ACROPOLIS INSTITUTE OF TECHNOLOGY & RESEARCH

(ASSINGMENTOF BUSINESS ENVIRONMENT) [INDIAN ECONOMIC SYSTEM & LAST THREE PLANS]

SUBMITTED TO Dr. RENU MEHTA

SUBMITTED BY SHAILESH DUBEY AISHWARY MISHRA

Economic system
Definition - Economic system An economic system is a mechanism which deals with the production, distribution and consumpti on of goods and services in a particular society. The economic system is composed of people, institutions and their relationships. It addressees the problems of economics like the allocation and scarcity of the resources.

Indian Economy System

Indian economy is the world's twentieth largest according to market exchange rates. It is also the fourth largest economy by purchasing power parity (PPP) basis. From 1947 to 1991, the India Economic System was based on social democratic-based policies. The policies feature protectionism, extensive regulation and public ownership which led to slow growth and corruption. But the economy has moved to a market-based system with economic liberalization starting in 1991. The growth rate of the economy increased in 2000's with healthier economic reforms and policies. India became the secondfastest growing major economy in the world by 2008.

 Around 54% of the GDP comprises the service industry while 29% is the industrial sector and 17% is the agricultural sector. The main occupation in India is agriculture which employs 60% of the population. Around 28% of the population is employed in the service sector and the rest 12% are in the industrial sector. The work force amounts to half a billion workers.
The main agricultural products are rice, wheat, jute, tea, sugarcane, cotton, oilseed, poultry and fish. Textiles, steel, chemicals, information technology enabled services and software, food processing, petroleum, machinery, steel, and cement are the major industries. With a per capita income (nominal) of US $1016, it was ranked 142nd in the world (IMF 2008 estimate) and a per capita (PPP) of US$2,762 it was ranked 129th (IMF 2008 estimate). According to the WTO the economy accounted for 1.5% of world trade in 2007. Some of the basic features of the India Economic System are given below

GDP --- $1.209 trillion (2008 est) GDP growth --- 6.7% (2009) GDP per capita --- $1016 Inflation (CPI) --- 7.8%(CPI) (2008) Population below poverty line --- 22% (2008) Labor force --- 523.5 million (2008 est) Unemployment --- 6.8% (2008 est) Public debt --- $163.8 billion (2008)

Type of Economic System

Market Economy. The Planned Economy. The Mixed Economy.

Market Economy
In a market economy, national and state governments play a minor role. Instead, consumers and their buying decisions drive the economy. In this type of economic system, the assumptions of the market play a major role in deciding the right path for a countrys economic development. Market economies aim to reduce or eliminate entirely subsidies for a particular industry, the pre-determination of prices for different commodities, and the amount of regulation controlling different industrial sectors.

Features
All resources are privately owned by people and firms. Profit is the main motive of all businesses. There is no government interference in the business activities. Producers are free to produce what they want, how much they want and for whom they want to produce. Consumers are free to choose. Prices are decided by the Price mechanism i.e. the demand and supply of the good/service.

Advantages
Free market responds quickly to the peoples wants: Thus, firms will produce what people want because it is more profitable whereas anything which is not demanded will be taken out of production. Wide Variety of goods and services: There will be wide variety of goods and services available in the market to suit everybodys taste. Efficient use of resources encouraged: Profit being the sole motive, will drive the firms to produce goods and services at lower cost and more efficiently. This will lead to firms using latest technology to produce at lower costs.

Disadvantages
Unemployment: Businesses in the market economy will only employ those factors of production which will be profitable and thus we may find a lot of unemployment as more machines and less labor will be used to cut cost. Certain goods and services may not be provided: There may be certain goods which might not be provided for by the Market economy. Those which people might want to use but dont want to pay may not be available because the firms may not find it profitable to produce. For example, Public goods, such as, street lighting. Consumption of harmful goods may be encouraged: Free market economy might find it profitable to provide goods which are in demand and ignore the fact that they might be harmful for the society. Ignore Social cost: In the desire to maximize profits businesses might not consider the social effects of their actions.

Planned Economy
A planned economy is also sometimes called a command economy. The most important aspect of this type of economy is that all major decisions related to the production, distribution, commodity and service prices, are all made by the government. The planned economy is government directed, and market forces have very little say in such an economy. This type of economy lacks the kind of flexibility that is present a market economy, and because of this, the planned economy reacts slower to changes in consumer needs and fluctuating patterns of supply and demand.

Features of Command Economy:

By nature, a Command Economy is more stable, guaranteeing constant exploitation of the existing resources. It is least affected by financial downturns and inflation. In a carefully planned Command Economic system, both surplus production and unemployment rates remain at a reasonable level The steady nature of Planned Economy encourages investments in long-standing project-related infrastructures without any possibility of financial recessions. Command Economy is just opposite to the concept of Market Economy, with respect to the basic money-making approaches. While Market Economy tends to multiply the wealth of a nation through the gradual process of evolution, Command Economic system prefers deliberate planning of the entire money-making process for better results Command Economy emphasizes more on collective benefits, rather than the requirements of a single individual. Under such circumstances, rewards, wages and other monetary benefits like bonus are distributed on the basis of the joint rendering of services.

The advantages of a planned economy High degree of control Leads to a high level of stability It can eliminate consumerism and luxuries much easily. The entire system conforms to certain standard which means that everything is uniform which helps establish more control. In a planned economy, the individual efforts are directed towards a certain goal by the restrictions which mean that all the energy can be focused towards achieving a specific economic and social goal of the government.

Disadvantages of a planned economy

Production does not take into account what the consumers want. Shortages and over supplies become quite common. The planned economy does not operate a commercial stand point so even if the production systems are efficient, There may be no demand for the goods abroad that would earn foreign exchange. There is no incentive for innovation as the consumers must buy

Mixed Economy
A mixed economy combines elements of both the planned and the market economies in one cohesive system. This means that certain features from both market and planned economic systems are taken to form this type of economy. This system prevails in many countries where neither the government nor the business entities control the economic activities of that country both sectors play an important role in the economic decision-making of the country. In a mixed economy there is flexibility in some areas and government control in others. Mixed economies include both capitalist and socialist economic policies and often arise in societies that seek to balance a wide range of political and economic views

Features
Communism, for that matter any social system, is not to be viewed in isolation for a few benefits it may shower on a group of people but has to be assessed for the overall benefits. It brings to the people living under that system. If you take Russia, people had to be kept under lock and key with guards with guns, so that they may not escape the worker's heaven. China was worse with people living in pre-industrial poverty chained by medieval traditions taboos and customs. In both places people were kept without even any means of communicating with the outside world, even though China is a military superpower the majority of the population is living in poverty and slavery, much like what was happening in Russia before the perestroika.

ADVANTAGES The mixed economy is helpful in increasing national production in the country. Both public and private sectors work hard to bring about more production. The problems created by free enterprise and too much public control are solved through mixed economy. It provides freedom of enterprise ownership and profit earning as well as social welfare and political freedom. All the national recourses are utilized under mixed economy.

DISADVANTAGES
Mixed economy is half way house. It is not helpful in achieving optimal use of national resources. The mixed economy suffers from the drawbacks of both the capitalism and the socialism. Mixed economy seldom achieved progress. It suffers from continues back wardens. Under mixed economy wastage of different types occurs in the economy.

Economic planning with special reference to last three plans

Ninth Plan (1997-2002) Ninth Five Year Plan India runs through the period from 1997 to 2002 with the main aim of attaining objectives like speedy industrialization, human development, full-scale employment, poverty reduction, and self-reliance on domestic resources. Background of Ninth Five Year Plan India: Ninth Five Year Plan was formulated amidst the backdrop of India's Golden jubilee of Independence.

The main objectives of the Ninth Five Year Plan of India are:
To prioritize agricultural sector and emphasize on the rural development To generate adequate employment opportunities and promote poverty reduction To stabilize the prices in order to accelerate the growth rate of the economy To ensure food and nutritional security To provide for the basic infrastructural facilities like education for all, safe drinking water, primary health care, transport, energy To check the growing population increase To encourage social issues like women empowerment, conservation of certain benefits for the Special Groups of the society To create a liberal market for increase in private investments

Tenth Plan (2002-2007)

Attain 8% GDP growth per year. Reduction of poverty ratio by 5 percentage points by 2007; Providing gainful and high-quality employment at least to the addition to the labor force;*All children in India in school by 2003; all children to complete 5 years of schooling by 2007; Reduction in gender gaps in literacy and wage rates by at least 50% by 2007;*Reduction in the decadal rate of population growth between 2001 and 2011 to 16.2%;*Increase in Literacy Rates to 75 per cent within the Tenth Plan period (2002 to 2007)

Eleventh plan (2007-2012)

The eleventh plan has the following objectives: Income & Poverty Accelerate GDP growth from 8% to 10% and then maintain at 10% in the 12th Plan in order to double per capita income by 2016-17 Increase agricultural GDP growth rate to 4% per year to ensure a broader spread of benefits Create 70 million new work opportunities. Reduce educated unemployment to below 5%. Raise real wage rate of unskilled workers by 20 percent. Reduce the headcount ratio of consumption poverty by 10 percentage points.

Education Reduce dropout rates of children from elementary school from 52.2% in 2003-04 to 20% by 2011-12 Develop minimum standards of educational attainment in elementary school, and by regular testing monitor effectiveness of education to ensure quality Increase literacy rate for persons of age 7 years or above to 85% Lower gender gap in literacy to 10 percentage point Increase the percentage of each cohort going to higher education from the present 10% to 15% by the end of the plan

Health Reduce infant mortality rate to 28 and maternal mortality ratio to 1 per 1000 live births Reduce Total Fertility Rate to 2.1 Provide clean drinking water for all by 2009 and ensure that there are no slipbacks Reduce malnutrition among children of age group 0-3 to half its present level Reduce anemia among women and girls by 50% by the end of the plan

 Women and Children Raise the sex ratio for age group 0-6 to 935 by 2011-12 and to 950 by 2016-17 Ensure that at least 33 percent of the direct and indirect beneficiaries of all government schemes are women and girl children Ensure that all children enjoy a safe childhood, without any compulsion to work

 Infrastructure Ensure electricity connection to all villages and BPL households by 2009 and round-theclock power. Ensure all-weather road connection to all habitation with population 1000 and above (500 in hilly and tribal areas) by 2009, and ensure coverage of all significant habitation by 2015 Connect every village by telephone by November 2007 and provide broadband connectivity to all villages by 2012 Provide homestead sites to all by 2012 and step up the pace of house construction for rural poor to cover all the poor by 2016-17

 Environment Increase forest and tree cover by 5 percentage points. Attain WHO standards of air quality in all major cities by 2011-12. Treat all urban waste water by 2011-12 to clean river waters. Increase energy efficiency by 20 percentage points by 2016-17.