Economy
Capital intensity in India is on the rise because the average worth of output per unit of net
capital stock for the economy as an entire declined from 0.626 in 2011-12 to 0.576 in 2019-
20.
Capital intensity remained within the slim vary There are important inter sector
variations within the capital intensity Capital intensity has increased for the mining,
construction and road transport sector.
Capital intensity has declined for skilled and alternative services.
Utility services and producing have surprisingly witnessed decline in capital intensity.
The household sector (informal), witnessed an increase within the capital intensity, as
mirrored by a decline in average worth of output and worth added per unit of net
capital stock in 2019-20 compared to 2011-12.
Indicates?
Increase in capital intensity in mining, construction and trade indicate a substitution of
capital machinery for labour and an increasing shift to digital payments.
Importance of informal sector:– In an economy with abundant labour and scarce
capital, the informal sector plays a very important role because the worth of output
and worth added per unit of capital stock during this sector remains to be typically
high.
Informal household sector is additionally characterized by having a better ratio added
to value of output because the labour (own or hired) is that the principal input.
Increase within the capital intensity during this sector the longer term the long run employment opportunities during this sector.
Capital intensity is that the quantity of fastened or real capital gift in relation to
alternative factors of production, particularly labour.
At the extent of either a production method or the aggregate economy, its going to be
calculable by the capital to labour ratio.
The utilization of tools and machinery makes labour more practical, thus rising capital
intensity (or “capital deepening”) pushes up the productivity of labour.
Capital intensive societies tend to own a better normal of living over the end of the
day.
But in an economy with abundant labour and scarce capital, raising capital intensity
i.e. raising capital to labour ratio have following consequences: Rise within the
surplus labour and thus state.
Rising state ends up in the decline in total production as measured by low average
worth of output per unit of net capital stock, low ratio added to value of output.
Structural state:- Structural unemployment as a result of state employees lack the
requisite job skills or live too off from regions wherever jobs are accessible and cant
move nearer.
Jobs are accessible, however theres a significant mismatch between what firms want
and what employees can offer.
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