Indian Economic Environment

Now, you may be anxious to evaluate the Indian economic environment in terms of the conceptual framework just  suggested. You may note that the national economic environment of a country can be described and analysed in terms of its (a) data environment, (b) system environment, and (c) industry or sectoral environment and nature of competition. In subsequent units, you will be exposed to the details of Indian economy's data environment i.e., the physical trends and structural co-efficient. The system environment of Indian economy will also be dealt with in detail, in terms of various policy statements, planning techniques, organisation and structure of the capital market, role and responsibility of the private and public sector, etc. The system environment encompasses the entire institutional framework of the economy. An overview of that system environment is presented in this section. For the time being, you should be more interested in the evaluation rather than evolution of the present Indian economic system. 

You might have come across the statement that India is a mixed economy. In fact, India has a complex mixed economic s~stem.  Let us elaborate this further. 

Firstly,  a simple mixed economic system is characterized by the existence of private and public sectors. India has a multiplicity of sectors: private (dominant undertakings, foreign companies, etc.); public, joint, co-operative, workers' sectors and also 'tiny sector'. We hear of different walks of Indian economy: big sector, small sector, heavy sector, light sector, licensed sector, delicensed sector, national sector, core sector. reserved sector, etc. India is a complex vector of sectors. 

Secondly, a simple mixed economy is characterised by complimentary between planning and pricing. India has a multiplicity of mechanisms at work: five-year plans, annual plans during plan holidays, pointed economic reform and reconstruction programmes during and after plan vacation, ideas of rolling plans; an elaborate system of controls and regulatory measures, attempts towards streamlining and simplification of procedures, private traders and public distributors for the same product and hence a system of dual prices, ceiling prices, floor prices, subsidized prices, statutory prices,retention prices, procurement prices, levy prices. and free market prices: contradistinction monetary policies and expansionary fiscal policies, etc. In India there is a complex system of liberal rules, strict regulations. control median, planning and a host of price regulations. 

Finally, a simple mixed economy is expected to reach a target level of social welfare and for this, task, the profit policies are to be designed according to a social purpose. The social welfare function in India is defined by the multiplicity of objectives which are sometimes conflicting in nature. For example,  in terms of our five-year plans, India is aiming at efficiency, justice and stability. Productive efficiency in a static sense refers to the efficiency-allocation of the given resources. Productive efficiency in its clammily sense refers to economic growth. The fruits of economic growth have to be distributed  fairly among the masses; social justice is to be so attained as not to endanger stability of prices, incomes, balance of payments, etc. The Indian plans have always emphasized the objectives like full-employment of labour, full capacity utilisation of plant and equipment, arid self-sufficiency. In the long-run, these objectives may be compatible with each other, but in the sphere of operation these objectives come in conflict with each other. For example, in order to promote a higher rate of growth, heavy industrialization and large investments are undertaken. Such investments increase the flow of money faster than the flow of output. This generates inflationary forces. Thus price stability cones in conflict with economic growth. Similarly, economic growth comes in conflict with social justice. Progressive tax system is used as a means to reduce income inequalities, but the same tax policy hampers private incentives to invest and to generate the growth forces thereby.  Foreign exchange remittance helps the country in overcoming balance of payments difficulties, but it increases the domestic money supply and the prices. Examples can be multiplied to demonstrate the inherent conflict among the objectives which the mixed economy of Indian hopes to achieve. To top it all, different instruments have been used to attain different target variables - fiscal policies for growth with justice, monetary policies for price stability with growth, price and output controls for price stability with justice. This has led to further confusion. 

To sum up, the so-called mixed economic system of India sometimes gives the impression of a mixed-up economic system that is characterized by multiplicity of sectors, multiplicity of instruments, multiplicity of objectives and multiplicity of adjustments to resolve the conflicts between various sectors, between instruments and between objectives.