Types of Planning

Economic planning can be classified in several ways depending on the time horizon, the degree of compulsion involved, and the level at which planning decisions are taken.

Perspective planning and annual planning. A perspective plan lays down the broad, long-term objectives of development over a fairly long horizon, often fifteen to twenty years, indicating the general direction in which the economy should move. An annual plan, by contrast, is the yearly operational plan that translates the long-term goals of the perspective plan into specific yearly targets, projects and budgetary allocations. Each Five Year Plan was, in effect, broken down into five annual plans that were reviewed and adjusted year by year in light of actual performance.

Indicative planning and imperative planning. Imperative (or directive) planning is typical of a centrally planned or socialist economy, where the state fixes production targets and resource allocation compulsorily for both the public and the private sector, and enforces compliance almost as a matter of law -- the erstwhile Soviet Union is the classic example. Indicative planning, which is more suited to a mixed or market economy, involves the state setting broad national priorities and directly controlling the public sector, while the private sector is merely guided and incentivised -- through fiscal concessions, credit policy, licensing and the like -- rather than compelled to fall in line. India's planning was never as rigidly imperative as the Soviet model, and it became progressively more indicative in character after the economic reforms of 1991, when licensing controls were dismantled and market signals were allowed a much larger role in guiding private investment. …