Economics(Paper-4) - Shivaji University

in the economy. It is a fact that development of a country can be achieved through
various variables such as agriculture, capital, Industry, monetary and fiscal policy and
government approach etc. In this unit we are dealing the fact that how these variables
are contributing for the economic development of a country. Not only this, it tells us that
what changes should be followed in the various factors to achive the desired economic
growth.
3.2 Subject Matter :
3.2.1 Capital formation and Economic Development :
A) Meaning of Capital formation
1) Bom Bowark said that, “Capital is produced means of production.” In economic
the capital is not a money but it consists machinery, tools, factory buildings i.e. all the
real assets.
2) Ragnar Nurkse defines capital formation as follows, “The meaning of ‘Capital
formation’ is that society does not apply whole of its current productive activity to needs
and desire of immediate consumption, but directs a part of it to the making capital
goods, tools and instruments machines and transport facilities, plan and equipments –
all the various forms of real capital that can so greatly increase the efficiency of
productive Resources. The terms is some time used to cover human as well as material
capital; it can be made to include investment in skills, education and health – a very
important from of investment.
3) According to Singer, Capital formation consists of both tangible goods like plants,
tools and machinery and intangible goods like high standards of education, health,
scientific tradition and research. The same view has been expressed by Kuznets too.
B) Importance of Capital Formation :
Capital formation or accumulation is regarded as one of the important and pivotal
factors in economic development. The following are the important facts throw the light
on the importance of capital formation.
1) Poverty eradication : According to Nurkse, the vicious circle of poverty in
underdeveloped countries can scratched through capital formation. Low income is the
basic feature of these countries, which makes effect on demand, production and
investment of lower level. This deficiency can be removed with capital formation. The
optimum or full use of available resources in developing countries can be possible only
through the capital formation. In this way the extent of poverty can be reduced.
2) Productivity : In general, the productivity in agriculture, mining, plantation and
industry are very low in developing countries. To enhance the productivity of above kind
capital formation is needed to construct schools, hospitals, roads, railways, etc. In
other words, the creation economic and social overhead may boost the productivity of
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