MIXED ECONOMY

DR. RAM MANOHAR LOHIYA

NATIONAL LAW UNIVERSITY

Academic Session: 2015-16

Economics: Project
Mixed Economy

SUBMITTED BY:
RISHI SEHGAL

UNDER THE GUIDANCE OF:

Ms. MITALI TIWARI

ROLL NO: 115

FACULTY OF ARTS

SECTION B

DR. RAM MANOHAR LOHIYA

B.A. LLB (Hons.), SEMESTER I

NATIONAL LAW UNIVERSITY

SIGNATURE OF STUDENT

SIGNATURE OF PROFESSOR

MIXED ECONOMY

BACKGROUND
The background of my study is Mixed economic systems of the world. Mixed economic
system is an economy 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 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.

RESEARCH QUESTIONS
1. What is a Mixed Economy?
2. What are the features, advantages, disadvantages of a Mixed Economy?
3. How is India a Mixed Economy?

OBJECTIVES
1

To study the mixed economic system.

To have an understanding of its features.

To have an understanding of its Advantages and Disadvantages.

India as a mixed economy.

Emerging issues of mixed economy.

RESEARCH METHODOLOGY
The study of this project shall involve Doctrinal Research methodology. Study of this project
will be done through books, articles, magazines, journals and internet database.

CONCLUSION & ANALYSIS

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.

MIXED ECONOMY

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................4
FEATURES OF MIXED ECONOMY.......................................................................................5
MERITS AND DEMERITS OF MIXED ECONOMY.............................................................7
INDIA AS MIXED ECONOMY...............................................................................................8
HISTORY OF INDIAN ECONOMY........................................................................................9
DURING COLONIAL PERIOD............................................................................................9
AFTER INDEPENDENCE....................................................................................................9
CURRENT STATUS OF INDIAN ECONOMY.....................................................................11
REASONS FOR ADOPTING MIXED ECONOMY..............................................................11
ROLE OF PUBLIC SECTOR IN INDIA.............................................................................12
ROLE OF PRIVATE SECTOR IN INDIA...........................................................................14
CHALLENGES BEFORE THE INDIAN ECONOMY..........................................................15

MIXED ECONOMY

INTRODUCTION
A mixed economy is variously defined as an economic system consisting of a mixture of
either markets and economic planning, public ownership and private ownership, or free
markets and economic interventionism. In most cases, "mixed economy" refers to
market with strong regulatory oversight and governmental provision of public goods. Some
mixed economies also feature a variety of state-run enterprises.
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.
In general the mixed economy is characterised by the private ownership of the means of
production, the dominance of markets for economic coordination, with profit-seeking
enterprise and the accumulation of capital remaining the fundamental driving force behind
economic activity. But unlike a free-market economy, the government would wield indirect
macroeconomic 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. Subsequently, some mixed economies have expanded in scope to include a role
for indicative economic planning and/or large public enterprise sectors.
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 minority of public utilities
and social services under public ownership.
Economies ranging from the United States to Cuba have been catalogued as mixed
economies. The term is also used to describe the economies of countries which are referred to

MIXED ECONOMY

as welfare states, such as the Nordic countries. Governments in mixed economies often
provide environmental protection, maintenance of employment standards, a
standardized welfare system, and maintenance.
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. Supporters view mixed economies as a compromise between state socialism and
free-market capitalism that is superior in net effect to either of those. Around the world, the
most prosperous countries with the highest average standard of living tend to have mixed
economic systems with democratically elected governments.

FEATURES OF MIXED ECONOMY

Having understood the meaning of mixed economy, we are now in a position to bring out the
main features or characteristics of such an economy. It will also be clear from these
characteristics how a mixed economy functions. The following are the main characteristics of
a mixed economy:
(i) Co-existence of the Public and Private Sectors. The chief characteristic of a mixed
economy is that in this economy both public as well as the private sector work mutually. They
co-exist. Generally, the basic industries, the industries concerned with the production of
defence equipment, atomic energy, engineering industries, etc., are put in the public sector.
On the other hand, the consumer goods industries, small and cottage industries, agriculture,
etc., are generally given to the private sector. It may be borne in mind that the government
does not work against the private sector. On the contrary, the government helps and
encourages the private sector by providing them several incentives and facilities so that the
industries in the private sector are able to develop properly and make the country's economy
efficient and strong.
(ii) Role of Price structure and Government Directives. Another characteristic of mixed
economy is that it is operated both by the price system and government directives. So far as
the public sector is apprehensive financial decisions linking to prices, manufacture and asset
are made by the management or the system selected by the government. But the private sector
in the mixed economy is operated by price-mechanism.
(iii) Government Regulation and Control of Private Sector. In a mixed economy, the
administration implements required methods to control and control the private sector, so that
it may work in the interest of the state rather than completely for profit making motives. For
this purpose, it introduces the licensing system according "to which government approval or
license is essential for setting up a factory. If the government considers that in a certain
industry already there is excessive investment or excess capacity, no new licenses are issued
for setting up factories in that industry. Licensing system is the instrument by which the
government controls and regulates industrial investment and output. The government also

MIXED ECONOMY

controls and regulates the private sector through appropriate monetary and fiscal policies. For
this purpose, the government gives rebates and tax concessions and credit facilities at low and
reasonable rates so that the private entrepreneurs are induced to invest in those industrial
lines.
(iv) Consumers Sovereignty Protected. In a mixed economy, the sovereignty of the
consumers is protected. Like socialism, the mixed economy does not put an end to
consumer's sovereignty. It is clear that in spite of some restrictions imposed by the
government, the consumers are free to purchase the goods they like. It is their demand or
preferences which guide production in the private sector.
(v) Government Protection of Labour. In a mixed economy, government protects the
weaker sections of society especially labour. That is, it saves labour from abuse by the
capitalists. In the developed countries, in the beginning of Industrial Revolution, the greed
and selfishness of the factory owners inflicted untold hardships on male labour, women and
children. Social conscience was roused on seeing the pitiful and miserable working and living
conditions of such labour. The government realized its responsibility for protecting labour
from exploitation by industrialists and factory owners.
(vi) Reduction of Economic Inequalities. Extreme inequalities of income reduce social
welfare. Income inequality creates inequalities of opportunities for education and training in
favour of high-income groups. The extreme inequalities of income create class distinctions
and generate class-conflict which splits the whole society into two-warring campsthe rich
and the poor or the 'haves' and the 'have-nots'. The rich exploit the poor. For this purpose,
government levies progressive taxation, wealth tax, death duties, gift tax, etc. On the other
hand, free education, free medical aid and old-age pensions, for the poor, stipends for poor
students are some of the remedies adopted for distributing the extra income of the rich among
the poor.
As a result of the above-mentioned measures which have been adopted by the governments of
different countries like the U.S.A., the U.K., Norway and Sweden, inequalities of income and
wealth have been some-what reduced. The Government of India also has decided to introduce
a socialistic pattern of society and for that purpose reduce inequalities of income and wealth.
This is a major objective of our Five-Year Plans. But so far the Government has not
succeeded in achieving this desirable objective. In fact, it is said that in India economic
inequalities have increased instead of decreasing in the planning era. The fruits of economic
development are concentrating in the hands of a few rich people. Our Government is now
fully seized of the problem of growing economic inequalities and it may be hoped that in
future strong measures will be adopted for reducing economic inequalities. In this way, it will
be fulfilling one of the main purposes of a mixed economy.
(vii) Control of Monopoly. In a mixed economy, the government tries to control and regulate
monopolies. The monopolist uses his monopoly power to exploit the consumers. He fixes a
price which is above the marginal cost of production and in this way reduces consumers'

MIXED ECONOMY

welfare. Such a price-output policy results in misallocation of productive sources of the

society. Besides, the excessive profits made by monopolists result in accentuating economic
inequalities in the country. Moreover, monopoly creates unemployment by reducing output
and thus hampers-industrial growth.

MERITS AND DEMERITS OF MIXED ECONOMY

Merits
1. Proper allocation of resources- Mixed economy ensures that the economic resources
of the economy are utilised in the best possible way. Resources are appropriately
divided among the public and private sectors keeping in mind the overall interest of
the economy.

2. Economic stability. - A mixed economy ensures economic stability. It tries to avoid

ups and downs in the economy through planning and state regulation. It eliminates
overproduction and underproduction.

3. Advantages of a market system-a mixed economy has all the advantages of a market
economy. It retains most of the institutions of the capitalist economy such as private
property, inheritance right, competition, profit motive, price mechanism, freedom of
enterprise, private initiative etc. in fact the presence of government in a mixed
economy ensures that the adverse effects of these institutions are kept under check.

4. Rapid economic development- from the point of view of the underdeveloped

countries, mixed economy pattern is significant since it ensures rapid economic
development. The mixed economy uses the combined resources and energies of the
private and public sectors to promote economic development. Moreover public
ownership of productive resources ensures that economic development is achieved
with social justice.

5. Check on the concentration of economic power- a mixed economy is able to keep a

check on concentration of power. Monopolistic control of industries and their
exploitative tendencies are curbed. At the same time, inequality of income is kept
under check by the government through the use of progressive taxation. The
government also provides equal opportunities to the people.

6. Economic and political development- a mixed economy ensures adequate economic

freedom. Consumers are free to choose the goods and services they want to consume.

MIXED ECONOMY

They are free to choose occupations they like. At the same time mixed economy
allows civil and political system to the people.
Demerits
1. Conflict between the two sectors- a serious shortcoming of mixed economy is the
collision, bitterness and non-cooperation that may take place between private and
public sectors. In such a situation the mixed economy may not function properly.

2. Short lived nature- a mixed economy runs the risk of being short lived. It may not
continue for a long time. In course of time both sectors may attempt to expand at the
cost of the other. If the public sector expands to such an extent that is able to take over
the private sector, a mixed economy may become a socialist economy. On the other
hand if the private sector proves dominant, the mixed economy may be converted to
capitalist economy.

3. Inefficient operation- there is a danger of mixed economy operating in an inefficient

way. The private sector may not be able to function effectively due to excessive
control and regulation of the government. The public sector on the other hand may not
be performing effectively because of the lack of initiative and responsibility on the
part of bureaucrats.

4. Poor performance of the public sector- in a mixed economy the public sector has a
history of poor performance. The mixed economy suffers from inertia, inefficiency
and red tapism

5. Excessive regulation- a mixed economy is likely to give rise to a system of excessive

control and regulation. The government may try to regulate the private sector by
imposing excessive control like licensing, monetary and fiscal controls. This
excessive control may become inconvenient, irksome, and may promote economic
inefficiency.

INDIA AS MIXED ECONOMY

The Economy of India is the seventh-largest in the world by nominal GDP and the thirdlargest by purchasing power parity (PPP). The country classified as newly industrialized
country, one of the G-20 major economies, a member of BRICS and a developing
economy with approximately 7% average growth rate for the last two decades. India's
economy became the world's fastest growing major economy from the last quarter of 2014,
replacing China's.

MIXED ECONOMY

The long-term growth prospective of the Indian economy is moderately positive due to its
young population, corresponding low dependency ratio, healthy savings and investment rates,
and increasing integration into the global economy, The Indian economy has the potential to
become the world's 3rd-largest economy by the next decade, and one of the largest
economies by mid-century. And the outlook for short-term growth is also good as according
to the IMF, the Indian economy is the "bright spot" in the global landscape. India also topped
the World Banks growth outlook for 2015-16 for the first time with the economy having
grown 7.3% in 2014-15 and expected to grow 7.5-8.3% in 2015-16.

HISTORY OF INDIAN ECONOMY

DURING COLONIAL PERIOD

From the beginning of 19th century British East India Company's gradual expansion and
consolidation of power brought a major change in the taxation and agricultural policies,
which tended to promote commercialization of agriculture with a focus on trade, resulting in
decreased production of food crops, mass impoverishment and destitution of farmers, and in
the short term, led to numerous famines. The economic policies of the British Raj caused a
severe decline in the handicrafts and handloom sectors, due to reduced demand and dipping
employment. After the removal of international restrictions by the Charter of 1813, Indian
trade expanded substantially and over the long term showed an upward trend. The result was
a significant transfer of capital from India to England, which, due to the colonial policies of
the British, led to a massive drain of revenue rather than any systematic effort at
modernisation of the domestic economy. British territorial expansion in India throughout the
19th century created an institutional environment that, on paper, guaranteed property among
the colonizers, encouraged free trade, and created a single currency with fixed exchange
rates, standardized weights and measures and capital markets within the company held
territories. It also established a system of railways and telegraphs, a civil service that aimed to
be free from political interference, a common-law and an adversarial legal system. This
coincided with major changes in the world economy industrialisation, and significant
growth in production and trade. However, at the end of colonial rule, India inherited an
economy that was one of the poorest in the developing world, with industrial development
stalled, agriculture unable to feed a rapidly growing population, a largely illiterate and
unskilled labour force, and extremely inadequate infrastructure

MIXED ECONOMY

AFTER INDEPENDENCE
Indian economic policy after independence was influenced by the colonial experience, which
was seen by Indian leaders as exploitative, and by those leaders' exposure to British social
democracy as well as the planned economy of the Soviet Union. The objective of Indias
economic strategy had been to establish a socialistic pattern of society through economic
growth with self-reliance, social justice and alleviation of poverty. These objectives were to
be achieved within a democratic political framework using the mechanism of a mixed
economy where both public and private sectors co-exist. India initiated planning for national
economic development with the establishment of the Planning Commission. The aim of the
First Five Year Plan (1951-56) was to raise domestic savings for growth and to help the
economy resurrect itself from colonial rule. The real break with the past in planning came
with the Second Five Year Plan (Nehru-Mahalanobis Plan). The industrialization strategy
articulated by Professor Mahalanobis placed emphasis on the development of heavy
industries and envisaged a dominant role for the public sector in the economy. The
entrepreneurial role of the state was evoked to develop the industrial sector. Commanding
heights of the economy were entrusted to the public sector. The objectives of industrial policy
were: a high growth rate, national self-reliance, reduction of foreign dominance, building up
of indigenous capacity, encouraging small scale industry, bringing about balanced regional
development, prevention of concentration of economic power, reduction of income
inequalities and control of economy by the State. The planners and policy makers suggested
the need for using a wide variety of instruments like state allocation of investment, licensing
and other regulatory controls to steer Indian industrial development on a closed economy
basis.
The strategy underlying the first three plans assumed that once the growth process gets
established, the institutional changes would ensure that benefits of growth trickle down to the
poor. But doubts were raised in the early seventies about the effectiveness of the trickle
down approach and its ability to banish poverty. Further, the growth itself generated by the
planned approach remained too weak to create adequate surpluses- a prerequisite for the
trickle down mechanism to work. Public sector did not live up to the expectations of
generating surpluses to accelerate the pace of capital accumulation and help reduce
inequality. Agricultural growth remained constrained by perverse institutional conditions.
There was unchecked population growth in this period. Though the growth achieved in the
first three Five Year Plans was not insignificant, yet it was not sufficient to meet the aims and
objectives of development. These brought into view the weakness of economic strategy. We
discuss the failure of the planning process in more detail in the next section. A shift in policy
was called for. The Fifth Plan (1974-79) corrected its course by initiating a program
emphasizing growth with redistribution. To accelerate the process of production and to align
it with contemporary realities, a mild version of economic liberalization was started in the
mid-1980s. Three important committees were set up in the early 1980s. Narsimhan
Committee on the shift from physical controls to fiscal controls, Sengupta Committee on the
public sector and the Hussain Committee on trade policy. The result of such thinking was to
reorient our economic policies. As a result there was some progress in the process of

MIXED ECONOMY

deregulation during the 1980s. Two kinds of delicencing activity took place. First, thirty two
groups of industries were delicensed without any investment limit. Second, in 1988, all
industries were exempted from licensing except for a specified negative list of twenty six
industries. Entry into the industrial sector was made easier but exit still remained closed and
sealed.
In the early 90s Prime Minister Narasimha Rao, along with his finance minister Manmohan
Singh, initiated the economic liberalisation. The reforms did away with the Licence Raj,
reduced tariffs and interest rates and ended many public monopolies, allowing automatic
approval of foreign direct investment in many sectors. Since then, the overall thrust of
liberalisation has remained the same, although no government has tried to take on powerful
lobbies such as trade unions and farmers, on contentious issues such as reforming labour laws
and reducing agricultural subsidies. By the turn of the 21st century, India had progressed
towards a free-market economy, with a substantial reduction in state control of the economy
and increased financial liberalisation. This has been accompanied by increases in life
expectancy, literacy rates and food security, although urban residents have benefited more
than rural residents.
While the credit rating of India was hit by its nuclear weapons tests in 1998, it has since been
raised to investment level in 2003 by S&P and Moody's. India enjoyed high growth rates for
a period from 2003 to 2007 with growth averaging 9% during this period. Growth then
moderated due to the global financial crisis starting in 2008. In 2003, Goldman
Sachs predicted that India's GDP in current prices would overtake France and Italy by 2020,
Germany, UK and Russia by 2025 and Japan by 2035, making it the third largest economy of
the world, behind the US and China

CURRENT STATUS OF INDIAN ECONOMY

Today, India has the one of fastest growing service sectors in the world with annual growth
rate of above 9% since 2001, which contributed to 57% of GDP in 2012-13. India has
capitalized its economy based on its large educated English-speaking population to become a
major exporter of IT services, BPO services, and software services with $167.0 billion worth
of service exports in 2013-14. It is also the fastest-growing part of the economy. The IT
industry continues to be the largest private sector employer in India. India is also the fourth
largest start-up hub in the world with over 3,100 technology start-ups in 201415. The agricultural sector is the largest employer in India's economy but contributes to a
declining share of its GDP (17% in 2013-14). India ranks second worldwide in farm
output. The Industry sector has held a constant share of its economic contribution (26% of
GDP in 2013-14). The Indian auto industry is one of the largest in the world with an annual
production of 21.48 million vehicles in FY 2013-14. India has $600 billion worth of retail
market in 2015 and one of world's fastest growing E-Commerce markets.

MIXED ECONOMY

India's two major stock exchanges, Bombay Stock Exchange and National Stock Exchange of
India, had a market capitalization of US$1.71 trillion and US$1.68 trillion respectively as of
Feb 2015, which ranks 11th & 12 largest in the world respectively according to the World
Federation of Exchanges. India also home to world's third largest Billionaires pool with 97
billionaires in 2014 and fourth largest number of ultra-high-net-worth households that have
more than 100 million dollars.
India is a member of the Nations, the South Asian Association for Regional
Cooperation,theG20,the Fund, the World Bank, the Organisation, the Bank, the United
Nations and the New Development BRICS Bank.

REASONS FOR ADOPTING MIXED ECONOMY

The recommendation of mixed economic model for India by very first planning commission
was a fair result of trade-off between efficiency and equality.
Just after independence, the newly formed government neither had sufficient resources nor
the estimate of potential resources. So, the efficiency i.e. property of getting more from
scarce resources, had to be improved since the beginning. Capitalism being profit centred
depicts a greater efficiency.
But on the other hand, there lied a major chunk of population that was oppressed, down
trodden and underprivileged. It was quite apparent that the equality i.e. uniform distribution
of economic prosperity was much needed for sustained growth of country as a whole.
Socialist economy advocates equality as its numero-uno principle.
In a period when much of the wars by countries were waged to establish supremacy of their
economic system, it would have been hard for India not to resort to only one of the
ideologies. But our leaders did a good thing then, they looked at the feasibility of
both (communism and capitalism) based on our countrys condition.

Capitalism would mean more profit in lesser hands followed by more power. This
simply means those few would have the power to influence market as well as
bystander (the common man). Even a thin possibility of some of those few going against
the interest of government or masses would have added to the territorial tension our
country was already facing. Such an economy would also mean eventually doing away
with public subsidies.
A decision to opt for communist economy would have highly discouraged the class of
traders and merchants who were operating ever since the ages of monarchy. The
government gravely needed their expertise, capital and active participation to explore the
means and prospects of economic growth. Moreover people were just out of the
authoritative and rough rule of British government. A strict practice of communism might
have been perceived as same causing a large scale resistance.

MIXED ECONOMY

Above two insights made it very clear that mixed economy was an optimal choice aimed both
at increasing productivity as well as reducing inequality.
Different five year plans showed governments varied emphasis on communism and
capitalism. In the first five year plan, essence of communism can be seen in abolition of
landlord-ism i.e. zamindari system, ryotwari system, talukdari system etc. The constitution
was amended to give legislature the ultimate authority.
On contrary, second and third plans were aimed at rapid industrialization, sufficiency of food
grains, and utilisation of man power augmented with increased budget plan for private
sectors.

ROLE OF PUBLIC SECTOR IN INDIA

At the time of independence, India was backward and underdeveloped basically an agrarian
economy with weak industrial base, high rate of unemployment, low level of savings and
investment and near absence of infrastructural facilities. Indian economy needed a big push.
This push could not come from the private sector because of the lack of funds and their
inability to take risk with large long-gestation investments. As such, government intervention
through public sector was necessary for self-reliant economic growth, to diversify the
economy and to overcome economic and social backwardness.
The public sector has been playing a vital role in the economic development of the country.
Public sector is considered a powerful engine of economic development and an important
instrument of self-reliance. The main contributions of public enterprises to the country's
economy may be described as follows:
1. Filling the Gaps in Capital Goods: At the time of independence, there existed serious
gaps in the industrial structure of the country, particularly in the fields of heavy industries
such as steel, heavy machine tools, exploration and refining of oil, heavy Electrical and
equipment, chemicals and fertilizers, defence equipment, etc. Public sector has helped to fill
up these gaps. The basic infrastructure required for rapid industrialisation has been built up,
through the production of strategic capital goods. In this way the public sector has
considerably widened the industrial base of the country.
2. Employment: Public sector has created millions of jobs to tackle the unemployment
problem in the country. Public sector accounts for about two-thirds of the total employment
in the organised industrial sector in India. By taking over many sick units, the public sector
has protected the employment of millions. Public sector has also contributed a lot towards the
improvement of working and living conditions of workers by serving as a model employer.
3. Balanced Regional Development: Public sector undertakings have located their plants in
backward and untraded parts of the county. These areas lacked basic industrial and civic
facilities like electricity, water supply, township and manpower. Public enterprises have
developed these facilities thereby bringing about complete transformation in the socioeconomic life of the people in these regions. Steel plants of Bhilai, Rourkela and Durgapur;

MIXED ECONOMY

fertilizer factory at Sindri, are few examples of the development of backward regions by the
public sector.
4. Contribution to Public Exchequer: Apart from generation of internal resources and
payment of dividend, public enterprises have been making substantial contribution to the
*Government exchequer through payment of corporate taxes, excise duty, custom duty etc. In
this way they help in mobilizing funds for financing the needs for the planned development
of the country. In recent years, the total contribution from the public enterprises has increased
considerably, between the periods 2002-03 to 2004-05 the contribution increased by Rs
81,438 crores on the average.
5. Export Promotion and Foreign Exchange Earnings: Some public enterprises have done
much to promote Indias export. The State Trading Corporation (STC), the Minerals and
Metals Trading Corporation (MMTC), Hindustan Steel Ltd., the Bharat Electronics Ltd., the
Hindustan Machine Tools, etc., have done very well in export promotion. The foreign
exchange earnings of the public sector enterprises have been rising from Rs 35 crores in
1965-66 to Rs 42,264 crores in 2004-05.
6. Import Substitution: Some public sector enterprises were started specifically to produce
goods which were formerly imported and thus to save foreign exchange. The Hindustan
Antibiotics Ltd., the Indian Drugs and Pharmaceuticals Ltd. (IDPL), the Oil and Natural Gas
Commission (ONGC), the Indian Oil Corporation Ltd., the Bharat Electronics Ltd., etc., have
saved foreign exchange by way of import substitution.
In addition to the above, the public sector has played an important role in the achievement of
constitutional goals like reducing concentration of economic power in private hands,
increasing public control over the national economy, creating a socialistic pattern of society,
etc. With all its linkages the public sector has made solid contributions to national selfreliance.
ROLE OF PRIVATE SECTOR IN INDIA
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 fuelled 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.

MIXED ECONOMY

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.
1. Employment Generation: Private sector plays a dominant role for generating employment
opportunities inside the country. A huge number of large scales, small scale, cottage scale
units are under the control of private sector. It proves that small scale and cottage scale
industries contribute four times more employment in compare to large scale industries.
2. Helpful for Development: According to Schumpeter peter private sector plays a dominant
role in economic development. It enhances the process of industrialisation. All the private
entrepreneurs are worked for profit motive. They actually played a leading role for the
introduction of new commodities, new techniques of production, new plants equipments and
machineries. Private entrepreneur has innovative ideas and always modifies the total method
of production
3. Contribution to Agriculture: India is an agro based economy. The share of agriculture
and its allied activities like fishing, poultry, cattle rearing, animal husbandry, and dairy
farming etc. to the national income is nearly 22%. On the other hand, about 60% of the total
working population is engaged in this area. Hence, this large agriculture sector is controlled
by the private sector.
4. Contribution to Industry: According to 1956 resolution, industries producing
intermediate goods and machines can be set up in the private sector. A good number of ultramodern industries are constructed under the control of private sector. This includes several
consumers good industries like sugar industry, edible oil industry, textile industry, paper
industry, spice industry and fast food or semi-finished food industries.
Even in the sphere of capital goods, iron and steel heavy engineering, chemical, motors etc.
private sector plays a dominant role for their development. In the post liberalisation phase
(after introduction of New Industrial Policy, 1991), the working of few private industries
became huge.
5. High Potentiality: of the small scale and cottage scale industries are using labour
intersine technologies, they create huge employment opportunities. These industries are
owned by private sector. About 80% of the total working forces are employed in either
organized or unorganized private sector units. Private sector contributes about three-fourth of
the countrys national income. Moreover, this sector also plays a vital role to increase gross
domestic saving (CDS) and gross domestic capital formation'(GDCF) within the economy.

CHALLENGES BEFORE THE INDIAN ECONOMY

Since 1991, the Indian economy has pursued free market liberalisation, greater openness in
trade and increase investment in infrastructure. This helped the Indian economy to achieve a

MIXED ECONOMY

rapid rate of economic growth and economic development. However, the economy still faces
various problems and challenges.
The year 2014 ended broadly on a positive note for the Indian economy and financial
markets, though challenges have not completely abated. The New Year is likely to be shaped
by the way the government moves on the policy front.
The global environment, however, continues to remain weak, despite faster-than-anticipated
growth in the US. Economic activity in the euro area continues to remain subdued with an
imminent threat of deflation; the Japanese economy has contracted for two consecutive
quarters; and China, so far, has avoided a hard landing but is slowing. Also, commodity
exporting emerging economies are headed for financial hardship. The Russian economy, for
example, has contracted by 0.5% in November along with falling currency and rising prices.
In an environment where the global economy cannot be termed exactly supportive and there
could be a risk of unknown unknowns, the best hope for India will be swift moves in policy
making, targeted to boost economic activity.
If 2014 was the year of decisive political change, it will serve the economy well if 2015
shapes up as a year of decisive policy thrust. However, progress in this direction could be
more difficult than previously believed and signs of this have started to emerge. After not
being able to push legislations in the winter session of Parliament amid constant disruptions
by the opposition, especially in the Rajya Sabha, the government has taken the ordinance
route to make and amend necessary laws. After promulgating the ordinance to amend the
insurance Act [Insurance Laws (Amendment) Ordinance 2014], the government is now close
to another ordinance to amend the land acquisition Act (Land Acquisition, Rehabilitation and
Resettlement Act, 2013). This is after it re-promulgated the coal ordinance [The Coal Mines
(Special Provisions) Ordinance, 2014].
While the government has shown the intent that reform process and law making cannot wait,
to be fair, the ordinance route will only serve a limited purpose for the simple reason that it
will still have to be vetted by Parliament in the next session. If the government is unable to
get the approval, it will have to reissue all of them. For the record, according to the
Constitution (Article 123), President of India can promulgate ordinances if Parliament is not
in session and immediate action is needed. However, for continuance, parliamentary approval
is needed within six weeks of its reassembly. If the legislature is unable to enact the law
within the stipulated time, the ordinance will expire and the government, if need be, will have
to repeat the process.
It is important to note that business environment in the country got affected in recent years
because of uncertainty in policy making, but the ordinance route to law making, despite the
intent of creating a better environment, may not yield the desired outcome. In fact, in the next
session, the reason and need for these ordinances can itself become the cause of confrontation
between the treasury and opposition benches, which can lead to more problems, defeating the
entire purpose.

MIXED ECONOMY

Another major challenge for the government will be the management of its own finances in a
setting where it is widely expected to push growth. The mid-year economic analysis by the
finance ministry indicates that the last budget had seriously overestimated revenues.
Overestimation was both in terms of tax buoyancy and nominal growth in the gross domestic
product. Put together, the budget overestimated revenues by about Rs.1.05 trillion. As a
result, fiscal deficit in the first half of the year (April-September 2014), has reached 82.6% of
the budget estimates compared with a five-year moving average of 58.8%. Therefore, to meet
the deficit target, the government will have to rework its plan; any curtailment of expenditure
will affect growth. The government expects the economy to grow by 5.5% in the current
fiscal.
Interestingly, the mid-year review has argued in favour of higher deficit to kick-start
investments. consideration should be given to address the neglect of public investment in
the recent past and also review medium term fiscal policy to find the fiscal space for it, the
review said. The government will be best advised not to actively consider this option. Recent
experience shows that once the genie (read fiscal deficit) is out of the bottle, for whatever
reason, it is extremely difficult to put it back. Also, international conditions do not warrant
such experiments. Higher deficit in the interim will add to the macroeconomic vulnerability
at a time when global conditions demand maximum safety. The government will do well to
find resources by rationalizing expenditure and creating enabling conditions that attract
investments. For now, there are about Rs.18 trillion worth of projects stalled at different
stages that need to start moving.

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,
and 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-

MIXED ECONOMY

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 sociopolitical 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
Dewett, K.K. (2006). Modern Economic Theory, S. Chand & company limited.
Hill, Mcgraw. (2013). Indian Economy, Mcgraw Hill education.
Datt, Ruddar; et al (2009). Indian Economy. New Delhi: S. Chand Group.
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https://en.wikipedia.org/wiki/Economy_of_India#Economic_trends_and_issues
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%20Model.pdf
http://www.livemint.com/Money/hv2p6XpmQFbCApjb9tZM5K/Economic-challenges-for2015.html
http://economictimes.indiatimes.com
www.economicsdiscussion.net
www.economicshelp.org