Basics Importance And Policy Framework

* Internally capital formation takes place when a country does not spend all its current income on consumption, but saves a part of it and uses it for investment to increase further production. This act of saving and investment is described as capital accumulation or capital formation. * Capital formation refers to investments in physical and human capital, such as building new factories, improving infrastructure, and educating the workforce. Increased capital allows for greater production and innovation.

**Statement 1 is Incorrect:** National Investment and Infrastructure Fund (NIIF) is India's first sovereign wealth fund that was set up by the Government of India in February 2015. The objective behind creating this fund was to maximise economic impact mainly through infrastructure investment in commercially viable projects, both Greenfield and Brownfield. **Statement 2 is Incorrect:** In the Union Budget 2015-16, India's Finance Minister, Arun Jaitley announced the creation of the National Investment and Infrastructure Fund. It was proposed to be established as an Alternative Investment Fund to provide long-term capital for infrastructure projects with an inflow of Rs. 20,000 crore from the Government of India. NIIF was approved in August 2015 by the Department of Economic Affairs. The first meeting of its governing council was held in December 2015 further to which it was registered with SEBI as Category II Alternative Investment Fund. Hence, option D is the correct answer.

Capital Formation: This refers to the addition to the existing stock of physical and human capital in an economy. High Savings: High savings provide the necessary funds for investment. However, savings alone do not guarantee growth; the efficiency with which those savings are converted into output is crucial. Capital-Output Ratio (COR): This ratio indicates the amount of capital required to produce one unit of output. - A low ratio means capital is efficient. - A high ratio means capital is inefficient (more capital is needed for the same amount of output). Why (D) is correct: Even if an economy saves and invests heavily (capital formation), if the Capital-Output Ratio is high, the resulting increase in output (GDP) will be low. This often happens due to technological backwardness, poor infrastructure, or inefficient management of resources.

Human capital formation refers to the process of increasing the stock of knowledge, skills, and experiences that people in a country possess. This intangible wealth is what makes a workforce productive and adaptable. Therefore, statement 2 and 4 are correct.