Optimum Capacity and Imbalance of Capital Structure: The Case of Machine Manufacturing Industries

Under-utilisation of capacity in metal and machine manufacturing industries in India has become endemic by now. The industry is running below capacity at least from 1959. This is an unfortunate situation in a developing country like India and this shows that the policy that led to this structure of capital creation has been not well integrated. An under-utilisation of capacity results in a higher capital-output ratio than is technically warranted. A developing country with a paucity of capital, as well as of foreign exchange by which to purchase it, can hardly afford this luxury.