Economy of India ranks third largest in the world. The GDP per capita of India is more than 122 crores. Indian Economy is a mixed economy.
It is a mixture of socialist and capitalist economy. Both public and private parties are engaged in the production.
Types of Economy:
There are three types of economy. They are
- Mixed Economy
The socialist economy is one which is based on the public (i.e., the government). The production of a company in the socialist economy is not based on demand and supply. The production is mostly based on the people’s needs and not on wants.
The economy is a planned one and not a market based economy. It looks for the stability and equality in the society rather than the profit.
The individuals in this economy , depends on the government for their basic needs such as foods, education, health care etc. Mostly a company in that economy is a fully government owned company or a combination of government and private. If it is combined most of the shares will be with the government.
The maximum decision making authority is the government. The private sector can’t take decision on its own because of its lower shareholding.
Some of the examples of the socialist economies are
Capitalism is based on the private ownership. The role will be mostly played by the private companies itself. The intervention of the government is less.
The production is fully based on the income of the company. There is no limitation for starting a private company. The production of the economy is based on the demand and supply. The production is mostly for the people’s wants.
The economy is based on the market and not a planned one. So the production and the price are determined by the market and not by the government.
The Capitalist economy is criticized for its focus on the profit. And it will reduce the stability in the society and economy of the country.
Some of the countries which follows capitalism are:
- United States
- United Kingdom
In the states with mixed economy both the parties will play the role of production. It is the mixture of socialist and capitalist.
They will produce goods and services by the public and also by the private sector companies. It is a combination of socialist and capitalist economy.
In this type the government gives some amount of independence to the private companies in the use of capital and it also has the power to interfere if it not works for the development of society. The private companies can produce and sell their and services in the market.
It is more effective when compared to the socialist and less when compared to the capitalist form of economy.
The government should not restrict the private companies from making profit but it has the power to convert the private as a public one if it go against the norms of the government.
The government in the mixed one charges tax on the private sector companies and use that funds in the development of society. The government plans for the use of the resources and has the control over the business of all companies.
Some of the countries which uses mixed economy are:
The Economic measurement of the country is based on the GDP (Gross Domestic Product). It is calculated on an annual quarterly basis.
Gross Domestic Product:
The GDP is the value of produced goods and services within a country in a specific period of time. The GDP includes the production of all public and private companies in the country.
GDP is calculated using the following formula:
GDP = C + G + I + NX
C = Private consumption
G = Government consumption
I = Sum of Investments
NX = Exports – Imports
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In the next section we will focus on the major sectors of the Indian economy.