Nature of the Indian Economy

Early on at the outset itself, independent India chose to adopt a mixed approach instead of veering either towards an economy wholly determined by market forces or an economy wholly and only controlled by the state. The Indian Constitution itself expresses the hope that India will function as a welfare state, and to do so would require state intervention. However, India did not wish to build a monopolistic economy either with no private players, and hence, a mixed approach was followed.

Planned economy v. Free market economy

The international scenario at the time that India attained independence favoured a strong role played by the state. Many countries were just emerging from the repercussions of the Great Depression, before they became a part of the Second World War. This meant there was a great extent of poverty and destruction in most countries. Hence, it was natural for the state to assume a leading position in beginning reparations and rehabilitating both the people and the economy.  Also, the Great Depression had shown how market forces had failed, and there was a widespread call for a greater governmental role all around the globe.  Additionally, in the 1950s and 1960s the economies of USSR and East Europe recorded much greater economic growth rates than other countries. This led many experts to advocate implementing their style of economics. Hence, in a manner of speaking, a planned economy was in vogue in those times, and therefore it was natural for India too to adopt the same.

State economy v. Mixed economy

Even though the emphasis on planning in India was inspired from the USSR, India could not adopt an economic model similar to the command economy in USSR since India was built on democratic principles. Also, India’s economy was highly dysfunctional and distorted after decades of British economic policies that were framed for the benefit of Britain and often to the detriment of India. Therefore, a proactive governmental force was required to set right the wrongs and rive economic growth and industrialisation. Such a monumental task couldn’t be completely left to the hands of private players. Thus, in the initial years, the public sector played a prominent role driven by need for public ownership of means of production. As the flaws of this were revealed over the years, the public sector’s sphere of influence was restricted, and private players began playing a more prominent role. However, even though the extent of the role played by the private sector and the public sector varied in time, India’s economy has always witnessed co-existence of the two. Hence, over time, India evolved its own unique brand of mixed economy that was suitable to its indigenous conditions and requirements.