PROJECT REPORT

on

ADOPTION OF MIXED
ECONOMY MODEL

Submitted to:

Submitted by:

Mr. Harwinder Singh

University Institute of Legal Studies,

`

Panjab University

INTRODUCTION
There is an economic basis for every country, a governmental policy that serves
as a foundation for the distribution of goods and the regulation of resources that
is never either wrong or right in every respect. The world is filled with a great
diversity of people, and perhaps the most defining characteristic of the human
community is the gift of opinion. Capitalism, socialism, communism, and mixed
economies; all of these are born of different minds and desires. There are
benefits and consequences to each, and there are balanced mediums that can be
found through compromise, sacrifice, and a willingness to consider the wellbeing of all. Ours is a mixed economy because there is a public sector and
private sector. In our country the idea of the mixed economy has taken root and
flourished with time, providing our citizens with affordable goods and services
that are produced both quickly and efficiently, and an incentive to work that
may not be of the highest caliber, but is surely not of the lowest. It is my firm
belief, since both our standard of living and our quality of life are comfortably
settled upon the highest rung of society's ladder, that our countries healthy
mixture of Free-market and Command economies has sustained our way of life
and triggered a chain reaction of success, an explosion of wealth and power that
has made our nation great.

Market Economy
A market economy is known as a "free market economy". It is controlled by the
law of supply and demand which in return will determine the price of services
and goods. In a market economy the exchange of goods, services, and
information take place in a freely according to the supplier and the buyer.
Which means the entire market is merely driven by the sellers and the buyers
with very few government regulations.
The positive on this type of economy is sellers can sell according to the demand
of buyers, in return buyers pay for what they want, not necessarily what the
government makes available to them. The downside to a market economy is
there are sometimes needs for regulations to keep certain sellers from creating a
monopolistic behavior. Another problem with a market economy is certain
goods and services like law, medical, and education are inadequately provided.
Medical expenses can be outrageous due to lack of regulations on cost.

Free Enterprise
Free enterprise and private ownership--two essential characteristics of a freemarket economy--remain part of a mixed economic system. Under such a
system, individuals are free to own property and operate for-profit businesses.
The specific level and extent of free enterprise varies across countries. Some
nations, such as the United States, emphasize free enterprise and private
ownership of industry, while other countries' systems involve state ownership of
some industries, such as transportation, energy and utilities. In addition,
privately owned industries may be subject to a variety of government
regulations.

Mixed Economy
In 1947, Pandit Jawaharlal Nehru proposed the idea of Mixed Economy. A
mixed economy permits private participation in manufacturing and production
which in return allows healthy competition that can result in profit. On the other
hand it also contributes to public ownership in fabrication and manufacturing
which can take full advantage of social welfare. In a mixed market economy
this system is governed by licensing and regulation policies. However, because
the public also has control of the economy this facilitates transition.
The advantage of this type of market allows competition amongst providers
with regulations in place to protect society as a whole. With the government
being present in the economy it brings a sense of security to sellers and buyers.
This security helps maintain a stable economy.
Some disadvantages of a mixed economy are unsuccessful regulations may
paralyze features of production. This in return can cause the economic balance
to tilt. Lack of price control management can cause shortages in goods market.

Advantages of a Mixed Economy

A mixed economy lies between the opposite poles of a free-market economy
and a centrally planned, or socialist, system. A mixed system combines
capitalist and socialist elements, and is sometimes referred to as a "third way."
Most nations, including the United States, operate mixed economies with
varying combinations of capitalist and socialist features. Mixed systems offer a
variety of benefits, including free enterprise and private ownership, as well as a
social safety net and the capacity for government intervention when needed.
One of the primary benefits of a mixed economy is the existence of a
government-funded social safety net, which exists to provide at least a minimal
level of subsistence for citizens. Sometimes referred to as a "welfare state," the
benefits under this safety net include, but are not limited to, a publicly funded
healthcare system for all citizens or at least some segments of the population,
minimum wage laws, unemployment insurance and a publicly funded pension
system. A pure market system with private ownership of industry and only
minimal state intervention in the economy would, in theory at least, leave such
social benefits to private charities.

Adoption of the Mixed Economy Model in India:

Immediately after independence India adopted the soviet model of initiating
planned growth. To achieve this THE NEHRU MAHALANOBIS model of
economic growth was adopted. The emphasis was on developing heavy
industries which needed large investments, long gestation period and were
usually monopolies. These core areas were to be entrusted to the public sector
with the private sector playing a supportive role. This primacy of the public
sector was spelt out in the industrial resolution policy of 1956.As per this
industries were classified into three categories, as schedule A, schedule B and
schedule C. Schedule A and B contained all the key and basic industries. Of
these 29 industries were exclusively reserved for the public sector. Schedule C
contained the rest of the industries and private sector could operate only in this
area.
The outcome was that public sector expanded very fast and import substitution
achieved. There was impressive growth in industries like mining, metallurgical,
chemical, petro-chemical and fertilizers. The early emphasis was on reducing
reliance on import and to improve foreign exchange earnings. But the problem

was that the government lacked resources to mobilize funds for larger projects.
The private sector which had an impressive pool of talent and funds was
underutilized.

Globalization
Globally great changes were taken place. Trade barriers were greatly reduced
and a better environment was created for a flow of capital between countries.
There was also not much obstruction to flow of technology or that of labor. This
process called globalization had its impact on India too. The government was
forced to re examine its industrial policy of 1956 and come out with a new one.
Though the government had revised its industrial policy in 1977 and 1980, the
new industrial policy of 1991 was drastically different and of far reaching
impact.

Industrial Policy Of 1991

The industrial policy of 1991 was aimed at unshackling the economy from
bureaucratic control. It was the first major attempt to dismantle the LICENSE
QUOTA RAJ The government introduced the policy of liberalization and
restrictions on foreign direct investments in select areas were removed. The
domestic industries too were given relief from the monopolies and restrictive
trade practices act, thereby permitting them to expand and grow. The
government also decided to disinvest loss making public sector units.
The initiatives in promoting privatization were in the form of three sets of
measures. They were:
1. Ownership measures: Ownership measures of privatization are those
measures by which full or partial ownership of a public enterprise is vested in a
private sector. Shares of public sector companies are sold through consultants
(Indian or Foreigners). These consultants help to locate strategic partners
through global bidding.
2. Organizational measures: By resorting to this the government intervention
in industries was restricted to just policy making and leasing of assets. Financial
restructuring was also incorporated in this.
3. Operational measures: This was intended to grant autonomy and inject the
spirit of commercialization.

Impact of Reforms
This was a situation of reversal of role. Private sector was to take the initiative
and make investment for the growth of the economy and public sector was to
play a supportive role. The result of this was that exclusive reservation for
public sector was almost done away with. Many public sectors were privatized
and industrial licensing was almost scrapped. This was accompanied by an open
door policy to foreign capital followed by rationalization of tax structure. The
reforms were however not total. There are still areas where FDI was not
liberalized. The retail sector for example has not been opened up owing to
objections from domestic retailers who fear the entry of big supermarkets in
India would smother them.
In a mixed economy, private enterprise is permitted to function and flourish
subject to control and restrictions by the Government. The extent of
Government control over business and its interference in economic activity
varies from country to country. But a mixed economy aims at blending together
the best control socialist or communist economy with the best of free enterprise
in a capitalist economy. India ha adopted the mixed economy system. The
overall planning and allocation of resources is decided by the Central
Government and the planning Commission. Private enterprises and public
enterprises are allowed to function so as to contribute towards the development
of the economy. The overall objective of the economic system in India is to
achieve economic growth with distributed justice. Certain areas of economic
activity are left open to private enterprise, certain other s are reserved for the
public enterprise while in some areas both the sectors may compete or
collaborate. Thus, there is a combination of the features of capitalism and
socialism. From th point of view of the business system in India the adoption of
the mixed economic system means that business firms whether in the private
sector or in the public sector must work towards the improvement of the
economic lot of the people, and narrowing down of inequalities of income and
wealth. It also places heavy responsibility on private business to serve the
society by meeting its needs without any exploitation. Thus, the social
responsibilities acquire particular significance for the business system in the
context of a mixed economy in India.

Public Sector Performance in Past Years

According to 2006-2007 estimates, the public sector in India earned
profits to the tune of Rs 81550 crore and achieved a turnover of more
than Rs 9,60,000 crore.
The Central public sector enterprises contributed as much as Rs 1,26,900
crores by way of taxes and more than Rs 20800 crores by way of interest
and dividend to the Central Government.
The Public Sector employs 16 Lakh people and thereby providing
employment to sizable section of the population.
The national policy on public sector envisages that generally profit
making PSUs do not qualify for privatisation.

Conclusion
Thus what India needs is to stick to mixed economy model to protect
and generate jobs and usher balanced development of backward regions.
We need not opt for a blind private enterprise.
Its true that inefficiency and failure to bring profits characterized the
public sectors few years ago.
With competition lurking from liberalized economies, the public sector
too has pulled up its socks.
Indiscriminate privatization only encourages businessmen with profit
motives, which a developing nation like India cannot afford.,

ACKNOWLEDGEMENT
I want to take this opportunity to acknowledge our subject teacher Mr.
Harwinder Singh for assigning me this project and exploring my knowledge on
the topic. I am extremely thankful to him for his guidance and support.
I also want to thank all my friends who had helped me in completing this
project as it is not possible to complete this project without their help.

Thanks to all.