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Indian Economy
Five Year Plans, LPG and Industrial
Policy

Economic System

Economics - Economics is the social science that
analyzes the production, distribution and consumption
of goods & services.
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.
The economic system is composed of people, institutions
and their relationships. It addresses the problems of
economics like the allocation of the resources.

Economic System

Types of Economic Systems
 Capitalism
 Socialism
 Mixed

(Market Economy)

(Planned economy)

(Capitalism + Socialism)

Characteristics of Market
Economies






Entrepreneurship and risk taking are rewarded.
Results in many poor people and few very wealthy
people.
Producers decide what to produce based on
consumer tastes and demands.
Productivity results in more personal wealth.
Government’s role in the economy is limited.
The economy is based on almost entirely on supply
and demand.
Private individuals and companies own businesses
and industry.

Criticism of Market
Economies


Result in unequal societies.
Large private companies exploit the laborers or
the resources of less-developed nations.
Market economies often result in economic
monopolies (when one company controls a
business sector) that stop competition and
result in higher prices.

Command Economy

Market economies is “class warfare” and resultes in a
few people ruling over the masses.
In order to end capitalism/ market economies critics
claimed that a revolution was needed to redistribute
goods equally.
This revolution came to be known as communism
and its economy was known as a command
economy.
In a command economy the government controls all
aspects of the economy.





Characteristics of a Command
Economy

The government controls all aspects of the
economy
Private property is illegal
Supply and demand are determined by the
government, not by consumers and producers.
Everyone is paid equally no matter what job
they do.
Industry and businesses are owned and
controlled by the government, not private
individuals.

Criticism of Command
Economies

Command economies are inefficient and reward
unproductive workers. Critics claim that since workers are
awarded the same amount of money for doing every job
workers aren’t productive.
Command economies result in shadow/ illegal markets.
Because the government controls the distribution of
goods, rather than consumers and producers individuals
begin to sell things illegally.
Command economies cease to stay competitive in the
world because competition and entrepreneurship is
discouraged.
E.g. Soviet Union and Cuba.

Mixed Economy
Mixed economies exist somewhere between
command and market economies.
 In a mixed economy the government tends
to own major industries like utilities, health
care and major manufacturing industries;
however, individuals own most small
businesses.
 Mixed economies tend to tax their citizens
more than market economies, but less than
command economies.

Characteristics of a Mixed
Economy


The government controls large industries, while private
individuals control small businesses.
Citizens are taxed heavily to provide all citizens a
social safety net such as welfare, free university tuition
and free health care.
Property is controlled by both the government and
private individuals.
Workers tend to be somewhat less productive than
those in market economies, but less product then those
in command economies.
Consumers generally have a wide variety choices.

BASIS OF
DIFFERENCE

CAPITALIST ECONOMY

SOCIALIST ECONOMY

Resources Ownership

Privately owned

State owned

Foundation belief

competition brings out the best in cooperation is the best way people
for people to coexist

Earning of wealth

everyone works for his own
wealth

everyone works for wealth
which is distributed equally
to everyone

Market Scenario

Level playing field

Protection to PSUs, Private
enterprises are permitted in
few businesses only

Govt. interference

Only in situations where laws
have been broken

Fully involved

Employees motivation

Highly motivated on account of
proportional benefits

Rarely motivated as
performance is not
rewarded

Merit

Perception of better economic
growth because of competition

Equal distribution of income
results in welfare of all

Demerit

Few individuals/groups attain
powers, rest are exploited

Hard work is not rewarded,
lazy employees also enjoy
equal level of benefits

WHAT IS A PLAN ?





A plan spells out how the resources of a nation should
be put to use.
Some general goals as well as some specific
objectives
To be achieved within a specified period of time
In india plans are of five years duration
Our plan documents specify the objectives to be
attained in the five years of a plan
Plan documents also specify what is to be achieved
over a period of twenty years. This long-term plan is
called ‘perspective plan’.
The five year plans are supposed to provide the basis
for the perspective plan.

Planning in India






After independence, India was in dire conditions and needed
to start acting soon
Some of the problems necessitated need for an immediate
plan:
Vicious circle of poverty
High imports
Need for Rapid indus...

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Keywords

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