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The Indian economy is best described as a:
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Answer: Option D — Mixed economy
Detailed Solution
A mixed economy is one in which both the public sector (owned and run by the government) and the private sector (owned by individuals and companies) operate side by side. The government plans and regulates some parts of the economy, while market forces of demand and supply decide prices and production in others.
India chose the mixed economy model after Independence. Leaders such as Jawaharlal Nehru wanted to combine the efficiency and initiative of private enterprise with the welfare goals of socialism. Through the Five-Year Plans (from 1951) and the Industrial Policy Resolutions of 1948 and 1956, the State took charge of key and heavy industries, such as steel, defence, railways, atomic energy and power, while agriculture, small industries and many consumer goods were left largely to the private sector. In 1976, the word "socialist" was added to the Preamble by the 42nd Amendment, but the economy remained mixed.
After the economic reforms of 1991, introduced by Prime Minister P.V. Narasimha Rao and Finance Minister Manmohan Singh, India moved towards Liberalisation, Privatisation and Globalisation (LPG). The role of the private sector and markets grew a great deal, licences were removed for most industries and foreign investment was welcomed. Even so, India is still a mixed economy, because the government continues to run public sector enterprises, provide public services and regulate markets.
Why not the other options?
- ✗A capitalist (market) economy is one in which most resources are privately owned and decisions are made through the market, as in the USA.
- ✗A socialist economy is one in which the State owns and controls most means of production, as in the former Soviet Union.
- ✗A traditional economy depends on customs, barter and inherited occupations.
Quick tip
Remember: India = mixed economy (public + private sectors), based on the Industrial Policy Resolutions of 1948 and 1956, with LPG reforms from 1991.
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Basic Concepts of Economics — Preparation
This question tests your understanding of Basic Concepts of Economics, a key topic in the General Knowledge section. The detailed solution above uses a step-by-step approach to show the reasoning, and where available, a shortcut that helps you solve similar questions in under 90 seconds during the actual exam.
This topic covers the basic ideas of economics: microeconomics and macroeconomics, demand and supply, elasticity, utility and consumption, production and costs, types of markets (perfect competition, monopoly, oligopoly and monopolistic competition), and types of economies. Questions usually test definitions and laws, such as the law of demand, the law of diminishing marginal utility, and the difference between a monopoly and an oligopoly. Be clear about cases such as Giffen goods, which break the law of demand. Adam Smith, author of 'The Wealth of Nations' (1776), is known as the father of economics. Practise the basic economic concepts questions below, written in the style of the general awareness sections of exams such as SSC, banking, railways, CUET GAT, MAH CET and CLAT. Each question comes with a detailed explanation that adds related facts, so every question helps you revise more than one point.