The objective of economic planning is to raise the standard of living of the masses. As such it has to be accompanied by qualitative and quantitative changes in the consumption pattern of the masses.
The task of the planning authorities is to arrive at equilibrium between consumption and production. Inelasticity’s and inadequacies of supply restrain the growth of consumption and hence a proper consumption planning is very important in the task of economic development.
Consumption control is an essential part of any scheme of planning. Control over consumption is exercised either for (i) expanding consumption or for (ii) restricting or even contracting consumption.
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When the control is exercised for expanding the level of consumption, it may be called expansive control and when it is exercised for restricting consumption, it is called restrictive control. Expansive control of consumption is exercised when the objective of planning is that of increasing the standard of living and social welfare of the people.
Restrictive control of consumption is resorted to when the objective of planning is that of developing backward areas, of industrialising the country, of strengthening the material and political power of the country or of meeting the shortage of any commodity. Restrictive consumption control is commonly used in every case of planned economy for the following objectives:
(i) To step up the rate of savings by cutting down consumption expenditure;
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(ii) To ensure effective control of prices of certain goods by controlling their demand; and
(iii) To ensure the adjustment of demand to the supply of certain scarce goods.
Restrictive consumption is a must in an economy which wants to industrialise itself within a very short period of time.
This is the only way by which adequate resources could be diverted from non-essential uses to accelerate economic development. Developing economies may not afford to reduce the existing low level of consumption for a continuously long time for investing their savings in capital-goods industries.
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When there is an expansive consumption control, it leads to some expansive production control and vice versa. Similarly when there is some restrictive consumption control, it leads to some restrictive production control and vice versa.
Restrictive consumption control may not only be quantitative but also qualitative in character. For example, it may cut down consumption of luxuries and other commodities considered harmful for health.
Consumption control may be direct or indirect. The direct control over consumption is exercised by rationing. Rationing is very common during the period of scarcity.
The indirect method of controlling consumption is effected by raising prices in case of restricting consumption by reducing prices in case of expanding consumption and similarly by lowering and raising wages by raising or reducing taxes or by inducing savings.
The policies of income, employment, wages and prices have profound effect on planning the future growth of consumption level, because they determine the changes in the quality and level of consumption.
The level and structure of consumption planning has to be integrated with investment planning in the optimal manner for economic development.