Economic system or economic order is a set up according to which societies and government organizes means of production, resource allocation and distribution of goods and services to the society or a given geographical area. Indian economic system is an example of the Mixed economic system.
Economic System of the world
Economic system of the world can be broadly classified into the following 3 categories:
- Capitalistic Economic System
- Socialistic Economic System
- Mixed Economic System
Capitalistic Economic System
Capitalist Economic System is also known as Laissez-faire, means Leave me alone. (Name given by Merchandise class).
- It is also called Marketed Economic System.
- In this system, the Means of Productions are owned by Private individuals.
- Market Forces (i.e., Demand and Supply) play vital role.
- Consumer is in powerful condition (King Like condition) in this system.
- Democracy is Stronger under this system.
- Centralization of Capital
- Possibility of negligence of Public Welfare
- Possibility of Class – Conflict between industries and labourers as their interests are different.
- Sometimes Inflation, Unemployment and Recession like macro-Economic challenges become serious.
Socialistic Economic System
Under Socialist Economic system, Means of Production, distribution and price determination is controlled by the Government.
- This system is based upon the ideology of Social-Justice and Equality.
- Since the system is too much controlled therefore it is not much popular and is adopted by very few countries of the world. i.e., China, Cuba, North Korea, etc.
In Mixed-Economic system, both Public Sector and Private Sector run side by side.
- Generally Public Welfare production activity is controlled by the Government (i.e., Education, Health, etc) while the production of Consumer Goods is handed to Private Sector.
Indian Economic System
Indian economic system is divided into 2 phases –
- 1948 – 1990
- 1990 to till now
During first phase Government policies were oriented towards Socialistic views because Government was concerned about Centralisation of Capital, therefore strict rules and regulations were adopted.
The year 1990 was the year of Economic Crisis for India, that took place for the first time after Independence and it was the crisis of Foreign currency (i.e., Balance of Payment (BOP) crisis)
In order to control the situation, in 1991 comprehensive economic reforms were started, which was popularly known as LPG reforms. (Liberalisation, Privatization, Globalisation) and it is still going on.
As a result the element of market
become dominant in Indian Economy and Mixed Economic system has been somewhat
changed and it could be better expressed as – ‘Market Oriented-Planned Mixed’ economic system.