The government of independent india wanted the most suitable Economic system for india. They had to first understand what are the problems of an economy.
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Central Problems of an Economy
What to produce
It involves deciding the final combination of services and goods to be produced. It involves selection of goods and services and the quantity of each, that the economy has to produce.
How to produce
The decisions on what techniques of production whether to select goods that need more labour for production and less capital or more capital and less labour for production .
For whom to produce
It is about deciding the distribution of final output among the people selecting the category of people who will consume the goods.
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Types of Economic System
Capitalist Economy
A capitalist Economy is one which production are owned and controlled and operated by the private sector and individuals.
Socialist Economy
A socialist Economy is one which production are owned and controlled by the government.
Mixed Economy
A mixed Economy refers to a system where public and the private sector are allotted their roles for solving the central problem in the economy.
Five year plan
The planning commission fixed the planning period for five years which began an era of five year plan.
Goals of five year plans
- the five year plan has taken care of the weaker sections of the population benefiting the economic progress of the country.
- the first five year plan was launched by the first prime minister of india in the parliament .
- each plan listed the basic goals of india development which served as guiding principles of planning . Basic goals are: Growth Modernisation Self reliance Equity
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Industrial Development
The developing countries like india can develop only if they have a good industrial sector. The industry provide employment. Which is suitable than the agriculture . The five year plan stressed more on the industrial development.
Role of public sector in industrial development
- Shortage of capital with private sector-Private players didn't have capital to undertake big investment in industrial ventures which required to develop the Indian economy.the government had to make investment through the public sector units.
- Lack of incentive for private sector- The Indian market was not big enough ro encourage industrialists to make projects, even if they had capital to do so.
- Objective of social welfare-The objective of equity and social welfare of the government could achieve only by Direct participation of the state in the process of industrialisation.