A SUMMARY

of

THE POSSIBILITY INDEX

AN INVESTMENT CRITERION

by

Toshio Suzuki

1998



THE POSSIBILITY INDEX: AN INVESTMENT CRITERION is published in the following three types of file.

HTML FILE (pi.htm)

PDF FILE (pi.pdf)

ICHITARO FILE (pi.jtd)


Section I. INTRODUCTION

The topic of research and the basic contents of each section are written. The topic is, as the title shows, to formulate an practical investment criterion. The research is focused on the Indian economy, and so the investment criterion was formulated with regard to the Indian economy. The criterion was named ''Possibility Index."

Section II. THEORETICAL FRAMEWORK

Theoretical framework is written. In sub-section 1, some theories on investment decision are surveyed. They are surveyed, especially, with regard to the factors taken into account and the determinant factor of investment. Theories surveyed are the Capital-Turnover Criterion, the Social Marginal Productivity Criterion, the Reinvestment Criterion, the Time Series Criterion, the Ratio of Labor to Investment Criterion, the Balanced and the Unbalanced Growth, the Cost-Benefit Analysis, the theories on External Economies and Economies of Scale, the Marginal Efficiency of Capital, the Acceleration Principle, the Neoclassical Theory, and the Tobin's q Theory.

In sub-section 2, the Possibility Index, which is the topic of research, is explained. It is a criterion aiming to raise the efficiency of economy by investing the limited resources into the sector of which the possibility of growth is high as compared with the other sectors. The possibility of growth is shown as the ratio between the desired production capacity and the actual production capacity. The latter capacity is available from the existing statistics but the former capacity must be calculated. The way to calculate the desired capacity is not specified here. It is specified after analyzing all the data available on the Indian economy.

In sub-section 3, the method of analysis on the Indian and the Japanese economy is explained. This analysis is to see how the data available can reflect the possibility of growth. Two economies are compared in order to see the situation of investment of both economies.

Section III. MANUFACTURING INDUSTRIES IN INDIA

Selected 9 sectors of Indian manufacturing industry are analyzed. Especially, they are analyzed with regard to the output, production capacity, capacity utilization, estimated demand, exports and imports, availability of raw materials, demand for and supply of products, profitability, etc.

Section IV. MANUFACTURING INDUSTRIES IN JAPAN

Selected 5 sectors of Japanese manufacturing industries are analyzed. They are analyzed in the same way as the Indian industries as far as possible.

Section V. FORMULATION OF THE INVESTMENT CRITERION

The way to calculate the Possibility Index is formulated.

In sub-section 1, the way to calculate the Possibility Index is specified. And also the way to calculate the desired capacity is specified.

In sub-section 2, the desired capacity, which is necessary to calculate the Possibility Index, is calculated for 9 sectors selected.

In sub-section 3, the Possibility Index is calculated and the result is examined.

In sub-section 4, necessary data to calculate more accurately the Possibility Index are specified while so far the Possibility Index was calculated from the existing data. These are the data which may be existing or may not be existing but are technically possible. And the way to calculate the Possibility Index from these data are specified.

As written above, the Possibility Index is calculated as follows.

          DCAP
PI = --------- x 100
CAP

PI: Possibility Index
DCAP: desired production capacity
CAP: actual production capacity.

The Possibility Index was calculated for following 9 sectors.
1 Diesel Engine Industry,
2 Radio Receiver Industry,
3 Cement Industry,
4 Soda Ash Industry,
5 Power Transformer Industry,
6 Electric Motor Industry,
7 Ceramic Insulator Industry (Low Tension),
8 Lead Industry,
9 Soap Industry.

The graphs of PI are shown at the end of this summary.

Section VI. CONCLUSION

The conclusion is drawn. The merit of the Possibility Index against the other investment theories and criteria are examined. And, the reliability and the future perspective of the Possibility Index are examined.

APPENDICES

In sub-section 1, sources of data of figures and notes for figures are collected.
In sub-section 2, figures are collected.
In sub-section 3, tables are collected.






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