Which is a Better Choice for India: Capitalism or Socialism?

Recently, when our Union Finance Minister Nirmala Sitharaman was asked by a seventh-grade student at an event which economic system (capitalism, socialism, or communalism) is a good solution for any socio-economic society, she confidently replied that capitalism based on democracy and social welfare is a good solution. Further, adding to this primary debate of capitalism vs socialism, when Zerodha co-founder Nikhil Kamath asked Bill Gates to choose between the two, he also preferred capitalism while reasserting the need to create a safety net that prevents monopolies.?

However, the real question is, whether or not capitalism is a better choice for India as a whole, rather than for India of a chosen few. And where does socialism stand amidst all this debate? This blog attempts to explore the subject in detail.?

What is Capitalism??

Broadly speaking, capitalism refers to an economic system that thrives on maximising profits. In such a system, there is minimal intervention from the government’s side, and resources and means of production are largely owned by private individuals and businesses. This is to say, individuals (rather than communities) stand to benefit from capitalism.?

Since a capitalist society enables us to start a new business and explore a new product, it has been successful in the creation of wealth, historically, regardless of background and class. However, it has also been responsible for the inequitable or unequal distribution of wealth and resources.?

What is Socialism??

Socialism refers to an economic system where means of production and resources are collectively owned to provide all the members of society with equal access. The role of government is quite huge in a socialist society. Also, idealistically, it is certainly great that social welfare, equality, and collective well-being are prioritised over individual profit. However, even developed countries like the Soviet Union and, to some extent, Greece and Portugal could not sustain socialism in the face of challenges.??

Socialism tends to affect economic growth and stability because there are almost no incentives to grow when individual profit is replaced by collective well-being. It leads to economic stagnation in most cases.?

What is the Difference Between Capitalism and Socialism??

Let us take an example. Suppose there is a garden. In a capitalist society, each gardener will have his/her own plot of land, and it will be entirely his/her own decision regarding what to grow and how to allocate the available resources (based on individual interests and market forces). In one line, capitalism encourages competition and individual gain. It is in stark contrast to socialism and communalism which prioritise cooperation and collective gain.

On the other hand, in a socialist society, the government and the communities will collectively own the garden, and they will together decide what to grow and how to allocate the available resources (based on needs). Broadly speaking, individual profit does not exist in a socialist society. Moreover, socialism relies heavily on government intervention whereas capitalism is about a free market.

Conversely, in a communalist society, there is no traditional centralised government. It has organisational structures/communities that will make decisions through consensus regarding what to grow and how to allocate resources for communal well-being. Communalism thus relies on community decision-making, not government intervention.?

Is India Socialist or Capitalist??

India is neither entirely socialist nor entirely capitalist. India has a mixed economy that incorporates the best elements of both these economic systems. Many initiatives have been taken by the government to address inequalities through social welfare programs, but many initiatives have also been taken to promote entrepreneurship and the creation of wealth through private ownership and economic freedom.?

Is India Ready for a Capitalist Economy?

More than India being ready for a capitalist economy, which encourages fierce competition regardless of background or class, an important question to ask is whether it is even desirable to become a capitalist economy or even a socialist one. While a capitalist economy can stifle equitable distribution of resources, a socialist economy can stifle innovation, entrepreneurship, and motivation.?

Our mixed economy is quite conducive to inclusive growth, blending competition with economic progress and social responsibility.

All Things Considered?

Contemporary challenges such as environmental sustainability and socio-economic inequalities make it necessary for India to adopt a hybrid model, which we already have in the form of a mixed economy. We simply need to mitigate the accompanying risks (such as the concentration of wealth and power in the hands of a few and the degradation of resources in the pursuit of individual profit) through consistent regulation.?