216 PONTIFICIAE ACADEMIAE SCIENTIARVM SCRIPTA VARIA
or for countries with even a smaller population of two millions or
so, whether it would be advisable to set up a steel mill and this
also in an extreme case when domestic resources of iron or coal are
not available. I am giving this particular example to widen the
scope of the discussion.
[ am in agreement with the use of shadow price in principle.
There is however great difficulty in practice in isolating one project
from another. It seems to me that it is often necessary in making
practical decisions in a country like India, to focus attention not
only on the project but also to consider the external economies at
a national level. The time factor also seems to me to be extremely
important, that is, the span of time over which the benefits would
accrue. An interesting case which I analysed several years ago was
the choice in India between importing foodgrains, or importing fer-
tilisers, or manufacturing fertilisers with imported machinery, or
finally, building machinery in India for the manufacture of fertili-
sers. The answer would depend essentially on the time horizon.
The really important point which I should have stated earlier,
's where do you want to go and when? We, have to set up certain
targets at the national level which have to be achieved over a cer-
tain time period, in I0 years or in I5 years or in 20 years. Without
such targets and the time period over which these have to be
realised, I doubt whether shadow prices would be useful. Firstly,
a set of target at the national level and secondly a given time period
over which these have to be achieved have to be supplied for opti-
mization.
DORFMAN
I think Professor MAHALANOBIS is raising two distinguishable
questions here. The question of the steel plant is not a particularly
difficult one. A steel plant may have some external economies, in
particular the educational consequences of helping to train a labor
force which is skilled in working with ferrous metals. A steel plant
3]
Dorfman - pag. 30
