Economic Planning and Economic Development
- “Economic planning is the process of conceiving, regulating and controlling the economic activity by the states to achieve the pre-determined objective in accordance with pre-fixed priorities.”_ (LoF)
- “The process of conceiving, regulating, and controlling and economic activity by the state according to set priorities with a view to achieving well-defined objectives during a given a period of time.”
- “The process of deciding what to do and how to do.”
PRINCIPLES / ESSENTIAL FEATURES OF ECONOMIC PLANNING:
The following are the basic principles of economic planning.
- Formulation of objectives or goals
- Fixing targets to be achieved and priorities of production in each sector or economy.
- Mobilization of the financial and other resources required for the execution of the plan.
- Creating necessary organization or agency for the execution of the plan.
- Creating monitoring and evaluation machinery for evaluating the progress made.
OBJECTIVES OF ECONOMIC PLANNING:
- To achieve full employment
- Maximizing national income and raising the living standard.
- Rapid industrialization (Increase N.I, employment)
- Self-sufficiency in food and raw materials.
- Reduction of inequalities.
- Redressing imbalance in the economy
- Better utilization of natural resources
- Price stability
- Distribute justice
- Control of monopolistic tendencies
- Defense of country
- Creating job opportunities
PREREQUISITES OF EFFECTIVE PLANNING IN UNDERDEVELOPED COUNTRIES:
- The existence of central planning authority
- Laying down limited objectives and fixing target
- Statistical data
- Well formulated and integrated plan
- Strong and efficient govt
- Mobilization of financial resources
- Flexibility in planning
- Public cooperation
TYPES OF PLANNING/ECONOMIC PLANNING:
The planning, in which a comprehensive and integrated plan is conceived, initiated and executed by a central authority. There is a centralized body which makes the plan. The plan covers all aspect of the economy and the central authority completely controls the investment and utilization of resources in an indirect manner.
Such plans will be very comprehensive, systematic, rigid and more efficient.
It is a sort of piecemeal planning in which the plan covers only some important aspects of the economy. Example: social forestry, shelter-belt planning, roadside planting, sericulture projects, etc are the projects of partial planning.
In this type of planning the structure of the planning, unit has to be changed. The change in structure is done in existing resource conditions. Before changing various financial, economic social and organizational aspects are considered.
It deals with the socio-economic framework. It assumes the planning is possible even in a capitalistic economy.
Inducement Planning / Domestic Planning:
Planning by inducement means planning by manipulating the market mechanism. It is way by manipulating the market mechanism. It is very way of achieving the objectives indirectly. It involves no compulsion but only persuasion. There is freedom of enterprise, freedom of consumption and freedom of production. But these freedoms are subject to control and regulation. The results are achieved with less sacrifice of individual liberty in inducement planning. It is also called ‘democratic planning’.
In this type of planning, there is one central authority which plans, directs and orders the execution of the plan in accordance with predominated targets and priorities. The plans are comprehensive and encompass the entire economy. The state holds these commanding posts in its hands by taking over the entire private, industrial and agricultural sectors, banking and transport. It may also be called ‘Authoritative Planning’.
- It leads to excessive standardization which impinges on the consumer’s sovereignty.
- It also involves huge administrative costs.
- It is anti-democratic.
- A plan cannot be made by people or people’s representatives. It can only be made by officials.
WHY IS PLANNING NEEDED?
- Planning is advocated on the ground that the judgment of the state is superior to that of a citizen. Economic development is a complex matter and should not be left to individuals.
- Planning is necessary for equitable distribution of Economic power.
- It is a powerful instrument for eliminating instability which is a necessary concomitant of a free market economy.
- It eliminates wasteful competition
- It makes possible for optimum utilization of the country’s resource.
- It results in a higher rate of capital formation.
- It prevents artificial shortages being created by profit-greedy businessmen.
- It keeps down or eliminates social costs.
FORMULATION OF A DEVELOPMENT PLAN:
The following are essential steps in the formulation of a development plan:
- Fixation of objectives
- Length/ Plan period
- Size of plan
Fixation of objectives:
The objectives are described by the politicians of the country. A socio-economic survey is made based o which the objectives are formulated. Sometimes the objectives are:
- Complementary: services to the social people
- Conflicting: rapid industrialization and implementation in the social sector.
The objectives are planned according to the available resources in the country.
Length/ Plan period:
After deciding the objectives the plan period fixed up it is also known as planning horizon. Generally, the plans are formulated for 5 yrs. The minimum period may be 1 year. Plan period should neither be too long nor too short. If the plan period is longer than it is difficult to sort out the objectives. Because the population and tends of people change with the passage of time. If the plan is too short then it is difficult to get meaningful results. Therefore, the period of the plan should be within certain limits.
- Short term plan: It is highly flexible, easy to make, implements. Example heath
- Long-term plan: Very well conceived, well planned and important on very reliable information eg defense.
Size of the plan:
The size of a plan is determined by its magnitude of investment which has to be under during a planned period. There are two approaches for deciding the size of the investment.
- Resource approach
- Requirement approach
The resource approaches may be:
- Domestic or internal
- Can be private saving
- can be public saving
- International or external
The domestic resources are the internal resource depending upon private and public saving.
The international resources depend upon:
- Loans and grants are given by world-bands, USAID, or the loans provided by developed countries to the developing and under-developing countries.
- Direct investment: the investment done by the foreign companies. Eg Pharmaceutical companies, Fertilizer companies. etc
- Export/ Import: the balance b/w export to import should be positive which difficult except for oil-producing countries.
It depends upon:
- Capital output ratio: Output ratio should be more eg 3:1, ie 1 units of income to general 3 units of income.
- Population growth rate: It is the difference b/w birth and death rate.
- Per capita income: The population growth will determine that at what rate the per capita income should be increased. Increase in per capita depends upon the investment. If per capita income is 2% than of additional income in GNP is required for maintaining the present level of GNP.
OBSTACLES OF ECONOMIC DEVELOPMENT IN PAKISTAN:
- Pakistan got exhausted and weakened economic base in legacy.
- Since partition, the govt of Pakistan have been making their best to achieve economic prosperity but for several reasons, these efforts proved to be rather wasteful.
- The per capita income has increased from 351 (1950) to 725 rupees (1983) and the share of manufacturing in GDP has increased merely from 7.76% to 17.0% (1983).
- The share of agriculture has declined from 53.37% (1950) to 29.7% (1983). This has created social tension in the country. However, the main obstacles which have affected the rate of growth in the country are grouped under the following headings:
- Economics Obstacles
- Social and
- Cultural Obstacles
- Administrative Obstacles
- People of Pakistan are poor and backward not because of deficiency of resources but due to the inefficient use of the factors of production.
- These problems are discussed as under:
Under-utilization of Natural Resources:
- Pakistan is not poor in resources
- The obstacle to development is not the inadequacy of natural resources but non-utilization and underutilization of natural resources.
Deficiency of capital:
- If a country has to achieve rapid economic development, it must save at least 15% of GNP each year but in Pakistan rate of saving is b/w 5 – 7 % of GNP which is hardly able to maintain per capita income.
The scarcity of foreign exchange:
- Pakistan exports cotton, carpets, and manual labor, etc
- So the fluctuations in the internal market, deterioration in terms of trade, the quota system have decreased the foreign earnings.
- The increase in the prices of the foreign goods and their rising flow in the country are the major causes of the decrease of foreign exchange resources.
Rapidly growing population:
- A rapid increase in population is a great burden on the meager (unsatisfactory small) resources of the country and a big obstacle in economic development.
Low level of technology:
- The present condition of technology in Pakistan is insufficient according to the modern changes.
- So it should be improved according to the modern developments and changes.
- Dualism (having two parts) is another important obstacle to the economic development in Pakistan.
- Different people living in the different parts of the country are using different technologies or in other words, the use of technology differs from region to region and from sector to sector.
- In this way, due to dualism, the suitable utilization of the resources does not occur.
- Pakistan is under heavy debt.
- By December 1982, Pakistan was bearing a debt of 12.8 billion $.
- It is a flaw in our economic planning that we have always depended upon the foreign aids. It kept delaying, suspending due to the breach of an agreement or other social, political etc problem. The result was that the country was unable to make economic development but the burden of foreign aid on the masses is still pressing heavily.
Social and Cultural Obstacles in Economic Planning:
- The Socio-cultural obstacle may be categorized as:
Low literacy rate:
- The literacy rate of Pakistan is very low; it is 47.4% (2005_encarta encyclopedia) but the UN is hardly able to accept is as 10%.
- The illiterate people are ignorant of the development changes in their country. They even don’t cooperate with the govt for their better economic planning that is why most of the plans have been rendered fruitless. They feel pride in the native culture and are generally not receptive to a new foreign method of production.
Spend drift nature of people:
- Majority of the people are extravagant. the un-necessary expenditures on marriages, deaths, and births, circumcisions, banquets, etc have reduced the domestic savings and have adversely affected the economic progress.
- More than half of the population consists of womenfolk. The pity is that their guardians don’t let them come and work openly but they themselves waste the income on luxuries, etc.
- The people lack confidence. In Pakistan, there has always been a joint family system.
- This has killed the sense of doing work individually.
- The whole family relies on the income/ salary of one or two persons in the home.
- The cast system working mostly in the forms of occupation tailors, carpenters, goldsmiths, etc has restricted the occupational as geographical mobility.
- We should not forget also that adoption of socio-cultural habits of the west has brought the quality of life down as well.
- Administrative obstacles are the major factors that are tugging heavily upon the economic growth of the country.
- These are as under:
- Pakistan has always been facing the political problems
- She faced long dictatorships/ Martial laws and sometimes she changed the govt several times before the end of tenure.
- This situation created all the time a critical environment.
- One govt criticizes the economic and development policies of the other; one govt does not let continue the development schemes of the previous.
- In short, each govt launched its own schemes but did not follow it to the end which resulted obviously in ‘no development’.
- The history of planning shows that with the exception of 2nd five-year plan, all other plans have failed to achieve their results.
Malpractices and Corruption:
- The administrative machinery in Pakistan is overall bureaucratic.
- The working efficiency of the personnel is weak; they are disloyal, unfaithful and less sympathetic.
- Each person this of its own benefit and never the cause of whole people.
- Moreover, the lust for wealth led to serious malfunctions.
- Malpractices in the collection of revenues, taxes, and all such things are common.
- The corruption among the implementations of the economic development plan in every sector of the community has played havoc with assets of the nation.
No defined Economic System:
- Another administrative obstacle is in the way of economic development is that the nation has not yet decided that what economics should be in the country.
- Either Islamic or socialistic; either mixed or capitalistic, etc.
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