Institutional Set-up of Indian Economy

Our economy was producing agricultural goods since long and now production is being done on a much larger scale and is becoming more complex. Thus, modern economy not only produces goods from agriculture and industry but also produces services like transport, banking, insurance, communication, storage of goods etc. Thus, the aggregate of goods and services produced by the individual producers and entrepreneurs in an economy at any particular time is known as domestic product of the economy. This concept of domestic product is of two types—Gross Domestic Product (GDP) and Net Domestic Product (NDP). In the same manner Gross National Product (GNP) and Net National Product (NNP) concepts are also stated in this regard.

Institutional set up is a system where the production and distribution processes are owned and controlled by private sector or public sector. Indian economy has dualism. But Indian economy is an under-developed economy leaning towards economic development.

However, on the basis of ownership, the economy is divided into two sectors—Private Sector and Public Sector. On the basis of occupation, economy can be classified as under—Primary Sector, Secondary
Sector and Tertiary Sector. Besides, we also find rural sector and urban sector in all types of economy. But there is no line of demarcation among all sectors. All these are closely related. Private and public sectors are two aspects of an economy and cannot be separated. Similarly, primary, secondary and tertiary sectors are also dependent on each other. Thus, economic prosperity of a country depends upon the development of all these sectors. So, these sectors must be developed by all means.
The population situation in India is very grave as our population in the world is next to China. It means there is “population explosion” in India which has retarded our economic development in many ways.

Indian economy is also suffering from many problems besides population explosion and these are poverty unemployment, rise in prices and  inflation etc. These problems are a curse for the nation and government is doing a lot of work to solve all these problems.


Every country has adopted certain institutions by which the process of production and distribution is carried on.  In certain countries, there is a complete ownership or control of economic institutions in the hands of private groups or individuals and there production is done for profit motive or individual gain. These’ countries are completely capitalist countries like America, England etc. In some other, these institutions are controlled and owned by the State and it is expected that the production process may be carried on in the public interest. These countries are completely socialist countries like Russia, China etc. There are certain other countries where production process is carried by both the State and the private sector e.g. India, Pakistan, Ceylon etc. In a way it is a capitalistic democracy where efforts are made to achieve certain welfare objectives of socialism. Thus it is clear that institutional set-up is a system where the production and distribution process are owned and controlled by (a) private sector (such as small and large productive enterprises and business houses) or (b) public sector (i.e., the government bodies, the banks, insurance companies and similar financial institutions providing productive services or the central government, the state government, the Reserve Bank of India and so on) or (c) joint (private and public) sector.

Thus, Institutional set-up is comprised of (a) Productive enterprises and Business Houses (b) Financial Institutions and (c) Government Agencies.
In India, certain institutions are completely in the hands of the private sector. These institutions are run purely with a private interest but the government can have their social control under various provisions of the law through regulation and direction. There are also certain institutions in our economy which are represented by both the public and private sectors from the point of view of ownership and control. There are other institutions which are solely run by state or the public sector. The characteristic of our mixed economy is such here that public sector, like private sector, also does the production activity with a profit motive as certain government industries, generation of electricity etc. But here the main objective of the public sector is social welfare, social justice and balanced regional growth and not purely profit motive.