Simplification of the Complex Structure of Indian Economy

You must’ve already made a basic google search before landing here. So you basically have an idea of the topic.

Here we will throw some light on the basic concept, its contents, logic behind them, and their scope. This is like your one-stop for the basics of the Indian Economy.

The books, economists, and experts have a tough job of handling complex economic matters while directly dealing with them practically. We, as learners on the other hand, do not need to copy their whole vocabulary and terminology especially without understanding their meanings and application in real life.

Hence, here is my attempt to re-phrase and simplify the whole thing from a beginner’s perspective. You must’ve already read that the economists consider Indian Economy to be a Mixed Market Economy with Primary, Secondary, and Tertiary sectors in play but what do these things actually mean? Lets begin with the basic concept of Economy and its types and why India is a Mixed Market Economy.

How to judge a type of economy?

A nation ruled by any form of government may have any type of economy and fundamentally the form of government has nothing to do with a country’s type of economy. However, there has been a historic trend giving birth to predictability of influence from the type of government onto the type of economy.

Meaning, the core values and principles of the government of any country have been reflected in its governance and policies concerning national interests including their economy.

So if a country’s government wishes to choose a path of isolation, complete self-dependence, stricter and controlled trade, it will not allow an open economy. Neither for the businesses within the country (ceasing their natural creativity & innovation) nor for other countries interested to invest.

For example – North Korea is a strictly autocratic country with a command economy. On the other hand, America is a democratic country hence open, flexible, and adaptive of less restricted local as well as international trade. Now, why do we have these differentiations? For a better understanding of course; but why do they exist at all?

Apart from the obvious political reasons. There are existential and situational reasons such as instability of govt., wartime, constitutional or legal complications, technological hurdles, scarcity of resources, population, many natural & unnatural reasons.

These decide the nature of the economy which is termed as “type” and there are mainly 4 major types of economies on the basis of the principle of dependency.

Types of Economy

1) Traditional Economy – Everything is in the name, this type of economic system has no modern concepts of trade and it can also be considered a natural basic economy. Because it is born out of pure need and hardly any systematic structure was in place to hold any transactions and an overlooking governing authority.
Example –

2) Command Economy – This is a highly controlled strictly governed economic system. Self-dependent countries push for this wild extreme isolated economy. And it is heavily controlled by the leaders of the country in a way to control all economic activities directly.

3) Market Economy – It’s a free economy with zero interference from the government. This is practically impossible because you at least need a basic central policy to validate legality, ownership, transactions, currency, value, and/or something credible! This is only a concept but a fair distinction from the other three systems that help to understand their nature with even more clarity.

4) Mixed Economy – Mixed Economy is a beautiful blend of Market Economy and Command Economy. In this type of economic system, government policies lead and play an important role in facilitating free trade, and supporting the nation’s economy through active and passive policies, structures, processes, and still maintaining the essence of freedom and liberty. Ideal for democracy and flexible for modifications. Our type of thing, you know?

You may remember these types using the following logic –

1) Traditional Economy consists of = No Modern Concepts + Natural Economic Activities for the basic functioning of any trade.
2) Command Economy consists of = North Korea’s economy under Kim Jong Unn.
3) Market Economy consists of = Free market + Open economy + No restrictions + No central policies + No government interference
4) Mixed Economy consists of = Commanded Market Economy with a balance between control and flexibility.

This was all about the Economy and its types, now let’s break down the contents of our Indian Economy.

The economists and experts have classified our economy in a few sections in order to understand the origin, relationship, and nature of these different sectors. Now, why is it necessary?

  • For a simpler approach to a much more complex and bigger subject with wide and broad scope.
  • To differentiate different sectors on basis of their origin and nature.
  • To target specific groups of industries or whole sections in a large economic system.

On the basis of nature of ownership –

1) Public Sector
And
2) Private Sector

On the basis of preparation & structure –

1) Organized Sector
And
2) Unorganized Sector

And on the basis of Activity Nature –

We are able to further classify our economy into groups/sectors and there are multiple ways to simplify their classification by grouping. Below are the sectors of the Indian economy on the basis of the nature of commodity and the nature of need & supply.

1) Primary – Also known as the group of sectors directly depending upon natural resources such as production of absolutely necessary natural goods. For example – agriculture, dairy, forestry, fishing, etc. Here the nature of need is simplistic and straight forward.

Natural products are driving the collection of industries associated with it and it is also considered as a predictable sector to a certain degree. In terms of both, demand and supply. Since the availability is planned and calculated, their need is predicted and analyzed from time to time.

2) Secondary – This is a category in which all those industries are included that use raw materials from Primary Sector and transform them into a finished good. For example, cars, books, clothes, etc. Anything that you have an idea of shopping associated with, belongs to this sector. This sector has the widest range and variety as compared to the Primary Sector.

Hence the quotient of predictability is compromised to a large degree. There is also a higher degree of cutthroat competitive environment and marketing influencing the markets left and right. Hence this sector is considered industry-driven.

3) Tertiary – Tertiary sector is differentiated from the above two uniquely since it consists of only the service industries of all sorts. It includes, hospitality, education, banking, etc. This group of sectors is highly influenced by experiences and perceptions instead of the actual magnitude and potential of service in question.

Hence it is a highly unpredictable sector even more than the secondary sector. The service industry is highly competitive, invisible, and naturally complex.

4) Quaternary – This sector is provides information services such as research, analysis, computing, and consultancy. This sector is separate for the reason that there will alway be a miscalculation in estimating the actual value created by this sector with or without monetary considerations.

Since the implementation of information services vary from person to person, time, and circumstances, the sector is difficult to evaluate the same way other sectors are assessed.

5) Quinary – This sector includes the top executives and officials in all of decision making, leading, and system driving positions. Whether it is education industry, media, government, or any other.

And not to forget, any classification is not a framework to contain its contents. It’s simply a method of dividing complex subjects into tiny little bits for easier consumption through understanding. Kindly acknowledge that there will always be combinations of the above sectors in reality hence it is not advisable to stick rigidly to their definitions but the essence of their role.

You may have to face a problem in an unorganized private secondary sector of a mixed economy. Please understand how you will put into words and convey them from now onwards since you’ve carefully and systematically arranged them in your mind.

Let’s go out there and fix some problems, shall we?

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