DEVELOPMENT PLANNING AND PROJECT ANALYSIS- I DEBARK UNIVERSITY

CHAPTER TWO: TYPES OF PLANNING

In theory, there can be varieties of planning .Planning can takes different forms on the basis of
the following factors:

 Difference in time
 Geographical area
 Institutions affected
 Media of planning
 Extent of activities covered
 Mode of executing plans
Among these types of planning, the most essentials are

 Authoritarian Vs democratic planning

 General Vs Partial planning
 Functional Vs structural planning
 Planning by inducement Vs direction
 Centralized Vs decentralized planning
 Physical and financial planning
 Rolling and fixed planning
 Long-term , medium t–term & short –term planning
 Regional , national & international planning
 Sectoral ,& area planning
 Indicative Vs imperative planning
 Perspective Vs annual planning
 Planning under capitalism , socialism and mixed
 Corrective planning Vs development planning

2.1. Authoritarian and Democratic planning

Authoritarian: Here, the government is the centralized agency which draws the plan and
implements it. It is more comprehensive, systematic and rigid and is more efficient.

Page 1
DEVELOPMENT PLANNING AND PROJECT ANALYSIS- I DEBARK UNIVERSITY

Democratic: the plan is prepared by an expert body called the planning commission, which
is out side the government, 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 out
side the public is sought to be regulated and guided indirectly by incentives for investment
through fiscal or monetary policies.

2.2. General and Partial Planning

General: comprehensive and integrated plan is conceived, initiated and executed by a
central authority .the plan covers all aspect of the economy and the central authority
completely controls the investment and utilization of the resources.

Partial: as against general planning, partial planning is a sort of piece –mail planning in
which the plan covers only some important sectors of the economy.

2.3. Functional and structural planning

Functional: an attempt within the existing socioeconomic framework. It assumes that
planning is possible even in a capitalist economy.
Structural: it seems to change the existing order radically. Advocates of structural
planning think that planning and capitalism are incompatible. (e.g. Dr. Ludwig ). However,
professor Landuer holds the opinion that planning and capitalism could be reconciled.
2.4. Planning by inducement ( indicative) and planning by direction (imperative )
These two types of planning are distinguished from the view of points of the implementation
of plans.

Planning by inducement: is referred as indicative planning (planning in indirect manner). In

this type of planning, the planner is either subsidizes production or controls prices.
Indicative planning is practiced in capitalists and in a number of mixed economies. The
main function of indicative planning is to coordinate various economic units. The planning
authority lies down the future and vision of the economy towards which it is supposed to
move. This indicative planning also called anti cyclical planning or planning by inducement.
Plan implementation is not binding or mandatory. It is optional, market –oriented.

Page 2
DEVELOPMENT PLANNING AND PROJECT ANALYSIS- I DEBARK UNIVERSITY

Planning by direction is an integral part of a socialist society. It assumes

complete absence of laissez faire.

Therefore, it implies complete centralized planning with no features of a

private economy. Under planning by direction, planning authority takes
charge of the productive resources and use them in accordance with social
priorities.

In other words, there is one central authority which plans, directs and
orders the execution of the plan. Market forces are not allowed to operate
freely. Both saving and investment are strictly controlled by the planning
authority. The state holds the commanding posts in its hands by taking over
entire private industrial and agricultural sectors and banking and transport.
“Without such concentration, the state would lack the means to carry out
the tasks of the plan. Provisions in the plan would be mere pious wishes
without any guarantee of realization attached to them.”

Planning by direction is comprehensive and embraces the entire economic

life of the country. Russia provides the best example of planning by
direction. Under such planning, the targets for optimum planning can be
realized. Full employment can be ensured. Oligopolistic and monopolistic
tendencies can easily be eliminated

Merits:
 There is a 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.

Page 3
 DEVELOPMENT PLANNING AND PROJECT ANALYSIS- I DEBARK UNIVERSITY

 The fiscal and monetary policies of the government are not so successful in the
underdeveloped countries; a control leads to black markets.
 Producers may not find the incentive offered by the state attractive enough to follow
the state guide lines. The incentive for the consumers may not be deterrent enough to
curb wasteful consumption.
 The working of market forces fail to bring proper adjustment between demand and
supply and thus create imbalances in the economy.

Planning by direction is prepared by a central authority. Most of the time; without consultations
of the people, such a plan suits the socialistic system. The implementation of this plan is carries
out through a command system which implies that minute and detailed instructions are given to
both consumer and producer. A list of commodities to be produced with the quantities 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 because it covers the entire economy. There is a
complete concentration of economic authority in the state .there is one authority which is a 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 to be mere pious wishes .this means that the economic should
have at its back the full authority of the state not merely in planning but also in its
implementation or execution. The plan implementation is binding or mandatory.

Short comings
 It is undemocratic –people are ignored all long bureaucratic and totalitarian .there is no
economic freedoms .rationing and control results in black market and corruption.
 Planning by direction leads to excessive standardization which impinges on consumer’s
sovereignty.
 It also involves huge administrative costs – and numerous forms and army clerks.

The choice between these two types of planning is determined by the system of government
prevailing in the country. A democratic government adopts indicative planning where as socialist
states adopt planning by direction.

2.5. Short –term, Medium –term and Long –term planning

Page 4
 DEVELOPMENT PLANNING AND PROJECT ANALYSIS- I DEBARK UNIVERSITY

This classification of plants is based on the division of time in to long, medium

and short periods. In connection to with these three divisions, it needs to be
said that the time as a continuing stream runs through all these periods. Each
type of plan begins from the same date; only the ending date is made
different .Thus, the present is made to stretch as far as possible in to future.

A. long –term plans: this type of planning is also called as perspective

planning .its time frame takes along period , extending over 10 years up to
20 years or even more in some it can ranges from 30 to 45 years ;it
reaches adult life .such plan is meant to provide a perspective of future in
terms of societies objectives .it does not fix precise targets but only
provides magnitudes in terms of major variables like the growth of national
output ,investment, GDP, population growth etc.. .it is not a fixed one; it
changes with the passage of time.

Characteristics:

i) Greater freedoms of choice: numbers and intensity of constraints on

choice are much less. A comprehension of resource availability makes also
greater freedom of choice. Moreover, burden of inherited commitments is
comparatively light and a planner can think in terms of alternatives and
view them more freely in making choices.

ii) Broadened scope: it is possible to over –reach the narrow frameworks of

purely economic considerations and to explore social and human
implications of economic development .This is in terms of changes in
quality of life. it may be also feasible to over come the narrow boundaries
of national planning and plan in the international context .

Purpose

The long –term plans provide a vista of vision of the future .It also allows
the planner to bring a structural change – civilization, societal changes and
science and technology.

Page 5
DEVELOPMENT PLANNING AND PROJECT ANALYSIS- I DEBARK UNIVERSITY

Advantages

i) educative: it provides an opportunity of informing and explaining to the

major problems that are posed by the future society ,the available choices
and limitations which sounds these choices . It also helps in preparing more
- realistic medium and short –term plans. There is better understanding of
the process of economic development which is of particular relevance to
develop economies.

ii) Explanatory: it is helpful in enlightening the decision makers and those

who are to implement the plans. This also ensures the integration of short –
term of plans into a long – term frame work. Long –term enables planning
authority to make adequate preparation for the situation of problems that
may arise in the future .perspective plans make it possible to assess the
long-term implications of medium –term and short –term decisions.

iii) Stimulant: by making obvious future choice and reducing uncertainty,

it enables decisions makers to act boldly reduces hesitations of the public
in respect of short- term plans.

Limitation: Arises from the uncertainty of future because of the long

period involved and then difficulty will arise in forecasting.

B. The Medium -Term: these plans are for the periods vary from 5 to 10
or 3 to 7 years. This period is considered reasonably in terms of the period
of business cycle which is around 5 to 7 years. The time is the period
between the long period and short –period . It has one good year, one bad
year and 3 average years which makes a period of 5 years. It is also
justified on the ground that it is enough for planners to correct the
mistakes, it covers one business cycle. These plans specify the objectives
mostly in the form of quantified targets which are related to the long term
plan .however; these medium plans are not operational.

Page 6
DEVELOPMENT PLANNING AND PROJECT ANALYSIS- I DEBARK UNIVERSITY

Significance: it acts as the link between the long –term and short term
plans and there by connects the chain of the time .these plans draw upon
the horizon chalked out in the long –term perspective plan and present
frame work for drawing up in short periods of plan .it also accommodates
changes in the short period plan and in the long period plans, and transmit
all the changes in the other two plans types of plans.

Rationales

i) Economic reasons: the period coincides with the business cycle which
is around seven years. It also covers the period of average harvest i.e. one
good ,one bad and three average years .the period is enough fro planners
to remedy mistakes in the early years of planning .

ii) Political reasons: it helps in securing people’s cooperation in the

implementation of plans, especially in LDCs.

iii) Psychological reasons: in this case, the adult’s life can see well the
results of their efforts.

Indicative: medium term plans are indicative in nature and provide the
framework for the action to be embodied in the short –term plans.

C. Short –Term Plans: these plans cover the short period of one year and
they are operational plans. Short –term plans are actual operations as well
as annual plans because the action for the one year is linked to budgets of
government. It is also termed as controlling plan - the government gets
authority from parliament to spend money, which is usually one year. It is
during this one year period that the resources are actually matched to
requirement of targets. Other name given to this type plan is framework –
annual plans are governed by medium and long term plans, both in respect
of goals and methods. These plans are in the nature of controlling plans
that means the operation of any medium term plan is controlled in the one

Page 7
 DEVELOPMENT PLANNING AND PROJECT ANALYSIS- I DEBARK UNIVERSITY

year plan document. These plans lie down the goals to the achieved and
the means by which these are to be achieved.

Summary

 Long –term plans clarify the perspective and the vision of a society ;
 Medium –term plans concretize aspirations – in quantitative terms for
a short –term
 Short –term plans – provide action.
 Together these plans enable a society to write and make history in the
future

2.6. Fixed and Rolling Planning:

Fixed planning has been in vogue since its inception for the first time in the
USSR. and it continues to remain so over there and in the other socialist
countries as also in many other countries. The idea of rolling plans has
emerged only recently. Its application has still to spread. A look in to the
subject will be rewarding in the contents and the consequence of these frame
of planning.

Fixed planning builds up a planning apparatus which is of a permanent

character. Its goals and targets are fixed whether in the short-term or a long –
term plan. 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. Planning in Russia
and India is of fixed type. Economic plans in Russia are of seven years, while
are of five year in India.

Merits

 It fixes targets and priorities rigidly for achieving the objectives laid down
in the plan.

Page 8
DEVELOPMENT PLANNING AND PROJECT ANALYSIS- I DEBARK UNIVERSITY

 It helps in maintaining proper balances in the economy. As the plan is for a

fixed period, every effort is made to avoid sacrifices of physical and
financial resources. On the basis of the various priorities of the plan,
monetary, fiscal and direct policy measures are adopted to maintain
proper balances in the economy. Such balances can be maintained under
fixed plan than in a rolling plan.
 There is an element of uncertainty in this type of planning. The planning
machinery; the public sector and private sector are definite about the
objectives and targets of plan which are to be achieved during a given
period.
 When there is fixed plan with given objectives and targets, it ensures
public cooperation and political will to make the plan successful.

Demerits
 In practices, fixed plan have no connection with physical and financial
resources in India
 The present system of fixed plan fails to take in to consideration
unforeseen changes in the economy during the period of the specified
plan. However , a rolling plan offers flexibility to such factors changing
from time to time
 A fixed plan is unsuited for large projects which are not merely lumpy
but have a long gestation period of ten to fifteen years which need an
adjustment every time
 Problems of poverty and unemployment cannot be solved in period of
five years or any fixed period. They are long- term problems which can
be solved with in the framework of a rolling plan in a perspective period
of 10, 15 or 20 years.
 The existence of uneven and unbalanced development is a long–term
problem in developing countries and again need a rolling plan for it
solution.

Page 9
DEVELOPMENT PLANNING AND PROJECT ANALYSIS- I DEBARK UNIVERSITY

Rolling planning: Professor Myrdal was the first to advocate rolling

planning for developing countries in his book Indian Economic planning in
its board setting. India did not experiment for it the first time in 1978. It
was introduced for the purpose of defense after the Chinese aggression in
1962 and has been a great success in making the country almost self-
sufficient in the manufactures of sophisticated arms and ammunition,
frigates and aircrafts, and helped to prepare it face. It was introduced in
Indian planning by the Junta Government on April 1978 and was given up
on April 1, 1980 with the coming to power of the Indian Government.

On the other hand, rolling planning is not fixed rather it rolls or changes
every time. Every year, 3 plans are prepared. Firstly, one for the next
following year, this plan would determine economic actively during the next
following year. Secondly, one plan for the next following short period of
same few years, say, five years pattern adjusted annually through the
relation of the year which has just passed and the inclusion of an additional
fifth year, thirdly, one perspective plan for 10 or more years. The main idea
of rolling planning is that the medium –term plan would renewed at the end
of each year and the number of years would remain the same as the plan
rolled for ward in time.

Merits
 It not only provides greater flexibility but also a clearer perspective and
better view of the priorities.

 Being flexible, a rolling plan is more realistic than a fixed plan. It takes in
to consideration such unforeseen natural and economic changes.

 Under rolling plan, financial and physical targets can be revised in

keeping with such changes which are possible in fixed planning.

 Thus, rolling planning combines the advantages of both perspective and

flexible planning.

Page 10
DEVELOPMENT PLANNING AND PROJECT ANALYSIS- I DEBARK UNIVERSITY

Demerits
 Since the targets are likely to be revised every year, it is not possible
to achieve the targets laid down with in the fixed time period.

 Such frequent revisions also make it difficult to maintain proper

balances in the economy which are essential for its balanced
development.

 When the plan is continuously revised, it creates uncertainties in the

private and public sectors of the economy.

 Constant revisions of the targets of the plan develop an attitude of

non-commitment and apathy among the planners and the public which
do not augur well the future development of such economy.

 The success of the rolling planning depends on a strong communications

village to the headquarters of the planning body. This requires a large
manpower base trained in the collection of the data at the village, block,
district and state levels. Thus, the data are required to be processed.
This necessitates the installation and operation of the latest
computerized system which is very costly and is difficult to operate in
underdeveloped countries.

 It also depends on the ability of the planning machinery to cope with

the work of continuous revisions of the five –year plan every year in
light of the changing natural or economic conditions.

 For rolling planning to be successful, “up- to -date knowledge of

progress as well as the shortcomings in the implementations of the
project are absolutely essential”. Unfortunately, such information is
today so widely scattered that for all practical purpose it does not
exist. And it is far from up-to-date and quite insufficient to roll the plan

2.7. Regional, National and International planning

Page 11
 DEVELOPMENT PLANNING AND PROJECT ANALYSIS- I DEBARK UNIVERSITY

This type of planning rest on the basis of spatial or geographical distances.

Regional planning pertains a regional with homogeneous features; this
sameness may be irrespective of natural conditions like the climate,
geographical location, the resources, cultures etc. Regional planning is done
as part of national planning. Regional planning undertake for several reasons.

i) It enables to develop potentialities peculiar to the region.

ii) It enables to accommodate regional disparities and to bring them
up to an equal level.
iii) It is important to encourage local initiative and for seeking
cooperatives of the people for the execution of the national plan.
iv) It is helpful in meeting the spatial requirement of region.
However, this regional planning has the limitation that if the region happens
to fall in more than one political unit. In such cases, it is a problem of how to
bring together the people of different units.

National planning: it enables a country to bring together the various

regional plans in a single frame. National planning implies centralized
direction and control .i.e. it is an aggregation of regional planning.
Rationale
 National planning is the only sort that must exist before one can even
legitimately speak of regional ore international planning. The other two
plans draw off from national plan.
 The resources of a country are effectively utilized in the sense that
politically it becomes possible to make full use of national resources
even if these regional and international plans are provided.
 Centralized control which a national plan permits makes for a rational
use of resources.
Criticism
 Such planning type results in a closed economy, with the attendant
evils of reduction in international trade, international specialization,
world production and wasteful use of domestic resources.
Page 12
 DEVELOPMENT PLANNING AND PROJECT ANALYSIS- I DEBARK UNIVERSITY

 In reaping the fruits of national planning, it may be stressed that a

small country is relatively disadvantageously placed vis-à-vis a big
country. This is in terms of resource base and market limitedness of
small countries. As result, neither is varied economic structure
possible, nor can scale – economies be practiced. The other is these
countries are usually dependent up on foreign trade.
International planning: concerns countries in relation to one another. It
involves the use of their resources with the help of plans. Actually, there is no
such planning at present. A very limited forms of this nature however exists in
respect of certain selected activities e.g. FAO- it is not widely practiced.
International planning confers a number of benefits to countries .it has many
advantages
 It enables countries to extend their reach to the world market.
 Countries can be benefited from economies of scale.
 To avoid war
 To avoid economic friction
 To assist LDCs
 Promote even distribution of world resources.
To recap, regional and international planning take its shape only after
national planning has made its appearance. It is however more useful when
combined with the other two types, in respect of full use of a nation’s
resources and for a healthy growth of international trade and the efficient
economic structure of the countries.

2.8. Sectoral and Area planning

Sectoral planning: means planning for a particular part or sector of a
country‘s development. It is prepared for sectors such as agriculture,
transport, manufacturing etc. Sectoral plans are normally prepared for the
whole country. In other words, sectoral plans refer to a larger functional
rather than an areal correspond to the division of responsibilities between the
government ministers, department or agencies. It is therefore the most

Page 13
 DEVELOPMENT PLANNING AND PROJECT ANALYSIS- I DEBARK UNIVERSITY

common forms of planning and the national plan is compiled these sectoral
plans. The main limitation of this plan is conflict or duplication of plans.
Therefore, it needs coordination at the national level and through the
development of area based planning.

Area planning: involves all sectors and agencies in the area and which
attempts to integrate all activities with a whole. It tries to achieve functional
and spatial harmony between the activities of different sectors. In this sense,
this type of plan can be called as “integrated area planning”.

2.9. Physical planning and financial planning

Here we came to the question where we fix the size of investment in terms of
real resources or in terms of money. Ultimately, however, financial resources
will have to be translated in to real resources for money as such to serve no
purpose. If adequate finance is not available, it can be created through deficit
financing. In underdeveloped countries, there always exist unutilized or
underutilized resources, for instance, uncultivated land, unemployed labor,
hoarded wealth etc. These resources can be mobilized by “creating money”.

These are generally considered to be two rival techniques of planning.

Physical planning implies planning in terms real resources such as labor, land,
livestock etc. As against this, financial planning means arranging the
necessary financial resources to meet the development expenditure.

Financial planning
In the case of financial planning, the planners determine how much money
will have to be invested in order to achieve the pre- determined objectives or
targets. Total outlay is fixed in terms of money on the basis of growth rate to
be achieved. The various targets of production , estimates of required
quantity of consumer goods and the various social services, expenditure on
the necessary infrastructure, etc. as well as revenues from taxation,
borrowings and savings. This money is then used to mobilize the required

Page 14
DEVELOPMENT PLANNING AND PROJECT ANALYSIS- I DEBARK UNIVERSITY

resources. There has thus to be an integrated between physical planning and

financial planning.

The essence of financial planning is to ensure that the demands and supplies
are matched in a manner which exploits physical potentialities as fully as
possible with out major and unplanned changes in the price structure.

Limitation:

 An attempt to rise too high will adversely affect the capacity of the
people to save which may hamper the development process.

 Owing to the smallness of organized money and the existence of a

larger non- monetized sector, the estimates of financial resources may
go wrong. Even the physical planning‘s targets may be upset the
balance between monetized and non-monetized sectors may results in
shortages and inflationary pressures. Hence, financial planning is
suitable for sectoral than for overall planning.

 Financial planning may no provide the expansion of employment

opportunities at a scale so as to absorb the new entrants to the labor
market. Hence; people’s needs for employment may remain
unsatisfied.

Physical planning
Here, the planning authority determines how much land, labor, materials and
capital equipment for implementing the plan targets and goals. It implies
that the proper evaluation of the relationship of between investment and
output. In physical planning, the planners have to determine not only the
amounts investment but also work its composition in terms of the various
goods and services required to be obtained a certain increase of output of
product. The test of soundness of planning lies in the avoidance of
imbalances, stresses and strains of any type in the economy.

Page 15
DEVELOPMENT PLANNING AND PROJECT ANALYSIS- I DEBARK UNIVERSITY

Difficulties of physical planning

 In under-developed countries, there is statistical blackout so that

adequate and reliable statistics regarding the various types of real
resources are lacking. It, is therefore, becomes difficult to lay down the
targets with any degree of certainty

 To build up a sound sectoral balance is also a tight ropedancer. That is

why when the plan is being implemented all sorts of stress and strains,
bottle necks, shortages and gluts and inflationary pressures appear to
thwart the planner’s effort.

 Physical planning is not enough to prepare a sound plan for economic

development. It has to be supplementary with financial planning. If this
is not done, the economic plan will go down against rocks. Lacks of
adequate financial resources have been a major cause of the failure of
planning in India.

The major question arises which a type of planning comes first. Some
economists propose that since investment in LDCs is limited by the amount
of saving in a country creation of new money cannot create real resources,
rather it leads to inflation. So, according to these economists, physical
planning must come first. The other view is that if finance is not adequate to
mobilize real resources, it should be created. Because, there is no harm in
creating inflation. Since there are much unutilized manpower which can be
mobilized without creating inflation.

Any way it is necessary to bring about a proper balanced between them.

There are three types of balances which are very important to ensure
consistency.

I. cross wise balance

II. backward balance
III. financial or monetary balance

Page 16
DEVELOPMENT PLANNING AND PROJECT ANALYSIS- I DEBARK UNIVERSITY

The cross wise balance is an attempt to secure equilibrium between the

aggregate output targets and actual available resources. The backward
balance is an attempt to establish equilibrium between the final products
and its various components which enter in to its production.

The monetary balance will assure monetary equilibrium, i.e. equilibrium

between the total income of the population and the amounts of consumer of
goods which will be available to the population to avoid inflation. There must
also be equilibrium between income and private investment and the
amounts of investment goods available to private investors.

In summary,

Physical and financial planning are resources to assure successes of the plan.
They are complementary of each other; just as the right and left legs are
needed for walking. There has to be a proper balance between the two. Both
the techniques must be integrated in the development process.

Page 17