Mixed economy is an economic system which combines the features of both capitalism and socialism. Public sector and private sector have been allotted their respective roles in promoting economic and social welfare of the people.

FEATURES

 The distinctive characteristics of mixed economy are given below:

1.    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 characterized 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.

2.    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.

3.    Economic Planning:

The Planning Commission lays down the socioeconomic objectives, sets the physical targets, and specifies the sources and instruments for mobilizing 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.

4.    Price Mechanism:

The market mechanism is used to help in the 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.

5.    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.

MERITS OF MIXED ECONOMY

 Mixed economy is expected to contain the merits of both capitalism and socialism. The main advantages of mixed economy are given below:

1.    Individual Freedom:

Mixed economy provides adequate freedom to individuals. Private individuals are free to choose their occupation and employment. Entrepreneurs are allowed freedom of enterprise within the regulatory framework.  Consumers are free to buy goods and services from any seller in any quantity.

2.    Rapid Economic Growth:

Central planning and market mechanism together help in the rational allocation of resources. Combined efforts of public and private sectors are expected to ensure rapid economic development of the country.

3.    Social Welfare:

Government undertakes policies and programmes for the welfare of public. Regulation and controls are exercised to check monopolies and concentration of economic power in a few hands. Equal opportunities for education  and employment are made available to all irrespective of class, race and religion.

DEMERITS OF MIXED ECONOMY 

Mixed economy suffers from several limitations which are as follows:

1.    Economic Instability:

Sometimes, violent fluctuations occur in the level of economic activity due to the fracture of market mechanism or faulty implementation of economic plans.

2.    Lack of Freedom:

A mixed economy is a semi-controlled economy. Producers, workers and consumers all get freedom of choice but subject to some constraints.

3.    Inefficiency:

When there are two many regulations and controls, private sector cannot function very efficiently. Public sector enterprises do not operate efficiently due to bureaucracy and red tapeism. India’s mixed economy is often criticized for its inefficient and corrupt administration.

4.      Lack of Coordination:

The public sector and the private sector do not always work in a complementary manner. Some economists even argue that there cannot· be a middle path between capitalism and socialism.