Indicative planning is a form of central economic planning implemented by a state in an effort to solve the problem of imperfect information in economies and thus increase economic performance.
When utilizing indicative planning, the state employs “influence, subsidies, grants, and taxes [to affect the economy], but does not compel.” This method of planning originated in France after the Second World War and was carried out by the Commission General du Plan.
Indicative planning should be distinguished from so-called “indirect planning,” embodied in the New Economic Mechanism in Hungary in 1968 and contemplated by Soviet reformers of the late 1980s.
Instead of establishing a mixed or regulated market economy, as in Western Europe, the Communist authorities continued to dominate the economy through investment and supply planning, as well as subsidies.
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In both Hungary and Gorbachev’s Russia, a weak budget constraint on wages and other costs led to inflationary pressure and shortages, along with rising external debts. These problems contributed to the collapse of indirect planning.
Following the example of the Soviet Union, several developing countries prepared multi-annual plans in the early postwar period. These plans were comprehensive and dirigisme. Their failure brought about changes in the planning process towards an approach that has been christened indicative planning.
Under indicative planning, sectoral targets are established but these are not compulsory for the private sector. In a subsequent stage, these targets have also been abandoned and emphasis has been given to prices and markets.
Indicative planning (for short, planning) involves the establishment of sectoral targets which are not compulsory for the private sector. These targets are embedded in macroeconomic projections that pertain to a period of several years.