Capitalism Capitalism is an economic system based on the principle of free enterprise. Individual ownership of resources is an important feature.

With control and command over resources, individuals can conduct any type of business. The object in such a system is to maximize private gains. Any type of enterprise or production of any commodity or service is permitted, so long it is wanted by the society. In such a system the market forces determine the That is, the demand and supply forces The resource allocation and price.

together determine what to produce, how to produce and for whom to produce. Price mechanism is the nucleus of the capitalistic society. price mechanism clearly reflects the wants of the people. the products in great demand. Once this is

known, the producers would allocate the resources to manufacture and sell While doing so, there is no control or regulation over production. In other words, oligopoly environment prevails. But each producer differentiates his product that he would be able to stay in the market. Technology and innovation ensure the stability and growth of organizations. As a result only efficient organization would survive. The resources would be fully utilized. The system is so flexible that it can adjust itself for any economic condition. The workers get equal opportunities and those with skills would be able to command better wages and salaries. On the whole capitalism offers scope for growth of efficient individuals and organizations. Socialism The resources are owned by the State or state owned institutions. Production takes place in the interest of the society and not for maximizing profits of individuals or organizations. Government decides the type of productive efforts to be permitted. In other words, in a socialist country, government can adopt licensing system and other types of regulations to prevent the emergence of monopolist and exploitative tendencies. Maximization of Community welfare is the objective than profit maximization. Another very important feature is the government ensures equitable distribution of national product. Public distribution system assumes enormous significance in such an

economic system. On the whole, the socialistic society differs from capitalist society in every sense. In the broad spectrum of economic systems, socialism and capitalism occupy two extremes. In the world today, pure capitalistic society is not seen in any country. Even in USA, government interference in various economic activities is found. For example, in the field of national defense, atomic energy, space technology, social security, etc., the presence of government is almost complete. Government also retains the right to interfere in the market system, whenever there is deliberate and intentional attempt to monopolize the resource ownership or the market. Similarly, in the erstwhile Soviet Union, socialistic principles were followed. But even here, there were instances of private ownership of property, enterprises, etc., were reported. That is why it is very difficult to come across pure capitalistic or socialistic societies. Mixed economy There was no reference to the mixed economic system in Economic literature in the past. Economists were mainly familiar and advocated the Laissez faire or free enterprise system, as several countries could develop fast following the free enterprise system, in which there was no or little government intervention. The entire economic system operated with the price mechanism at its center point. The producers produced what the consumers wanted and this provided very little scope for the government to intervene in the system. The Classical economists and their ardent supporters believed that the invisible hand will direct the economy and with private initiative and enterprise, every country should be able to record a faster growth as proved in the case of UK, USA, Europe, Australia, and other countries. TRENDS AND STRUCTURE OF INDIAN ECONOMY Existence of low per capita income: It is customary to compare the per capita income of a country with other countries to determine whether the country in question could be categorized as under developed or developed. The IBID is also adopting this method and it has classified the countries as i. low income countries, ii. Middle income countries and iii. high income countries.

Existence of very heavy population: The size of population is one more index of development status. It is found that a country with low population is developed and that with a small size of population is under developed. It should be noted that in the case of former the annual growth rate of population is very low, compared to the growth rate in the later. According to the World Development Review, 1993, the annual growth rate of population in the low income countries was 2.0 between 1980 and 1991 while in middle income countries it was 1.8 and in the high income countries the rate was 0.6 during the same period. Hence, it is clear that with a higher rate of growth, the low income countries will experience population explosion over a period of time. This population explosion will have serious impact on the economy and impede every effort to achieve higher rate of development. For example, the population explosion will result in increased poverty, high rate of unemployment, scarcity for essential goods, etc. 3. Predominance of agricultural sector;

This is another important characteristic of the under developed economy. In such economies, the percentage of population depending upon agriculture for livelihood will easily be 70%. The contribution of agricultural sector to national income will be high and it is estimated to be over 35%. The nature of exports will be mainly primary goods like agricultural raw materials. In the case of India nearly 70% of the population depends on agriculture sector (both directly and indirectly) whereas in a developed country this used to be only about 20% The contribution by agricultural sector to national income will be around 4 to 5% in developed countries and the composition of exports will be mostly manufactured goods and high-tech products. It may also be noted that in under developed economies, the productivity in agriculture will be abysmally low due to the use of out-dated technology, conventional method of cultivation, poor quality seeds and fertilizers, illiteracy of farmers, very high rural indebtedness, etc. The result is agricultural production will be low and so the contribution to national income will also be low. Added to this, the sector depends on the success of

monsoon and failure of monsoon directly affects the economic growth and development. 4. Existence of large scale unemployment: In under developed country there exists very large scale unemployment due to various factors. Further the unemployment will continue to increase over a period of time. The unemployment is due to factors like, huge population, low level of economic activity, poor technology, lack of investment, large illiteracy, etc. Even those who are employed may not add anything significant to production. That is there will be disguised unemployment too. The problem is worsened by the existence of under employment, which means the available labour power is not fully utilized. The overall effect of all these is that the labour productivity will be very poor. The efforts to improve the productivity may rot succeed due to resistance by labour unions and organizations. The economy will remain under developed so long as the unemployment remains high. 5. Existence of widespread poverty:

Poverty exists in every country. But the difference is that in developed countries, poverty exists only in certain pockets, while in under developed countries, poverty is widespread - almost 3/4 of the country lives below the poverty line. In under developed countries, the preponderance of agricultural sector, large scale unemployment, income disparities, high illiteracy, etc., account for widespread poverty. Added to these, the lack of investment opportunities, low productivity, primitive technology, etc., also result in poverty as any amount of production will not generate income. The wage level is so low that the people have very low saving. Any amount of efforts to alleviate poverty does not bear fruit due to maladministration, corruption, etc.

Primitive production condition: The excessive population pressure leads to heavy demand for land. The available land is not put to productive use. There is very high capital deficiency, one because of low saving and second the conspicuous consumption is very high. In other words, the little saving is used in unproductive ways. With poor capital formation, the government would invest heavily in capital intensive projects as well as welfare projects. The return is very poor and prolonged. The technology is so backward and primitive that the input output ratio is very high. The obsolete technology also results in poor return and low productivity. Another major weakness is that there is lack of entrepreneurial ability. Hence, investment opportunities are not easily identified and risky ventures are never undertaken. The size of market is small, the market information is absent, market intelligence is very poor, the administrative ability is at lowest level and there is lack of investment opportunities. All these culminate in poor utilization of the available entrepreneurial ability and talent 7. Foreign trade composition:

The composition of foreign trade in under developed country is very much influenced by its historical relations with other countries. Most of the under developed countries were colonies in the recent past and naturally their foreign trade composition clearly reflects this. They export unfinished, agricultural raw materials and import heavy capital goods. Obviously, their terms of trade will be unfavorable. Further there exists heavy geographic concentration in their trade. Any failure of agricultural sector worsens the foreign trade position. With heavy reliance on the imported machineries, these countries lack latest production technology. The poor balance of trade and balance of payments deficits force them to borrow heavily from the developed countries and international financial institutions. They are caught up in the debt trap and outgo of interest on international debt is so heavy that the county will struggle to maintain the exchange rate. The increases reliance on other countries for manufactured goods will subject the countries to economic and political subjugation of the exporting countries.

8.

Existence of wide disparity in income and poor standard of living:

These countries are also noted for very high income disparities because of concentration of productive factors in the urban areas, very low mobility of labour from rural to urban, low rate of employment in the rural areas in relation to urban areas, high wage rate in the urban and poor wage rate in the rural areas, etc. The income disparity is further widened by deteriorating terms of trade between agricultural and industrial sectors. As a consequence, the standard of living will be very poor in the rural areas than in the urban areas. Even in urban centers, there will be growth of urban slums. As already pointed out in these countries the population depending on agriculture is very high and so the employment opportunities as well as income generation is very low compared to that in the industrial sector. As in the initial stage of development the industrial growth will be confined to urban centers, the standard of living will be on the whole very poor. 9. Existence of dualistic economy:

Dualism refers to the existence of a developed sector side by side with an under developed or undeveloped sector. We will come across the coexistence of sophistication and primitive characteristics in every walk of life. For example, in the urban areas, one will find the use of modem technology in the production field as well as households, while in the rural areas, the age old, antiquated techniques will be used in the production as well as in households. This dualism retards economic growth. That is, the subsistence sector in the rural areas will pull down whatever little economic progress is achieved with the developed and modem sector. Further in the urban areas, one can come across the existence of dualism, in every activity. For instance there will be modern, technologically sophisticated industries existing side by side with industries with labour intensive and poor technology. There will be high wage executives existing with poorly paid slum dwellers. Firms with international collaboration producing ultra modem products will be found along with the domestic firms using inferior technology. In the rural areas also the dualism can be found. We can find the co-existence of farms with

vast expansive areas using modern production technology along with small farms where such technologies can never even be dreamt of. The bigger farms will be using trained and skilled laborers whereas the small farms will mostly be depending on the family labour and untrained, semi-skilled labour. While the capital investment by the big farms will be several times higher than those of the small farms, the rural indebtedness will be found more with the small farms than the large farms. The marketing strength, holding power, storage facilities, processing facilities, bargaining power, etc., will all be very much different between large farms and small farms. From the above explanation, it could be understood that every effort to develop the economy should be designed so as to make it applicable to both the modern sector as well as the undeveloped one. Hence, the overall growth will be more determined by the contributions of the undeveloped sector. 10. Existence of weak and inefficient administration:

Under developed countries always evince this feature. The political and social factors influence to a large extent the efficiency of administration. In these countries, the administrative system is noted for lethargy, red tapism, bureaucratic interference, delay in decision making, partiality, political influence in decision making process, bending the laws for favourable people, etc. The result of this is inefficiency. An efficient employee never gets his due as the rules and regulations do not permit this. The accountability at the higher levels is very much less. The responsiveness of the administration in a critical situation is more rules ridden or ritualistic rather than realistic. There is lack of managerial and administrative talents in these countries. The lack of know how, the resistance to change, lack of motivation, etc., are responsible for this administrative inefficiency.