CDS (II) 2022 General Knowledge · Question 106 of 120

Correct — D, Economic organisation is based on planning, a supposedly rational process of resource allocation. Central planning is the defining feature of the command or socialist economy, not of capitalism, and the two are usually taught as the pair of opposites. The standard sociological description of capitalism is built from the other three options: goods and services are produced as commodities for sale rather than for the producer's own use, so almost everything carries a market value; the means of production — factories, land, machines, capital — are owned predominantly by private individuals and firms; and the questions of what to produce, how much and for whom are settled by market signals, above all by price, rather than by an authority. Under planning those same questions are answered in advance by a planning body — the Soviet Gosplan, or in India's own mixed model, the Planning Commission and its Five Year Plans. Note the careful word in the option, 'supposedly': planning claims to allocate resources rationally, and whether it does so is exactly what the debate between the two systems has been about.

• (a)There is generalised commodity production — it has market value. — This is a defining feature of capitalism, not an exception to it. Production for exchange rather than for direct use is what turns goods, services and labour itself into commodities with a price.
• (b)Productive wealth is held predominantly in private hands. — Private ownership of the means of production is the feature that most sharply separates capitalism from socialism, where those assets are held by the state or collectively.
• (c)Economic life is organised according to market principles. — Also a core feature. Competitive markets and the price mechanism are how a capitalist economy coordinates millions of independent decisions without anyone directing them.

Every economy has to answer three questions: what to produce, how to produce it, and for whom. A market economy answers them through prices and private decisions; a command economy answers them through a plan drawn up by the state; a mixed economy uses both. India's own history runs across this spectrum — a planned, licence-based model from 1951, the reforms of 1991 that dismantled much of it, and the replacement of the Planning Commission by NITI Aayog in 2015, which advises rather than allocates.

The question is an odd-one-out on a definitional list, so the fastest route is to ask which option belongs to the rival system rather than which three sound plausible. Three of them describe markets and private ownership; the fourth describes planning, and planning is the antonym. There is no need to weigh whether planning works. A useful extension is to notice that the real world rarely gives you a pure case — mid-century France used indicative planning within a market economy, and China today combines state ownership at scale with market pricing — so an examiner asking for a 'central feature' is asking about the model, not about any actual country.

• Capitalism is characterised by generalised commodity production, predominantly private ownership of productive wealth, and coordination through markets.
• Central planning is the defining feature of the command or socialist economy.
• India used Five Year Plans from 1951; the Planning Commission was replaced by NITI Aayog in 2015.
• A mixed economy combines private enterprise with a substantial public sector and state direction.
• The price mechanism is the means by which a market economy allocates resources without a central directive.

• Reading 'supposedly rational' as a criticism that makes the statement false; the option is false for capitalism because planning is not a capitalist feature at all.
• Assuming a capitalist economy has no state role — regulation, courts and property law are what make markets work.
• Treating India as a pure case of either system; it has been a mixed economy throughout.

As an odd-one-out on the features of an economic system, or as a match between a system and its defining institution.

• practice — not a real PYQ

  In a command economy, the questions of what to produce and in what quantity are settled principally by

  • (a)The price mechanism
  • (b)A central planning authority
  • (c)Competition among private firms
  • (d)Consumer sovereignty expressed through demand

  Answer(b) A central planning authority — targets are set in advance rather than emerging from prices, which is what distinguishes a command economy from a market one.

• practice — not a real PYQ

  The Planning Commission of India was replaced in 2015 by which body?

  • (a)Finance Commission
  • (b)NITI Aayog
  • (c)National Development Council
  • (d)Economic Advisory Council

  Answer(b) NITI Aayog — set up on 1 January 2015 as a policy think tank; unlike the Planning Commission it does not allocate funds to States.