Chapter Three

Types of Development Planning

 •In practice, planning has taken on various
forms, resulting from differences in :
• Time period
• Geographical area
3.1 Introduction • Institutions affected
• Media of planning
• Extent of activities covered
• Mode of executing plans etc.
 3.2 Planning Based on Time Period

1) Long-term, medium-term, and short-term planning:

• This classification of plans is based on the division of time into long,
medium, and short periods
 Long-term covers 10, 15, 20 and even more years.
 Medium term extends over 3 to 5 years and even up to 7 to 10 years.
 Short-term plans relate to as short a period as one year.
A) Long-term plans
• Long-term planning is becoming quite popular these days to take a longish
view of the future of the economy.
• The statistical techniques now available make it possible to forecast
reasonably well the course of events for such a long period of time.
Examples
- Demography long-term projections can accommodate the
- Health implications for development in these fields.
- Education
Long term • Characteristics of long-term planning:

planning… 1) Greater freedom of choice:-

• The number and intensity of constraints on choices are much less in long-term planning
2) Broadened scope: -
• It is possible to over-reach the narrow frame of purely economic considerations and to
explore social and human implications of economic development.
• Besides; it may be feasible to overcome the narrow boundaries of national planning and
planning in the international context.
• The resource availability over a longer period is much greater and more flexible than in
a short period.
• Over a longer period one can include, besides the resources that will pile up over the
years, new resources that will be made available only in the future.
• Such a comprehension of resource availability makes for greater freedom of choice with
respect to planned activities as compared to medium-term and short-term planning
periods.
 Long term…

• Purpose of long-term planning:

•Long-term planning in the first place 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.
•Changes that are associated with civilization, societies, and modern science and
technology can be considered in this length of time.
•Such a long-range frame of time thus enables one to encompass economic and
non-economic movements.
•This helps in presenting a total view of the future.
•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 lifestyles of that society.
Long term…
Three principal beneficial implications.
• Educative: -
• long term planning provides an opportunity to inform and explain to the public the major problems that
are posed by the future society, the available choices, and the limitations which surround these choices,
• It helps in preparing more realistic medium and short-term plans
• There is a better understanding of the processes of economic development which is of particular
relevance to developing economies.
• Explanatory: -
• A long-term perspective is helpful in enlightening the decision-makers and those who are to implement
the plans.
Merits of long- • The information made available under this type of planning ensures the integration of short-term plans
into a longer-term framework.

term planning: • This enables the planning authority to make adequate preparations for the solution of problems that may
arise in the future.
• Besides, perspective plans make it possible to assess the long-term implications of medium-term and
short-term decisions.
• 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 with respect to short-term plans.
 Long term…

• Limitation of long-term planning:

• The future is uncertain
• In case this type of planning is confined to prognostic
forecasting (foretelling)
• no firm thinking on the subject will be possible.
B) 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 a link between the long-period and
the short-period plans and thereby connect the chain of
time.
• Second, these plans draw upon the horizon chalked out in
the long-term perspective plan, and at the same time
present a framework for drawing up short-period plans.
 Medium term…
• Rationale of medium-term plans:
 The period coincides with the business cycle which is around seven years.
 Development activities like road building, training manpower, and raising
savings as a percentage of national income fall under this type of planning
 The period is enough for planners to remedy mistakes in the early years of
planning.
• Generally:
•Political reason
 It helps in securing peoples’ cooperation in the implementation of plans.
 Helps to bring forth better enthusiasm for sacrifices to achieve the plan objectives.
•Psychological reason
 Under this planning period, adults can see the results of their efforts.
•Indicative
•Medium-term plans 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 during annual plans is evaluated more in terms of the
criteria of medium-term plans, and less in terms of long-term plans.
c) 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 the
government, usually presented after every one year.
•Controlling plans:- these plans are also called controlling plans mainly for two reasons.
1) Government gets authority from parliament to spend money, which is usually for one year.
2) 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.
• Framework:
• Annual plans are governed by medium- and long-term plans, both with respect of the goals to be pursued and the
methods by which these are to be achieved.
• In the words of Jan Tinbergen “The main function of both 5-year (i.e., Medium-term) and perspective plans is to
specify the government intentions.
• One-year plans, on the other hand, have the task of setting out how the government’s policy should be carried in to
effect.”
 Summary

 Long-term plans specify (clarify) the perspective and vision of a society

 Medium-term plans concretize aspirations, many of them in quantitative terms,
for a shorter period.
 Short-term plans provide for action.
2) Fixed and Rolling Plans:
A) Fixed Plans.
• It refers to the unchanging period for which a plan is prepared.
• For example, a plan for a period of five years, 1975-80, will be a plan for this
period alone.
• The plan for this period will run its full course of five years.
• After this will begin another plan of five years, spanning the next period from
1980 to 1985.
• And so on and so forth.
 Fixed ….
• While the fixity of period is the basis of this type of planning, there is more that goes with it than the given length of time.
• Fixity 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 period and the targets is the hallmark of fixed plans.
 A fixed plan is thus a plan that remains fixed (given) for a specified period.
 Sometimes important changes can be incorporated into fixed plans.
 This may happen for many reasons.
• a. Resources may fall far short of needs,
• b. International development may upset calculations with respect to foreign resources etc.
• 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 during emergencies.
 • Merits of Fixed Plans:
• 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 scuttled down.
• It ensures effective implementation:
• because this type of planning presupposes a
commitment to the plan.

Fixed…
• It provides for stability in the economy:
• Because it imparts certainty to the functioning of the
system.
• Fixed plans act as performance tests to check on the efforts
made, their adequacy or inadequacy, and success/ failure to
locate the points that deserve approbation/ disapproval as
well as to draw lessons therefrom.
• There is a “checking” mechanism built into the planning
system.
• Everyone will therefore be subjected to scrutiny.
• There is bound to be disciplined thinking and action with
respect to the formulation of policies and their execution .
 • Shortcomings of Fixed Plans:
• Weaknesses arise from the inflexibility of such plans.
• Plan targets are rigidly fixed.
• Changes can not be easily made.
• Wastage of resources prevails if the plan gets out of tune
with reality.
B)Rolling Plans:
•As the name implies, it involves the rolling of a plan at intervals,
usually one year, so that it continues to be a plan of a certain
number of years.
•To illustrate a rolling plan let us take a hypothetical plan for the
Fixed… five-year period, 1980 – 1985.
 After the first year is over in 1980, another year 1986 is added,
so that it becomes a five-year plan for 1981-1986.
 In 1982, one year, namely 1981, gets dropped, and 1987 added.
As a result, in 1982 there is again a five-year plan of 1982-
1987. And so on and so forth.
 Thus, as the first year is over, the fifth year is stretched into the
next year.
 The time span of such plans roll, shedding the initial one year
and adding one as the terminal year.
 Thus, every year the time horizon is kept for the five-year
period.
 Rolling…
• Features of Rolling Plans:
 They are based on unfixed dates
 Revisions and adjustments are part and parcel of the technique of rolling planning
 Provision for change: - rolling plans always beep open the door for changes.

• Merits of Rolling Plans:

•Flexibility: - this methodology enables planners to keep their options open and make necessary changes when
circumstances require. The rigidities of fixed planning are tackled here.
•Realism: - this type of planning is a realistic exercise. The targets and the provisions for them remain feasible
propositions in view of the revisions and adjustments that are made as per changes in the circumstances surrounding the
plan.
 Being flexible a rolling plan is more realistic than a fixed plan. It takes into consideration such unforeseen natural and
economic changes.
Rolling…
Demerits of Rolling Plans:
Every time a difficult
situation arises, there will be
the temptation of adopting
the easier course of revising
downward the targets of
plans.
It creates uncertainty: It lacks boldness
Lacks commitment: - rolling
plans preclude any commitment
to planning.
• Weak discipline: - there are no fixed
goals and means nor enough will to back it
up.
• Inadequate test: - they do not provide any
test to check the performance of the
economy.
 3.4 Planning based on Geographical Area:

3) Regional, National, and International Plans.

 Within a nation, planning for separate regions is described as regional planning.
 National planning includes the whole of a country whose geographical area is determined politically.
 International planning refers to the planning of countries at the world level.
A) Regional Planning.
 This type of 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 the purposes of executing a regional plan.
• Example Tennessee Valley Authority
Regional…

• Rationale of Regional Planning:

• Special needs: -
• There are special needs of regions that require separate treatment because they are not properly or
fully dealt with within national plans.
• National plans do not necessarily fulfill all the needs that are peculiar to regions.
•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 differences in terms of levels of economic development, natural resources, culture and
language, etc. are so large that it becomes necessary to have regional plans to accommodate regional
peculiarities and aspirations into the national plan.
B) National Planning
• National planning has two essential features that make it possible to identify it from the
other two types of planning:
a) It is conterminous with the political boundaries of a nation.
b) There is one political regime that has full control over the entire area.
• Rationale of National Planning.
 National planning is the only sort that must exist before one can even legitimately speak
of regional or international planning.
• Further, the other two types of planning draw off from national plans in the sense that both,
at the present level of consciousness when internationalism is still not mature, cater to the
needs of and are subservient to national plans.
 The resources of a country are effectively utilized in the sense that politically it
becomes possible to make full use of national resources.
 The resources of a country are effectively utilized in the sense that politically it becomes
possible to make full use of national resources.
 Centralized control which national planning permits makes for a rational use of resources.
 National planning becomes useful when combined with the other two types, with respect
to the full use of a nation’s resources and for the healthy growth of international trade and
the efficient economic structure of the countries.
 C) International Planning
 International planning 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 cherished. “World planning”.
 Short of that, 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: e.g., COMECON (the Council for mutual Economic Association of the
communist or socialist countries), Coffee Board
• Number of Countries. E.g., FAO (Food and Agricultural Organization, COMECON, Colombo
Plan (association of south and Southeast Asia counties).
• Cooperation and Mutual Assistance:
• groups of countries, each group planning for its members in respect of activities they have
agreed upon or for mutual assistance. E.g., COMECON, Colombo Plan.
• certain activities are planned at the world level, largely through UN agencies, and
Execution is mostly left to member countries of the UN or that of the group dealing with
those activities.
International…

• Conditions necessary for the success of

international planning
• Limited objectives.
• It is extremely difficult to cover all the
activities of nations.
• international planning should begin with
limited objectives; increase its scope
slowly alongside the reduction in
economic levels of member countries.
• International apparatus.
• an apparatus for the preparation of
world plans should be instituted in
consultation will potential member
countries.
3.3 Planning Based on
Types of Activities

4) Sectoral and Areal Planning

A) Sectoral Planning.
•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 industries like steel industry and
cotton textiles.
- 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
 Planning for these sectors is not bounded by geographical limits, except
that of national boundaries.
Sectoral…
• Rationale of Sectoral Planning.
- Planning in terms of sectors is the only way to comprehend the totality of economic
life
- Changes in the economy can be incorporated into plans by providing adequate
inputs, institutional reforms, and policy prescriptions.
- Economic activities are conceived in terms of the sectors of the economy.
- Sectoral planning supplements area planning.
B) Area Planning
•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 to focus on the economy of the block.
- 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 plans are not bounded by areas within a country.
 Area…
• Rationale of Area Planning.
- Area planning is of immense significance to a large country of the continental
dimensions. Because such a country is likely to have regions with varying climatic and
resource differences.
- There is again the likelihood of such a country being inhabited by people of different
tastes, living patterns, etc.
• Example, Ethiopia, India
- 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/national plans.
- Area planning is necessary for the achievement of certain specific objectives.
•Examples of Area planning
i) Drought-prone area program
ii) Hill area Development program
iii) Integrated rural area development program
• Area planning is an indispensable tool for the achievement of objectives
 5) Decentralized and Centralized Planning

• Decentralized choices (also known as market forces) and

centralized choices (or planning office)

A) Decentralized Planning.

3.4 •This is associated with capitalist economies.

•However, even in mixed economies with a significant proportion

Planning of public sector enterprises, decentralized planning prevails.

•Market-dominance:

Based on
• the predominant characteristic of decentralized planning is
the dominance of the market in decision-making.

• Problems and Difficulties of Decentralized Planning.

Scope 1. Incompatibility /between what the plan requires and

what the market does.
2. Adjustment difficulty: it is not possible to know in
advance the reactions of the market. This makes
adjustments difficult.
3. Non-planning:- imbalance between demand and
supply
 Centralized…
B) Centralized Planning.
•Under centralized planning, the main decisions are made by
the central planning office.
•Main decisions could vary with time and circumstances.
However, the predominant ones include:-
- Prices
- Volume & investment
- Amount of wages etc.

• Problems and Difficulties of Centralized Planning.

 Difficulties of calculation
 Inadequate control and information
 Rigidity and bureaucracy
3.4 Planning Based on the Nature of
Activities
This classification of planning is If changes in socio-economic
6) Structural and done in terms of whether it is institutions are part and
Functional Planning. associated with institutional parcel of planning, it is
changes or not. called structural planning.

Structural planning is associated

In functional planning, no big Planning is done with in the with big changes in the set-up of a
changes in the socio-economic framework of existing country, in addition to the changes
structure of society are involved. instructions. in such economic magnitudes as
national income, investment etc.

Thus, structural planning causes

Under functional planning; it is by
many and often major upset in the
and large the economic
life of the people. While
magnitudes which undergo
functional planning causes no
changes with the socio-economic
such upsets but only tiny
framework of society remaining
vibrations in the lifestyle of the
intact.
people.
 7) Inductive and imperative planning.

A) Inductive planning:
•serves as a guide to decision-making.
•This planning is to be found in capitalist economies /mixed
3.5 Planning based on economies
the sphere of •It helps to coordinate different economic units
implementation and •Indicative planning enables the prediction of the probable
formulation of plans. or feasible future. Besides, it specifics a desirable future, in
terms of growth rates for the economy
•It brings forth more commitment to its implementation/
execution.
Inductive and imperative…
B) Imperative /Directive Planning.
• In imperative planning, the implementation is provided for along with plan formulation.
• In other words, once a plan is drawn up, its implementation is a matter of enforcement.
• For this reason, it is also called directive planning.
8) Planning by direction and planning by inducement
A) Planning by Direction.
- it is an integral part of a socialist society
- it entails the complete absence of laissez-faire
- There is one central authority that plans, directs, and orders the execution of the plan in accordance with pre-
determined targets and priorities.
- It is comprehensive planning and encompasses the entire economy
- The various ministries and enterprises are duty-bound to carry out the targets and directives of the national plan
- The state holds the “commanding posts” in its hands by taking over the entire private industrial and agricultural
sectors, and banking and transport.
Direction and inducement…
• bureaucratic and totalitarian regime.
• There is a complete absence of consumer sovereignty.
• People are not allowed to spend and consume according to their
choice.
• Even the right to choose one’s own occupation does not exist.

Drawbacks • Both the consumer and labor markets are determined by the
planning authority.
• Rationing and price controls lead to corruption and nepotism
of planning /cronyism
• involves directions for almost the whole of our life.

by direction: • unsatisfactory because the present economic system is exceedingly

complex.
• inflexible
• Fulfillment of the plan targets is difficult
• tendency to procrastinate tasks.
• a costly affair.
 Direction and inducement…

B ) Planning by inducement.
- a democratic planning
- planning by manipulating the market
- no compulsion but persuasion
- 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
- If the planning authority wishes to encourage the production of a commodity, it can give subsidies to the firms.
- When the planning authority finds a shortage of goods in the market, it can introduce price controls and rationing.
- To increase the rate of capital formation, the planning authority can then undertake public investment and/or
encourage private investment. It can adopt a suitable monetary policy and at the same time a taxation policy that
encourages investment and discourages consumption
- Planning by inducement can achieve the same results as those likely to be achieved under planning by direction
with less sacrifice of individual liberty.
Direction and inducement…

• The incentives offered may not be adequate for the producers and consumers to act
the way the state desires them to behave.
• It may upset the government plans.
• Surpluses and shortages are bound to arise because the actual working of the plan

Difficulties of is left to the market forces. In other words, proper adjustment between demand and

planning by supply is difficult to achieve.

inducement • Shortages are frequent and they necessitate price control and rationing which are
the forms of direction. In such a station, planning by inducement merges with
planning by direction
• Monetary and fiscal measures alone are not adequate to induce planned
development of the economy by raising the rate of capital formation.
 3.5 planning based on resource allocation
• Financial Planning
• Finance is the key to economic planning
• If sufficient finance is available, it is not difficult to achieve physical targets. However, without the stipulated
financial resources, it is not possible to carry the plan to its successful culmination
• Financial planning is essential to remove maladjustments between supplies and demand and to calculate the costs
and benefits of the various projects.
• In the case of financial planning, “the outlay is fixed in terms of money and the estimates are made based on various
hypotheses regarding the growth of the national income, consumption, imports, etc., to cover the outlay by taxation,
savings and the increase in the cash holding. “
9) Financial and
• Financial planning should also establish an equilibrium between
physical planning . investment and public investment
• Private
• Foreign payments and Foreign receipts etc
• By securing a balance between demands and supplies, financial planning should avoid inflation and bring about
economic stability.
 • Limitations of financial planning.
i) Measures to mobilize financial resources through taxation may adversely affect

Financial and physical… ii)

the propensity to save.
In an underdeveloped country there is a vast subsistence non-monetized sector
and a small organized money sector. This will lead to shortages in supplies and
to an inflationary rise in prices.
iii) Supplies can be increased through imports which will lead to balance of
payments difficulties from which underdeveloped countries already suffer.
iv) Financial planning can create inflationary pressure in the economy.
v) Financial planning could aggravate the disparity of income distribution i.e.,
worsen income inequality.
 Financial and physical…

B) Physical Planning.
- This is planning in terms of factor allocations and product yields to maximize incomes and
employment
- The physical balance consists of a proper evaluation of the relation between investment and output.
- Investment decisions to be made in each sector are articulated in physical planning. Besides, the amount
and kinds of various goods needed to obtain an increase of output of a product are specified
- In physical planning, an overall assessment is made of the available real resources such as raw
materials, manpower, etc.
- Physical planning requires the fixation of physical targets with regard to:
o Agricultural and industrial production
o Socio-cultural and transportation service
o Consumption levels and employment
o 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.
Financial and physical…
• Limitations of Physical planning.
i) Lack of statistical data and information about the
available physical resources. If physical targets are
fixed beyond the availability of resources based on
inaccurate data, planning will end in a fiasco.
ii) Problem of balancing the different segments of the
economy
• It is not possible to attain internal consistency of a high
order in an underdeveloped country due to its inherent
structural difficulties.
i) Shortages in physical targets are likely to lead to
inflationary pressures through an increase in prices.
ii) Physical planning cannot succeed without financial
backing.
 3.6 Planning based on political regime
10) Democratic planning and totalitarian planning.

A) Democratic planning
•It implies planning within a democracy.
- people are associated at every step in the formulation and implementation of the plan.
- It seeks to avoid clashes and tries to harmonize all opinions that are for the welfare of the people.
- Cooperation of different agencies, and voluntary groups, and associations play a major role in its execution.
- The plan is fully debated in the parliament and the state legislatures and in the private forums.
- It is planning from below.
- 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. There is healthy competition between the two for the fulfillment of the plan
targets. 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. People enjoy social, economic, and political freedoms.
• Criticism
 Critics claim that democratic planning is a myth.
 Some sort of state intervention is inevitable even in democratic planning whereby economic freedom becomes ridiculous.
 Based on political regime…
B) Totalitarian Planning.
- This is a comprehensive planning
- In totalitarian or authoritarian planning, there is central control and direction of all economic
activity in accordance with a single plan. There is planning by direction where consumption,
production, exchange, and distribution are all controlled by the state.
- In authoritarian planning, the planning authority is the supreme body. It decides about the
targets, schemes, allocation, 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.
- Economic and political powers are polarized and social life is regimented. There is thus no
democratic freedom in authoritarian planning which is extremely rigid.
•Limitations
- It sacrifices peoples’ freedom of choice. In other words, the loss of economic, social and
political freedoms is enormous.
Based on political regime…

11) Planning under capitalism and socialism

A) Planning under capitalism.

• Planning under capitalism is not based on any central plan.

• In the absence of a central plan, the means of production are owned privately.

• Production is also carried out by private enterprise. It is not planned by the government.

• Market prices are determined by market forces and are not set by the government.
Based on political regime…

B) Planning under socialism.

•Planning under socialism is based on a central plan.
• There is a central planning authority or board which formulates a plan for the entire economy.
• There is complete centralization of economic power in the central planning authority.
• It fixes the plan objectives, priorities, and targets. It organizes and allocates the resources of the economy by deliberate direction and
control for the purpose of achieving definite objectives and targets laid down in the plan during a specified period of time.
•The central problems of the economy- what and how much is to be produced, how, when and where it is to be
produced, and to whom it is to be allocated are exclusively decided by the central planning authority.
•The central plan has definite socio-economic objectives. These objectives may concern:
- Aggregate demand
- Full employment
- Satisfaction of communal demand
- Allocation of factors of production
- Distribution of national income
- The amount of capital formation
- Economic development etc
•To achieve these objectives, the planning authority owns and controls the means of production and distribution.
Based on political regime…
12) Corrective planning and Development Planning
A) Corrective planning.
•A number of maladjustments arise in a capitalist economy.
• When the government plans and adopts various fiscal, monetary, and direct control measures to rectify them, this is called corrective planning.
•If the economy suffers from Inflationary pressures, the government adopts such corrective measures as:-
- a contractionary monetary policy
- Raising tax rates
- Reducing consumption, investment, and public expenditure
- Surplus budgetary policy.
•In the event of a depression, corrective planning includes:-
- An expansionary monetary policy
- Reducing tax rates
- Stimulation of consumption
- Increase in private and public investment
- Deficit budgetary policy
•Corrective planning can be used to reduce inequalities of income distribution and concentration of monopoly
power.
•To reduce inequalities of income distribution, corrective planning requires the adoption of such measures as:
- imposition of heavier burdens on the higher income groups through death duties, steeply progressive income taxes, increased expenditure on
public works and social security, etc.
- To control monopoly concentration, the government may encourage competitive small businesses, start public enterprises, pass anti-
monopoly laws etc.
Based on political regime…

B) Development planning
•This is meant to develop the economy as a whole.
• It involves “the application of a rational system of choices among feasible courses of investment and other development actions.
• “ For this, it relies to a large extent on the market mechanism.
•Under development planning, the government formulates a development plan for the whole economy. It
includes consideration of the most important economic aggregates such as
- Total saving
- Investment
- Output
- Government expenditure
- Foreign transactions
•Development planning also explores sectoral relationships in the overall framework of the economy.
• In particular, it lays down investment priorities for the public sector.
•Developmental planning is primarily related to the development activities of underdeveloped countries.