What is the Importance of Economic Planning?
This post discusses economic planning and its importance. You can also find a link at the end of the post to view a PowerPoint presentation related to the topic.
What is economic planning?
Economic Planning refers to a mechanism set by a government to make economic decisions to improve the economy of the country.
What are the key characteristics of economic planning?
Key characteristics of economic planning are explained as follows:
An economic plan defines the desired objectives. For example, setting a standard to achieve a set growth rate, eliminating trade deficit, attaining full employment, etc.
Priority of objectives
The set objectives are scrutinized and an order of priority is determined by deciding which objectives should be achieved and focussed on as first, second, and third.
After prioritization of the objectives comes the formulation of policies as to how to achieve these objectives. This includes the allocation of the amount of money and resources.
An economic plan sets out the overall goals that the government wants to achieve in the short and long run.
Importance of economic planning
It’s very rare to make progress through random activities that necessitate deliberate and organized planning of the economy to better the economic conditions of a country. Economic planning is important as it: provides a guide for action, improves resource utilization, gives motivation. Moreover, it sets out performance standards and allows flexibility to find alternatives ways if needed.
Let’s discuss the importance of economic planning in different themes.
Guide for action
Economic planning directs the actions of the government towards the set economic objectives in a coordinated and focussed manner. In other words, it set out a pathway, roadmap, or a vision to pursue the set objectives in both short and long terms to follow. Hence, an economic plan gives a direction to follow in order to attain economic stability.
Effective resource utilization
A government needs to make sure the resource utilization is effective. Without an economic plan, there is no guarantee of effectiveness and efficiency. It can only be possible through an economic plan which helps determine what resources are required where. Once done with this determination, the authorities will bring into use all available resources effectively.
Setting performance standards
An economic plan made by a government also lays out standards to follow and benchmarks for assessing when things are progressing and when they need correction.
Planning allows flexibility
While the government determines and prioritizes the objectives, the authorities sort out the available resources. But the plan cannot be rigid providing no space for any change. It rather guides in making decisions as to how to deploy the resources.
Motivation and commitment
Once the government makes a vibrant economic plan, it gets motivation and feels a sense of commitment as the planning reduces the uncertainty of what to do. It rather informs about the desired objectives and resource utilization in an informed manner.
In absence of proper planning, the motivation level of govt would go down thereby resulting in a politico-economic crisis in the country.
Equitable distribution of resources
One of the aims of an economic plan is equitable distribution of resources. In today’s era of the free market, wealth is controlled by 2 percent people, the main reason for the economic disparity, poverty, hunger, and other economic miseries.
This economic inequity demands governmental intervention through planned economic development thus enabling it to ensure equitable distribution of resources as per the needs of the people of all regions.