Page 52 - DECO303_INDIAN_ECONOMY_ENGLISH

Dilfraz Singh, Lovely Professional University
Unit 4: Capital Formation

Unit 4: Capital Formation Notes

CONTENTS
Objectives
Introduction

4.1 Capital Formation
4.1.1 Key Aspects
4.1.2 How Capital Formation Works?

4.2 Importance of Capital Formation
4.3 Mobilisation of Domestic Saving for Economic Growth and Development
4.4 Trends in Saving and Capital Formation
4.5 Savings Rate, Growth Rate and ICOR
4.6 Summary

4.7 Keywords
4.8 Review Questions
4.9 Further Readings

Objectives

After studying this unit, you will be able to:

Describe the concept of capital formation
Explain an overview mobilisation of domestic savings
Elaborate relation between growth rate and saving rate

Introduction

India’s gross domestic product increased to an average of 9% per annum for some years before
the global financial disaster of 2008. Between 2004 and 2008, business assurance attained a
swagger and investments improved at a fast pace. India was in an enviable position with many
difficulties, capital was rushing in and high GDP growth was taken for granted. Planners required
pushing the rate of development beyond 10%, mentioning positive demographics and
investments that India was pulling. Certainly, India did find a good time between 2004 and 2008,
with investments pouring growth.

Post-crisis, the world has altered. Developed economies haven’t been capable to shake off the
belongings of the economic disaster. India too has experienced a stoppage in capital flows, such
as Foreign Direct Investment (FDI), and savings and investment rates have also faded. The
country’s growth rate reduced and touched a low of 6.8% before improving to 8.5%.
As soon as growth improved, people got more excited about it. So was bluster about decoupling
and how the Indian economy was strong enough to grow in spite of contrary global circumstances.
This year, India is yet again expecting a slower growth of 7.5–8%. With inflation rising and
growth uncertain, questions are being asked about the brief and passing growth witnessed in

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