Nov 042013

The main purpose of economic planning is to keep a proper balance between production and social needs. The demands or social needs are always presented by the people, which are changing with the variations of income, habit and fashion of the people, and hence the planner has to be cautious for maintaining balance between the two.

The planning, thus, related to a predetermined end. The end of economic planning may be economic or non-economic. In other words, the objectives of planning may be concerned with political or socio-economic achievements. But mostly they are interlinked with each other. The main objectives of planning that have been accepted by the planned economics in the world are: Political Objectives and Economic Objectives. However the objectives of planning largely depend upon the natural, social, political and economic environment prevalent in a country at a specific time. Hence, economic planning has multiple objectives in the developing countries, which are summarized below:

a) Rapid economic development: The objective of planning in underdeveloped countries is to increase the rate of economic development. Planning for economic development implies external direction or regulation of economic activity by planning authority. It means increasing the rate of capital formation by raising the levels of income, saving and investment. But increasing the rate of capital formation in Nepal’s economy is hindered with a number of difficulties. People are poverty ridden. Their capacity to save is extremely low due to low levels of income and high propensity to consume. Low productivity means low income and the vicious circle of poverty. This vicious circle can only be broken by planned development.

b) Solve the problem of unemployment: The need of planning in Nepal is further stressed by the necessity of removing widespread unemployment and disguised unemployment in Nepalese economy. Capital being scarce and labour being abundant, the problem of providing gainful employment opportunities to an ever-increasing labour force is difficult. IT is only a centralized planning authority, which can solve this problem.

c) Balanced development: In the absence of sufficient enterprise and initiative, the planning authority is the only institution for planning balanced development of the economy. For rapid economic development, underdeveloped countries require the development of agricultural and industrial sectors, the establishment of social and economic overheads, and the expansion of the domestic and foreign trade sectors in a harmonious way. All these require simultaneous investment in different sectors, which is only possible under development planning.

d) Agriculture and industrial development: Agriculture is the backbone of Nepalese economy, which covers more than 40% of national income. The need for developing the agricultural sector along with the industrial sector arises from the fact that agriculture and industry are interdependent. Reorganization of agriculture releases surplus labour force, which can be absorbed by the industrial sector. Development of agriculture sector is essential to supply the raw material needs of the industrial sector. The agricultural and industrial sectors cannot, however, develop in the absence of economic and social overheads. Building of canals, roads, power stations etc. are indispensable for agricultural and industrial development. State to crate social and economic overheads in a planned way.

e) Strengthen the market mechanism: The rationale for planning arises in such countries to improve and strengthen the market mechanism. The market mechanism works imperfectly in Nepal because of the ignorance and unfamiliarity with it. A large part of the economy comprises the non-magnetized sector. The product, factor, money and capital markets are not organized properly. Thus, the price system exists in only rudimentary form and fails to bring about adjustments between aggregate demand and supply of goods and services. To remove market imperfections, to mobilize and utilize efficiently the available resources, to determine the amount and composition of investment, and to overcome structural rigidities, the market mechanism is required to be perfected in Nepal through planning.

f) Poverty alleviation: The planning for development is indispensable for removing the poverty of nations. For raising national income and per capita income, for reducing inequalities in income and wealth, for increasing employment opportunities, for all-round rapid development and for maintaining newly own national independence, planning is the only path open to Nepal.

g) Proper utilization of natural resources: In the unplanned economy, natural resources are underutilized, misutilized and wasted. Therefore, in an underdeveloped economy, concrete action is essential for making the use of natural resources for production purpose and it is safe which implements this action through economic planning. Nepal is assumed rich in natural resources; hence the existing natural resources can be properly utilized in periodic plan.

h) Reduction in unequal distribution of income and wealth: In the poor and underdeveloped countries, there exist inequalities and disparities in the distribution of income and wealth. There is a sharp gap between poor and rich which is a threat to the sovereignty of a nation. Thus, distributive justice becomes indispensable by removing economic inequalities and disparities through adopting effective monetary and fiscal and other development activities. For this purpose, economic planning is a tool to overcome such shortcomings and creating a conductive atmosphere for economic development.

i) Economic and price stability: In the planned economy, the development of one sector is coordinated in such a way with other sectors so that a balanced and smooth development may take place. Similarly, there are fewer chances of occasional fluctuation and uncertainty which affects development adversely. Thus, economic planning is a green signal to economic stability and prosperity of a country. Similarly, to attain stability is the price level is also a vital objective of economic planning. Economic planning is the only effective alternative for all evil of capitalism by minimizing the fear of trade cycles and progress with stability is desirable.

j) Defence of the country: By formulating economic planning, a country prepares and executes comprehensive plans to make modern and sophisticated armaments and equipments. There is another point in favour of making defence through planning. It enables the country to provide sufficient funds to modernize the defence structure.

Besides these, reduction in population, more farsightedness, control in economic concentrations and monopolistic tendencies, coordination of other sectors, expansion of the domestic and foreign trade requires not only the development of agricultural and industrial sectors along with social and economic overheads but also the existence of financial institutions. There is economic instability generated by international cyclical movements. It is the planning authority, which can control and regulate the domestic and foreign trade in the best interests of the economy.