Causes for low capital formation in india?

Answer 1

LOWER SAVING POWER - The people in India have a desire to save and possess all those factors,which motivate the 'WILL POWER TO SAVE',but they have lower per capita income.Moreover,the marjin between production and consumption is very narrow and so the saving capacity is very little.It reasults in lower per capita income.

HABIT OF HOARDING - Most of the illitrate people have a very little capacity to save,are in the habit of hoarding their savings in their houses.But such are of no use as far as capital formation is concerned,as their can't be utilised in any productive channel.

INFLATION - Because of inflationary trend,the prices of commodities have gone very high and the middle class people are finding it very difficult to save any money.Rather,it is becoming increasingly impossible for them to make both ends meet.under such circumstances, the majority of middle class is not contributing in capital formation.

LACK OF ECONOMIC AND SOCIAL OVERHEADS - Basic overhead like road,bulding,communication,education,water,health etc. are generally lacked in underdeveloped counties like India which create an improper atmosphere for the capital formation and the slow process of capital formaton.

LACK OF SKILLED ENTERPRENEURE - Able and efficient enterpreneure are not available in our country.It is the only reason for the low rate of capital formation.Due to absence of risk-taking enterpreneurs,estabishment of industries and expansion is quiet limited and industrial diversification is not carried out and no balanced development of economy is possible.

INADEQUATE INVESTMENT - The banking and financial facilities are inadequate in India.After nationalisation,large number of branches of banks have been opened even in remote areas and villages,but still wide gap exists.Similarly,the means of transport and communication are not fully developed.These adequencies adversly affect the mobilisation and investment of savings.

TAXATION POLICY - High level of taxes on property in India affect the savings and capital formation is adversly affected.The industialists and buisnessmen believe that level of taxation should be reduced so that the people's capacity to save is improved,simultaniously improving their capacity invest.

INSECURITY - The condition of Law and Order in many parts of the country is not normal.There is no adequate security of life and property in some of the region and this has discouraged the opening of new industries in those areas.Besides above causes,frequent failures of joint-stock conpanies have made the people reluctant for investment.

SMALL SIZE OF MARKET - Due to small size of domestic market,investment is not encouragement in poor countries like India.It does not expand the work of economic development and morden machines cannot be used as extra quntity produced has no market access.

FEAR OF NATIONALISM - The private entrepreneurs and industrialists are doubtfull about the goverment policies of nationalisation.As,such they hesitate to set up industries,which reasults slow rate of capital formation.