Entrepreneurship and Skill

Development

AT322

BA – LLB
Semester VI
1. Traditional Economic System
The traditional economic system is the most traditional and ancient types of economies in the
world. Vast portions of the world still function under a traditional economic system. These
areas tend to be rural, second- or third-world, and closely tied to the land, usually through
farming. In general, in this type of economic system, a surplus would be rare. Each member of
a traditional economy has a more specific and pronounced role, and these societies tend to be
very close-knit and socially satisfied. However, they do lack access to technology and
advanced medicine.

2. Command Economic System

In a command economic system, a large part of the economic system is controlled by a
centralized power. For example, in the USSR most decisions were made by the central
government. This type of economy was the core of the communist philosophy.
Since the government is such a central feature of the economy, it is often involved in
everything from planning to redistributing resources. A command economy is capable of
creating a healthy supply of its resources, and it rewards its people with affordable prices.
This capability also means that the government usually owns all the significant industries like
utilities, aviation, and railroad.
In a command economy, it is theoretically possible for the government to create enough jobs
and provide goods and services at an affordable rate. However, in reality, most command
economies tend to focus on the most valuable resources like oil.
China or D.P.R.K. (North Korea) are examples of command economies.

Advantages of Command Economic Systems

If executed correctly, the government can mobilize resources on a massive scale. This mobility
can provide jobs for almost all of the citizens.
The government can focus on the good of the society rather an individual. This focus could
lead to a more efficient use of resources.
Disadvantages of Command Economic Systems
It is hard for the central planners to provide for everyone’s needs. This force the government
to ration because it cannot calculate demand since it sets prices.
There is a lack of innovation since there is no need to take any risk. Workers are also forced to
pursue jobs the government deems fit.
3. Free / Market Economic System

In a free market economy, firms and households act in self-interest to determine how
resources get allocated, what goods get produced and who buys the goods. This is opposite
to how a command economy works, where the central government gets to keep the profits.
There is no government intervention in a pure market economy. However, no truly free
market economy exists in the world. For example, while America is a capitalist nation, our
government still regulates (or attempts to control) fair trade, government programs, honest
business, monopolies, etc.
In this type of economy, there is a separation of the government and the market. This
separation prevents the government from becoming too powerful and keeps their interests
aligned with that of the markets.
Hong Kong has been seen as an example of a free market society.

Advantages of a Free Market Economy

• Consumers pay the highest price they want to, and businesses only produce profitable
goods and services. There is a lot of incentive for entrepreneurship.
• This leads to the most efficient use of the factors of production since businesses are
very competitive.
• Businesses invest heavily in research and development. There is an incentive for
constant innovation as companies compete to provide better products for consumers.

Disadvantages of a Free Market Economy

Due to the fiercely competitive nature of a free market, businesses will not care for the
disadvantaged like the elderly or disabled. This leads to higher income inequality.
Since the market is driven solely by self-interest, economic needs have a priority over social
and human needs like providing healthcare for the poor. Consumers can also be exploited by
monopolies.
4. Mixed Economic System
A mixed economy is a combination of different types of economic systems. This
economic system is a cross between a market economy and command economy.
In the most common types of mixed economies, the market is more or less free of
government ownership except for a few key areas like transportation or sensitive
industries like defence and railroad.
However, the government is also usually involved in the regulation of private
businesses. The idea behind a mixed economy was to use the best of both worlds
– incorporate policies that are socialist and capitalist.
To a certain extent, most countries are mixed economic system. For example, India
and France are mixed economies.
Advantages of Mixed Economies
• There is less government intervention than a command economy. This means
that private businesses can run more efficiently and cut costs down than a
government entity might.
• The government can intervene to correct market failures. For example, most
governments will come in and break up large companies if they abuse
monopoly power. Another example could be the taxation of harmful products
like cigarettes to reduce a negative externality of consumption.
• Governments can create safety net programs like healthcare or social security.
• In a mixed economy, governments can use taxation policies to redistribute
income and reduce inequality.
Disadvantages of Mixed Economies
There are criticisms from both sides arguing that sometimes there is too much
government intervention and sometimes there isn’t enough.
A common problem is that the state run industries are often subsidized by the
government and run into large debts because they are uncompetitive.
Five Year Planning-Industrial Policy
The Real Growth and Industrial Development in India started during the
period of five-year plans.
First Five Year Plan(1951-56): The main objective of the first year plan
was on agricultural development. Therefore the Importance was given on
existing Industries rather than the establishment of new industries like
cotton, woollen and jute textiles, cement, paper, medicines, paints, sugar
etc.
Second Five Year Plan(1956-61): This plan was given Importance to an
establishment of heavy industries only, The main thrust of industrial
development was on iron and steel, Heavy engineering and fertilizer
industries. Three new iron and steel plants were located in Bhilai,
Durgapur, and Rourkela.
Third Five Year Plan(1961-66): There was an emphasis on the expansion
of basic industries like iron and steel, fossil-fuel and machine building.
The Ranchi Machine Tool and three more HMT units were established.
Machine building, Locomotive and Railway coach making.
Annual Plans(1966-1969): The period between 1966 and1969 was the
period of annual plans. The Industrial period could not make much
progress during the annual plans period.
Fourth Five Year Plan(1969-74): Industries like sugar, cotton, jute,
vanaspathi, metal based and chemical industries were given much
importance and It was during this plan, Much progress was made in
alloys, tools aluminium, automobiles tyres, electronic goods, Machine
Tools, Tractors and special steel.
Fifth Five Year Plan(1974-79): The Main Importance was given to the
rapid growth of steel plants and exports. The Steel Plants at Salem,
Vijayanagar and Visakhapatnam were proposed to create additional
capacity and Steel Authority of India Ltd.(SAIL) was constituted,
moreover, Drug manufacturing, oil refining, Chemical fertilizers and heavy
engineering industries made steady progress.
Sixth Five Year Plan(1980-85): The Main objective was on producing
goods to exploit the domestic and international marketers and priority
was given to industries like aluminium, automobiles, electric equipment
and thermostats. Production Targets were achieved in industries like
commercial vehicles, drugs, T.V ,automobiles, cement, Coal, Jute industry,
railway wagons, Sugar industry etc.
Seventh Five Year Plan(1985-90): Target mainly on electronic industries.
Industrial dispersal, Self-employment, exploitation of local resources and
proper training were the preference areas of the plan.
Eighth Five Year Plan: The Period between 1990 and 1992 was the period
of annual plans. There was a major change in the industrial policy of the
government of India which was initiated in 1991.The policy of
liberalization was adopted for the investment of foreign multinationals.
Emphasis was given on the removal of regional imbalances and
encouraging the growth of employment in small and tiny sectors.
Ninth Five Year Plan(1997-2002): The main emphasis during this plan was
on cement ,coal, crude oil, consumer goods, electricity, Infrastructure,
refinery and quality steel products.
Tenth Five Year Plan(2007-12): During this plan, the main emphasis was
on modernization, technology, upgradation, reducing transaction costs
and increasing exports and also to enhance exports and to increase
global competitiveness and to achieve balanced regional development.
Eleventh Five Year Plan (2007-12): This Plan gave priority to industry,
infrastructure, and employment. The plan recognized that there should
be a rapid industrial development that brings a faster reduction in
poverty, generates employment and ensures essential services such as
health and education to all sections of the society.
Twelfth Five Year Plan (2012-2017): The planning commission focus on
instilling ”inclusive growth” is making headway. The Plan is expected to
create employment through developing India’s manufacturing sector
and move the nation higher up the value chain is a boon for Industry
,The planning commission indicated that it aims to have industry &
manufacturing related activities grow by 11% during this plan period,
contrasted to 8% over the previous 11th five year plan.
New Industrial Licensing Policy 1991 The Industrial Policy
announced on July 24, 1991 heralded the economic reforms in
India and sought to drastically alter the industrial scenario in our
country. The most visible sign of the country's economic crisis in
early 1991 was: Extremely low foreign exchange reserves of Rs.
2400 crore (just enough to buy from abroad only three weeks
requirements.) Inflation was as high as 13.5%
• Objective To unshackle the country's industrial economy from
the cobwebs of unnecessary bureaucratic control To shed the
load of the public enterprises which have shown a very low rate
of return or are incurring losses over the years. To remove
restrictions on direct foreign investment To free the domestic
entrepreneur from the restrictions of MRTP Act To introduce
liberalization to integrate the Indian economy with the world

Scope Now industrial licensing is required in the following cases

only: For manufacture of an item under compulsory licensing which
are related to security, strategic and environmental concern:

• Distillation and brewing of alcoholic drinks;

• Cigars and cigarettes of tobacco and manufactured tobacco
substitutes;
• Electronic aerospace and defense equipment of all types;
• Industrial explosives including detonating fuses, safety fuses,
gun powder, nitrocellulose and matches;
• Specific hazardous chemical.
• When an item reserved for small scale sector is intended to be
manufactured by an undertaking

Small Scale Industry: Policy includes lower interest rates, ceiling of

machinery, tax benefits, protection on heavy investment rivalry.
THE COMPETITION ACT,2002: Objective of the Competition Act,2002An
Act, keeping in view of the economic development of the country, was
laid down to provide for an establishment of a commission with the
following object:-
• To prevent practices having adverse effect on competition,
• To promote and sustain competition in markets,
• To protect the interests of consumers,
• To ensure freedom of trade carried on by other participants in
markets in India.
AUTOMATIC ROUTE

FDI is allowed under the automatic route without prior approval either of
the Government or the Reserve Bank of India in all activities/sectors as
specified in the consolidated FDI Policy, issued by the Government of
India.

FDI in various key sectors in India.

GOVERNMENT ROUTE
FDI in activities not covered under the automatic route requires prior
approval of the Government. Such applications are considered by the
Foreign Investment Promotion Board (FIPB), which is part of the
Department of Economic Affairs within the Ministry of Finance.
FDI in India is currently not permitted in the following sectors:
• Lottery Business including Government /private lottery, online
lotteries, etc;
• Gambling and Betting including casinos etc.;
• Chit funds;
• Nidhi company (borrowing from members and lending to members
only);
• Trading in Transferable Development Rights (TDRs);
• Real Estate Business or Construction of Farm Houses;
• Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of
tobacco or of tobacco substitutes;
• Activities / sectors not open to private sector investment e.g. Atomic
Energy.
• Legal, accounting and architecture services
• B2C e-commerce

LETS TALK !!!!