Devlopment Strategy in India

Topics: Manmohan Singh, Economic growth, Gross domestic product Pages: 10 (3278 words) Published: April 9, 2013
In India three types of models are made for economic devlopment of India. These models or strategies help India in solve economic growth related problems. These strategies are following: (a) HEAVY INDUSTRY STRATEGY(1950-1980);

(b) GANDHIAN STRATEGY(1980-1990);

This strategy of devlopment is made by indian planning prof. or statistician Prasanta Chandra Mahalanobis in 1953. P.C.Mahalanobis was the real architect of these strategy. That's why this strategy is also known as Mahalanobis model. The Mahalanobis model is a model of economic development. 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 Feldman–Mahalanobis model

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 G.A. Feldman, a Soviet 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. Due to the similarity of the two theories, the model is often referred to as the Feldman-Mahalanobis model. 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:
In the model the growth rate is given by both the share of investment in the capital goods sector, λk, and the share of investment in the consumer goods sector, λc. If we choose to increase the value of λk to be larger than λc, 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,...
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