The Investment Criteria in Islam economic models follow the famous economic efficiency criteria determined in the light of the benefit-cost ratio./or discounted cash flow analysis. Although the technique appears to be value-neutral, certain value judgments are implicit in it. The validity of the criteria using these techniques would depend on whether a particu1ar society upholds them as valid value judgments. But unfortunately the technique is being applied indiscriminately. Some of the value judgments implicit in the technique are as follows:

1. A project with net higher benefit is preferable to a project with lower net benefit. This value judgment, on the face of it, appears to be quite reasonable. Yet in the real world it may not be so. We notice almost every day that politicians set aside the economic efficiency criteria and approve projects on purely political, ethnic, or regional considerations. As long as the politicians have the support of the people, their decisions cannot be termed as ‘inefficient’ – even on purely technical (i.e. economic) grounds. The basic assumption of economics is that each individual is the best judge of his own welfare and that the collective welfare of the  people is optimized if they are left free to choose for themselves. Since the politicians decide on the basis of the wishes of the people in their locality, their decisions cannot be termed as irrational or ‘inefficient’ merely because they do not follow the economist’s calculations.

2. The prevalent project evaluation techniques assume that the tastes and habits of the people would remain unchanged so that a project conceived to be most beneficial would continue to be so even after 10 or 15 years. This is an unreasonable assumption. We know that in a rapidly changing world which places a premium on innovation, tastes and habits undergo a change after some time. Thus a project considered to be beneficial today on the basis of cost-benefit analysis might subsequently turn out to be useless and even harmful in the years to come.

3. It ignores the equity consideration among different sets of people. The project appraised to be beneficial on the basis of highest net benefits may turn out to be socially undesirable since it may lead to transfer of resources. from the poor to the rich.

4. The discounting technique ignores inter-generational equity. It assumes that the positive time preference is constant over time while the fact. may be different. It is possible that the present value of a project’s benefits is higher to the present generation in the case of, say, a fertilizer project which consumes natural gas as raw material. But it is conceivable that from the point of view of the future generations, the · value of perceived benefits is much lower as it would deplete the natural gas reserves for them and would lead to genuine hardship. But the economic efficiency criteria is blind to such considerations.

5. The discounted cash flow analysis is based on the concept of time value of money initially propounded by Bhom Bawerk. The theory is of doubtful validity in its application to project appraisal. Its anchor is the assertion that the people prefer present goods to future goods. This statement is true in the case of goods which one consumes in the present moment. But the future goods which exist only because one does not consume them right at the present moment and are thus represented by one’s savings contradict the above assertion. In the case of savings, a person prefers future goods over present goods. That is why he does not consume them in the present moment. Thus, every penny that is being saved anywhere in lieu of that penny the saver has a negative time preference. Incidentally, the money that is being invested in a project is the money that has been saved by someone. Thus determining the present value of money by discounting it does not make any sense. Because of the above reservations about economic efficiency, the investment decisions in the Islamic framework follow the criteria of average profitability as modified in the light of social, political and cultural considerations. Detailed procedures can be worked out to translate this general principle in practice.

6. Development Planning or Contemporary development plans involve mechanical calculations relating to savings, capital formation, GNP, GAP, per capita income, development projects, infrastructure to be built, equipment to be imported, sources of finance to be tapped, taxes to be levied, and foreign assistance to be contracted, etc. These plans often do not give the slightest indication that they have anything to do with the human beings living in a country. What is totally missing from this picture is one on whom the whole attention ought to be focused – man.

7. Foreign Aid is the contribution of foreign aid in the development of poor countries is of doubtful significance. The need for foreign aid was originally propagated by the Western economists on the basis of the now famous theory of ‘vicious circle’. There is ample evidence to show that the theory is of little validity. The fact that the industrially rich countries developed without foreign aid proves beyond doubt that the theory of vicious circle is not valid. But the poor countries of the Third World are trapped in the web of foreign debt. The drain on their resources in the form of debt service and interest payments is so heavy that now there is a substantial outflow of resources from the poor countries to the rich countries. The rich countries are playing the role of the rentier and aim at maximizing their benefits from the financial resources of the poor countries.

8. Technology is the whole world is in the grip of a rapid technological revolution. The innovations in technology are affecting the social, cultural and economic relationships in a vast variety of ways. Since most of research and development is taking place in the private sector, there is little public control over it. Developments in technology have raised grave moral issues such as reckless use of laser technology in surgery, probabilities of the development of a monster in laboratories, marketing of insufficiently tested drugs and synthetic foods, invasion of privacy by the police, income tax and security agencies, μse of weapons by criminals and terrorists, development of A~C weapons, etc. 14 On the economic front, every new wave of technological development has rendered some people unemployed, necessitating their retraining and creating the problem of structural unemployment. 15 In the international field, technology rents have been a significant source of transfer of resources from the poor to the rich countries. In 1980, for example, the developing countries paid about $ 2 billion by way of royalties and fees, mainly to the industrial countries. 16 Most of the technological development is taking place in the Western countries. For example, in 1980 the developing countries had only 6% of the total patent rights. 17 The patent rights of technology are a major barrier in the acquisition of new technologies by the developing countries.