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STRUCTURE OF INDIAN
ECONOMY
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 Economic System
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 Economics - Economics is the social science that analyzes

the production, distribution and consumption of goods &
services.

 Economic System is the system of production, distribution and

consumption

 An economic system is a mechanism (also defined as system or

social institution) which deals with the production, distribution
and consumption of goods and services in a particular society.

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 Types
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Capitalism Socialism Mixed

Types (Market
Economy)
(Planned
economy)
(Capitalism
+ Socialism)

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 BBA-112 4

CAPITALISM
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 Capitalism
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 Capitalism is an economic system in which the means of production are

privately owned and operated for profit, usually in competitive markets.
 In other words; An economic system in which investment in and
ownership of the means of production, distribution, and exchange of
wealth is made and maintained chiefly by private individuals or
corporations.
 Capitalism is the social system which now exists in most countries of the
world. Under this system, the means for producing and distributing goods
(the land, factories, technology, transport system etc) are owned by a small
minority of people. We refer to this group of people as the capitalist class.
The majority of people must sell their ability to work in return for a wage
or salary (who we refer to as the working class.)

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 • ADAM SMITH called “the obvious and
simple system of natural liberty”
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(Book: Wealth of Nations).
Subject to certain restrictions,
individuals (alone or with others) are free to
decide where to invest, what to produce or sell,
and what prices to charge. There is no natural
limit to the range of their efforts in terms of
assets, sales, and profits; or the number of
customers, employees, and investors; or
whether they operate in local, regional,
national, or international markets.

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 Benefits of Capitalism
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 In years 1000–1820 world economy grew six-fold, in years

1820–1998 world economy grew 50-fold
 Provides Choice to customers
 Provides valuable goods and services
 Capitalism actively rewards positive traits like hard work
 Similarly, it punishes negative traits such as laziness and
theft
 Provides opportunity to realize dreams and desires
 Build on democracy

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 Major limitations/ Criticism:

 Downfall of work ethics
 Free Market + Self Interest
 Accumulation of wealth
 Encourages inequality in a society
 Monopolistic tendency
 Human resource exploitation
 Results in great disparities
between income of people owning
the capital resources and others

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SOCIALISM

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Collective ownership and democratic control of the material means of

production by the workers and the people

 Socialism is a term applied to an economic system in which property is held in

common and not individually, and relationships are governed by a political
hierarchy. Common ownership doesn't mean decisions are made collectively,
however. Instead, individuals in positions of authority make decisions in the
name of the collective group.

 Socialists argue that socialism would allow for wealth to be distributed based
on how much one contributes to society, as opposed to how much capital one
holds.

 A primary goal of socialism is social equality and a distribution of Wealth

based on one’s contribution to society and an economic arrangement that would
serve the interests of society as a whole.
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 Socialism as we know it today, most commonly refers to "market socialism,"

which involves individual market exchanges organized by collective planning.

 Difference between socialism and communism is that communists directly oppose

the concept of capitalism, an economic system in which production is controlled
by private interests. Socialists, on the other hand, believe socialism can exist
within a capitalist society.

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 Features of Socialism;
• Social Ownership of means of production
• Existance of public sector
• Decisive role of Economic Planning
• Production guided by Social Benefits
• Abolition of exploitation of labour

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 Benefits of Socialism
i. Better salaries
ii. Stable Environment
iii. Eliminates poverty
iv. Better Products
v. Fulfills survival need
vi. Opportunity for citizens to explore non-economically-
productive pursuits

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 Criticism of Socialism
 Distortedprice signals
 Suppression of economic democracy
 Slow Technological advancements
 Minimize self management
 Reduced incentives

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 COMPARISON
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BASIS OF DIFFERENCE CAPITALIST ECONOMY
Resources Ownership Privately owned
Foundation
16 belief competition brings out the best in
people
Earning of wealth everyone works for his own wealth
Market Scenario Level playing field
Govt. interference Only in situations where laws have
been broken
Employees motivation Highly motivated on account of
proportional benefits
Merit Perception of better economic
growth because of competition
Demerit Few individuals/groups attain
powers, rest are exploited BBA-112
SOCIALIST ECONOMY
State owned
cooperation is the best way for
people to coexist
everyone works for wealth
which is distributed equally to
everyone
Protection to PSUs, Private
enterprises are permitted in
few businesses only
Fully involved
Rarely motivated as
performance is not rewarded
Equal distribution of income
results in welfare of all
Hard work is not rewarded,
lazy employees also enjoy
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equal level of benefits
 Mixed Economy
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 Any economy in which private corporate enterprises and public

sector enterprises exist side-by-side, and decisions taken
through market mechanism are supplemented by some form of
partial planning, is to be described as a mixed economy.

 This system overcomes the disadvantages of

both the market and planned economic systems.

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  Provides a clear demarcation of the boundaries of public
sector and private sector so that the core sector and strategic
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sectors are invariably in the public sector.

 The government intervenes to prevent undue concentration of

economic power, and monopolistic and restrictive trade
practices

 The rights of the individual are respected and protected subject

only to the requirements of public law and order and morality

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 Features
 Resources are owned both by the government as well as
private individuals. i.e. co-existence of both public sector and
private sector.

 Marketforces prevail but are closely monitored by the

government.

 Monopoliesmay be existing but under close supervision of

the government.

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 Advantages

 Producers and consumer have freedom to choose what to produce

and what to consume but production and consumption of harmful
goods and services may be stopped by the government.

 As compared to Market economy, a mixed economy may have less

income inequality due to the role played by the government.

 A mixed economy represents an achievable balance between

individual initiative and social goals.

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