Classical and Neoclassical Economics in India

Classical economics, of which Adam Smith is considered the developer, claimed that there was a so-called invisible hand which will move markets towards their natural equilibrium without any outside intervention. Also, rather than supply and demand, it was wages which was considered. When we consider classical economics in India, during the earlier stages of the British rule, trade was monopolised by the East India Company. It was the Industrial Revolution in Britain and rise of the laissez-faire economic ideology that caused the enactment of the Government of India Act, 1933. This removed the company’s trade monopolies and free markets were brought into the picture.

Neoclassical Economics on the other hand, relates supply and demand to an individual's rationality and his or her ability to maximize utility or profit. But then, the concept has its flaws because the judgement of each individual cannot be trusted. The neoclassical/neoliberal system has been followed in India since the 1980’s. It has faced its criticisms both in India and over the world, as it is supposed to have widened the gap between the rich and the poor as the major beneficiaries of this policy seem to be the rich.