Hungary, which already leads the East bloc in adopting free-market ideas, plans to open its political system to give voters a choice of candidates in nearly all elections.
Under the new plan, the Communist Party would be required to put up at least two candidates for elections of nearly all government positions, from the local level to the national parliament.
The plan, which would take effect in the next elections in 1985, would replace the practice of having only a one-person ballot commonly found in communist nations. But some three dozen national positions, presumably the top leadership, would be exempt from the rule.
A Hungarian student, who operates his own taxi under the new economic rules, commented: ''Little by little every year, we're allowed a little more personal interest and freedom.''
The government had learned from Poland's situation, he said, adding, ''Our trade unions get more recognition, and now there will be a little more democracy with more candidates.''
The Central Committee approved the plan on July 6 after a half-year study that was urged by intellectuals who sought broader participation in the political system to go along with the greater private initiative now allowed in Hungary's economy. Details of the plan were revealed by Mihaly Korom, one of the Central Committee secretaries, in an interview with the party newspaper, Nepszabadsag.
Western observers discounted any ''Polish connection,'' seeing the election liberalization as only a ''rational evolution'' following recent economic reforms. Those reforms, which have been broadened since 1981, include overtime work on a per-piece basis in factories and the formation of small enterprises by individuals to take over state enterprises - including restaurants, shops, or taxis - on a contract lease arrangement when the state enterprise fails to meet public needs.
The election reforms, which will require a series of grass-roots party meetings to select candidates, came as party first secretary Janos Kadar left for his annual summer visit to Moscow. Mr. Kadar has already received approving nods from new Soviet leader Yuri Andropov, who has expressed interest in the more flexible Hungarian economic model.
The timing of the political reforms is perhaps a measure of the confidence Mr. Kadar feels in maintaining the balancing act he has held with the Soviet Union while he has steadily introduced economic reforms.
Kadar, who came to power after Soviet tanks crushed the 1956 revolution, has quietly but decidedly developed Hungary's New Economic Mechanism, which even during the world recession made Hungary something of a showcase in Eastern Europe.
Hungary, for instance, is one of the few East European countries still able to obtain loans from Western banks. With a population of 10.7 million, it has a foreign debt of some $8 billion. When it ran into a liquidity problem in 1982 - at a time when Western bankers were nervous about other East European debts - there was enough confidence in the Hungarian economic management for it to receive the necessary bridge loans, a Western diplomat said.
In 1979, Hungary's leaders realized changes in economic policy had to be made. The government removed many food subsidies and raised prices. It also returned to the New Economic Mechanism, which had been shelved for a few years in the mid-1970s.
Dr. Gyorgy Rak, vice-chief of the state economic department, said the most important factor was the return to the principle of decentralization. The state controls the financial system, but through its planning gives only broad directives, allowing individual enterprises to develop their own plans and, more important, balance their own budgets.
In the past three years, 11 trusts and 25 large companies have been broken into 200 units, preventing weaker parts from hiding behind a large parent company, according to Finance Minister Istvan Hetenyi.
At the same time, Hungary has stabilized growth in capital investment. No new state projects are planned this year aside from energy conservation and agricultural development. Imports have been reduced and exports emphasized. The latter are projected to grow by 7 percent this year.
Domestic consumption is expected to fall by 4 percent this year as inflation heads toward an official 9 percent. But the government has decided not to lower consumer imports, and stores are filled with English teas, West German soaps, and French cosmetics.
Hungary, which bases 24 percent of its economy on agricultural products from large state cooperatives, has none of the food shortages that beset other East European countries. The streets give an appearance of prosperity, and there is none of the rationing of neighboring Communist countries.
The average wage earner makes only 5,300 forints, or $125, a month. Most women work, and up to 60 percent of workers moonlight on second jobs that raise their disposable income by 20 percent. The government has co-opted the thriving moonlighting, however, making the previously illegal second jobs legal and taxable.
Any Hungarian can enter so-called small enterprises under eight kinds of contract where the state has decided individual initiative would be more effective.
Since 1980, Hungarians have been able to bid for state contracts to lease failing restaurants and shops. The bidder who promises the most profit wins the contract. Since 1981, taxi service has been opened up, and there are now almost as many private taxis in Budapest as state taxis. This has created something of a taxi war as previously slow state drivers face competition from private drivers for tips.
At the beginning of 1983, there were about 11,000 small ventures with 80,000 workers. These enterprises ranged from the restaurants and taxis to livestock farmers.
A Western diplomat in Budapest said the political situation is very stable, adding that Kadar had taken steps within the Politburo to keep reforms in place in case Kadar, who is 71, leaves the scene.
Kadar has allowed publishing outlets for intellectuals. The number of dissidents is estimated at some 200, although some observers put the figure higher. In the past few years, a samizdat (underground press) has developed, complete with its own printing equipment. The critical quarterly Beszelo (Speaker) produces about 1,000 copies.
Since Mr. Andropov came to power in Moscow last year, there has been some crackdown of dissidents here, largely through police harassment. But there have been no trials of dissidents.
The ''bookshop'' run by Laszlo Rajk, which produced typewritten underground publications, was closed five months ago after police repeatedly locked the apartment where the small group worked.
The Dialogue for Peace, an independent group of young people, came under police harassment this month when it tried to stage a jamboree and invited 14 foreign guests. The guests were eventually expelled from the country, and the high school students who formed the group finally decided to disband and carry on their activities on an individual basis. Unlike the official Hungarian peace group, which praises the Soviets, they called on both the Soviet Union and the United States to negotiate peace.
Most Hungarians seem more concerned with their economic future than with politics. As a private cabdriver said, ''We say, OK, we go with the Russians. That is a political fact of life. But just let us continue to develop in our own way. That is what we are interested in.''