In socialist economy, the government controls and regulates the trade. In this system all major decisions are taken by the government. Individuals do not have a major role to play. Such a business environment is a hindrance to innovation and efficiency.
- The government gives various subsidies in the agriculture sector. As a result, people tend to remain in agriculture and do not move to other sectors. This hinders the employment rate of other sectors. Moreover, the capital distributed as subsidies could be used for important projects in other sectors.
- As the country develops, the business environment rises and shifts from agriculture to industries and finally to service. Flowever, it is important that the country maintains a fine balance between these three sectors. Many a times, the balance gets disturbed and the other sectors do not get proper attention.
- Rise in national income increases demand for better and luxurious products. But, if the income is unequally divided then it leads to class difference and social conflicts.
- If the political parties are biased and slow in decision making, the decisions taken become obstacle for the growth of the nation.