Mahanalobis - Feldman Model

G.A. Feldman was a Russian economist who wrote an article on the theory of NI growth which was published in the planned economy the journal of the Soviet state planning commission in 1928. His model of long run planning was translated by Domar in 1957.
In October 1952, Mahalanobis developed a single sector model based on the variables of NI and I. it was further developed in two sector models in 1953 where the entire net output of the economy was supposed to be produced in only two sectors, the investment goods sector and consumer goods sector.

Next he developed the famous 4 sector model in 1955. Both Feldman and Mahalanobis models are identical. Their combined model is a contrast to HD model. The main difference between two types of model lies in the fact that whereas a Keynesian flow analysis is accepted in HD model which emphasized that important bottlenecks can appear in the process of this type of transformation of savings into investment and as such the only way in which the such constraints can be released is to alter the structure of the economy in such a way as to allow the economic system to produce more capital goods to maintain a higher rate of investment. In the FM model it is assumed that there are real bottlenecks in the channeling of savings into investment which are ignored in HD, since the structural rigidities and the inter-temporal choice between present and future consumption benefits are ignored in HD model


The essence of Mahalanobis model lies in the fact that it demonstrates that though the rate of growth of the economy would get pulled down in the short run due to increase in the share of investment in the capital goods sector, in the long run the rate of growth of economy would increase with this larger share of investment in the capital goods sector. The model gave focus to the theme "machines to produce machines to produce machines", giving due direction to the utilisation of  scarce foreign exchange reserves for the upscaling of capacity in the economy.


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.