Question

What do you understand by the term 'Capital formation'?

Answer 1

1. Capital formation is a crucial aspect of economic development, representing the creation of capital.
2. In simple terms, it involves making and increasing capital goods like machines, tools, factories, and buildings, essential for producing more goods.
3. Importantly, capital formation does not signify an increase in monetary capital; rather, it refers to the growth of physical capital, including machinery, factories, transport equipment, infrastructure like bridges, power projects, dams, and irrigation systems.
4. In essence, capital formation implies the creation of tangible, real assets, playing a vital role in fostering economic development.