August , 2017
Why should one remember Mahalanobis?
14:27 pm

Kishore Kumar Biswas

his year is the 125th birth anniversary of Prasanta Chandra Mahalanobis. Pranab Mukherjee, who was serving as the President of India at the time of the programme, inaugurated the 11th Statistical Day at the Indian Statistical Institute, Calcutta, on June 29. Statistical Day is observed throughout India to acknowledge the outstanding contributions made by Prof. P.C. Mahalanobis in the fields of economic planning and statistical development. He was born on  June 29, 1893

The idea behind celebrating Statistical Day is to create awareness among the people of India so that they draw inspiration from the works of Prof. Mahalanobis. His works on statistics play a crucial role in socio-economic planning and policy formulation of economic development. He formulated ‘two-sector Input-output model’ to be implemented during the Second Five Year Plan (1956-61), also known as the Nehru-Mahalanobis model.

The basic economic idea of Mahalanobis on planning

Although the Mahalanobis plan model was for the second Five-Year Plan but that model was followed up to the Fifth Plan. So the basic idea of the Mahalanobis
model should be discussed in this context. According to Mahalanobis, the rate of economic growth depends upon capital formation or real investment. The greater the rate
of capital formation, the greater is the rate of economic growth. He thinks that the rate of capital formation in an economy depends upon the capacity of the economy to produce capital goods. Thus, given a closed economy, that is, without any foreign trade, the rate of real capital formation depends not upon the savings of the economy but on the capacity to produce capital goods. This is in contrast to
many other growth theories where the rate of growth of economy is mainly factored on savings.

Mahalanobis believed that even if the rate of savings was substantially raised in order to accelerate the rate of capital formation, it would be futile. This is because the required capital goods would not be there if there is a lack of capacity to produce capital goods. Thus, according to him, if large investment is not made in the basic heavy industries producing capital goods, the country will forever remain dependent on foreign countries for the import of steel and capital goods like machinery for real capital formation.

Since it is not possible for India to earn sufficient foreign exchange by increasing exports, the capital goods cannot be imported in sufficient quantities owing to the foreign exchange constraint. The result will be that the rate of real capital formation and the rate of economic growth in the country will remain low. Thus, Mahalanobis thought that without adequate investment in basic heavy industries, it would not be pos¬sible to achieve rapid self-reliant economic growth.

To reduce unemployment, he later introduced the ‘four-sector model of growth’.

To quote him, “The only way of eliminating unemployment in India is to build up a sufficiently large stock of capital which will enable all unemployed persons being absorbed into productive capacity. Increasing the rate of investment
is, therefore, the only fundamental remedy for unemployment in India.”

One should also note that in sharp contrast to the Mahalanobis heavy industry model, a parallel model of growth was formulated at that time by Professors Vakil and Brahmanand of Bombay University. This is known as the ‘wage-goods model of development’. They suggested a development strategy giving top priority to agriculture and other wage-goods industries.

His priorities

Mahalanobis’ plan models give top priority to basic heavy industries with the objectives of rapid rate of economic growth and employment generation. He also spoke of a self-reliant and self-generating economy by building up economic and social overheads, exploration and development of minerals, and the promotion of basic industries like steel, machine building, coal, and heavy chemicals.

Professor Amiya Kumar Bagchi, Director, Institute of Development Studies, Kolkata, told BE that Mahalanobis was a great planner. His vision was that big industry would be set up in India and machinery would also be produced in India. He mentioned the case of Fertilizer Corporation of India as an example. Prof. Bagchi said, “The private sector will play the role of a catalyst, which will support the big industries. At present, there is a trend of selling public sector enterprises, which is the opposite of what Prof. Mahalanobis propounded. So by observing Statistical Day how can the Government of India honour Mahalanobis? It is just eye wash.”

Bagchi also said that Mahalanobis founded the Indian Statistical Institute. Mahalanobis, with the help of Ambika Ghosh and Rama Krishna Mukherjee, formulated the method of prediction of famine and measurement of wealth of the country. Earlier, India had only a statistical census. Mahalanobis started the National Sample Survey Organisation and formulated the basis of how various economic and social aspects of the country can be analysed from large samples.

Prasanta Chandra Mahalanobis

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