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The Feldman–Mahalanobis model is a Neo-Marxist model of economic development, created independently by Soviet economist G. A. Feldman in 1928, and Indian statistician Prasanta Chandra Mahalanobis in 1953. Mahalanobis became essentially the key economist of India's Second Five Year Plan, becoming subject to much of India's most dramatic economic debates.

The essence of the model is a shift in the pattern of industrial investment towards building up a domestic consumption goods sector. Thus the strategy suggests in order to reach a high standard in consumption, investment in building a capacity in the production of capital goods is firstly needed. A high enough capacity in the capital goods sector in the long-run expands the capacity in the production of consumer goods. The distinction between the two different types of goods was a clearer formulation of Marx’s ideas in Das Kapital, and also helped people to better understand the extent of the trade off between the levels of immediate and future consumption. These ideas were however first introduced in 1928 by Feldman, an economist working for the GOSPLAN planning commission; presenting theoretical arguments of a two-department scheme of growth. There is no evidence that Mahalanobis knew of Feldman’s approach, being kept behind the borders of the USSR.

Implementation of the model

The model was created as an analytical framework for India’s Second Five Year Plan in 1955 by appointment of Prime Minister Jawaharlal Nehru, as India felt there was a need to introduce a formal plan model after the First Five Year Plan (1951–1956). The First Five Year Plan stressed investment for capital accumulation in the spirit of the one-sector Harrod–Domar model. It argued that production required capital and that capital can be accumulated through investment; the faster one accumulates, the higher the growth rate will be. The most fundamental criticisms came from Mahalanobis, who himself was working with a variant of it in 1951 and 1952. The criticisms were mostly around the model’s inability to cope with the real constraints of the economy; it’s ignoring of the fundamental choice problems of planning over time; and the lack of connection between the model and the actual selection of projects for governmental expenditure. Subsequently Mahalanobis introduced his celebrated two-sector model, which he later expanded into a four-sector version.

Assumptions

The assumptions under which the Mahalanobis model holds true are as follow:

• We assume a closed economy.
• The economy consists of two sectors: consumption goods sector C and capital goods sector K.
• Capital goods are non-shiftable.
• Full capacity production.
• Investment is determined by supply of capital goods.
• No changes in prices.
• Capital is the only scarce factor.
• Production of capital goods is independent of the production of consumer goods.

Basics of the model

The full capacity output equation is as follows:

$Y_t=Y_0\{1+{\alpha }_0\frac{{\lambda }_k{\beta }_k+{\lambda }_c{\beta }_c}{{\lambda }_k{\beta }_k}[(1+{\lambda }_k{\beta }_k{)}^t-1]\}$

In the model the growth rate is given by both the share of investment in the capital goods sector, ${\lambda }_k$, and the share of investment in the consumer goods sector, ${\lambda }_c$. If we choose to increase the value of ${\lambda }_k$ to be larger than ${\lambda }_c$, this will initially result in a slower growth in the short-run, but in the long run will exceed the former growth rate choice with a higher growth rate and an ultimately higher level of consumption. In other words, if this method is used, only in the long run will investment into capital goods produce consumer goods, resulting in no short run gains.

Criticisms

One of the most common criticisms of the model is that Mahalanobis pays hardly any attention to the savings constraint, which he assumes comes from the industrial sector. Developing countries however do not have this tendency, as the first stages of saving usually come from the agricultural sector. He also does not mention taxation, an important potential source of capital. A more serious criticism is the limitation of the assumptions under which this model holds, an example being the limitation of foreign trade. This cannot be justifiable to developing countries today. Also another criticism is that a country to use this model would have to be large enough to contain all the raw resources needed to be sustainable, so therefore this would not apply to smaller countries.

Empirical case

Essentially the model was put into practice in 1956 as the theoretical pathway of India's Second Five Year Plan. However after two years the first problems started to emerge. Problems such as unexpected and unavoidable costs contributed to increased money supply and growing inflation. The biggest problem was the fall in the foreign exchange reserve due to liberalised import policy and international tension, leading to modifications in the Second Plan in 1958. It was finally abandoned and replaced by the Third Five Year Plan in 1961.

See also

• Harrod–Domar model
• Economic growth
• Development economics
• Mahalanobis
• Indian Economy
• Five-year plans of India

References

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Further reading

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  In its statement, the singapore property listing - website link, government claimed that the majority citizens buying their first residence won't be hurt by the new measures. Some concessions can even be prolonged to chose teams of consumers, similar to married couples with a minimum of one Singaporean partner who are purchasing their second property so long as they intend to promote their first residential property. Lower the LTV limit on housing loans granted by monetary establishments regulated by MAS from 70% to 60% for property purchasers who are individuals with a number of outstanding housing loans on the time of the brand new housing purchase. Singapore Property Measures - 30 August 2010 The most popular seek for the number of bedrooms in Singapore is 4, followed by 2 and three. Lush Acres EC @ Sengkang
  
  Discover out more about real estate funding in the area, together with info on international funding incentives and property possession. Many Singaporeans have been investing in property across the causeway in recent years, attracted by comparatively low prices. However, those who need to exit their investments quickly are likely to face significant challenges when trying to sell their property – and could finally be stuck with a property they can't sell. Career improvement programmes, in-house valuation, auctions and administrative help, venture advertising and marketing, skilled talks and traisning are continuously planned for the sales associates to help them obtain better outcomes for his or her shoppers while at Knight Frank Singapore. No change Present Rules
  
  Extending the tax exemption would help. The exemption, which may be as a lot as $2 million per family, covers individuals who negotiate a principal reduction on their existing mortgage, sell their house short (i.e., for lower than the excellent loans), or take part in a foreclosure course of. An extension of theexemption would seem like a common-sense means to assist stabilize the housing market, but the political turmoil around the fiscal-cliff negotiations means widespread sense could not win out. Home Minority Chief Nancy Pelosi (D-Calif.) believes that the mortgage relief provision will be on the table during the grand-cut price talks, in response to communications director Nadeam Elshami. Buying or promoting of blue mild bulbs is unlawful.
  
  A vendor's stamp duty has been launched on industrial property for the primary time, at rates ranging from 5 per cent to 15 per cent. The Authorities might be trying to reassure the market that they aren't in opposition to foreigners and PRs investing in Singapore's property market. They imposed these measures because of extenuating components available in the market." The sale of new dual-key EC models will even be restricted to multi-generational households only. The models have two separate entrances, permitting grandparents, for example, to dwell separately. The vendor's stamp obligation takes effect right this moment and applies to industrial property and plots which might be offered inside three years of the date of buy. JLL named Best Performing Property Brand for second year running
  
  The data offered is for normal info purposes only and isn't supposed to be personalised investment or monetary advice. Motley Fool Singapore contributor Stanley Lim would not personal shares in any corporations talked about. Singapore private home costs increased by 1.eight% within the fourth quarter of 2012, up from 0.6% within the earlier quarter. Resale prices of government-built HDB residences which are usually bought by Singaporeans, elevated by 2.5%, quarter on quarter, the quickest acquire in five quarters. And industrial property, prices are actually double the levels of three years ago. No withholding tax in the event you sell your property. All your local information regarding vital HDB policies, condominium launches, land growth, commercial property and more
  
  There are various methods to go about discovering the precise property. Some local newspapers (together with the Straits Instances ) have categorised property sections and many local property brokers have websites. Now there are some specifics to consider when buying a 'new launch' rental. Intended use of the unit Every sale begins with 10 p.c low cost for finish of season sale; changes to 20 % discount storewide; follows by additional reduction of fiftyand ends with last discount of 70 % or extra. Typically there is even a warehouse sale or transferring out sale with huge mark-down of costs for stock clearance. Deborah Regulation from Expat Realtor shares her property market update, plus prime rental residences and houses at the moment available to lease Esparina EC @ Sengkang
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  My blog: http://www.primaboinca.com/view_profile.php?userid=5889534
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  My blog: http://www.primaboinca.com/view_profile.php?userid=5889534