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Economic System
Economic Structure
Economic Growth & Development

Prepared By:

Anurag Sharma
Avinash Masih
Bhavana Ajmeri
Brajmohan Mandloi
Chanchlesh Dehariya

Adam Smith

Adam Smith
(1723-1790)
is considered
the father of
modern
economic
theory

IMS DAVV - MBA (FT) 2011-2013

Economic Systems

Introduction

 What is an economic systems?
 Why economic systems?
 Economic goals and values
 Economic efficiency
 Economic freedom
 Economic security
 Economic equity
 Economic growth
 Other goals


Determination
How to determine society economic system?

What goods and services should be produce?
How should these goods and services should be produce?
Who consumes these goods and services?


Economic Systems
Unlimited Needs Scarce Productive
and Wants Resources

Relative Scarcity

Basic Economic Questions

The Need for an Economic System

IMS DAVV - MBA (FT) 2011-2013 2-6

Existance

Does a pure economic system really exist?

No- they are all mixed economies to some
degree


Types of Economic Systems

There are four types of Economic Systems
 Traditional economic system
 Command economic system
 Market economic system
 Mixed economic system


Traditional Economic Systems

•Found in Rural, undeveloped countries
•Customs governs the economic decisions
•Farming, hunting and gathering are done the same way as the generation
before
•Traditional economic systems are usually based on subsistence-based
agriculture
•Economic activities are usually centered toward the family


Examples

 Australian aborigines


The Mbuti in Central Africa


The Inuit of Northern Canada


Advantages Disadvantages

• Everyone knows what role • Technology is not used;
to play difficult to improve

•Life is generally stable, •Tend to discourage new
predictable, and continuous ideas and new ways of doing
things

•Punishes people who break
rules

•Lower standard of living


Command Economic Systems

 Also known as Planned or Managed Economy
 Strong Command – where government makes all decisions (communism –
Cuba)
 Moderate Command – where some form of private enterprise exists but the
state owns major resources (socialism – France and Sweden)
 This system has not been very successful & more and more countries are
abandoning it


Examples


North Korea



•Less crime less poverty •Consumers get low
priority
•Guarantees equal standard
of living for everyone •Little freedom of choice

•All resources are owned
by the government


Market Economic Systems
•Adjusts to change based on consumer wants

•High degree of individual freedom

•Low levels of government interference


Examples of market economies
 USA, Canada, etc.



•People can start their own •The desire for money may lead
to poor quality of goods and
businesses
services
•People have choice •Business owners have to risk
losing money
•Variety of goods and
services •High degree of uncertainty
people lose jobs, businesses fail


Mixed Economic Systems
•There are no pure command

•Market + Command = Mixed

•Most democratic countries fall in this category (there are no truly pure
Market or Command economies).


Example



•balance of needs and
•citizens have to pay taxes
wants met by government
and in marketplace


Which economic system is best?
Market system has proven to be best because it
promotes the goals of growth, freedom, &
efficiency


Comparing Economic Systems

Economic System Who answers the 3 ?’s

Traditional Customs
Market Individuals
Command Central Government
Mixed Individuals with some
government
involvement

Conclusion of ES

An economic system is a part of the social system and
hierarchically equal to the law system, political system, cultural,
etc. There is often a strong correlation between certain ideologies
, political systems and certain economic systems (for example,
consider the meanings of the term "communism"). Many
economic systems overlap each other in various areas (for
example, the term "mixed economy" can be argued to include
elements from various systems.


Economic Structure

It is the main source of income in a town or city it is used to
determine the growth rate of a cities economy.

The economic structure of an economy is a function of the
sum of all the different economic activities in the geo-political
boundaries of that area.

Over the last 56 years, the Indian economy has experienced a
gradual structural change


It has become rapid after the introduction of new economic
reforms in the decade of the nineties.

At the time of independence, Indian economy was
predominantly rural and agricultural

contribution of the primary sector (agriculture, forestry and
logging, fishing) in GDP at factor cost was largest followed by
tertiary sector and secondary sector respectively


The pace of transition of the Indian economy from an
agricultural economy to an industrial one was quite slow since
1951
A major shift in the macroeconomic policies in the decade of
the nineties accelerated the pace of the structural
transformation of the Indian economy and set India on a high
growth trajectory
The performance in the nineties (6.5%) was better than that
recorded in the eighties (5.8%).


CLASSIFICATION OF SECTORS

Ricardo sectors.

 High technology sectors

Heckscher - Ohlin sectors


RICARDO SECTORS:

Ricardo sectors are those which use natural resources
intensively in their production process.
 Production of agricultural crops and other allied activities
like milk and milk products, animal services, forestry and
logging, fishing are basically natural resource intensive and
therefore treated as Ricardo sectors.
The industries like leather products, petroleum products,
cement are characterized by intensive use of natural resources
and therefore are regarded as Ricardo sectors.


HIGH-TECHNOLOGY SECTORS

The sectors requiring relatively higher proportion of research
and development are included into the second category called
High-Technology sectors (H-T sectors)

 This category contains most of the sophisticated technology-
using manufacturing sectors

EXAMPLE
industrial electrical and non-electrical machines, electronic
equipment, transport equipment, communication equipment,
pesticides, heavy chemicals etc.

Education and research, medicines and drugs, medical and
health, communication are also regarded as H-T sectors
because these sectors require higher proportion of research
and development


HECKSCHER-OHLIN SECTORS

The sectors that use relatively standardized production
technologies are regarded as Heckscher-Ohlin sectors (H-O
sectors).

In other words, H-O category contains the sectors which are
either capital or labor intensive.

This category consists of capital intensive sectors like iron &
steel, fertilizers, synthetic fiber and resin, non-ferrous basic
metals, rubber and plastic products etc.


And labor intensive sectors like printing and publishing,
furniture and fixtures, miscellaneous manufacturing etc.

Being 6 labour intensive sectors banking and insurance,
transport services, trade, other services and public
administration also find place in this category


CURRENT SCENARIO
 India's economic growth is expected to remain robust in 2012
and 2013.

 Moody's has uplifted Indian bond market by upgrading credit
rating of the Indian.

 India is the second most preferred destination for foreign
investors, by Ernst & Young.

 India has emerged as the world's top recipient of officially
recorded remittances.


Indias Growth Potential Story

 Consumer spending
 Manufacturing sector
 Media and entertainment
 Handset market
 Indian banking
 The footwear industry
 textile and apparel
 food processing


FII – Recent Developments

 FIIs invested
 India's foreign exchange reserves
 FIIs registered

FDI – Recent Developments
 FDI inflows
 foreign exchange reserves (forex)
 Equitas Micro Finance
 TV Vision
 Sterlite Grid

Major M&A Deals Undertaken By India Inc.

I gate buys majority stock in patni USD 1.2 billion
computers

Sahara india buys 42.5% stakes in Force USD 6 billion
india

GVK aquired Hancock Coal USD 1.3 billion

Adani Acquired Abbot Point USD 2 billion


Major M&A Deals Undertaken By India Inc.

M & M buys 70% stock in Ssang yong USD 463 Mllion

ICICI buys Bank of Rajasthan Rs 3000 cr.

Airtel aquired Zain USD 10.7 billion

Vedanta Acquired Cairn USD 8.6 billion


Thank You
Presented By:

Anurag Sharma
Avinash Masih
Bhavana Ajmeri
Brajmohan Mandloi
Chanchlesh Dehariya


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