Indicative and Imperative Planning


Ajit Kumar AJIT KUMARWISDOM IAS, New Delhi.

                                            Indicative or Planning by Inducements
 
Planning by inducement is often referred to as ‘indicative planning’ or ‘market incentives’.  In such type of planning, the market is manipulated through incentives and inducements.  Accordingly, in this system there is persuasion rather than compulsion or deliberate enforcement of orders.  Here the consumers are free to consume whatsoever they like, producers are free to produce whatsoever they wish.  But such freedom of consumption and production are subject to certain controls and regulations.  The consumers, producers and other factors of production are induced with the help of various fiscal and monetary devices.  For example, if the planning authority wishes to boost the production of corn oil in Pakistan it will provide subsidies, tax holidays and loans to the firms involved in production of corn oil.  To encourage savings and investment and discourage consumption a suitable package of fiscal and monetary policies can be introduced in the market.  Therefore, the desirable results can be attained with the help of incentives and without the imposition of orders and instructions.  Moreover, in such planning there is less sacrifice and less loss of liberty – economic as well as non-economic.
 
Merits of Planning by Inducements:
(a)   Consumers’ sovereignty remain intact.  Planning by inducements is more democratic as compare to planning by directions.
(b)  There is a freedom of choice of profession.
(c)   In planning by inducements, there is freedom of enterprise.  Produces are free to produce whatever they like but within in the capacity of given rights.
(d)  Planning by inducements is smooth and flexible.  It is more popular because it enables to incorporate the changes in resources, technology and taste etc.  even after the finalisation and implementation of plan.
(e)   Under this sort of planning, the inertia attached with standardisation can be put to an end and producers are free to produce in accordance with the desire of consumers.  Therefore, there is a variety of goods and services in the market.
(f)     There are less administrative costs involved in planning by inducements.
(g)  The problem of shortages and surpluses is solved as there is an existence of automated market system.  The demand and supply is automatically adjusted and remain in balance under market economy.
 
Demerits of Planning by Inducements:
(a)   It also fails to achieve 100% targets of economic planning.
(b)  Under planning by inducements, there are profit motives more than welfare of public.  Private entrepreneurs care for those products which yield high profits.  Products or services with less profit or no profit do not attract private entrepreneurs.  Such products or services include education, health, defence, security, etc.
(c)   The producers may find the government policies regarding economic affairs not attractive enough to follow.  There may be disputes among entrepreneurs and the government regarding tax rates, investment policies, interest rates, etc.
(d)  The mechanism of market economy may cause the prices to inflate esp. with reference to under-developed countries or in case of oligopoly where there is a shortage of certain products like petroleum and gas.
(e)   There may be disharmony between labour and producer, and there may be serious industrial disputes.
 
 
There are three components or approaches regarding indicative planning:
 
(a)   Forecasting Approach: Under forecasting approach, the individuals are provided with the information, through making certain forecasts.  Such forecasting serve as a guide to their decision making.  The forecasting not only indicate about the feasible future, but they also specify a desirable future in terms of growth rate of the economy.
 
(b)  Policy Approach: The second component of the indicative planning is concerned with policy approach.  Through policy approach, the inconsistent policies of government departments are co-ordinated within a coherent model framework keeping in view the set objectives.  Moreover, when once the policies are co-ordinated, they will provide guidelines to the people, consumers and producers.
 
(c)   Corporate Approach: The third way to demonstrate indicative planning is through corporative approach.  This approach is practised in France.  Here the co-ordination function of indicative planning envisages at two level.  In the first place, it requires co-ordination of the behaviour of economic groups like business enterprises and trade unions, etc. which hold power in the market.  In the second place, it co-ordinates the relation between private and public activities.
 
                                              Planning by Directions or Imperative planning
 
Imperative planning is the planning where the formulation and implementation of the plan is made by the central planning authority.  It is also known as ‘directive planning’.  Under imperative planning, it is the duty of the state to provide necessary supplies like raw material, machines, manpower and entrepreneurs as all such resources are owned by the state.  Under socialist economies, where the imperative planning is in practice the planners always prefer future consumption over present consumption.  Thus under imperative planning the priorities laid down by the planners always supersede those of masses.  There is no consumer sovereignty under imperative planning.
 
 
This type of planning is practised in socialist countries like China, Former USSR, Cuba, North Korea, etc.  Under planning by direction, there is one central authority which plans, directs and orders the execution of the plan in accordance with the pre-determined targets and priorities.  It determines the production figures, delivery schedules, quotas regarding the production of the goods, price controls, use of foreign exchange and allocation of resources like labour, etc. amongst different competing uses.  Thus, such planning is comprehensive and encompasses the whole economy.  Planning by directions is similar to military or defence plans which are carried through orders and instructions.  Thus the strategy of planning through directions coincides with the military strategy.  Alongwith the disintegration of former Soviet Union, the methodology of planning by directions has received certain serious setbacks.  Now most of the UDCs are tend to adopt market economic system.
 
Demerits of Planning by Directions:
(a)   Planning by direction is undemocratic since the people are ignored all along.
(b)  It is bureaucratic and totalitarian.  Under bureaucratic system, the individual’s sovereignty is completely abolished.  Corruption, red tapism, VIP system, tyranny and austerity are the by products of bureaucracy.
(c)   Rationing and control result in black marketing.
(d)  There are shortages of some goods and as well as surpluses of other goods.  That is, there is an imbalance in production output.
(e)   This sort of planning is inflexible.  Once the plan is prepared, there is no room for alterations in later phases of planning.  A part of the plan cannot be changed without simultaneous changes in many interconnected activities.  Planning by direction is so complex that it is impossible to change even a part of it as it will involve in altering the whole plan.
(f)     The fulfilment of plan cannot be guaranteed, as the planning by direction is hampered by black marketing and corruption.
(g)  Planning by direction also leads to excessive standardisation which impinges on consumer sovereignty.  In other words, under planning by direction the goods produced are standardised lacking the variety.  As in case of USSR, the produced TV, Fridges and Automobiles were identical having no differentiation.
(h)  It also involves huge administrative costs, as the planning by direction involves in elaborate census, numerous forms and army of clerks.
 


Sunday, 23rd Oct 2016, 10:42:37 AM

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