According to Tendulkar, two essential features of the mixed economy institutional form are relevant in the present context:

First, there is a predominance of the private ownership of property

and means of production and freedom to utilize them in economic activity within the legal and constitutional framework and with private profit as a motive force.

Secondly, while the state is not expected to be identified with the interest of any particular class and the operation of the countervailing forces of various interest groups is permitted within the system, the role of the State is recognized to be positive. In other words, the active state intervention in the free play of market mechanism is not only tolerated but considered warranted in the interest of promoting equity.


The “active” state intervention in this sense is expected to go beyond the minimal functions of the State such as the provision of social and economic infrastructure, and to operate through the three classes of instruments, namely,

(i) aggressive fiscal and monetary policies;

(ii) market intervention without undertaking direct production;

(iii) undertaking directly productive economic activity through the public sector – essentially an extension of the public ownership of means of production.


The basic idea is that through these instruments, the government would be able to control the pace as well as the composition of private economic activity in the interest of equity. Since this control happens to be direct in the case of public sector that provides the basic justification for the public sector as the most effective instrument with which the State in a mixed economy operating under the democratic framework would be able to pursue the social objective of growth with equitable distribution. It should be emphasized, however, that like any other instrument, effectiveness in serving a given social objective would be determined by the ability as well as the willingness of the state to enforce it in that direction.

In India, the rationale for the public sector indicated above has been explicit or implicit in almost all the plan documents as well as policy statements although the emphasis has changed in degrees depending upon the constraints faced and the emerging major issues of the time.

As Tendulkar has rightly remarked “The growth promoting leading sector role assumed by the public sector in the context of the Mahalanobis strategy has undergone a significant change in the contemporary context – relatively more emphasis on procurement and distribution activities, much more on providing public services under minimum needs programme and comparatively less on directly productive growth-oriented lines of production.