Dr.

RAM MANOHAR LOHIYA NATIONAL LAW

UNIVERSITY

ECONOMICS
FINAL DRAFT ON
MIXED ECONOMIES OF THE WORLD

SUBMITTED TO:
Dr. MADHURI SRIVASTAVA
Professor (Economics)
Dr. Ram Manohar Lohiya National
Law University, Lucknow

SUBMITTED BY:
ABHISHEK V SINGH
1st Semester
Roll No: 09
Div A

Introduction:
Mixed economic system is an economic system that includes a mixture of
capitalism and socialism. This type of economic system includes a combination of
private economic freedom and centralized economic planning and government
regulation. The concept of mixed economy arose in the political debate in United
Kingdom in the post-war period. The economists were trying to find out the way to
develop industries and promote public welfare. And a combination of Capitalist
and Socialist economy was the answer. The underlying premise of the
mixed economy is that the means of production are mainly under
private ownership; that markets remain the dominant form of
economic coordination; and that profit-seeking enterprises and
the accumulation of capital would remain the fundamental driving
force behind economic activity. Additionally, the government
would wield considerable influence over the economy through
fiscal and monetary policies designed to counteract economic
downturns and capitalism's tendency toward financial crises and
unemployment, along with playing a role in social welfare
interventions. Subsequently, some mixed economies have
expanded to include indicative economic planning or large public
enterprise sectors.

Aim:
The aim of this project is to study the basics of capitalist, socialist and mixed
economic system.

Mixed economy is a form of economy where the features of

both capitalism and socialism can be seen.

Objectives:

To study the capitalist economic system

Definition
Types of system
Advantages and Disadvantages

To study the socialist economic system

Definition
Types of system
Advantages and Disadvantages

To study the mixed economic system

Definition
Advantages and Disadvantages

India as a mixed economy

About Indian economy
Public sector
Features of Public sector
Problems faced by Public sector
Private sector
Features of Private sector
Problems faced by the private sector
Issues related
Problems faced by Indian economy

Capitalist economic system

A capitalist economy is an economic system in which the production and
distribution of commodities take place through the mechanism of free markets.
Hence it is also called as market economy or free trade economy. Each individual
be it a producer, consumer or resource owner has considerable economic freedom.

An individual has the freedom to buy and sell any number of goods and services
and to choose any occupation. Thus a market economy has no central coordinator
guiding its operation. But self-organization emerges amidst the functioning of
market forces namely supply, demand and price.
Types of capitalismMercantilism
Mercantilism is a nationalist form of early capitalism that came into existence
approximately in the late 16th century. It is characterized by the intertwining of
national business interests to state-interest and imperialism, and consequently, the
state apparatus is utilized to advance national business interests abroad. An
example of this is colonists living in America who were only allowed to trade with
and purchase goods from their respective mother countries (Britain, France, etc.).
Mercantilism holds that the wealth of a nation is increased through a positive
balance of trade with other nations, and corresponds to the phase of capitalist
development called the Primitive accumulation of capital.
Free-market capitalism
Free-market capitalism refers to an economic system where prices for goods and
services are set freely by the forces of supply and demand and are allowed to reach
their point of equilibrium without intervention by government policy. It typically
entails support for highly-competitive markets, private ownership of productive
enterprises. Laissez-faire is a more extensive form of free-market capitalism where
the role of the state is limited to protecting property rights.
Social-market economy
A social-market economy is a nominally free-market system where government
intervention in price formation is kept to a minimum but the state provides
significant services in the area of social security, unemployment benefits and
recognition of labor rights through national collective bargaining arrangements.
This model is prominent in Western and Northern European countries, albeit in
slightly different configurations. The vast majority of enterprises are privatelyowned in this economic model.
State capitalism

State capitalism consists of state ownership of the means of production within a

state. The debate between proponents of private versus state capitalism is centered
around questions of managerial efficacy, productive efficiency, and fair distribution
of wealth.
According to Aldo Musacchio, a professor at Harvard Business School, it is a
system in which governments, whether democratic or autocratic, exercise a
widespread influence on the economy, through either direct ownership or various
subsidies. Musacchio also emphasises the difference between today's state
capitalism and its predecessors. Gone are the days when governments appointed
bureaucrats to run companies. The world's largest state-owned enterprises are
traded on the public markets and kept in good health by large institutional
investors.

Corporate capitalism
Corporate capitalism is a free or mixed-market economy characterized by the
dominance of hierarchical, bureaucratic corporations, which are legally required to
pursue profit. State-monopoly capitalism was originally a Marxist concept
referring to a form of corporate capitalism in which state policy is utilized to
benefit and promote the interests of dominant or established corporations by
shielding them from competitive pressures or by providing them with subsidies.

The salient features of capitalism are Right to Private Property: Individuals have the right to buy and own
property. There is no limit and they can own any amount of property. They
also have legal rights to use their property in any way they like. It is an
economic system in which each individual in his capacity as a consumer,
producer and resource owner is engaged in economic activity with a great
degree of economic freedom. The factors of production are privately owned
and managed by individuals.
Profit-Motive: Profit is the only motive for the functioning of capitalism.
Production decisions involving high risks are taken by individual only to

earn large profits. Hence, profit-motive is the basic force that drives the
capitalist economy. The main motive behind the working of the capitalist
system is the profit motive. The entrepreneurs initiate production with a
view to maximize profits. Income is received in monetary form through the
sale of services of the factors of production and fro: profits of private
enterprise.
Freedom of Choice: The question what to produce? will be determined by
the producers. They have the freedom to decide. The factors of production
can also be employed anywhere freely to get due prices for their services.
Similarly consumers have the freedom to buy anything they want.
Market Forces: Market forces like demand, supply and price are the signals
to direct the system. Most of the economic activities are centred on price
mechanism. Production, consumption and distribution questions are
expected to be solved by market forces.
Minimal role of Government: As most of the basic economic problems are
expected to be solved by market forces, the government has minimal role in
the economy. In this system, economic decisions and activities are guided by
price mechanism which operates automatically without any direction and
control by the central authorities. Their role will be limited to some
important functions. They include regulation of market, defence, foreign
policy, currency, etc.

Advantages of Capitalist Economy

Increase in productivity: In a capitalist economy every farmer, trader or
industrialist can hold property and use it in any way he likes. He increases
the productivity to meet his own self-interest. This in turn leads to increase
in income, saving and investment.
Maximizes the Welfare: It is claimed that there is efficiency in production
and resource use without any plan. The self-interest of individual also
promotes societys welfare.

 Flexible System: The shortages and surpluses in the economy are generally
adjusted by the forces of demand and supply. Thus it operates automatically
through the price mechanism.
Non-interference of the State: The State has a minimum role to play. There
is no conflict between the individual interest and the society. The economic
institutions function automatically preventing the interference of the
government. Low cost and qualitative products: The consumers and
producers have full freedom and therefore it leads to production of quality
products at low costs and prices.
Technological improvement: The element of competition under capitalism
drives the producers to innovate something new to boost the sales and
thereby bring about progress.
Disadvantages of Capitalist Economy
Inequalities: Capitalism creates extreme inequalities in income and wealth.
The producers, landlords, traders reap huge profits and accumulate wealth.
Thus the rich become richer and the poor poorer. The poor with limited
means are unable to compete with the rich. Thus capitalism widens the gap
between the rich and the poor creating inequality.
Leads to Monopoly: Inequality leads to monopoly. Mega corporate units
replace smaller units of production. Firms combine to form cartels, trusts
and in this process bring about reduction in number of firms engaged in
production. They ultimately emerge as multinational corporations (MNCs)
or transnational corporations (TNCs). They often hike prices against the
welfare of consumer.
Depression: There is over-production of goods due to heavy competition.
The rich exploit the poor. The poor are not able to take advantage of the
production and hence are exploited. At another level, over-production leads
to glut in the market and hence depression. This leads to economic
instabilities.
Mechanization and Automation: Capitalism encourages mechanization
and automation. This will result in unemployment particularly in labour
surplus economies.

 Welfare ignored: Under capitalism, private enterprises produce luxury

goods which give higher profits and ignore the basic goods required which
give less profit. Thus the welfare of public is ignored.

Exploitation of Labour: Stringent labour laws are enacted for the exclusive
profit-motive of capitalists. Fire and hire policy will become the order of the
day. Such laws also help to exploit the labour by keeping their wage rate at
its lowest minimum.
Basic social needs are ignored: There are many basic social sectors like
literacy, public health, poverty, drinking water, social welfare, and social
security. As the profit margin in these sectors is low, capitalists will not
invest. Hence most of these vital human issues will be ignored in a capitalist
system.
Few capitalist countries
1) USA
2) United Kingdom

4) Germany
5) Japan

3) Sweden

Socialist economic system

In a socialist economy, the means of production are owned and operated by the
State. All decisions regarding production and distribution are taken by the central
planning authority. Hence the socialist economy is also called as planned economy
or command economy.
The government plays an active role. Social welfare is given importance; hence
equal opportunity is given to all. All such advantages have delivered high level of
human development. Some of the most successful socialist economies are China,
Cuba, Vietnam and North Korea.

History of socialism
History of socialist economic thought
Values of socialism have roots in pre-capitalist institutions such as the religious
communes, reciprocal obligations, and communal charity of Mediaeval Europe, the
development of its economic theory primarily reflects and responds to the
monumental changes brought about by the dissolution of feudalism and the
emergence of specifically capitalist social relations.[44] As such it is commonly
regarded as a movement belonging to the modern era. Many socialists have
considered their advocacy as the preservation and extension of the radical humanist
ideas expressed in Enlightenment doctrine such as Jean-Jacques Rousseau's
Discourse on Inequality, Wilhelm von Humboldt's Limits of State Action, or
Immanuel Kant's insistent defence of the French Revolution
Types of socialism
Utopian socialism
The first theories which came to hold the term "socialism" began to be formulated
in the late 18th century, and were termed "socialism" early in the 19th century. The
central beliefs of the socialism of this period rested on the exploitation of those
who labored by those who owned capital or rented land and housing. The abject
misery, poverty and disease to which laboring classes seemed destined was the
inspiration for a series of schools of thought which argued that life under a class of
masters, or "capitalists" as they were then becoming to be called, would consist of
working classes being driven down to subsistence wages.

Socialism and classical political economy

The first organized theories of socialist economics were significantly impacted by
classical economic theory, including elements in Adam Smith, Robert Malthus and
David Ricardo. In Smith there is a conception of a common good not provided by
the market, a class analysis, a concern for the dehumanizing aspects of the factory
system, and the concept of rent as being unproductive. Ricardo argued that the
renting class was parasitic. This, and the possibility of a "general glut", an over
accumulation of capital to produce goods for sale rather than for use, became the
foundation of a rising critique of the concept that free markets with competition

would be sufficient to prevent disastrous downturns in the economy, and whether

the need for expansion would inevitably lead to war.
Socialist political economy before Marx
A key early socialist theorist of political economy was Pierre-Joseph Proudhon. He
was the most well-known of nineteenth century mutualist theorists and the first
thinker to refer to himself as an anarchist. Others were: Technocrats like Henri de
Saint Simon, agrarian radicals like Thomas Spence, William Ogilvie and William
Cobbett; anti-capitalists like Thomas Hodgskin; communitarian and utopian
socialists like Robert Owen, William Thompson and Charles Fourier; anti-market
socialists like John Gray and John Francis Bray; the Christian mutualist William
Batchelder Greene; as well as the theorists of the Chartist movement and early
proponents of syndicalism.
Das Kapital
Karl Marx employed systematic analysis in an ambitious attempt to elucidate
capitalism's contradictory laws of motion, as well as to expose the specific
mechanisms by which it exploits and alienates. He radically modified classical
political economic theories. Notably, the labor theory of value that had been
worked upon by Adam Smith and David Ricardo, was transformed into his
characteristic "law of value" and used for the purpose of revealing how commodity
fetishism obscures the reality of capitalist society.
His approach, which Engels would call "scientific socialism", would stand as the
branching point in economic theory: in one direction went those who rejected the
capitalist system as fundamentally anti-social, arguing that it could never be
harnessed to effectively realize the fullest development of human potentialities
wherein "the free development of each is the condition for the free development of
all."
Anarchist economics
Anarchist economics is the set of theories and practices of economics and
economic activity within the political philosophy of anarchism.

Pierre Joseph Proudhon was involved with the Lyons mutualists and later adopted
the name to describe his own teachings.[55] Mutualism is an anarchist school of
thought that originates in the
writings of Pierre-Joseph Proudhon, who envisioned a society where each person
might possess a means of production, either individually or collectively, with trade
representing equivalent amounts of labor in the free market.[Integral to the scheme
was the establishment of a mutual-credit bank that would lend to producers at a
minimal interest rate, just high enough to cover administration. Mutualism is based
on a labor theory of value that holds that when labor or its product is sold, in
exchange, it ought to receive goods or services embodying "the amount of labor
necessary to produce an article of exactly similar and equal utility". Receiving
anything less would be considered exploitation, theft of labour, or usury.
Collectivist anarchism (also known as anarcho-collectivism) is a revolutionary
doctrine that advocates the abolition of the state and private ownership of the
means of production. Instead, it envisions the means of production being owned
collectively and controlled and managed by the producers themselves. Once
collectivization takes place, workers' salaries would be determined in democratic
organizations based on the amount of time they contributed to production. These
salaries would be used to purchase goods in a communal market. [Collectivist
anarchism is most commonly associated with Mikhail Bakunin, the antiauthoritarian sections of the First International, and the early Spanish anarchist
movement.
The following are the basic characteristic features of socialism.
Social Welfare Motive: In socialist economies, social or collective welfare
will be the prime motive. Unlike capitalism, profit will not be the aim of
policy making. The decisions will be taken keeping the maximum welfare of
the people in mind. Thus social well-being of people will be the purpose of
development.
Limited Right to Private Property: The right to private property is limited.
All properties of the country will be owned by the State. That is, the
ownership is collective in nature. Hence no individual can accumulate too
much property as in the case of capitalism.
Central Planning: Most of the economic policy decisions will be taken by a
centralized planning authority. Each and every sector of the economy will be
directed by well designed planning. No Market Forces: In a centralized

planned system of development, market forces have only a limited role to

play. Production, commodity and factor prices, consumption and distribution
will be governed by development planning with welfare motive.

Merits/Benefits of Socialist Economy

Efficient use of resources: The resources are utilized efficiently to produce
socially useful goods without taking the profit margin into account.
Production is increased by avoiding wastes of competition.
Governmental Rule: Under socialism since it is the government which
owns majority of factors of production the chances of consumer being
charged more is reduced as government will add minimum margin of profit
on the produce unlike private companies.
Economic Stability: Economy is free from business fluctuations.
Government plans well and everything is well coordinated to avoid overproduction or unemployment. There is stability because the production and
consumption of goods and services are well regulated.
Maximization of Social Welfare: All citizens work for the welfare of the
State. Everybody receives his or her remuneration. The State concentrates on
the production of basic necessaries instead of luxury goods. The State
provides free education, cheap and congenial housing, public health
amenities and social security for the people.
Absence of Monopoly: The elements of corporation and monopoly are
eliminated since there is absence of private ownership. The state is a
monopoly but produces quality goods at reasonable price. Chances of
monopoly by few producers or people is next to nil under this system as
government holds majority of resources, people are not in position to take
control of resources and created monopoly like situation.
Basic needs are met: In socialist economies, basic human needs like water,
education, health, social security, etc, are provided. Human development is
more in socialist countries.

 No extreme inequality: As social welfare is the ultimate goal, there is no

concentration of wealth. Extreme inequality is prevented in socialist system.
The gap between poor and rich is there but it is not that gigantic as in the
case of capitalist economic system.

Disadvantages of Socialism
Bureaucratic Expansion: A socialist economy is operated under a
centralized command and control system. People here work out of fear of
higher authorities. It does not give any initiative for the people to work hard.
It suffers from delay in decision making on the part of government and
bureaucratic attitude of government employees.
No Freedom: There is no freedom of occupation. Allocation of factors of
production is not done rationally. Jobs are provided by the State. Place of
work is also provided by the State. The consumers choice is very limited.
Absence of Technology: Work is monotonous and no freedom is given. Any
change in the production process will alter the entire plan. Hence any
innovation cannot be easily enforced. Everything is rigid and technological
changes are limited.
Absence of competition makes the system inefficient. Imagine if in the race
if there is no competition than you would not run with full speed but rather
slowly in the same way under socialism economic system there is lack of
competition which hampers the growth of the country.

Mixed Economic system

Mixed economy is an economic system in which both the state and private sector
direct the economy, reflecting characteristics of both market economies and
planned economies.[1] Most mixed economies can be described as market
economies with strong regulatory oversight, and many mixed economies feature a
variety of government-run enterprises or government provision of public goods.
The basic idea of the mixed economy is that the means of production are mainly
under private ownership; that markets remain the dominant form of economic
coordination; and that profit-seeking enterprises and the accumulation of capital
remain the fundamental driving force behind economic activity. However, unlike a
free-market economy, the government would wield considerable indirect influence
over the economy through fiscal and monetary policies designed to counteract
economic downturns and capitalism's tendency toward financial crises and
unemployment, along with playing a role in interventions that promote social
welfare.[2] Subsequently, some mixed economies have expanded in scope to include
a role for indicative economic planning and/or large public enterprise sectors.
The term "mixed economy" arose in the context of political debate in the United
Kingdom in the post-war period, although the set of policies later associated with
the term had been advocated from at least the 1930s. Supporters of the mixed
economy, including R. H. Tawney, Anthony Crosland and Andrew Shonfield were
mostly associated with the British Labour Party, although similar views were
expressed by Conservatives including Harold Macmillan. The term mixed
economy is used to describe economic systems which stray from the ideals of
either the market, or various planned economies, and "mix" with elements of each
other. As most political-economic ideologies are defined in an idealized sense,
what is described rarely if ever exists in practice. Most would not consider it
unreasonable to label an economy that, while not being a perfect representation,
very closely resembles an ideal by applying the rubric that denominates that ideal.
However, when a system in question diverges to a significant extent from an
idealized economic model or ideology, the task of identifying it can become
problematic. Hence, the term "mixed economy" was coined. As it is unlikely that
an economy will contain a perfectly even mix, mixed economies are usually noted
as being skewed towards either private ownership or public ownership, toward
capitalism or socialism, or toward a market economy or command economy in
varying degrees.

Advantages of Mixed Economy

1. Since mixed economy involves both government and private enterprises it
has the advantage of taking the benefits of capitalist nature of private
companies and socialist nature of government.
2. There is less inequality of income because intent of government is to have a
balanced economic growth of an economy.
3. Mixed economy allows individuals to run their business and make profits
but at the same time it places some responsibility on these companies by
inducing them to contribute towards the welfare of society.

Disadvantages of Mixed Economy

1. Since welfare of society is important in a mixed economy it leads to lower
than optimum use of the resources because government mobilize the
resources towards the production of those goods and services which are
beneficial for the society as a whole rather than producing those goods and
services which in economic terms are more beneficial for an economy.
2. Under mixed economy private enterprises have to face lot of difficulty
because of various government loopholes like favoritism and bureaucratic
nature which is prevalent in mixed economy.
As one can see that mixed economy like socialist and capitalist economies has both
advantages and disadvantages and therefore it will be always debatable whether a
country should follow mixed economy structure or not.

India as a mixed economy

The economy of India is the eleventh largest in the world by nominal GDP and the
third largest by purchasing power parity (PPP).[1] The country is one of the G-20

major economies and a member of BRICS. On a per capita income basis, India
ranked 140th by nominal GDP and 129th by GDP (PPP) in 2011, according to the
IMF.
During British rule, i.e. up to 1947, the Indian economy was purely capitalistic.
The British exploited the rich resources of the country to drain it of its wealth and
make Britain a prosperous country. Although there was private ownership of
factors of production, they were not allowed to earn profit but were directed to
remain subservient to the British cause. As there was no local Indian government,
there was no state ownership of resources as such. When India achieved
independence in 1947 the economy was in a bad shape. There was no capital, no
infrastructure, no industry worth the name. We know that India is a developing
country and has been following the mixed economy approach. Some basic
characteristics of the Indian economy are as follows: India is basically an agrarian
economy. Its dependency on agriculture is substantial. More than 60 per cent of the
working population is engaged in agriculture. Compared to developed countries,
this is very high. The structure of employment has not changed drastically in the
last fifty years. In 1951, 73 per cent of the workers in the country were engaged in
primary activities, about 11 per cent in secondary activities, and 16 per cent in
tertiary activities. In 1999-2000, the share of persons engaged in primary activities
declined to 60 percent; the share of persons engaged in secondary and tertiary
activities became 17 per cent and 23 per cent respectively. India has taken the
concept of mixed economy as a major implication to develop the economic status,
Public and Private.

Public sector
The public sector plays a dominant role in Indian economy. The Public Sector
emerged as the driver of economic growth consequent to the industrial revolution
in Europe. After independence, the Government of India adopted the concept of
mixed economy, with public and private sectors playing complementary roles and
remaining active partners in the common task of development. At the time of
independence, the private sector had neither the resources nor the will to undertake
the task of industrial development on a massive scale. Since 1991, there has been a
drastic change in the government policy; it tilted towards privatization,
liberalization and globalization. Fifty years of economic planning in India has
resulted in a remarkable improvement in social sectors such as education and
health. Literacy is one of the important measures of social development. In 1951,

only nine per cent of females and 27 per cent of males were literate. In 2001, about
75, per cent of males and 54 per cent of females have become literate. The
government's efforts in providing health facilities have raised our average life
expectancy from 32 years in 1950-51 to 61 years in 1993-94.

Main features of the public sector(1) Economic Development: Economic development mainly depends upon
industrial development. Heavy & basic industries like iron & steel, shipping,
mining, etc. are required for supplying raw materials to small industries. Huge
capital is required for establishment of such heavy & basic industries. This capital
required for these industries is easily & readily made available by public sector but
it is practically not possible for a private sector to run these industries.
(2) Regional Development: Private sector usually neglect backward area. But
public sector organizations set up their units in economically backward areas. By
this public sector removes regional imbalance & brings regional development.
(3) Employment: Various public sectors operating in India needs lot of manpower
& this provide employment to unlimited individuals according to their education,
experience
&
abilities.
(4) Service Motive: Public sector organizations are working with the only motive
of providing public utility services to society at large irrespective of profit.
(5) Monopoly: Public sector is purely government monopoly. It does not face any
type of competition from any private sector. Public sector is working on monopoly,
semi-monopoly
or
oligopoly
basis.
(6) Sound Infrastructure: Rapid industrial growth in a country needs sound
infrastructure. Infrastructural industries require huge capital for construction of
Roads, Railways, Electricity & many such industries. Private sector is unable to
have such huge capital & that also without any high return but public sector can
easily
afford
to
provide
all
infrastructural
facilities.
(7) Modal Employer: Like a good parent, public sector is very much concerned

with its employees. It take proper care of its employees & provides job security,
sound wages, proper working conditions, training and welfare facilities.
(8) Protection to Sick Industries: Public sector, to prevent sick unit closing down,
takes over their responsibility & prevent many people from getting unemployed
not only this but it prevents unnecessary locking of capital, land, building,
machinery,
etc.
(9) Government Control: Public sector is wholly controlled & managed by the
Board of Directors or other officers appointed by government.
(10) Economies of Operation: Public sector due to its large scale operations
enjoys economies of large scale operation.

Problems faced by public sector

Transport problems: There is no well established infrastructure in many
places, mostly rural. To keep up the supply of raw-materials on time, the
transportation cost increases. Also during transportation, sometimes it
happens that the quantity or quality (or both in some cases) gets defected.
This leads to increase in the production cost.
Lack of government support: Example provision of subsidies.
Government support is hardly available in the rural areas which are one the
major producers in the Public sector but lack of Government support affects
the products.
Poor market and low prices of the agricultural raw materials: The
Indian public sector is facing problems of poor marketing and the pressure
increases from the markets neighbouring countries. Because of the quality
loss in agriculture raw materials, the government is forced to reduce the
price and this harms economy.
Over-dependence on nature: Where the farmers depend on nature for plant
growth instead of applying alternatives like irrigation systems. Indian
agriculture is still not fully developed, still depends on monsoon, which is
unpredictable in nature.
Private sector

The importance of private sector in Indian economy over the last 15 years has
been tremendous. The opening up of Indian economy has led to free inflow of
foreign direct investment (FDI) along with modern cutting edge technology, which
increased the importance of private sector in Indian economy considerably.
Previously, the Indian markets were ruled by the government enterprises but the
scene in Indian market changed as soon as the markets were opened for
investments. This saw the rise of the Indian private sector companies, which
prioritized customer's need and speedy service. This further fueled competition
amongst same industry players and even in government organizations.
The post 1990 era witnessed total investment in favour of Indian private sector.
The investment quantum grew from 56% in the first half of 1990 to 71 % in the
second half of 1990. This trend of investment continued for over a considerable
period of time. These investments were especially made in sector like financial
services,
transport
and
social
services.
The late 1990s and the period thereafter witnessed investments in sector like
manufacturing, infrastructure, agriculture products and most importantly in
Information technology and telecommunication. The present trend shows a marked
increase in investment in areas covering pharmaceutical, biotechnology,
semiconductor, contract research and product research and development.
The importance of private sector in Indian economy has been very commendable
in generating employment and thus eliminating poverty.
Features of the private sector Increased quality of life
Increased access to essential items
Increased production opportunities
Lowered prices of essential items
Increased value of human capital
Improved social life of the middle class Indian

 Decreased the percentage of people living below the poverty line in India
Changed the age old perception of poor agriculture based country to a rising
manufacturing based country
Effected increased research and development activity and spending
Effected better higher education facilities especially in technical fields
Ensured fair competition amongst market players
Dissolved the concept of monopoly and thus neutralized market
manipulation practices
The importance of private sector in Indian economy can be witnessed from the
tremendous growth of Indian BPOs, Indian software companies, Indian private
banks and financial service companies. The manufacturing industry of India is
flooded with private Indian companies and in fact they dominate the said industry.
Manufacturing companies covering sectors like automobile, chemicals, textiles,
agro-foods, computer hardware, telecommunication equipment, and petrochemical
products
were
the
main
driver
of
growth.
The Indian BPO sector is more concentrated with rendering services to overseas
clients. The KPO sector is engaged in delivering knowledge based high-end
services to clients. It is estimated, that out of the total US $ 15 billion KPO service
business around US $ 12 billion of business would be outsourced to India by the
end of 2010.
Problems faced by Indian Private sector
The private sector had not been given a significant role in the economic
development. The government has entrusted the basic and capital goods
industries to the public sector and made it the prime mover of economic
development. As a consequence, the private sector has to be satisfied with
the secondary role assigned to it.
The most important problem was delays due to regulatory structure. There
have been too many regulations imposed by the government on the private
sector which often resulted in procedural delays. It is estimated that on an

average it takes seven years from the conceptual stage to the production
stage for any significant investment project to materialise in India.
Unrealistic controls influenced by contradictory motives hampered private
sector initiative and flexibility. For example, the price controls imposed by
the government on many of the goods do not give proper incentive for
additional production. Capacity restrictions (with a view to prevent
concentration of wealth and economic power) further aggravated the
problem. Actually, the government should encourage competition among the
rival firms and the resulting increase in production would automatically
bring down prices. In complete contrast to this, price controls under
conditions of shortage tend to perpetuate shortages, rise of black markets,
and possible shifting of investment from controlled items to the production
of non-controlled items.
Reservation for small scale sector and special initiatives to units in that
sector made the large scale sector to stand at a disadvantage. Further the
complementary of the two sectors in the process of growth has been lost.
The decentralised sector has been facing the problem of inadequate credit
facilities despite the existence of a network of financial institutions. With the
economic reforms initiated in 1991, the private sector's prospects appear to
be very bright.

Issues related to Indian economy

The income and wealth in India is not distributed equally among all the people.
Wealth and other resources are concentrated in the hands of a few. In the early
1990s more than 40 per cent of the assets were owned by the top 20 per cent
people, whereas 20 per cent people, who were mostly poor, owned only 9 per cent
of the assets.
Technological advancement is a prerequisite for the development of an economy.
In India, technologies used in the production of goods and services are quite

backward, particularly in agriculture. Majority of the farmers are still following

outdated methods of production. In the case of manufacturing and service sectors,
though we use modern technology, we are still far behind as compared to the
developed countries. What we have studied so far is just the beginning of the
understanding about our economy. When we look at the other side of planned
development in India, we find that more than one-third of the population is
illiterate In the case of women; nearly half of them are illiterate. Overpopulation is
also a major problem confronting the country, about which you have studied in the
previous classes. Other major problems that need to be tackled are increasing
unemployment and poverty.

Problems Faced by Indian Economy

1. Inflation: Fuelled by rising wages, property prices and food prices inflation in
India is an increasing problem. Inflation is currently between 6-7%. A record 98%
of Indian firms report operating close to full capacity (2)With economic growth of
9.2% per annum inflationary pressures are likely to increase, especially with
supply side constraints such as infrastructure. The wholesale-price index (WPI),
rose to an annualised 6.6% in Jan 2007.
2. Poor educational standards: Although India has benefited from a high percent
of English speakers. (important for call centre industry) there is still high levels of
illiteracy amongst the population. It is worse in rural areas and amongst women.
Over 50% of Indian women are illiterate
3. Poor Infrastructure: Many Indians lack basic amenities lack access to running
water. Indian public services are creaking under the strain of bureaucracy and
inefficiency. Over 40% of Indian fruit rots before it reaches the market; this is one
example of the supply constraints and inefficiencys facing the Indian economy.
4. Balance of Payments deterioration: Although India has built up large amounts
of foreign currency reserves the current account deficit has deteriorate in recent
months. This deterioration is a result of the overheating of the economy. Aggregate
Supply cannot meet Aggregate demand so consumers are sucking in imports.

Excluding workers remittances Indias current account deficit is approaching 5%

of GDP

5. High levels of debt: Buoyed by a property boom the amount of lending in India
has grown by 30% in the past year. However there are concerns about the risk of
such loans. If they are dependent on rising property prices it could be problematic.
Furthermore if inflation increases further it may force the RBI to increase interest
rates. If interest rates rise substantially it will leave those indebted facing rising
interest payments and potentially reducing consumer spending in the future

6. Inequality has risen rather than decreased: It is hoped that economic growth
would help drag the Indian poor above the poverty line. However, so far economic
growth has been highly uneven benefiting the skilled and wealthy
disproportionately. Many of Indias rural poor are yet to receive any tangible
benefit from the Indias economic growth. More than 78 million homes do not
have electricity. 33% (268million) of the population live on less than $1 per day.
Furthermore with the spread of television in Indian villages the poor are
increasingly aware of the disparity between rich and poor.
7. Large Budget Deficit: India has one of the largest budget deficits in the
developing world. Excluding subsidies it amounts to nearly 8% of GDP. Although
it has fallen a little in the past year, it still allows little scope for increasing
investment in public services like health and education.
8. Rigid labour Laws: As an example Firms employing more than 100 people
cannot fire workers without government permission. The effect of this is to
discourage firms from expanding to over 100 people. It also discourages foreign
investment. Trades Unions have an important political power base and
governments often shy away from tackling potentially politically sensitive labour
laws.

Conclusion:
No economy in this world is completely capitalist or completely socialist. There is
always a systematic pattern followed. Development and welfare of people is
equally important with the development of the industrial sector. There were always
some flaws in each type of economy besides the advantages. Economy is never
stable and is the most difficult to predict. Many factors affect economy like
production, demand, politics; etc. There has to be a constant balance between
capitalism and socialism. Capitalism helps in the economic development but it
ignores the development of a particular individual while socialism promotes the
welfare of an individual but fails to develop economy. Also, in socialism, the
decision making process is slower than capitalism because of the governmental
organization.
After independence, there was nothing left in Indian markets, no industries, no
privatization, no public welfare. Most of the Indian population resided in villages
and the economy of the villages was self-sustaining. Agriculture was the
predominant occupation of the populace and satisfied a village's food necessities. It
also provided raw materials for industries like textile, food processing and crafts.
Besides farmers, other classes of people were barbers, carpenters, doctors,
goldsmiths, weavers, etc. In towns and urban centres trade took place through
coins but in villages barter was the main system of economic activities. After
independence, India adopted the mixed economic system. Both public and private
sector co-exist side by side. In order to achieve rapid economic growth, planned
development economy was introduced. Both public and private sectors were
allotted to carry business activities. Public sector was allotted activities like coal,

mining, steel, power, roads etc. Private sector was allotted to establish industries
subject to control and regulations in the form of law. Public sector was given
importance in order to eliminate poverty, unemployment etc. Public sector
contributed to the industrialisation of the economy. It also helped Indian economy
to achieve a considerable degree of self-sufficiency. India is one of the major
mixed economies of the world. Still, there exist problems like inflation, corruption,
rise of demands, competition in the international market, lack of marketing
strategy, illiteracy and other socio-political issues which damage and degrade the
socio-economic status of India. But India is still one of the most important
economies of the world.

References
Books:
Indian economy by S.K Misra
Websites:
http://www.ibef.org/
www.askmen.org
www.wikipedia.org
www.timesofindia.com
www.indianblog.org