Q1.
Identify a factory in your region. Find out how much capital may have been invested in the construction of the factory (you may provide an estimate). What kinds of equipment does the factory use to create its finished products?
Answer
How to build the estimate. You will not be given a factory’s accounts, so estimate it the way an economist would — item by item, and say clearly that it is an estimate. Ask the manager, or a supplier, or work from local land rates. Cover four heads:
- Land and building — area of the plot × the local rate per square metre, plus the cost of the shed.
- Machinery and equipment — list the main machines and ask their approximate price.
- Other fixed capital — electrical fittings, generator, water connection, computers, furniture, delivery vehicles.
- Working capital — the money always tied up in raw material, wages and unsold stock. Businesses forget this one, and it is often a fifth to a quarter of the total.
Sample answer — a small steel utensil unit on the edge of our town:
| Head of capital | Estimated amount |
|---|---|
| Plot (about 1,000 sq m) and factory shed | ₹60 lakh |
| Machinery — power press, deep-drawing press, lathe, buffing and polishing machines, welding set | ₹35 lakh |
| Electrical fittings, generator, water connection | ₹8 lakh |
| Delivery vehicle | ₹7 lakh |
| Computers, office furniture, weighing and testing equipment | ₹3 lakh |
| Working capital (steel sheet, wages, unsold stock) | ₹12 lakh |
Total estimated capital
= 60 + 35 + 8 + 7 + 3 + 12 (₹ lakh)
= ₹125 lakh = ₹1.25 crore
Share that is land and building = 60 ÷ 125 = 48%
Share that is machinery = 35 ÷ 125 = 28%
“The owner told us the money came from his own savings and a loan from a bank under an MSME scheme, on which he pays interest every month.”= 60 + 35 + 8 + 7 + 3 + 12 (₹ lakh)
= ₹125 lakh = ₹1.25 crore
Share that is land and building = 60 ÷ 125 = 48%
Share that is machinery = 35 ÷ 125 = 28%
The second half of the question — the equipment. List the machines in the order the material passes through them, because that turns a list into an explanation of the process. For this unit: the steel sheet is cut on a shearing machine, pressed into shape on a deep-drawing press, the edges are trimmed on a lathe, the joints are welded, the surface is buffed and polished, the piece is washed, checked, and packed.
What the numbers are telling you: in this unit almost half the capital is locked in land and building — which cannot make anything by itself — and only about a quarter is in the machines that actually shape the metal. That is normal for a small manufacturing unit, and it is one reason a beginner prefers to rent a shed rather than buy one, exactly as Ratna leased her space instead of buying land. Compare it with a vegetable vendor from the table on page 165, whose whole capital is a basket, a weighing scale and a cart, and you can see why the two businesses raise their money in completely different ways.