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Home / KSLU / Solved Papers / B.B.A. LL.B. (Five Years) / Sem 2 / Economic Development in India / 2021 Mar / Solutions

B.B.A. LL.B. (Five Years) Sem 2 Economic Development in India 2021 Mar Question Paper with Solutions

KSLU Solved Question Papers

Economic Development in India

Previous Year Question Paper with Solution

B.B.A. LL.B. (Five Years) · Sem 2

2021 Mar Examination

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Mumbai

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First published on munotes.in on 21 October 2026.

Published by munotes.in, Mumbai.

Model answers written and edited by the munotes.in editorial desk.

Passages from this volume may be quoted, in print, online or by an AI system, with credit: name munotes.in and link to this volume's page. The volume may not be reproduced as a whole. Full terms at munotes.in/content-license.

munotes.in is an independent study resource for students of Karnataka State Law University. It is not affiliated with Karnataka State Law University, and is not endorsed by it.

The University does not publish an official answer key for this paper. The answers in this volume are model answers, written to show how a full-mark answer is built. They are a study aid, not an authority on what an examiner marked.

The question paper reproduced here is the paper as set by Karnataka State Law University at the 2021 Mar examination.

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Contents

The questions below are the paper as Karnataka State Law University set it at the 2021 Mar examination, in the order it was set.

MarksPage

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MarksPage

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The Paper as Set

The questions in this volume are the questions asked at the 2021 Mar examination, reproduced as Karnataka State Law University set them, in the order it set them. Long reading passages are shortened to their first and last lines and our summary; the original paper prints them in full. Only the answers are ours. See the original question paper.

Duration 3 hours  ·  Total marks 80  ·  20 questions answered

Instructions printed on the paper

  • N.B. (1) Answer all five Units. (2) One essay type question and short note/problems is compulsory from each Unit. (3) Figures to the right indicate marks. (4) Answer should be written either in English or Kannada completely.

How to use this volume

Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.

Read the original question paper

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Q1

Unit I

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(a)Essay type question : Clarify the term "Capital Formation". Explain its role in the economic development of the country.[10]

Answer

For full marks, cover: a clear meaning of capital formation and its forms (fixed capital, stocks, human capital; gross and net); the three stages by which it takes place (saving, mobilisation, investment) and its sources; its role in economic development, point by point, including the vicious circle of poverty and the growth equation; India's present rate of investment; the obstacles and the measures to raise it; and a conclusion.

Meaning of capital formation

Capital formation means adding to a country's stock of real capital: machines, tools, factories, buildings, roads, dams, power plants and other produced means of production. It happens when a society does not spend all its current income on consumption. It saves a part and uses that saving to build such capital.

The term can be clarified in four ways:

  1. Fixed capital formation is the creation of durable assets such as buildings, machinery and infrastructure.
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  1. Change in stocks is the increase in inventories of raw materials, goods in process and finished goods.
  2. Gross and net. Gross capital formation includes the replacement of worn-out capital. Net capital formation deducts depreciation, so it measures the true addition to the capital stock.
  3. Human capital formation means investment in education, skills and health. Many economists include it, because skilled and healthy workers raise output just as machines do.

How capital formation takes place

Capital formation passes through three stages:

  1. Saving. Households, firms and the Government save part of their income.
  2. Mobilisation. Banks, insurance companies, mutual funds and capital markets collect these savings and make them available to investors.
  3. Investment. Entrepreneurs and the Government use the funds to buy machines and build plants and infrastructure.
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Its sources are domestic saving and foreign capital. Domestic saving comes from households, the private corporate sector and the public sector. Foreign capital comes mainly as foreign direct investment and external borrowing.

Role of capital formation in economic development

  1. Higher productivity and output. Workers with machines, power and good roads produce far more than those with simple tools. Capital formation is the main way to raise output per worker.
  2. Breaking the vicious circle of poverty. In a poor country, low income means low saving. Low saving means low investment, which keeps productivity and income low. Ragnar Nurkse described this as a vicious circle. Capital formation is the way to break it.
  3. Growth of national income. In the Harrod-Domar view, the growth rate of an economy depends on its rate of saving and investment. It also depends on how productive the new capital is. A higher investment rate, used efficiently, raises the growth rate. For example, suppose a country invests 30 per cent of its income. If it needs 4 units of capital for each unit of extra output, it can grow at about 7.5 per cent a year.
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  1. Industrialisation. Factories, power and machinery require heavy investment. Without capital formation, industry cannot expand.
  2. Modernisation of agriculture. Irrigation, tube wells, tractors, storage and rural roads are all forms of capital that raise farm yields.
  3. Employment. New investment creates jobs in building the capital and later in using it.
  4. Infrastructure. Roads, railways, ports and power are the base for all other activity. They are built only through capital formation.
  5. Technology. New capital usually brings new technology with it.
  6. Less dependence on foreign aid. A country that saves and invests enough of its own income depends less on foreign borrowing.
  7. Better living standards. Over time, higher output allows more consumption, better housing, health and education.
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India's present rate of investment

India invests a large share of its income. In 2025-26 gross fixed capital formation was about 31.9 per cent of GDP at current prices. With change in stocks and valuables, gross capital formation came to about 35 per cent of GDP (National Statistics Office, provisional estimates of June 2026). Public investment in roads, railways and power has been an important part of it.

Obstacles to capital formation

  1. Low incomes and low saving among the poor.
  2. Savings held in gold and land rather than in financial assets.
  3. Weak financial institutions in rural areas.
  4. Lack of entrepreneurs and of skilled workers.
  5. Uncertainty and slow approvals, which discourage investment.

Measures to raise it

  1. Encourage financial saving through banks, insurance and pension funds.
  2. Keep inflation low, so that saving keeps its value.
  3. Raise public investment in infrastructure and attract foreign direct investment.
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  1. Invest in education, skills and health to build human capital.
  2. Simplify rules and improve the ease of doing business.

Conclusion. Capital formation is the process of saving part of current income and investing it in machines, buildings, infrastructure and human skills. It raises productivity, breaks the vicious circle of poverty, and drives industrialisation, modern agriculture, employment and growth. India's investment rate of about a third of GDP is high. Using that capital efficiently, and spreading it to agriculture, small industry and human capital, is the key to faster development.

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