One of the largest contributors in the economic development of a nation is the presence desirable

natural resources. In fact if you look at it carefully most of the developed countries make the best use
of the natural resources that are available to them. Any country that wants to improve its
development scenario has to utilise its naturally available local resources.

The maximum utilisation of these resources is necessary as it increases the purchasing power and
purchasing power in turn helps to obtain foreign exchange which is used to purchase capital
equipment which sets the development process in motion. If we look as a country we are very rich
in terms of natural resources as discussed below –

1)-India has a total geographical area of around 329 million hectares which gives us an ample
amount of land to utilise our resources

2)-In India, forests form around 23% of the total land area and right from providing timber, wood
for fuel, and fodder to a wide range of non-wood products, forests play a critical role in economic
growth of the country.

3)- India is one of the luckiest country in terms of rainfall as we receive an average rainfall of
1100mm.

4)- We as a country have 7,520 km of coastline, 29,000 km of rivers and 1.7 million hectares of
reservoirs

5)- As a country we are truly blessed in terms of mineral resources as we have ample amount of
Coal and Iron which are some of the pillars for the economic development of any nation.

Economic Development and Environmental Degradation

After we achieved Independence in 1947, the economic policymakers launched several plans in
order to expand our growth in the fields of agriculture, industries, transport, and other infrastructure.
This step was taken in order to increase employment and production to reduce poverty and
inequality of income. This had a drastic impact natural resources as they were ruthlessly exploited.

Today, we have exploited the natural resources available to us, turning our country into a vast
Wasteland. India sees an extreme level of degradation due to environmental issues caused by
economic development. Some of them are as follows:

• Deforestation caused the land to degrade, and the soil gets eroded

• Ecological dehydration due to overgrazing by cattle

• Overutilization of water resources

• Environmental issues caused by mining

• The industrialization has also led to atmospheric pollution

H.R. plays a vital role in achieving the economic development of a country. Commercial
construction of the state involves proper utilization of its physical resources by its labor force
and other forms of human resources for the appropriate usage of the production potential of the
country. Thus economic development typically involves the achievement of the following three
situations:

a) An increase in the per capita income to raise the level of living of the people

b) A decline in the rate of unemployment as well as the magnitude of unemployment

c) A consequent reduction in the amount of BPL human population

Although the labor force of the country is making a positive contribution to development, the
rapidly growing population retards the process of growth and thus considered harmful to the
economic development of the country. Capital formation signifies an essential aspect of
economic development. It suggests making and increasing more capital goods, such as machines,
tools, factories, buildings, raw materials, fuels, etc. which can be additionally used in producing
more products.

Factors that affect the formation of capital:

1. The volume of saving:

The accumulation of capital directly depends on savings. Saving implies the income-
consumption gap. For capital formation, the difference can be utilized.

According to Alfred Marshall- "The higher the saving volume, the greater the investment, the
lower the saving amount, the smaller the asset size."

Sum saved as currency can be mobilized and then be changed to capital assets.

2. Ability to Save:

It directly depends upon the income earned by an individual and the taxation policy implied by
the government. Higher-income and low taxation leads to a higher degree of capital formation.

3. Willingness to Save:

It relies on several social, family, and political factors such as family affection, desire to start a b
usiness, consideration of old age, and unexpected crises.

4. Profit of Public Sector Enterprises:

A public sector initiative could be a vital variety of enterprises. Since these are possessed by the

government instead of by people, all the profits of this enterprise will be used for capital
formation by the government.

5. Market Conditions:

Economic success facilitates and increases savings, but poverty reduces people's savings. Capital 
formation is profoundly affected by market conditions of boom and depression.

6. Facilities of Investment:

When people are provided with more facilities to mobilize their savings, people save more and
invest more. The commercial banks, mutual funds, etc., encourage people to keep more. More is
the saving more will be the capital formation.

7. Modifying Income Tax Policies:

Through offering support for potential investors in various ways, the government will promote
the creation of capital. For example, by performing techno-economic audits on several
production lines and providing a new production unit with tax advantages or giving income tax
advantages to citizens who want to save (e.g., exempting the portion of the profit from tax that is
saved).These following steps are principally useful when there is a constraint on investment due
to the unwillingness of the manufacturers and producers of the country to use their savings into
some investments and not due to the savings policy.

8. The Monetary Policy:

The government's economic policies also have an essential influence on the development of
capital in the region. Although these measures do not serve as sources of capital formation by
definition, they are forces that affect the sources.

9. Commodity Taxation:

The service tax may be used to increase the savings rate. If consumer items, in specific luxury
purchase data, are subject to high sales tax requirements, this would raise consumer goods rates
(as a consequence of the introduction of sales taxes to product costs). It enhances the intake of
the nation. Investments, for example, because their profits remain constant

10. Deficit Budget:

There are other fiscal measures; this can also be done to grow the development of capital in the
country. The state also constructs massive projects in the public sector. This improves the
creation of money by building overhead social wealth. The construction costs of these programs
generally cover budget deficits.

Rate of Capital Formation:

The proportion between the total accumulation of assets and the gross national product at current
prices is the rate of capital formation. This demonstrates how much G.D.P. can be used for the
growth of its own. It can be calculated by dividing gross capital formation by G.D.P.

Therefore:
Capital Formation Low Growth Rate Causes:

India's level of capital formation is meager as compared to many advanced countries like the
U.S.A., Japan, etc. Some important reasons for the lower price of capital formation are as under:

1. Little Saving Ability:

The people in India want to save and have all the motivating factors the‘ will to save,' like old
age considerations, family affection, social and political influence, but they have lower per capita
income. Low per capita income leads to small savings, which results in a lower rate of capital
formation.

2. The habit of Hoarding:

Most of the people have minimal capacity to save and are more in the habit of hoarding their
savings in their houses. Such savings are of no use as far as the capital formation is concerned,
because these Hoarding can not be utilized for any productive purposes.

3. Inflation:

Due to the inflationary trend, the prices of commodities go very high, and the middle-class
people find it very difficult to save any amount. Instead, it is becoming increasingly impossible
for them to meet both the ends. Under such conditions of inflation, the majority of the middle-
class Is contributing very little to capital formation.

4. Inadequate Investment Channels:

Throughout India there are not enough banking and finance services. Nevertheless, even in
remote areas and villages, large numbers of bank branches have established after nationalization,
but there remains a huge void. There is no full design of the means of transport and interaction.
The gathering and outlay of funds were impaired by these lacks.

5. Taxation Policy:

High levels of taxes on property in India affect the savings and accumulation of capital
adversely. The industrialists and business people believe that the taxation limit/level should be
condensed so that people can save more, simultaneously improving their ability to invest.

6. Insecurity:

The condition of law and order in many parts of the country is not reasonable. In some regions
the protection of life and property is inadequate, and the development of new industries in those
regions has been discouraged. A sort of distrust among the minds of private investors was
generated by the government's radical labor policy.

In contrast to these reasons, the citizens have been reluctant to invest in the sometimes
shortcomings of joint ventures.

7. Lack of Allied Facilities and Infrastructure:

Across India, too, there are insufficient partnerships of general facilities that promote and drive
development. Energy, infrastructure, technical education, public health, and measuring facilities
are not up to the desired level. That has limited business growth and development, decreased
workers ' efficiency and raised production costs in several economic sectors of our world.
Thanks to inadequate general services, private investors are prevented.

8. Unequal Distribution of Income and Wealth:

In a nation such as India, income and wealth are highly unevenly distributed, and the level of
capital formation remains relatively small. This restricts real economic activity.

Suggestions to Increase the Degree of Capital Formation:

The level of capital formation must be increased for the economic development and overall
stability of the nation.

Several guidelines to do this are as follows:

1. Tax Result:

The tax policy should be updated, and the employers and industrialists should be entitled to
sufficient tax relief.

2. Encourage Savings:

Stepping up and encouraging small savings, which should be appealing to the savings rate,
should be done. It should be promoted and broadened to save services such as service funds (PF),
compulsory insurance, compulsory savings, etc.

3. Facilitate Investment and Production:

Investment and development avenues in farming, manufacturing, shipping, finance, insurance,

trade, etc. should be expanded and introduced.

4. Maintenance of Law and Order:

Law and order conditions in every part of the country should be improved, and the safety of
property, life, and wealth must be taken care of.

5. Equal Distribution of Wealth:

There should be an appropriate dispersal of capital.

6. Growing and Developing Basic Utilities:

General infrastructure should be improved appropriately and built, such as transport, interaction
means, power plants, ports, technical training installations, etc.

7. Cheap Capital:

The investors avail credits from various agencies for their growth. Still, the rates of interest at
which credit is available to them are high, thus increasing the cost of capital results in low-profit
margins for investors. A lower price of interest will increase profit and arouse investments in the
economy.

8. Identification of Investments:

Productive investment should be encouraged, but unproductive expenditure should not.

The recommendations listed above are the only general ones. There may be some specific
segments to be built in conjunction with the area and its needs to promote capital formation and
economic progress at the appropriate pace.