Mahalanobis developed a two-sector model which divided the economy into a consumer goods sector and investment/capital goods sector. The two-sector model was later extended by Mahalanobis into four-sector model. While the two-sector model was concerned with inter-temporal allocation of investment, the four-sector model was related to intersectoral location of investment. The four sectors included were:

(i)Investment goods,

(ii)Factory production of consumer goods,

(iii)Household production of consumer goods (including agriculture)

(iv)Services.

(v)The emphasis was to build a base in the investment goods production. Mahalanobis’s two pronged strategy visualised that together with increase in investment allocation for capital goods, promotion of cottage industries, which have high output-capital ratios, would sustain the consumption goods supply. Agriculture is also included under household industry under the assumption that food production has an element of high output-capital ratio, provided the sector is backed by land reforms.