Discuss five causes of the low rate of capital formation in India.
The five causes of the low rate of capital formation in India are as follows:
(i) Lower saving power (Ability): The people in India have a desire to save and possess all those factors which motivate the 'will to save' like old age considerations, family affection, social and political influence, but they have lower per capita income. Moreover, the margin between production and consumption is very narrow and so the saving capacity is very little. Ultimately, it results in lower rate of capital formation.
(ii) State of economy: Majority of people in India are agriculturists, who follow old methods and also have uneconomic agricultural holdings. All these factors leave very little or no surplus with them.
(iii) Habit of hoarding: Most of the illiterate people have very little capacity to save and are in the habit of hoarding their savings in their houses. But such savings are of no use as far as capital formation is concerned, because these hoardings cannot be utilized for any productive purposes.
(iv) Inflation: Due to inflationary trend, the prices of commodities go very high and the middle class people find it very difficult to save any amount.
(v) Inadequate investment channels: The banking and financials facilities are inadequate in India. The means of transport and communication are not fully developed. These inadequacies adversely affect the mobilization and investment of savings.
The five causes of the low rate of capital formation in India are as follows:
(i) Lower saving power (Ability): The people in India have a desire to save and possess all those factors which motivate the 'will to save' like old age considerations, family affection, social and political influence, but they have lower per capita income. Moreover, the margin between production and consumption is very narrow and so the saving capacity is very little. Ultimately, it results in lower rate of capital formation.
(ii) State of economy: Majority of people in India are agriculturists, who follow old methods and also have uneconomic agricultural holdings. All these factors leave very little or no surplus with them.
(iii) Habit of hoarding: Most of the illiterate people have very little capacity to save and are in the habit of hoarding their savings in their houses. But such savings are of no use as far as capital formation is concerned, because these hoardings cannot be utilized for any productive purposes.
(iv) Inflation: Due to inflationary trend, the prices of commodities go very high and the middle class people find it very difficult to save any amount.
(v) Inadequate investment channels: The banking and financials facilities are inadequate in India. The means of transport and communication are not fully developed. These inadequacies adversely affect the mobilization and investment of savings.
