The basic premise behind Mahalanobis-Feldman (FM) model is very simple. The model posits that to reach higher standards of consumption and bigger growth in the consumer goods sector one must first stimulate the capital goods sector by channeling more investments in that sector. An economy has to build up capacity in the production of capital goods before concentrating on the consumer goods sector. In the short run, the capital goods sector matter. However, in the long run increased capacity in the capital goods sector expands the capacity in the production of consumer goods.

In the FM model of economic growth, an economy with unlimited supply of labour (such as India or China) has only two sectors, the Investment goods sector and the Consumption goods sector. For forty years from early 1950s until 1991 Indian economy went nowhere. Huge investments were made by the government in heavy machinery and capital goods sector via the five year plans. Capital goods sector was given the top priority. But what happened? The public sector became huge – railways, steel mills, heavy machinery, oil drilling, etc. – and sucked up enormous amount of investment. The output of all this economic activity was at best mediocre, at worst junk. But the process went on and on for fifty years.
And did this gigantic capital goods sector boost the consumer goods sector? Did all this investment in the capital goods sector increase the disposable income – on an average – of the masses, at least the middle and lower middle class Indians? The answer is a resounding “no”. In these fifty years did the lives of ordinary Indians improve by improved quality and availability of goods such as television sets (actually, TV didn’t arrive in India until the early 1980s), refrigerators, cars, two wheelers, stereo players, or even good quality soaps, detergents, shampoo? The answer again is a resounding