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A Mixed Economy of India – Disadvantages and Advantages

A Mixed Economy of India – Disadvantages and Advantages

Mixed Economy Over-view

mixed economy is variously defined as an economic system blending elements of market economies with elements of planned economies, free markets with state interventionism, or private enterprise with public enterprise. There is not only one definition of a mixed economy, but there are two major definitions recognized for “mixed economy”. The first of these definitions refers to a mixture of markets with state interventionism, referring to capitalist market economies with strong regulatory oversight, interventionist policies and governmental provision of public services. The second definition is apolitical in nature and strictly refers to an economy containing a mixture of private enterprise with public enterprise.

In most cases and particularly with reference to Western economies, a mixed economy refers to a capitalist economy characterized by the predominance of private ownership of the means of production with profit-seeking enterprise and the accumulation of capital as its fundamental driving force. In this system, markets are subject to varying degrees of regulatory control and governments wield indirect macroeconomic influence through fiscal and monetary policiesdesigned to counteract capitalism’s history of boom/bust cycles, unemployment and income disparities. In this framework, varying degrees of public utilities and essential services are under public ownership and state activity is often limited to providing public goods and universal civic requirements like healthcare, physical infrastructure and management of public lands.

In reference to post-war Western and Northern European economic models as championed by Christian democrats and social democrats, the mixed economy is defined as a form of capitalism where most industries are privately owned with only a small number of public utilities and essential services under public ownership. In the post-war era, European social democracy became associated with this economic model. As an economic ideal, mixed economies are supported by people of various political persuasions, typically centre-left and centre-right, such as social democrats or Christian democrats.

A mixed economy can also refer to socialist economies with a substantial role for non-social or non-public forms of ownership in the means of production, or to Soviet-type planned economies that have been reformed to allow a greater role for market forces.

 Mixed Economy in India

In a mixed economy, private and public sectors go side by side. The government directs economic activity in some socially important areas of the economy, the rest being left to the price mechanism to operate.

Before Independence, Indian economy was a ‘laissez faire’ economy. But post-independence, she adopted the mixed economy system.

Thus, it is clear from the following arguments that our economy is a mixed economy.

(i) Coexistence of Public and Private Sectors:

The coexistence of large public sector with big private sector has transformed the economy into a mixed one. Industrial policies of 1948 and 1956 formulated by the Indian government have made the provision of such coexistence. Some basic and heavy industries are being run under the public sector. However, with the liberalisation of Indian economy, the scope of private sector has further enhanced.

(ii) Planned Development:

India had a poor industrial base at the time of Independence. A long period of economic stagnation under British rule had weakened the Indian Economy. Hence 5-year plans have been adjusted along with the Directive Principles of State Policy to rebuild the rural economy and lay foundations of industrial and scientific progress.

(iii) Plan Objectives:

In 1951, Five Year Plan was started in India and we are going with the eleventh Five Year Plan.

The basic objectives of these plans are summarized as:

(a) Economic growth;

(b) Modernisation;

(c) Self-reliance;

(d) Social justice;

(e) Elimination of Poverty;

(f) Creation of conditions of near full employment; and

(g) Satisfaction of basic needs like food, clothing, shelter, education health etc.

(iv) Role of Public Sector:

It has played an important role in the development of Indian economy. It increased the pace of economic growth and reduced disparities of income and wealth.

It seriously acts in the following areas, like:

(a) Development of infrastructure;

(b) Establishment of basic and heavy industries;

(c) Dispersing industries in several backward regions; and

(d) Imperative role in trading and marketing activities, including international trade.

(v) Private Sector:

It includes not only organised industry, but agriculture, small industry, trade and great deal of activity in housing and construction. Private sector provides employment to three-fourths of| our manpower. To control the private industrial units. Industries Development and Regulation! Act and Monopolies and Restrictive Trade Practices Act are already set up in India.

(vi) Combination between Public and Private Sector:

The second Five Year Plan and pointed out that both the sectors have to function jointly. In fact a high level of public investment it infrastructures and key industries is a1 precondition for development in the private sector.


Who Introduced Mixed Economy in India

Mixed economic system was introduced in Indian together with the announcement of Industrial Policy Resolution in 1948.

This was the first industrial policy of India after Independence. Entire Industrial Sector has been divided into four categories, such as:

(1) Industries under the management of government.

(2) Industries controlled by the government.

(3) Industries under the regulation and control of the government.

(4) Industries under the private sector.

During the period from 1948 to 1955, many changes have taken place in Indian economy, keeping in view the progress of industrial sector; the government has announced a new industrial policy on 30th April, 1956. The object of this policy was to give a speed to industrialisation in the country. In the new policy, industries have been divided into three categories;

(1) Seventeen industries in schedule I under the responsibility of the government for their future development. These were the basic industries in involving defence production, heavy engineering, transportation, minerals etc.

(2) Twelve industries in schedule II for joint participation by the government and private sector.

(3) Remaining industries in schedule III entirely the responsibility of their development has given to private sector.

This way, the industrial policy has been modified from time to time so as to adjust with the development needs of the country, important changes were made in February, 1973; November 1977; July 1990 and July, 1991.

The highlights of the 1991 industrial policy were as under:

1. Except 18 industries; others have been given relaxation in the licensing, irrespective of their levels of investments, including MRTP and FERA companies.

2. All existing registration schemes have been relaxed from DGTD registration.

3. Direct investment upto 51 per cent equity in high priority industries.

4. Special incentives to those companies which attract foreign equity participation, etc.


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