a central planning
authority. Since government policies and decisions are rigid, they cannot be changed easily.
 5. Democratic Planning and Totalitarian Planning

• In totalitarian or authoritarian planning there is central control and

direction of all economic activities in accordance with a single
plan. There is planning by direction where consumption,
production, exchange, and distribution are all controlled by the
state.
• In totalitarian planning, the planning authority is the supreme body.
It decides about the targets, schemes, allocations, methods and
procedures of implementation of the plan. There is absolutely no
opposition to the plan. People have to accept and rigidly implement
the plan.
 5. Democratic Planning and Totalitarian Planning

• In democratic planning, the philosophy of democratic government is accepted as

the ideological basis. People are associated at every step in the formulation and
implementation of the plan. Cooperation of different agencies, and voluntary
groups, and associations plays a major role in the execution of the plan.
• Democratic planning respects the institution of private property. Price mechanism is
allowed to play its due role. The government only seeks to influence economic and
investment decisions in the private sector through fiscal and monetary measures.
The private sector operates side by side with the public sector. Democratic planning
aims at the removal of inequalities of income and wealth through peaceful means
by taxation and government spending on social welfare and social security
schemes. Individual freedom prevails and people enjoy social, economic and
political freedoms.
 6. Rolling and Fixed Plans
• In a rolling plan, 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.
 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 one-year 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. In contrast to the rolling plan, there is a fixed plan for four,
five, six or seven years. A fixed plan lays down definite aims and objectives which are required to be
achieved during the plan period. For this purpose, physical targets are fixed along with the total outlay.
Physical targets and financial outlays are seldom changed except under emergencies.
• Example: Planning in India (Five-Year) and Russia (Seven-Year) is of the fixed type. In Nigeria,
rolling plan and fixed plan were also considered and used at one point or the other. This will be
critically discussed in subsequent module of this course.
 7. Centralised and Decentralised Planning
• Under centralized planning, the entire planning process is under a central planning authority. The
authority formulates a central plan, fixes objectives, targets, and priorities for every sector of the
economy. The principle problems of the economy – what and how much to produce, how and for
whom to be produced etc, are decided by this authority. The entire planning process is based on
bureaucratic control and regulation.
• Naturally, such planning is rigid. There is no economic freedom and all economic activities are
directed from above. On the other hand, decentralized planning refers to the execution of the plan
from the grass roots. Under it, a plan is formulated by the central planning authority in consultation
with the different administrative units of the country. The central plan incorporates plans under the
central schemes, and plans for the states under a federal set- up. The state plans incorporate district
and village level plans. Under decentralized planning, prices of goods and services are determined by
the market mechanism despite government control and regulation in certain fields of economic
activity.
THE MAIN FEATURES OF
ECONOMIC PLANNING IN
DEVELOPING COUNTRIES

Pointed out by Jhingan (2011)

1. The governments mobilize domestic resources and also
raise foreign finance to carry out such projects which are
expected to induce productive activities in the private
sector. This involves the development of infrastructure and
heavy industries.
For example Nigeria borrows from foreign creditors like IMF
(International Monetary Fund) , ADB (Asian Development
Bank), Paris club etc. to finance infrastructural projects in
the past.
2. The governments adopt certain monetary
and fiscal policies to stimulate private
economic activity and to ensure harmony
between the social objectives of the
government and the behaviour of the private
producers and businessmen
3. People enjoy economic, social and religious
freedom. People have freedom to conduct such
economic activities as consumption, production,
exchange, investments etc. in the national interest
and social welfare of the community as a whole
4. People‘s co-operation is sought in the
preparation of the plan. There is close
relationship between welfare of the people
and economic activities
5. One of the aims of planning is to co-
ordinate the activities of public and private
sectors
6. People‘s co-operation is sought in
achieving the targets of the plan by giving
them proper incentives
7. Economic activities are conducted
both to earn profit and promote
social welfare
8.Under democratic planning, both
price mechanism and government
decisions are important
9.Objectives of public sector and private
sector are co-ordinated
10. It is quite a flexible planning. There is
enough scope to modify the targets of
private sector. Targets of Public Sector are
subject to change according to changed
circumstances
11. It has a tendency of decentralization
12.Its main objective is to raise the
standard of living of the people quickly.
As such, consumer goods industries are
given as much importance as heavy
industries.
From the above features of planning in
mixed developing economy, it is
clear that the market and economic
planning are complementary to one
another
 Relevance of development
models to economic planning
a. It provides a framework for checking of consistency or the optimality of the official
plan targets.
b. It provides a framework for the actual setting of targets.
c. It provides a framework for the evaluation and selection of projects.
d. It provides an insight into the structure of the economy and its dynamics to help
better policy decisions.
e. It assists in budget and budgeting control.
f. It helps the preparation of feasible plan.
g. It helps the projection and forecasting of measurable changes.
h. It helps in adjusting competing participants within available time path
i. It helps the planning authorities to know their objectives, instrument variables and the
functional relationship of the variables in the desired plan and how to achieve it.
j. It gives the planner a clear direction to follow on a projected economic plan
CONCLUSION
From the discussion so far on types and features of Economic
Planning in developing nations, we can deduce the following facts:
• That types of planning could be fixed, rolling, centralized and
decentralized in nature.
• That the government mobilizes domestic resources and also
raises foreign finance to carry out such projects which are
expected to induce productive activities in the private sector. .
• That development models are relevant to providing a
framework for the actual setting of targets in economic planning.
Thank
you!