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6 years ago

Policy instruments: Development planning

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The glamour and dominance enjoyed by development planning in its hey days have become a thing of the past. It has been discontinued in some countries not because it failed but for outliving its usefulness. It survives in some other countries reminding us that planning in some form or other is still relevant for promoting economic development. Even when planning was in vogue and used in many countries it came in different shapes and sizes. In the command economy of the Soviet Union, Gosplan ruled the roost directing the whole gamut of economic activities. The countries that gained independence in late 40s and early 50s, planning was adopted for the development of mixed economies with both public and private sectors functioning in various degrees. In all these countries planning was considered as a policy designed for accelerated development of their economies. It had goals, objectives, strategies and procedure for implementation as in the case of all other policies. But it was also a framework and guideline for other policy instruments, albeit less comprehensive in scope. As a policy instrument planning came to assume a unique role with overarching goals.

Discussion on aspects of planning differ vastly depending on its context. PLANNING IN MIXED ECONOMIES: Since planning for command economy is now only of academic interest, it will be appropriate to focus on planning in mixed economies even though it is not the same as before. In its bare bones form, planning can be regarded as an attempt to improve the rationality of decision making, specifying objectives (goal having already been set) and sifting alternative strategies and specifying subsidiary policies to find the optimal means of achieving the objectives. Thus planning has affiliation with the welfare optimising models of decision making.

As a policy instrument planning differs from other policies in character and scope. One aspect of this difference is that it is more comprehensive embracing the whole economy, giving guidelines for private sector and directions for the sector under government control. As the private sector expands planning relies more on indirect control and creation of an enabling environment through fiscal and monetary and fiscal policies. Another way a development plan differs from other policy instruments is that it takes the view over a longer period whereas routine policy instruments are for the short haul, say one year. Here, using the military metaphor may be appropriate in which a plan may be compared to strategy whereas specific policy instruments are tactics used for implementing the strategy. A strategy takes an overall view and as such drawing up a plan involves looking at economic policy as a whole even though it does not address the private sector with the same coverage as in the case of public sector. A development plan looks at the interconnections between various policy instruments and the reactions they set in motion in the economy. Preparing a plan, therefore, can be viewed as a way of carrying out a set of decisions which is internally consistent and reinforcing. A development plan for the economy is a super policy instrument; it is policy seen as a whole.

THE CASE FOR DEVELOPMENT PLANNING: Emphasis has been given right from the early days of planning on its role for co-ordination among various policy instruments or decisions made for different sectors of the economy. This takes into account the risks and limitations of an ad hoc approach to policy making where matters are addressed on a problem by problem basis. The risk involved in this is that although each separate policy may appear as sensible by itself, when taken together the policies may be in conflict with each other. The desirability of co-ordination of all the policies is now all the stronger because developing countries, including less developed ones, have come to take a multi-dimensional view of development. The period when development was measured simply in terms of aggregate growth alone is past. Governments in developing countries (even in developed countries) are now more interested in reduction of poverty and inequality. The definition of development has of late been broadened to include objectives other than growth. The complexity of this objective requires more varied policies to promote development. Many separate policy instruments are now needed under the umbrella policy of planning to address the sectoral needs. Numerous agencies are now involved in their implementations including private sector making the need for co-ordination even stronger today than in the early stages of planning when goals and objectives had fewer dimension requiring smaller number of policy instruments.

Besides the co-ordinating role, planning has the characteristics of introducing time into the mechanism of policy formulation. As an economist pointed out long ago, 'Planning injects the time factor and the problem of process into the centre of economic analysis. The essence of economic planning is that it is futuristic: it is forward looking; it involves systematic thought and preparation ex ante; it involves 'pre-time' thinking . . . . (Planning Reconsidered, John E. Elliot, 1958). Policy makers as planners are thus required to understand the future implications of their present decisions and actions. They are encouraged to trace all the ramifications of the policies they introduce. Most important of all, they have an incentive to anticipate the future emergence of new problems. In short, a serious commitment to lengthen the policy makers' time-horizon, examining the internal consistency of various policies and about their impact over time. In the absence of medium-term planning (5-7 years) these aspects are liable to be neglected under the everyday pressure of economic management.

Beside the above arguments in favour of development planning, there is an additional group of arguments more specific to less developed countries (LDCs). While discussing the limitation of the market mechanism a simple model may be outlined describing the 'poverty trap' in which LDCs are viewed as stuck in a vicious cycle of low income, low investment and low per capita income. The policy inference from that model is that a 'big push' is necessary in order to break out of the vicious circle. It is a short distance from there to arrive at the conclusion that development planning is the obvious mechanism or strategy for such a 'push'. If resources have to be mobilised on a massive scale, if saving and investment have to be increased at a rapid rate then it is only the power of government that can achieve these tasks. This argument has been supplemented by another: while the market mechanism may be efficient at allocating resources at the margin, it is much less equipped to achieve the structural changes (major investments in power, transport, communications, etc.) that development requires. Another deficiency of the market is its failure to provide a basis for making decisions for future. The price signals given by the market reflect the supply and demand of the present and as such are not a reliable guide for investment decisions for the future. Development planning can be seen as a better method of providing information on which such decisions can be made.

A strong case can be made out for planning even under the present trend of expanding private sector in LDCs and greater reliance on market mechanism. As pointed out by Shukhomoy Chokroborty, it is perfectly possible to allow the macro-goals of an economy and the principal action directives to derive from a properly formulated plan, while its micro analogues are left to be implemented through the market (Chokroborty, S. Development Planning, 1986).

FUTURE OF DEVELOPMENT PLANNING: An array of factors has been identified that prevent the theoretical advantages of planning from being achieved in practice. Plans used input-output model to find out what changes in flows of inputs and production of output will be required by anticipated for desired changes in other inputs and outputs. Alternatively, a mathematical model might be an econometric one consisting of a set of equations linking a large number of variables and certain constraints. While input-output model is employed as a check on consistency, an econometric model is design to ensure that optimal policies have been selected. Plans have been judged by the adequacy or otherwise of models constituting their theoretical underpinnings. It has been criticized that models become unrealistic because of inadequate or outdated data, unrealistic assumptions and unanticipated changes. Models also are alleged to contribute to the rigidity of plans. In respond to this Shukhomoy Chokroborty has said any development plan as an operating document which forms the basis for implementation is rarely identical with models. He has pointed out that to judge a plan, one has to take into account the socio-economic landscape and the informal constraints. What is being hinted here is that changes in real life situations make deviations from a model inevitable. Models being indicative and even tentative because of distance from everyday reality they cannot be adhered to too closely. In fact, to overcome the rigidity to plan based on models, use of Rolling and Annual Plans have been resorted to for greater flexibility. The second important criticism of plan is that though plan use cost-benefit analysis for taking decisions, costs often exceeds benefit. Costs increase not because of bad planning but for delay in implementation and shortfall in resource mobilisation (especially aid) and increase in import prices. Such increase in costs would take place even in the absence of plans.

In spite of plan weariness in many parts of the world, plans are likely to continue as a policy instrument of most of the governments, particularly in developing countries where the role of government in economic management is still significant and will remain so in the foreseeable future. Plans will be required to set medium-term macro targets, to provide a framework for other policy instruments and to give directives/guidelines for actions to meet desired objectives. Increasingly, instead of direct controls, greater reliance will be made on the market mechanism, melding the two sectors into a symbiotic relationship. 

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