Mixed economy is an economic system which combines the features of both capitalism, and socialism. Public sector and private sector are allotted their respective roles in promoting the economic and social welfare of the community. India has adopted the mixed economic system.
Features of Mixed Economy
The distinctive characteristics of mixed economy are given below:
- Co-existence of Public and Private Sectors: In a mixed economy both public sector and private sector are allowed to co-exist. The public sector is expected to provide necessary infrastructural facilities (power, transportation, communications, etc.) for rapid economic development. It is believed that private sector being guided by profit motive may not invest resources into projects which are characterised by huge investment, long gestation period and low returns. The private sector is expected to undertake enterprises on the basis of the growth climate created by the public sector. The public sector is to supplement and not substitute the private sector. A mixed economy functions through cooperation between public and private sectors. Private property and social ownership of means of production both are allowed.
- Classification of Industries: All industries are classified into two or more categories. Industries of strategic importance are reserved for the public sector. The rest of the industries are left for the private sector.
- Economic Planning: The planning Commission lays down the socioeconomic objectives, sets the physical targets, specifies the sources and instruments for mobilishing necessary funds and details out procedures for implementing the national economic plan. This is done after taking stock of the political ideology, social aspirations and national resources. The private sector is expected to work within the framework of the objectives and priorities laid down in the Five-Year plans.
- Price Mechanism: The market mechanism is used to help in formulation and implementation of the National Plan. For example, market may be specified as an instrument of achieving the plan targets. Market prices and profits may be so regulated as to provide necessary incentives to the private sector. Thus, in a mixed economy planning and market mechanism work together.
- Profit Motive-cum-Social Welfare: The private sector operates primarily with a profit motive. The public sector seeks to achieve social welfare. Prices and profits are regulated in the interest of the society, private business is also expected to fulfill its social responsibilities. A mixed economy seeks to achieve simultaneously the twin objectives of economic growth and social justice.