Economic Planning: Origins and Types

Planning in India already covers everything India-specific about planning: the actual Five Year Plans, the Planning Commission, the Mahalanobis model and NITI Aayog. This note covers the short, purely conceptual chapter that comes immediately before it in the book's own sequence, planning as an abstract idea, with no India content of its own at all.

Defining a plan, and where planning actually began

An economic plan is simply a set of specific economic targets to be achieved within a stated period, following a stated strategy, and such plans can be either comprehensive (covering the whole economy) or partial (covering only a sector or region). The book makes a specific, worthwhile historical point about how planning as a discipline actually developed: the idea of planning first emerged in its applied, practical form, and theory followed practice, not the other way round. The Tennessee Valley Authority (TVA), launched in the United States in 1916 to coordinate flood control, electricity generation and regional development across a whole river basin, is treated as the first real experiment in regional planning. National planning followed from the Soviet Union's own Gosplan and its first Five Year Plan (1928 to 1933), and the model was adopted at the national level outside the Soviet bloc when France turned to national planning in the 1940s. Only after these practical experiments had already run for years did planning develop into a formal branch of economic theory.

Imperative versus indicative planning

Planning of either scale (regional or national) further divides into two named types by how binding it actually is. Imperative planning, the model followed by centrally planned (command) economies such as the Soviet Union, sets targets that are mandatory: production units are directed to meet specific, binding output goals rather than being left to respond to market signals. Indicative planning, by contrast, sets targets as guidance rather than binding directives, coordinating and encouraging particular kinds of investment and production (typically through incentives, information-sharing and broad targets) while leaving individual firms and markets free to respond to price signals as they normally would. Most mixed economies, including India's own planning tradition covered separately in this site's Planning in India note, lean toward the indicative model rather than the fully imperative one.

What this chapter is not: no growth models

It is worth stating precisely, since it is a genuinely common misconception this chapter's own brevity invites: this reference book's "Economic Planning" chapter contains no exposition of growth models at all, neither the Harrod-Domar model nor any other formal growth-theory framework, despite some exam-prep material asserting otherwise. The Mahalanobis model, which is genuinely covered in this book, appears specifically inside the Planning in India chapter, as the model actually adopted for India's own Second Five Year Plan, not inside this abstract-theory chapter. A question testing formal growth-model mechanics is consequently not testing content this specific reference book carries in this chapter at all.

Quick revision points

• An economic plan: a set of specific targets for a stated period under a stated strategy; can be comprehensive (whole economy) or partial (sector/region).
• Planning developed from practice to theory, not the reverse: the Tennessee Valley Authority (USA, 1916) is treated as the first regional-planning experiment; the Soviet Union's Gosplan and first Five Year Plan (1928-33) as the first national planning; France adopted national planning in the 1940s.
• Imperative planning: binding, mandatory targets (centrally planned/command economies, e.g. the Soviet Union). Indicative planning: guidance-based, non-binding targets that coordinate investment while leaving markets free to respond to price signals (the model most mixed economies, including India's, lean toward).
• This chapter carries no growth-model exposition (no Harrod-Domar); the Mahalanobis model, where it is genuinely covered, sits inside Planning in India as the model behind India's Second Five Year Plan, not here.