Mixed Economy in India – All you need to know.

Mixed economy in India - All you need to know.

What does the idea of a mixed economy in India means?

Ever imagine why a plant needs warm sunlight from the sun and carbon dioxide from the air, without the presence of any one of the two it is not possible for the plant to survive.

The idea of a mixed economy in India is based upon this survival process. The mixed economy combines the best features of capitalism and socialism.

The concept of a mixed economy in India allows private and public sectors to co-exist. Keeping the idea of the mixed economy of India in mind, the Indian Government has made provisions for such coexistence in industry policies formulated in 1948 and 1956.

India opted for a mixed economy in order to build a nation where the private sector strives for profit maximization while the public sector works toward the welfare of citizens.

As an example, heavy industries like the steel industry, coal industry, atomic energy, and defence equipment are governed by the public sector.

In the private sector, you can find agriculture, smaller businesses, cottage industries, and consumer goods.

The private sector, in this case, was not entirely left out as the Government got involved in the operations and growth of the private sector.

Looking at the mixed economy of India In addition to encouraging free economic activity, the Government takes the necessary measures to control it at the same time.

The idea is to maintain the balance in the mixed economy in India. The Government works to create favorable working conditions for the factors of production, while the factors of production can choose their own occupations.

India opted for a mixed economy in order to eliminate a concentration of economic power in the hands of a few private entities.

And also to make sure that innovation and competition remain by giving the private entities enough space to explore their opportunities for growth.

The idea of a mixed economy in India is not allowing either the Government or the private player to have a monopoly over the domestic market and the resources of the nation.

Why does India opt for a mixed economy model?

India opted for a mixed economy to keep in check the political economy viewpoint. The idea was to move on from the trauma of hardcore capitalism by The East India Company.

During the British colonial rule adding the flavor of socialism was very important in order to uplift the morale of the citizens of India.

The idea of a free market leading to foreign investments also left the scope of history to repeat itself.

The Government wanted to stop the emergence of any other foreign nations entering India purely for the purpose of looting the country.

So for the initial period after the independence, the Government eliminated any chance of cruelty to happen ever again.

Why does India opt for a mixed economy model

Also, when we look at the situation back, then we can see that without adopting the concept of a mixed economy , the kickstart needed for long-term growth was not possible.

Neither the public nor private sector could assume sole responsibility for development in India after independence due to its socio-economic condition.

The majority of employment opportunities were in the primary sector. High birth rate, low labour quality, illiteracy, lack of technical knowledge, and poor quality of human resources were present all over the nation. Etc.

The mixed economy of India aimed to bring about growth in a way that is conducive to the prevailing environment.

The idea was of Creating conditions of economic and social development and protecting weaker sections of the society without harming the more capable ones.

Also Read: How Does the Stock Market Affect the Economy?

Upsides of a mixed economy

There was also a mixed opinion of economists when they talked about the decision of leaders when India opted for a mixed economy in their first five-year plan.

If we analyze that decision independently, we can see both the upsides and downsides when it comes to the concept of a mixed economy India.

The idea of a mixed economy in India allowed a rapidly growing economy by optimum utilisation of resources. It was in the hand of the Government to undertake the economic planning at a broader level.

Upsides of a mixed economy

This allowed the mixed economy of India to allocate resources at a mass level all over the nation as and when required.

It allowed lesser inequality of income as opting to be a welfare state allowed the Government to ensure jobs for the weaker section in the public sector.

The Government started implementing the policy of proportional distribution of land in many parts of the nation.

To keep the fire alive in the mixed economy of India, the Government gave freedom to own private property.

There is a free market in which people can acquire property and retain it in their own names, so there are incentives to work more and earn more at the same time.

This new structure of a mixed economy  allowed the Government to aim for the larger public interest.

The Government started introducing social insurance schemes, incurring expenditures, and managing the economy for the general masses.

There are provisions for housing, minimum wages, and suitable working conditions it serves the interests of the country’s masses.

Downsides of a mixed economy

Now when we look at the downsides of this decision, the Government decided to go for the concept of a mixed economy in India.

We can see that this led to ineffectiveness as public sector employees neglect their duties and do not do so with sufficient responsibility.

The private-sector employees experience a decrease in efficiency; as a result, the Government imposes excessive controls and imposes permits and licenses.

Downsides of a mixed economy

The mixed economy of India also allowed corruption to sustain inside the system. Politicians and self-interested figures took advantage of the public sector to the point that black money, bribes, tax evasion, and other illegal activities arose.

All of this led to an increase in corruption in the system. The mixed economy of India also faced delays in implementing big economic projects.

When you have a mixed economy, you are always going to face delays in decisions, especially when it comes to the public sector.

This type of delay always impedes the smooth functioning of the economy. The private players always have doubts in their minds.

They always think that India opted for a mixed economy in order to move towards the nationalisation of all the nation’s resources.

The private players always hesitate to put all their efforts and resources invested into the nation.

India’s overall journey with its mixed economic model

We can’t say that India completely adapted all the positive characteristics of capitalism and socialism neither; it managed to avoid all the negative characteristics of these two economic systems.

The mixed economy of India was not infallible. We can see the success when we look at the benefits of the green revolution and land distribution policies.

The mixed economy of India pushed the nation towards an inward-looking policy where foreign investment was negligible, which didn’t allow the Indian products to compete in the global market, which made them inferior.

India opted for a mixed economy in order to preserve its sovereignty, but this process also led to the balance of payment crisis in the nation.

India's overall journey with its mixed economic model

India was forced to keep its gold reserves at stake. The mixed economy in India also saw a setback when it was advised by the IMF to move towards to globalised system of economy.

India was forced to implement the new economic policy in 1991, which healed the whole economic structure of the country.

The new policies allowed foreign investments to enter the mixed economy of India, creating new jobs raising the purchasing power of the citizens.

The new process allowed the cycle of demand and supply to run smoothly on the roads of the mixed economy of India.

The socialist economy of India also allowed the growth of quality education institutions like IIT, IIM, and AIIMS in the public sector.

The strong socialist policy made quality education affordable for every section of the society, which made the IT revolution possible in the mixed economy of India.

The new socialist education system idea made India one of the most prominent hubs of IT services and a net exporter of software services.


The mixed economy saw a lot of setbacks, but it always rose up by adapting the relevant measures.

The idea of giving proportional space to the private sector in order to maintain competition in the economy aimed for growth.

This capitalistic approach brought innovation in the local products, which made them superior in the global market aimed for the wealthiness of the nation.

The decision of taking control of the public sector for the welfare of every section of the society aimed to reduce inequality in the country.

Both these ideas sum up the whole story of the Indian mixed economy . We can clearly see that with all its flaws, The GDP of India was 2.7 lakh crore at the time of independence. The GDP rose very far, and India became one of the world’s largest economies in 2021 when its GDP reached Rs. 135.13 lakh crore, 74 years after the country was founded.

The concept of a mixed economy is a revolving idea that makes adapting to the globalised world key for the growth of any nation.

The idea of reducing inequality cannot be a hindrance for any nation to change itself with the globalised world.

We can say that the lack of concentration on one of the two approaches can lead a country into a crisis by analysing India’s mixed economic model journey.

Further reading:

Components of GDP

Team R Wealth

Team R Wealth

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