The correct option for the given statement is option 4: High capital-output ratio.

Capital formation refers to the process of increasing the stock of capital goods in an economy. It is an important factor in promoting economic growth and development. However, despite being a high-saving economy, capital formation may not result in significant increases in output due to various factors.

Option 1: Weak administrative machinery

A weak administrative machinery can result in inefficiencies in the allocation of resources, including capital, which can limit the effectiveness of capital formation in promoting economic growth. This can result in the misallocation of resources, corruption, and bureaucratic red tape, which can impede the growth of businesses and limit the effectiveness of investment in infrastructure and other productive activities.

Option 2: Illiteracy

Illiteracy can limit the effectiveness of capital formation by reducing the ability of individuals to access and use capital goods effectively. Illiterate individuals may not be able to read or understand instructions, manuals, or training materials related to the operation of capital goods, which can reduce their productivity and efficiency. Illiteracy can also limit access to information and opportunities, which can impede the growth of businesses and the development of the economy as a whole.

Option 3: High population density

High population density can also limit the effectiveness of capital formation by increasing competition for resources, including land, labor, and capital. This can result in higher costs and lower returns on investment, which can reduce the incentive to invest in new capital goods or expand existing businesses. High population density can also lead to environmental degradation, resource depletion, and other negative externalities that can limit the effectiveness of capital formation in promoting sustainable economic growth.

Option 4: High capital-output ratio

The most important factor that can limit the effectiveness of capital formation in promoting economic growth is a high capital-output ratio. The capital-output ratio measures the amount of capital required to produce a unit of output. A high capital-output ratio indicates that a large amount of capital is required to generate a given level of output. This can occur due to various factors such as inefficiencies in production processes, market failures, and other structural barriers that limit the effectiveness of capital formation in promoting economic growth.

In conclusion, while factors such as weak administrative machinery, illiteracy, and high population density can limit the effectiveness of capital formation in promoting economic growth, the most important factor is a high capital-output ratio. To overcome this challenge, policymakers need to focus on improving the efficiency and productivity of capital use, reducing market failures and structural barriers, and promoting investments in human capital and innovation.