With reference to physical capital in Indian economy, consider the following pairs:

How many of the above pairs are correctly matched?

(a) Only one

(b) Only two

(d) All four

Correct Answer: (b) Only two

Explanation:

Pair 1: Farmer’s plough – Working capital
- Incorrect. A farmer’s plough is an example of fixed capital. It is a tool that can be used over many years in the production process and is not consumed in a single production cycle .
Pair 2: Computer – Fixed capital
- Correct. A computer is considered fixed capital as it is a long-term asset used in the production process over multiple years .
Pair 3: Yarn used by the weaver – Fixed capital
- Incorrect. Yarn used by a weaver is an example of working capital. It is a raw material that is consumed in the production process .
Pair 4: Petrol – Working capital
- Correct. Petrol is considered working capital as it is consumed during the production process and needs to be replenished regularly .

Definition: Physical capital refers to the variety of inputs required at every stage during production. It includes both fixed capital and working capital.
Fixed Capital:
- Nature: Long-term assets used in production over many years.
- Examples: Machinery, buildings, tools, computers, and vehicles.
- Characteristics: Not easily converted to cash, used repeatedly in production, and depreciates over time.
- Importance: Essential for establishing and maintaining the production capacity of a business.
Working Capital:
- Nature: Short-term assets used in day-to-day operations.
- Examples: Raw materials, cash, inventory, and fuel.
- Characteristics: Highly liquid, consumed in the production process, and needs regular replenishment.
- Importance: Crucial for maintaining the smooth operation of a business and meeting short-term financial obligations.
Role in Production:
- Fixed Capital: Provides the necessary infrastructure and equipment for production.
- Working Capital: Ensures the availability of necessary materials and liquidity to keep the production process running smoothly.
Economic Impact:
- Fixed Capital: Investments in fixed capital can lead to increased production capacity and long-term growth.
- Working Capital: Adequate working capital is essential for operational efficiency and financial stability.