Economic Planning in an underdeveloped country like India is very important due to several reasons :
- Resources of all types – Capital, natural and human- are very limited. Planning provides a basis of rational and considered choice for securing the optimum combination and utilization of resources.
- Economic planning helps to identify those deficiencies in the economy and the social structure which need the maximum attention from the standpoint of economic growth.
- A plan is a scheme of investment and it requires mobilisation of necessary financial resources. Planning helps to indentify critical issues of development and provides a quantitative dimension. It leads to a higher degree of capital formation which otherwise may not be attainable.
- Planning facilitates institutional changes by drawing attention to the social requirements of growth. The very process of planning and the implementation of plans enlarge the scope of the public participation and cooperation.
- Central planning can extract a higher investment now to promote a more rapid growth rate in future. It helps to ensure that potential riders (people who do not want to make sacrifice on the fear that others may not do so) play their part.
- With improvement in the techniques of planning and availability of more precise statistical data, inter-relationship within the national economy can be seen more clearly. It becomes possible to judge the impact of different policies and measures.