Indicative Planning

A question frequently asked today is whether planning has any relevance in a world of economic liberalization and the market economy. The short answer is that it does, but not the kind of planning we practised in the past which derived its rationale from the belief that centralized control on resource allocation, with extensive intervention in private sector decision making, was necessary to achieve rapid growth.

Amartya Sen’s article, which is reprinted in this volume but which first appeared in the Seminar issue on Freedom and Planning almost fifty years ago, provides a flavour of the earlier approach. Sen argued then that planning was necessary not only to achieve distributional objectives – which he points out is a traditional and much discussed basis for state intervention – but also to achieve a high rate of growth. He recognized that the industrialized world had achieved industrialization without planning and acknowledged that we could also follow this path, but warned that if we did, it would take us more than a hundred years to industrialize whereas the experience of the socialist economies showed that a much faster transition was possible with socialist planning.

The superiority of socialism in achieving rapid growth was attributed to two reasons. First, since capitalists seek profit maximization, growth in a capitalist economy is only a by-product of this process, and therefore need not occur at the fastest possible rate. Second, even if capitalists want to maximize growth, they would be less efficient at doing so because individual entrepreneurs do not have all the information necessary to achieve the best results whereas a
‘national coordinating planning organization’ would have much more information and therefore achieve better ground outcomes.

Sen also warned that planning as practised in India, without a really socialist economy, with a private sector responsible for producing consumer goods and a public sector