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Q47
(IAS/2024)
Economy › Basic Concepts & National Income › Business finance basics
Official Key
With reference to physical capital in Indian economy, consider the following pairs : 1. Farmer's plough - Working capital 2. Computer - Fixed capital 3. Yarn used by the weaver - Fixed capital 4. Petrol - Working capital How many of the above pairs are correctly matched ?
Result
Your answer:
—
·
Correct:
B
Explanation
Tools, machines, buildings can be used in production over many years, and are called fixed capital.[1] Raw materials and money in hand are called working capital. Unlike tools, machines and buildings, these are used up in production.[1]
Analyzing each pair:
1. **Farmer's plough - Working capital**: INCORRECT. A plough is a tool used over many years, making it fixed capital, not working capital.
2. **Computer - Fixed capital**: CORRECT. A computer is a machine/tool used over multiple years in production.
3. **Yarn used by the weaver - Fixed capital**: INCORRECT. Yarn is mentioned as a raw material used by the weaver[1], and raw materials are working capital as they are consumed in production.
4. **Petrol - Working capital**: CORRECT. Petrol is consumed during production, similar to raw materials, making it working capital.
Only pairs 2 and 4 are correctly matched, hence **only two** pairs are correct.
Sources- [1] Economics, Class IX . NCERT(Revised ed 2025) > Chapter 1: The Story of Village Palampur > Organisation of Production > p. 2
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Q. With reference to physical capital in Indian economy, consider the following pairs :
1. Farmer's plough - Working capital
2. Computer - …
At a glance
Origin:
From standard books
Fairness:
High fairness
Books / CA:
10/10 · 0/10
This is a textbook 'Sitter' directly lifted from NCERT Class IX (The Story of Village Palampur). It proves that ignoring foundational NCERTs for high-level reference books is a fatal error. The question tests the most basic definition of 'Factors of Production' with zero ambiguity.
How this question is built
This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.
- Statement 1: In the Indian economy's classification of physical capital, is a farmer's plough classified as working capital or fixed capital?
- Statement 2: In the Indian economy's classification of physical capital, is a computer classified as working capital or fixed capital?
- Statement 3: In the Indian economy's classification of physical capital, is yarn used by a weaver classified as working capital or fixed capital?
- Statement 4: In the Indian economy's classification of physical capital, is petrol classified as working capital or fixed capital?
Statement 1
In the Indian economy's classification of physical capital, is a farmer's plough classified as working capital or fixed capital?
Origin: Direct from books
Fairness: Straightforward
Book-answerable
From standard books
Economics, Class IX . NCERT(Revised ed 2025) > Chapter 1: The Story of Village Palampur > 7. Sale of Surplus Farm Products > p. 10
Presence: 4/5
“This year Tejpal Singh plans to use his earnings to buy another tractor. Another tractor would increase his fixed capital. Like Tejpal Singh, other large and medium farmers sell the surplus farm products. A part of the earnings is saved and kept for buying capital for the next season. Thus, they are able to arrange for the capital for farming from their own savings. Some farmers might also use the savings to buy cattle, trucks, or to set up shops. As we shall see, these constitute the capital for non-farm activities.”
Why this source?
- Gives a direct classroom example: buying another tractor 'would increase his fixed capital', treating farm machinery as fixed capital.
- By analogy, durable farm implements used across seasons are grouped with tractors as fixed capital rather than short-term inputs.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 1: Fundamentals of Macro Economy > 2. Capital Goods: > p. 6
Presence: 5/5
“And while acting as an input it does not get transformed and remains as it is. (Wear and tear of tractor happens over a long period of time but we cannot say that the tractor is getting transformed or consumed) In strict sense the economists consider only the physical capital as the capital but in today's world intangible capital is increasingly becoming important. So, capital can be divided into three categories. • (i) Physical Capital (capital goods)• (ii) Financial Capital (money)• (iii) Intellectual Capital (patents, copyrights etc.)”
Why this source?
- Defines physical capital (capital goods) as items that act as inputs without being transformed and only suffer long-term wear and tear.
- This durability criterion distinguishes fixed capital (durable tools/equipment) from consumable working inputs.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 1: Fundamentals of Macro Economy > 1.5 Private Sector > p. 5
Presence: 5/5
“But from an economic point of view, only the physical capital goods are considered as capital. So, capital includes the building, machinery, equipment etc. The return for the capital is called "Interest".• 3. Natural Resources: Natural resources include land and raw materials which are naturally available and are not produced through manmade processes. The return for the natural resources is called "Rent". • 4. Labour: It is the human labour which may be physical or mental i.e., it can be unskilled, semi-skilled or skilled. When a human being provides his labour to the enterprise, in return he/she expects "wages". The labour (who is providing the labour services) is a human being and belongs to the household sector.”
Why this source?
- States that from an economic point of view capital includes buildings, machinery and equipment — the standard category for farm implements.
- Places machinery/equipment squarely within physical (fixed) capital, implying farm tools belong to fixed capital.
Statement 2
In the Indian economy's classification of physical capital, is a computer classified as working capital or fixed capital?
Origin: Direct from books
Fairness: Straightforward
Book-answerable
From standard books
Exploring Society:India and Beyond ,Social Science, Class VIII . NCERT(Revised ed 2025) > Chapter 7: Factors of Production > Capital > p. 172
Presence: 5/5
“Capital: In economics, any asset, whether physical or financial, used to produce goods and services. Businesses also require capital that comprises monetary resources and durable assets like machinery, tools, equipment, vehicles, vending carts, computers, shops, factories, office buildings, etc., for their day-to-day operations. Just as Ratna would have required money to take the land on lease, buy the furniture and kitchen equipment, etc. These are all called 'capital' — money plus human-made resources that are used to produce goods and services. Capital is essential to a manufacturing unit or a services sector enterprise. But where do businesses get the capital?”
Why this source?
- Explicitly lists computers among durable assets/machinery and equipment used for day-to-day operations (forms of capital).
- Durable assets used in production are conceptually fixed capital rather than working (circulating) capital.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 1: Fundamentals of Macro Economy > 2. Capital Goods: > p. 6
Presence: 4/5
“And while acting as an input it does not get transformed and remains as it is. (Wear and tear of tractor happens over a long period of time but we cannot say that the tractor is getting transformed or consumed) In strict sense the economists consider only the physical capital as the capital but in today's world intangible capital is increasingly becoming important. So, capital can be divided into three categories. • (i) Physical Capital (capital goods)• (ii) Financial Capital (money)• (iii) Intellectual Capital (patents, copyrights etc.)”
Why this source?
- Defines physical capital as capital goods that act as inputs without being transformed, giving durable machinery examples.
- This definition of durable, non-transformed inputs fits computers and supports their classification as fixed capital.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 1: Fundamentals of Macro Economy > 1.5 Private Sector > p. 5
Presence: 4/5
“But from an economic point of view, only the physical capital goods are considered as capital. So, capital includes the building, machinery, equipment etc. The return for the capital is called "Interest".• 3. Natural Resources: Natural resources include land and raw materials which are naturally available and are not produced through manmade processes. The return for the natural resources is called "Rent". • 4. Labour: It is the human labour which may be physical or mental i.e., it can be unskilled, semi-skilled or skilled. When a human being provides his labour to the enterprise, in return he/she expects "wages". The labour (who is providing the labour services) is a human being and belongs to the household sector.”
Why this source?
- States that capital includes buildings, machinery and equipment — categories that encompass computers as equipment.
- Reinforces that computers are part of physical capital goods, which are treated as fixed capital in economics.
Statement 3
In the Indian economy's classification of physical capital, is yarn used by a weaver classified as working capital or fixed capital?
Origin: Direct from books
Fairness: Straightforward
Book-answerable
From standard books
Economics, Class IX . NCERT(Revised ed 2025) > Chapter 1: The Story of Village Palampur > Organisation of Production > p. 2
Presence: 5/5
“Tools, machines, buildings can be used in production over many years, and are called fixed capital.• (b) Raw materials and money in hand: Production requires a variety of raw materials such as the yarn used by the weaver and the clay used by the potter. Also, some money is always required during production to make payments and buy other necessary items. Raw materials and money in hand are called working capital. Unlike tools, machines and buildings, these are used up in production. There is a fourth requirement too. You will need knowledge and enterprise to be able to put together land, labour and physical capital and produce an output either to use yourself or to sell in the market.”
Why this source?
- Explicitly cites yarn used by the weaver as an example of raw materials.
- Defines raw materials and money in hand as 'working capital'.
- Contrasts these (used up in production) with tools, machines and buildings (fixed capital).
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 1: Fundamentals of Macro Economy > 2. Capital Goods: > p. 6
Presence: 4/5
“And while acting as an input it does not get transformed and remains as it is. (Wear and tear of tractor happens over a long period of time but we cannot say that the tractor is getting transformed or consumed) In strict sense the economists consider only the physical capital as the capital but in today's world intangible capital is increasingly becoming important. So, capital can be divided into three categories. • (i) Physical Capital (capital goods)• (ii) Financial Capital (money)• (iii) Intellectual Capital (patents, copyrights etc.)”
Why this source?
- Defines physical (fixed) capital as durable goods that remain untransformed and wear over long periods.
- By describing durability of fixed capital, it implies consumable inputs like yarn are not fixed capital.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 1: Fundamentals of Macro Economy > 1.5 Private Sector > p. 5
Presence: 3/5
“But from an economic point of view, only the physical capital goods are considered as capital. So, capital includes the building, machinery, equipment etc. The return for the capital is called "Interest".• 3. Natural Resources: Natural resources include land and raw materials which are naturally available and are not produced through manmade processes. The return for the natural resources is called "Rent". • 4. Labour: It is the human labour which may be physical or mental i.e., it can be unskilled, semi-skilled or skilled. When a human being provides his labour to the enterprise, in return he/she expects "wages". The labour (who is providing the labour services) is a human being and belongs to the household sector.”
Why this source?
- Lists building, machinery and equipment as examples of physical capital goods (fixed capital).
- Helps distinguish fixed capital items from raw materials that are used up in production.
Statement 4
In the Indian economy's classification of physical capital, is petrol classified as working capital or fixed capital?
Origin: Direct from books
Fairness: Straightforward
Book-answerable
From standard books
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 1: Fundamentals of Macro Economy > 1.5 Private Sector > p. 5
Presence: 4/5
“But from an economic point of view, only the physical capital goods are considered as capital. So, capital includes the building, machinery, equipment etc. The return for the capital is called "Interest".• 3. Natural Resources: Natural resources include land and raw materials which are naturally available and are not produced through manmade processes. The return for the natural resources is called "Rent". • 4. Labour: It is the human labour which may be physical or mental i.e., it can be unskilled, semi-skilled or skilled. When a human being provides his labour to the enterprise, in return he/she expects "wages". The labour (who is providing the labour services) is a human being and belongs to the household sector.”
Why this source?
- Defines physical capital as durable items like buildings, machinery and equipment — emphasises durable/man-made assets as 'capital'.
- By listing durable assets as capital, implicitly excludes short-lived/consumable inputs such as fuels from being fixed capital.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 1: Fundamentals of Macro Economy > 2. Capital Goods: > p. 6
Presence: 4/5
“And while acting as an input it does not get transformed and remains as it is. (Wear and tear of tractor happens over a long period of time but we cannot say that the tractor is getting transformed or consumed) In strict sense the economists consider only the physical capital as the capital but in today's world intangible capital is increasingly becoming important. So, capital can be divided into three categories. • (i) Physical Capital (capital goods)• (ii) Financial Capital (money)• (iii) Intellectual Capital (patents, copyrights etc.)”
Why this source?
- Explains that physical capital acting as an input 'does not get transformed and remains as it is' (durability criterion).
- Contrasts durable capital goods (which persist) with inputs that are consumed — supporting classification of consumables as non-fixed capital.
Microeconomics (NCERT class XII 2025 ed.) > Chapter 3: Production and Costs > 3.2 THE SHORT RUN AND THE LONG RUN > p. 38
Presence: 3/5
“Before we begin with any further analysis, it is important to discuss two concepts– the short run and the long run. In the short run, at least one of the factor – labour or capital – cannot be varied, and therefore, remains fixed. In order to vary the output level, the firm can vary only the other factor. The factor that remains fixed is called the fixed factor whereas the other factor which the firm can vary is called the variable factor. Consider the example represented through Table 3.1. Suppose, in the short run, capital remains fixed at 4 units.”
Why this source?
- Defines the fixed factor in the short run as the factor that 'cannot be varied' while the other factor is variable.
- Petrol, being a consumable input that firms vary with production, aligns with the concept of a variable/working input rather than fixed capital.
Pattern takeaway:
UPSC is punishing aspirants who skip Class 9-10 NCERTs assuming they are 'too basic'. The pattern shows a preference for conceptual clarity (Stock vs Flow) over complex current affairs in static economy questions.
How you should have studied
- [THE VERDICT]: Sitter. Direct lift from NCERT Class IX, Chapter 1 ('The Story of Village Palampur'), Page 2. Also covered in Class XII Microeconomics.
- [THE CONCEPTUAL TRIGGER]: Factors of Production (Land, Labour, Physical Capital, Human Capital). Specifically, the sub-classification of Physical Capital.
- [THE HORIZONTAL EXPANSION]: Memorize the NCERT examples: Fixed Capital = Generators, turbines, computers, tools, buildings (used over years). Working Capital = Raw materials (yarn for weaver, clay for potter) and Money in hand. Human Capital = Knowledge/Enterprise.
- [THE STRATEGIC METACOGNITION]: Do not just read definitions; memorize the specific examples given in NCERT boxes. UPSC creates options using the exact objects mentioned in the text (e.g., 'Yarn used by the weaver' is a verbatim phrase from the book).
Concept hooks from this question
📌 Adjacent topic to master
S1
👉 Fixed capital vs Working capital
💡 The insight
Fixed capital denotes durable farm assets (machinery/equipment) while working capital covers short-term operational inputs and expenses.
High-yield for economy questions: distinguishes investment (long-term assets) from operational finance (short-term needs); connects to topics on agricultural credit, investment, and classification of factors of production. Helps answer questions on farm finance, credit schemes, and capital formation.
📚 Reading List :
- Economics, Class IX . NCERT(Revised ed 2025) > Chapter 1: The Story of Village Palampur > 7. Sale of Surplus Farm Products > p. 10
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > iii) Kisan Credit Cards (KCC): > p. 75
🔗 Anchor: "In the Indian economy's classification of physical capital, is a farmer's plough..."
📌 Adjacent topic to master
S1
👉 Physical capital as durable capital goods
💡 The insight
Physical capital comprises durable items that are not consumed in a single production cycle, e.g., machinery and equipment.
Core concept in macro and agricultural economics: clarifies what counts as investment and how gross investment is measured in GDP. Links to capital goods, depreciation, and policy on capital formation.
📚 Reading List :
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 1: Fundamentals of Macro Economy > 2. Capital Goods: > p. 6
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 1: Fundamentals of Macro Economy > 1.5 Private Sector > p. 5
🔗 Anchor: "In the Indian economy's classification of physical capital, is a farmer's plough..."
📌 Adjacent topic to master
S1
👉 Agricultural investment vs working-capital needs
💡 The insight
Farming requires both short-term working capital (seeds, fertilisers, post-harvest costs) and investment credit for durable items (tractors, pump sets).
Important for questions on farm credit, Kisan Credit Card schemes, and constraints to adoption of modern farming; useful for policy-analysis and economy optional answers on rural finance.
📚 Reading List :
- Geography of India ,Majid Husain, (McGrawHill 9th ed.) > Chapter 9: Agriculture > 4. Capital Constraint > p. 48
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > iii) Kisan Credit Cards (KCC): > p. 75
🔗 Anchor: "In the Indian economy's classification of physical capital, is a farmer's plough..."
📌 Adjacent topic to master
S2
👉 Types of Capital: Physical, Financial, Intellectual
💡 The insight
Capital is classified into physical, financial and intellectual; a computer is a form of physical capital.
High-yield for UPSC economic fundamentals: knowing these categories helps answer questions on production factors, investment classification and valuation of assets. It links to discussions on GDP measurement, capital formation and policy on intangible assets.
📚 Reading List :
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 1: Fundamentals of Macro Economy > 2. Capital Goods: > p. 6
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 1: Fundamentals of Macro Economy > 1.5 Private Sector > p. 5
🔗 Anchor: "In the Indian economy's classification of physical capital, is a computer classi..."
📌 Adjacent topic to master
S2
👉 Fixed (Durable) vs Working (Circulating) Capital
💡 The insight
Fixed capital refers to durable inputs that are not transformed in production (machinery, equipment); working capital is consumed during production.
Mastering this distinction is essential for questions on depreciation, net vs gross investment, firm accounts and short-run vs long-run production decisions. It enables classification of assets and understanding of capital consumption in national accounts.
📚 Reading List :
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 1: Fundamentals of Macro Economy > 2. Capital Goods: > p. 6
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 1: Fundamentals of Macro Economy > 1.7 Investment > p. 8
🔗 Anchor: "In the Indian economy's classification of physical capital, is a computer classi..."
📌 Adjacent topic to master
S2
👉 Examples of Physical Capital (computers, machinery, buildings)
💡 The insight
Computers are explicitly listed as durable equipment and thus exemplify physical/fixed capital goods.
Useful for objective and descriptive questions where identification of capital items is tested; helps in linking enterprise-level assets to macro concepts like capital formation and investment.
📚 Reading List :
- Exploring Society:India and Beyond ,Social Science, Class VIII . NCERT(Revised ed 2025) > Chapter 7: Factors of Production > Capital > p. 172
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 1: Fundamentals of Macro Economy > 1.5 Private Sector > p. 5
🔗 Anchor: "In the Indian economy's classification of physical capital, is a computer classi..."
📌 Adjacent topic to master
S3
👉 Working capital vs Fixed capital
💡 The insight
Working capital comprises raw materials and money in hand used up during production, while fixed capital comprises durable tools, machines and buildings used over many years.
High-yield for basic economic questions: it clarifies classification of inputs in production, links to firm-level accounting and national accounts, and helps answer questions on depreciation, investment and production structure.
📚 Reading List :
- Economics, Class IX . NCERT(Revised ed 2025) > Chapter 1: The Story of Village Palampur > Organisation of Production > p. 2
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 1: Fundamentals of Macro Economy > 2. Capital Goods: > p. 6
🔗 Anchor: "In the Indian economy's classification of physical capital, is yarn used by a we..."
🌑 The Hidden Trap
The 'Fourth Requirement' mentioned on the same NCERT page is 'Human Capital' (Knowledge and Enterprise). A future question may ask you to classify 'Skill Development' or 'Entrepreneurship' distinct from 'Labour'. Also, look out for the 'Short Run vs Long Run' production function where Capital is fixed but Labour is variable.
⚡ Elimination Cheat Code
Apply the 'Vanishing Test'. If you use the item once, does it disappear or change form? Yarn becomes cloth (Vanishes = Working). Petrol becomes smoke/energy (Vanishes = Working). A Computer or Plough remains the same object after use (Persists = Fixed). Durability is the key.
🔗 Mains Connection
Mains GS-3 (Agriculture): Use this distinction to analyze 'Capital Formation'. Indian agriculture suffers because subsidies (fertilizer/power) support 'Working Capital', but we lack investment in 'Fixed Capital' (cold chains, irrigation, modern machinery), leading to low productivity.
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