Not every economy is the same. Every country follows its own set of core principles and built their economy to suit this. For example, America prides itself on being a capitalist country. While India has always had a more measured outlook. Let us study the various economic systems and sectors.
Economic Systems and Sectors of India
An economy refers to the way a nation makes economic choices about how the nation will use its resources to produce and distribute goods and services. The Indian Economy was called an underdeveloped economy but slowly become a developing economy but is now referred to as the mixed economy.
An economic system is defined by a way wherein the country’s resources are utilized to produce goods and services in such a manner that these goods and services are distributed for consumption. It is a system that involves production, distribution, and consumption of goods and services between the entities in a particular society.
The economy of India stands as the world’s 12th largest according to the market exchange rates and is also the 4th largest economy on the basis of Purchasing Power Parity. The Indian Economic System was based on the basis of Social Democratic policies from the year 1947 to 1991.
Type of Economic Systems
The nation has various types of an economic system like –
- Pure Market Economy: In the pure market economy, there is no government involvement in the economic decisions. Herein, the consumers decide what shall be produced. Businesses shall determine how the products will be produced and who buys the product.
- Pure Command Economy: In the Pure Command Economy, all the resources are government owned. Here, one person or a group of officials decide WHAT products are needed. The government decides who receives the products that are produced.
- Traditional Economy: The economy in the traditional economy is largely shaped by the custom or religion. The customs and religion determine the WHO, WHAT and HOW. For example – India is based on a caste system that restricts the choice of occupation, meaning that a social class is separated or made distinct on the basis of profession, wealth or even hereditary rank.
- Mixed Economy: In the mixed system, the individuals own most of the resource and it is them who determine how and what to produce. Also, the government regulates the certain industries and includes both the features of market and command economies. For example – China
Just like economic systems, there are also economic sectors. The economy is categorized into three sectors, named as –
- Primary Sector: Primary Sector refers to that sector which is directly dependent on the environment for manufacturing and production. The main examples of the primary sector are agriculture, fishing, mining, farming, etc.
- Secondary Sector: Secondary Sector is that sector that adds value to the product by changing or transforming the raw materials into the valuable product. Some examples of Secondary Sector are Processing, Manufacturing of Steel, and Construction industries.
- Tertiary Sector: Tertiary Sector is known as the Service Sector which is involved in the production and exchange of services. Few examples that fall under Tertiary sector are transportation, banking, insurance, communication or any of these services. The most to the GDP of our country is contributed by the tertiary sector.
Solved Questions for You
Question 1: Explain Economic Systems in brief?
Ans: Economic systems are defined as a system that involves production, distribution, and consumption of goods and services between the entities in a particular society. This can be completely owned or operated either by the Manufacturers and Industrialists or by the Government or by both with combining their efforts.