Since the Second World War, economic planning has been adopted by the UDCs the world over as an instrument of economic development. As Samuelson observes, “Today all over the underdeveloped world, planning Is a fashionable word. No country is too small or backward to have its five or ten-year plan.” Planning and development today form the core of economic studies.
The developing countries suffer from certain serious problems. These are characterised by widespread poverty, malnutrition. hunger, disease, ill-health and so on. Millions live in abject misery. The most urgent and most immediate desideratum of these countries is to have an appreciable rise in the standard of living. To this end, these countries desire to have accelerated economic development within the shortest possible time.
Need for Planning in Underdeveloped Countries
1. Rapid Economic Development :
We have already discussed above the underdeveloped countries are poverty ridden. These are in the midst of a vicious circle of poverty. Nurkse in this connection observes, ‘It implies a circular constellation of forces tending to act and react upon one another in such a way as to keep a poor country in a state of poverty.” The underdeveloped countries are in urgent need to break this vicious circle of poverty.
This cannot be done in an unplanned economy through the free operation of the market forces. Private enterprise is incapable of initiating economic development on a massive scale or sustaining an accelerated rate of economic growth. The private sector is interested in getting quick profits so it-may not be willing to develop the sector which involves a long gestation period or which is risky in nature. In most of these countries even in the private sector, the Schumpetarian entrepreneurs may be conspicuous by their absence.
2. Balanced Growth :
In an unplanned economy, economic growth I likely to be of an unbalanced nature. Under it, the productive system operates in an erratic and irrational manner. So, there is a lack of coordination among the various sectors of the economy. All the sectors do not develop in a uniform manner. Thus if the industries thrive, agriculture might be lagging behind. Consumer goods industry might be backward. In addition to sectoral imbalances, there may also be regional imbalances. For a healthy and harmonious growth of the economic body of the country, balanced ‘growth, is of utmost importance. Such balanced growth in the underdeveloped countries can be ensured through economic planning.
3 Development of Socio-economic Overheads :
Socio-economic overheads are the prerequisites of economic development. Under socio-economic overheads we include economic overheads such as transport, irrigation dams heavy and basic industries such as steel and heavy machinery, power plants, etc. Social overheads such as education, health, housing, etc also are included within it. These socio-economic overheads provide external economies. ‘They lead to the cumulative expansion of the various sectors of the economy by improving the efficiency of investment in general. They pave the way for a self-reliant and self-sustaining economic growth.
But ironically these socio-economic overheads are not adequately available in the underdeveloped countries. The private enterprise is not interested to develop these fields. The development of such overheads needs investment. Besides, they have a long gestation period. Very often the benefits of such projects are enjoyed by the society as a whole.
Since the private enterprise is interested in quick returns, it is not inclined to undertake the development of these overheads. Under these circumstances the state should plan to build up these socio-economic overheads, and provide the necessary infrastructure for development.
4. Mobilisation of Resources :
Economic development is a gigantic task. It is an extremely costly exercise. To finance development expenditure huge resources have to be organized. In fact economic development maybe considered as a direct function of the rate of capital formation. The experience of the developed countries demonstrates how a high rate of capital formation has been always associated with a high rate of economic growth.
In the underdeveloped countries it is not possible for the private enterprise to mobilize adequate resources for developmental purposes. So the state can adopt a planned and coordinated programme of policies to step up capital formation. Since the propensity to save in these countries is very low the state must raise the rate of saving and investment to promote economic development.
If voluntary saving is not forthcoming in adequate quantity the state may even take resort to a little compulsion. The state may take resort to taxation of different types and public borrowing to mobilize resources. Deficit financing also may be used as a source of capital formation. The state may invite foreign capital as well. Thus a package of measures may be adopted by the state in a planned economy to mobilize resources for development.
5. Reduction of Economic Inequalities :
Unplanned economies are characterized by glaring economic inequalities. The various institutions of such an economy cause, accentuate and perpetuate such inequalities. In an underdeveloped economy, in the course of economic development this problem is likely to be aggravated. The rich is likely to be richer and the poor, poorer. But it should be remembered that overall economic progress should not only increase the national income but should also ensure a just distribution of this national wealth. In the underdeveloped countries great inequalities in income distribution hinder capita! formation. Gross economic inequalities are fraught with undesirable consequences. A more egalitarian distribution of income, wealth and opportunities can be achieved only under a planned set-up.