Meaning & Essential Features of Economic Planning

In a capitalistic economy, the role of the government in controlling the business enterprises is reduced to the minimum. In pure capitalism, the government is not expected to interfere with the working of the business enterprises based on free market economy. But, this old Laissez faire doctrine has been discarded.

Even the capitalist governments of modern days feel the need of interference in order to control monopolistic trends in business, assuage inflationary pressures and to avoid severities of Trade Cycle, besides reducing problems of unemployment and disequilibrium in the balance of payments.

Governments of modern days try to control the working of the economic system through Economic Planning and expansion of public sector undertakings. Modern democratic States are ‘Welfare’ States having definite objectives and goals which can be achieved only through effective and rational interference in the economic, business, monetary and fiscal sectors of the economy. Economic planning is the modus operandi to achieve these goals.

Economic Planning

Economic Planning

What is Economic Planning?

Economic planning is the systematic utilization of the available resources at a progressive rate so as to secure an increase in output, national dividend, employment and social welfare of the people.

Prof. Durbin defines planning as

a method of economic administration in which, instead of looking towards small and unrepresentative minorities of share-holders, the persons or corporation directing production would look upwards or towards a central economic authority for guidance on the larger questions of output, prices and costs.

Prof. Charles Bettelheim defines an economic plan as

a totality of arrangements decided upon in order to carry out a project concerned with economic activity.

Prof. Lionel Robbins defined

Planning in the modern jargon involves government control of production in some form or other

Prof. Herman Levy makes a general definition by saying that

it is securing a better balance between demand and supply by conscious and thoughtful control of either production or of distribution of both. This balance is not allowed to be affected by automatically working forces.


From the definitions given above, we are able to detail some specific characteristic features of economic planning.

1. Central Direction of the Economy

The basic characteristic feature is the Central Direction of the Economy. The central authority retains the direction of economic activities of the members of the society. As a minimum measure, the produced means of production would have to be nationalized. Otherwise it would be only state intervention in a free economy rather than planned economy.

In the case of economic planning in capitalistic countries, the plan is confined only to the public sector and the working of the private sector is not covered by it, although the private sector is subject to state regulation and control. In India, for instance, the plan is really confined to the public sector, though targets are set for private sector also and these targets are expected to be achieved.

2. Definite set of aims and objectives

These objectives are expected to be fulfilled within a given period. The objectives may be broad or general. These objectives are based on the economic policy of a nation.

Economic policy by itself may not constitute a plan. The plan is based on the framework of the policy. It involves certain fundamental principles and programmes used by the planners as guidelines. In fact, the plan is the outcome of the operation of the economic policies. Policy decisions are the preliminary steps of the planning decisions.

The policies should be set forth in clear and unambiguous terms on various issues like land reforms, industries, foreign trade, capital, etc., so that planning decisions can be set forth in concrete terms by translating policy decisions. For instance in India, the Directive Principles of State policy describes the principles of economic policies. On this basis, the Planning Commission of India formulates plans.

3. Conscious efforts at making decisions

Economic Planning involves deliberate and conscious efforts at making economic decisions. It is not mere window dressing of the economy with the help of foreign aid. It is based on the survey of the entire economy. It should not be piecemeal or restricted to a particular sector, but should be all-comprehensive.

4. Proper coordination of production and distribution

Another important feature of economic planning is the proper coordination of production and distribution. Planning is not only production, but also effective distribution and both should be properly balanced.

The central authority has to ensure production of raw materials and intermediary goods in right proportions so as to realize plan targets. The produced goods have to be correlated with consumer demands. In fact, the success of planning depends on the proper co-ordination of the two.

For instance, a faulty planning will result in scarcity of fuel and power, if these production targets are not properly coordinated with the quantum of new factories demanding fuel and power. It is not always possible to correctly foresee the demand. But, the success of planning depends on this.

The central planning authority should carefully calculate the available resources, the extent of exploitable resources with the existing know-how and technology and the requirements of the economy to achieve the plan targets within the specified period. These factors have to be assessed in real physical terms and financial terms.

5. Coordination between different sectors of the economy

Yet another feature in planning is the proper coordination between different sectors of the economy. The Russian economy consists of two sectors, viz., nationalized sector and cooperative (collective farms and co-operatives of craftsmen) sector and both sectors are coordinated to determine the operation of the economy.

6. Achievement of targets

Finally, achievement of the targets within the specified period is another feature. Planning without time relation is meaningless. Thus planning is a conscious direction of resources by a central authority for desired ends, within a specified period.