Measurement of service capital

Capital stock measured by the Perpetual Inventory Method (PIM) implicitly takes into account decline in the value of an asset both due to fall in its productive capacity and due to shortening of its remaining life-time. These measures are thus unsuitable for use as an argument in the production function, where productive capacity of capital is only important. Datta's (2006) measure of service capital takes into account only the decay in productive capacity of an asset and not its fall in value due to ageing. Service capital is thus more suitable for use as an argument in the production function. Datta's method of estimating service capital at the All-India level however is not directly applicable for measuring service capital at the state level due to non-availability of required data. This paper thus attempts to obtain the missing parameters and estimate the time series of service capital and wealth value of capital stock for the states of Bihar, Karnataka, Maharashtra, West Bengal and at the All-India level for the period 1983–84 to 2003–04.