Economic planning can arise the rate of capital formation appreciably above the rate attainable under a system of private saving and investment


Capital formation is the most important ingredient of growth and development, capital formation means the part of national income that is not used for consumption but is saved or spared to invest in some other productive sectors. If there is no capital formation or is slow, there can be no economic growth, because it requires capital to start any economic activity.

Without planning, based on market direct economy, we can achieve growth, or course, but only in those sectors where there is margin of higher and quick profit. Market led economy always tries to earn more and more profit. So, prices are higher of goods and services, in absence of regulation and control, sparing no money with people to save. No capital can be formed in public sector. Private sector which gains more profit, uses the same capital only in those sectors of economy which gives them easy, quick and more profits. Therefore, poverty alleviation, education rural and social development and like areas remain untouched in market based economy.

Which through planning important regulations can be imposed in the forms of requirements of licencing, higher taxes, quotas and so to reduce profit margin and money can be raised from such fields to be used for investment in other sectors which are quite necessary for development.


Even, tax structures can be formed and domestic savings can be used for investment in poverty eradication, social development, educational development, banking and other such fields to increase the standard of living. This can be made possible by raising capital through planning process in public sectors.

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