Should Indian shift being socialist economy to a capitalist economy? Why?

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On 15th August 1947, India woke to a new dawn of freedom. Finally, we were masters of our destiny after some 200 years of British rule; the job of nation-building was now in our hands. Lack of infrastructure, the prevalence of poverty, unemployment, low agricultural etc. was a kind of India that Nehru inherited. Under these conditions, he was posed with the mammoth task of creating an India where no individual died of hunger and did not struggle to meet both ends. Hence he had to decide on such an economic system that would ensure the welfare of all rather than a few. Therefore socialism appealed to him the most. But he was not inclined towards the extreme form of socialism which was present in the USSR where no private properties were allowed and the state owned the industries. Rather he wanted a socialist sector with a strong public sector but also with private property and democracy. Many industries were nationalized in the mid-1950s. The Industries Act of 1951 was a prerequisite for businesses to get a license from the government before they could develop, expand or change their product. Import tariffs were imposed to discourage foreign trade, and foreign investments were subjected to repressive constraints. But the planners were unsuccessful, manufacturing never took off and finally the economy crumbled. It was in 1991 that the country embarked upon the major reforms of liberalization, privatization and globalization that brought the government expenditure in line with revenue. It converted the Indian economy into a market economy by increasing the participation of private players, decreasing the role of the public sector, abolishing the industrial licensing, and free entry to foreign investment, hence finally led to the beginning of privatization in India. Slowly, different sectors of the Indian economy are moving towards a more privatized way of functioning that has sparked a new debate on whether India should shift to a capitalist economy?

Capitalism and Socialism are the economic systems that define the mechanism for production, distribution and allocation of goods and services. Both the systems at their extremes have their pros and cons.

In socialism, the production and distribution are taken by the government with individuals dependent on the state for everything. It encourages collective ownership as well as production based on their usefulness, thereby, discouraging accumulation that is the root cause of wealth imbalance hence promoting equality. But it has its shortcomings such as it weakens the engines of the economic growth as it provides very few incentives to people for innovation. Communist countries like China, Cuba tend towards socialism in the past but now they have switched to a parallel financial system by operating their usual social programs in critical sectors while allowing a free market economy in tourism, export etc.

On the other hand, capitalism is an economic system where individuals and businesses, rather than government own and control the factors of production. Capitalism’s success depends on a free market economy driven by supply and demand.

On the other hand capitalism leads to a higher growth rate, employment, enhanced infrastructure, productivity etc. as compared to the socialist counterpart. They are the chief agents in creating employment, generating wealth, building competitiveness and driving innovation- all essential instruments for growth.

  1. Today India has one of the highest demographic dividends in the world which is expected to last till 2055. With about 11-12 million youths entering the labour force every year, jobs need to be created and effective skill initiatives need to be put in place. Government alone cannot create so many jobs. Hence the private sector plays a pivotal role in meeting this challenge. It has strong links to higher investment in educational and vocational training, facilitates training programmes and creates a partnership with educational institutes and experts thus creating a future-ready and talented workforce.
  2. Investments by the corporate sector have a multiplier effect on the economy by creating direct and indirect jobs, boosting consumption, fostering development thus helping India to become Atmanirbhar. That is why the government is taking measures to attract investments especially in defence, airports etc.
  3. The private sector has the power to harness and use cleaner, greener technology to ensure greater prosperity of the nation and promote environmental efficiency.
  4. It plays a lead role in research and development spending, works with universities and institutes to convert new research into the market and craft innovative business models and strategies.

Capitalism’s ability to improve economies is not in doubt but they conceal the poverty and suffering at the bottom of the economic pyramid. Inequity and individual’s greed and aspirations in a capitalist economy are given. And as said by the renowned economist Dr Manmohan Singh that India is a rich country inhabited with very poor people, hence pure capitalism will further widen the gap between rich and the poor. The Government has to play a vital role in the upliftment of the poor thus ensuring equity and equality for all. Secondly, the collapse of many international banks and economies over the past years, massive bailouts required by the critical pillars of finance and the global economic recession has exposed the limitations of pure and unregulated capitalism. Hence there is a need to transform, redesign, regulated and root it in the Indian context and this work can only be done by the national government with the help of experts and state government.

As rightly said by Winston Churchill “the inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries” hence economic structure in India should combine the efficiency of capitalism with socialistic ideals of equality and justice.

-Monika Dash