INDIAN INSTITUTE OF PLANNING AND MANAGEMENT AHMEDABAD

An Assignment on Welfare Economics

Submitted To: Prof. Mrs. Usha Venkatesh

Submitted By: Abhishek Mishra ISBE-A//SS//10-12

Explain the role of free market economy in planning the welfare of an economy?
Ans. Market economy is economy based on the power of division of labor in which the prices of goods and services are determined in a free price system set by supply and demand. This is often contrasted with a planned economy, in which a central government determines the price of goods and services using a fixed price system. Market economies are also contrasted with mixed economy where the price system is not entirely free but under some government control or heavily regulated, which is sometimes combined with state-led economic planning that is not extensive enough to constitute a planned economy. Market economies do not exist in pure form, as societies and governments regulate them to varying degrees rather than allow self-regulation by market forces. The term free-market economy is sometimes used synonymously with market economy, but, as Ludwig Erhard once pointed out, this does not preclude an economy from having socialist attributes opposed to a laissezfaire system. Economist Ludwig von Mises also pointed out that a market economy is still a market economy even if the government intervenes in pricing. Different perspectives exist as to how strong a role the government should have in both guiding the market economy and addressing the inequalities the market produces. For example, there is no universal agreement on issues such as central banking, and welfare. However, most economists oppose protectionist tariffs. The term market economy is not identical to capitalism where a corporation hires workers as a labor commodity to produce material wealth and boost shareholder profits. Market mechanisms have been utilized in a handful of socialist states, such as China, Yugoslavia and even Cuba to a very limited extent. It is also possible to envision an economic system based on independent producers, cooperative, democratic worker

ownership and market allocation of final goods and services; the labor-managed market economy is one of several proposed forms of market socialism. Welfare consists of actions or procedures especially on the part of governments and institutions striving to promote the basic well-being of individuals in need. These efforts usually strive to improve the financial situation of people in need but may also strive to improve their employment chances and many other aspects of their lives including sometimes their mental health. In many countries, most such aid is provided by family members, relatives, and the local community and is only theoretically available from government sources. Welfare may be provided directly by governments or their agencies, by private organizations, or by a combination of both in a mixed economy model. The term welfare state is used to describe a state in which the government provides the majority of welfare services, or to describe those services collectively. Welfare may be funded by governments out of general revenue, typically by way of redistributive taxation. Social insurance type welfare schemes are funded on a contributory basis by the members of the scheme. Contributions may be pooled to fund the scheme as a whole, or reserved for the benefit of the particular member. Participation in such schemes is either compulsory or the program is subsidized sufficiently heavily that most eligible individuals choose to participate.

Types of market
Perfectly Competitive Market Goods/services offered are all same Numerous buyers and sellers and no single buyer or seller can influence the market price - price takers. Oligopoly Few sellers

 Each participant is aware of the actions of the others Monopolistic Goods/services are slightly differentiated Numerous sellers each seller has some ability to influence the price Monopoly No substitute available for the goods/services offered Only one seller and this seller sets the price price maker

Why market fails?

Market failure occurs when freely functioning markets, operating without government intervention, fail to deliver an efficient or optimal allocation of resources. Therefore economic and social welfare may not be maximized. This leads to a loss of economic efficiency.

Market Regulations
The free market automatically solves all the issues that we might have. It brings prices down, quality and productivity up through the Invisible hand and competition

Drawbacks of Free Market Economy are: Free Markets might have worked in the past, when companies were small and there was always enough competition going on, but that is no longer the case now in our economy. If you work in a system where maximizing your profit is the goal you do not want competition & thus it is not a free market economy.

 Competition forces you to keep prices at lower scales thereby reducing profit.

We do not have the small businesses anymore that were the base upon which free market ideas were born. We have international corporations that have absolutely no interests in the free market's survival.

What are the various welfare promoting policies adopted by the Indian Govt. since 1991? Schemes:
1. Stipend to physically handicapped student The handicapped student reading : from class I to V class @ Rs. 20/- p.m. from class VI to X class @ Rs. 40/- p.m from class College to to University s @ Rs. 60/- p.m from student reading outside the State @ Rs. 75/- p.m. All the 8 Blocks in four sub-division of Angul district are cover under ICDS to provide six packages of services to the preschool children, pregnant women and Nursing mother. 1. Pre-School-education 2. Health-education. 3. Refresher-services 4. Health-check-up 5. Immunization 6. Special Nutrition Program 2. OAP/ W.P. The scheme is meant for destitute who are above 65 years, widow, Leprosy patient provide with Rs. 100/- pension per month. 3. STATE OLD AGE PENSION SCHEME

Eligibility: i) AGE: AT LEAST 60 YEARS ii) FINANCIAL CONDITION: LITTLE OR NO MEANS OF SUBSISTENCE RATE OF PENSION /ASSISTANCE: Rs. 100/- per month per person. DISTRICT TARGET: 17664 ACHIEVEMENT : 17664 MODE OF PAYMENT: Cash on a fixed date of the month 3. O.D.P. The scheme is meant for destitute persons who are totally blind or orthopedically handicapped and has visible signs of differ wanting of loss of blind due to Leprosy incapable from the age of 5 years and above are eligible to get Rs. 100/- as pension per month. Eligibility: Age at least five years and should be disabled. Rate of Pension: Rs.100/- per person per month. 4. NOAP A destitute of 65 years of age and unable to earn bread from his/ her own source of income is provide with pension @ Rs. 75/- p.m. by the Govt. of India and Rs. 25/- p.m. by the State Government. The Details are as follows. NATIONAL SOCIAL ASSISTANCE PROGRAMME Introduced on: 15th August 1995. Components: National Old Age Pension Scheme (NOAPS) National Family Benefit Scheme (NFBS) National Maternity Benefit Scheme (NMBS) NATIONAL Criteria: i) OLD AGE PENSION:

Age At least 65 years. ii) Financial condition - With little or no regular means of subsistence

1. NEBS Under this unit of NSAP Central assistance is made available for a lump sum Family benefit of Rs. 10,000/- to the family house holder below poverty line on the death of the primary bread owner of the family. 6. Child Welfare The aim of the scheme is to provide care, protection, education and vocational training orphanage children to bring them to the level of normal citizen of the country.

The following orphanages are in existence in Angul district with the strength noted against each. 1. Baji Rout Chhatrabas, Angul 2. Athamallik Balashram ----- 100 nos 25 nos.

How the department is is helping to common public The Govt. provide to the people by way of giving pension, nutrition food to the pre-school children, school children, pregnant & nursing mothers, aids to physically handicapped persons, to old and infant people.

SGSY: The Swarnjayanti Gram Swarozgar Yojana, which has been launched with effect from April 1, 1999, is a holistic programme covering various aspects of self employment, such as organization of the poor into self-help groups, training, credit, technology, infrastructure and marketing. It is envisaged that 50 percent of the Groups formed in each Block should be exclusively for women who will account for at least 40 percent of the Swarozgaris. Under this Scheme, women are encouraged in the

practice of thrift and credit which enables them to become selfreliant. Through assistance in the form of Revolving Fund, Bank Credit and Subsidy, the Yojana seeks to integrate women in the economy by providing increasing opportunities of self employment. GSY: The Jawahar Gram Samridhi Yojana (JGSY) has been launched with effect from April 1, 1999, with the twin objectives of creation of demand-driven community village infrastructure and the generation of supplementary employment (for the unemployed poor) in the rural areas. Wage-employment under the JGSY is extended to below poverty line families. It is stipulated that 30 percent of the employment opportunities should be reserved for women. IAY : The Indira Awas Yojana (IAY) aims at providing assistance for the construction of houses for people 'Below the Poverty Line' in rural areas. Under the Scheme, priority is extended to widows and unmarried women. It has been laid down that IAY houses are to be allotted in the name of women members of the household or, in the joint names of husband and wife. NSAP: The National Social Assistance Program (NSAP), which came into effect five years back, represents a significant step towards introducing a National Policy for Social Assistance benefits to households 'Below the Poverty Line', with a major focus on women. The NSAP has three components, namely, the National Old Age Pension Scheme, the National Family Benefit Scheme and the National Maternity Benefit Scheme. The National Maternity Benefit Scheme is exclusively aimed at assisting expectant mothers by providing them Rs.500 each for the first two live births. Under the National Old Age Pension Scheme, Central Assistance of Rs.75 per month is provided to women and men

who are 65 years of age and above and have little or no regular means of subsistence from their own sources or through financial support from the family members. Under the National Family Benefit Scheme, Central Assistance of Rs.10,000 is extended to the bereaved family in the case of death of the primary breadwinner due to natural or accidental causes. Women are also beneficiaries under this Scheme.

What are the welfare compromising steps taken by the Govt. recent years?
We do understand that education and health care services create both private and social benefits and this is the reason for the existence of both private and public institutions, expenditure on education and health make substantial long term impact and cannot be easily reversed. Moreover individual consumers of these services do not have complete information about the quality of services and their cost. With a large population living below the poverty line many cannot afford to access basic education and health and education facilities. A substantial group of people cannot afford to reach super specialty health care and education. Furthermore when basic education and health care is considered as a right of citizens then it is necessary for the government to provide it free of cost to the socially oppressed caste. Though literacy rates for adults as well as youth have increased, still the absolute number of illiterates is as much as there was population at the time of independence. Females are still not allowed to study in many parts of the country and their freedom is not secured the society still us gender-biased Health care facilities are not sufficient to be provided to a country with such a large population there still exists a dearth of doctors, engineers and architects. Political framework and its impact on welfare

The cleavage-based political framework of post-Independence India has, hence, produced a unique political setting in which social policy making was made a great deal more lengthy and thorny, than in most countries of the developed Western world. Functional theories that explain the relative absence of welfare state institutions in Third World countries with their comparative socio-economic backwardness cannot explain the striking differences of welfare state development in e.g. : Mainland ,China and India, from the late 1940s onwards. The author here found that conflict theories, especially the statecentered/institutional school, that are based on numerous political and socio-political parameters are, indeed, capable of explaining the striking gap between policy efforts and policy outcomes in the case of India, as well as in any other countries, wherever they may occur.

Capitalism vs. Socialism in Welfare Promotion:

Capitalism is defined as an economic system that is based on private ownership of capital. In a capitalist economy, the means of production are distributed to private persons and the functioning of the market determines the production and pricing of goods and services. Let us look at the pros and cons of capitalism. Pros-of-Capitalism: Capitalism promotes economic growth by providing an open competition in the market. It provides individuals with far better opportunities of raising their income and thus achieving economic growth. Capitalism results in a decentralized economic system. This is considered as one of the greatest advantages of capitalism. In a decentralized economy, individuals are open to more number of options in business. They are exposed to competition and have to face different challenges and find solutions to them to stay in competition. It is in a capitalist economy that hard work is rewarded. Entrepreneurs who pitch well and are able to better their business are the undoubted winners.

Capitalism gives rise to an economy where the consumers regulate the market. Many consider this as one of the greatest strengths of a capitalist economy. A competitive market provided by capitalism facilitates the manufacture of a wide variety of products and the formation of a wide range of services. Consumers are happier in a capitalist economy. It encourages people to work towards financial freedom. Cons-of-Capitalism:
some consider the fierce competition brought about by capitalism as its major drawback. They believe that a capitalist economy can give rise to unfair competition. Capitalism makes an economy money-oriented. Business corporations look at the economy with a materialistic point of view. Profitability remains their only primary business goal. Business giants take over smaller companies. Employment rights are compensated with the sole aim of higher productivity. Some economists believe that capitalism may lead to a depletion of the resources on Earth, as it requires continuous economic growth. There are different views about capitalism. Some believe in its strengths, while others complain about the unfair distribution of wealth it may lead to. A mixed economy can perhaps serve as the golden mean.

Merits of Socialist Economy 1. Efficient use of resources: The resources are utilized efficiently to produce socially useful goods without taking the profit margin into account. Production is increased by avoiding wastes of Competition. 2. Economic Stability: Economy is free from business fluctuations. Government plans well and everything is well coordinated to avoid over-production or unemployment. There is stability because the production and consumption of goods and services are well regulated.

3. Maximization of Social Welfare: All citizens work for the welfare of the State. Everybody receives his or her remuneration. The State concentrates on the production of basic necessaries instead of luxury goods. The State provides free education, cheap and congenial housing, public health amenities and social security for the people. 4. Absence of Monopoly: The elements of corporation and monopoly are eliminated since there is absence of private ownership. The state is a monopoly but produces quality goods at reasonable price. 5. Basic needs are met: In socialist economies, basic human needs like water, education, health, social security, etc, are provided. Human development is more in socialist countries. 6. No extreme inequality: As social welfare is the ultimate goal, there is no\ concentration of wealth. Extreme inequality is prevented in socialist system. Demerits of Socialism 1. Bureaucratic Expansion: A socialist economy is operated under a centralized command and control system. People here work out of fear of higher authorities. It does not give any initiative for the people to work hard. 2. No Freedom: There is no freedom of occupation. Allocation of factors of production is not done rationally. Jobs are provided by the State. Place of work is also provided by the State. The consumer's choice is very limited. 3. Absence of Technology: Work is monotonous and no freedom is given. Any change in the production process will alter the entire plan. Hence any innovation cannot be easily enforced. Everything is rigid and technological changes are limited. 4. Absence of competition makes the system inefficient.