Mixed economy

Mixed economy refers to a combination of private and nationalized property. This implies that certain industries are in the private sector and certain others are in the government sector. After independence India opted for mixed economy. At that time the leaders recognized that there are some merits and some demerits in each. There was a thinking that after independence India will have to adopt a path of development that works in two directions: (a) achieving a high rate of economic growth at par with the industrially advanced countries; and (b) creating more equality. Due to poverty, population growth and mechanization of agriculture a huge labor surplus was projected in the rural areas which was to be provided employment through expansion of state enterprises. Initially, private sector was unwilling to invest in infrastructure and state only had to take up development of basic infrastructure. The planners also thought that the government sector should also be retained and developed for employment, equality, basic industries and defense activities. On the other hand, private sector was needed to contribute to growth and therefore a due importance was given to it. Since then all successive five year and annual plans have aimed at the twin goals of growth and justice with emphasis shifting from time to time.

Experience showed that though the aims of the mixed economy were laudable in practice it only led to “license and permit raj”. This obstructed rate of growth, discouraged entrepreneurship and led to widespread poverty. In 1990s, therefore, under the garb of new economic policy there was a move to shift more towards capitalism than state control of economy. Developments in China, the neighboring communist country, too showed that there are both internal and external reasons to restore market mechanisms.