Centralized planning refers to management or organization of an economy by a centralized authority or agency. It is in sharp contrast to localized planning or root level planning more commonly known as decentralized planning in which plans are made by those who are going to be directly affected by them and not by absentee bureaucracy sitting in posh offices of the federal capital.
In view of the obvious merits of decentralized planning, planning process is being increasingly decentralized. In china, this has given rise to the concept of bare foot planner which is conversant with economic conditions and needs of people for whom the whole planning exercise is undertaken. Local and regional and individual plans are then added up to draw a comprehensive or macro level plan.
Thus plans are not imposed from above and the concerns groups or localities are actively associated with the whole planning process. Decentralized planning thus is more in turn with the democratic aspirations of the people. The distinguishing point about the two types is the level at which the planning process starts.
Each plan involves three essential components. It is composed of a capital budget and concerns financing and execution of projects in the public sector. Then component is recurrent budget or a budget of government expenditures also known as human investment budget. At last it is a package of rules and regulations for direction and guidance of the private sector.