Table of Contents hide
1.7 What is a Capitalist Economic System ?
1.8 What is a Socialist Economic System
1.9 What is a Mixed Economy Model
What is an Economics ?
- Study of production, distribution and consumption of goods and services
What is Economy ?
- The framework within which economic activities of a country interacts.
What are the economic activities ?
- Production - Production of goods and services using factors of production
- Distribution of Income - Income(money) given to factors of production
- Consumption - Money(income) is exchanged for produced goods and services to meet needs
What are the factors of production ?
- Land - gets rent
- Labour - gets wages
- Capital(physical capital) - gets interest
- Fixed Capital - Tools, machines and building
- Working Capital - Cash in hand and raw material
- Entrepreneurship(human capital) - gets profit
What are the sectors in Economy?
- Primary Sector - Agriculture, mining - exploitation of natural resources
- Secondary / Manufacturing Sector - Industries, construction - value addition to natural resources
- Tertiary / Service Sector - IT, Tourism, trade, transportation - Production and exchange of intangible goods and services
Indian sectoral composition
|Sector||Composition of GVA in %|
|Agriculture and allied activities||16|
What are the models of economic development ?
- Capitalist Economic System
- Socialist Economic System
- Mixed Economic System
What is a Capitalist Economic System ?
- Means of production except labour is owned by private sectors - eg. USA
What are the benefits of capitalist economic system ?
- Mobilisation of private capital and Technology
- High competition so higher efficiency, higher quality and cheaper price - Indigo vs Air India
What are the demerits of capitalist economic system ?
- Class Inequality - tech CEO makes more money in 10 minutes than domestic worker in one year
- Labour Exploitation
- Negatives of Demand-Supply Curve - Better air connectivity between metros and poor connectivity in NE
- Disregard to environment - Sterlite Copper
What is a Socialist Economic System
- Means of production owned by state - eg. erstwhile USSR
What are the merits of Socialist Economic System ?
- Classless society (all are labourers)
- Egalitarian society - From each according to his ability to each as per his needs
- No drawbacks of demand-supply curve - Rural health care facilities
What are the demerits of Socialist Economic System ?
- Loss in efficiency - because same pay for hard workers and lazy workers
- Low output - low efficiency so low production
- High cost - Air India vs Indigo
- Low quality - BSNL vs Jio
What is a Mixed Economy Model
- Co-existence of both private sector and public sector - e.g India
What are the merits of Mixed Economic Model
- Complement and Supplement each other
- Increase the merits and decrease the demerits of exclusive capitalistic or socialist economic model
- Inclusive growth and development
- Competition to PSE from pvt sectors
What are the demerits of Mixed Economic Model
- No demerits I could think of when done properly
Indian mixed economic model
- Coexistence of both public and private sector - but pvt sector mostly run by cronies, friends and families of politicians
- Regulation over the private sector
- Licensing Raj - e.g exclusive license to produce cars to Maruti Motors ltd founded by Sanjay Gandhi
- Quota System
- Inspector Raj
- Reservation of sectors for public sector enterprises
- Nationalised banks
- Nationalised Air India
- Closed Economy - Limited FDI
- Planned Economy (JLN's Idea) to achieve following objectives
Failures of Indian Mixed Economy Model of Growth
- Failure of public sector enterprises
- Stagnancy in Agriculture
- Consumer Goods Industries were still not developed
- Exports were low
- Failure to control inequality
- High unemployment
- High poverty
Features of Indian Economy
- Emerging economy status from developing economy
- Young Economy
- Knowledge Economy
- Market determined economy from regulated economy
Negative Features of Indian Economy
- Non inclusive growth
- 90% workforce in unorganised sector (china 12%)
- 60% population in agriculture contribute only 18% of GDP
- Vocational employment is 5% vs Korea 90%
- Low per capita income = Rs. 1,35,000 vs Rs.6 lakh+ china