ICOR Figures And Corollary

wealthymattersIncremental Capital Output Ratio (ICOR) is the additional capital required to increase one unit of output. This ratio is used to measure the efficiency of an industrial unit or country as an economic unit. The lesser the ICOR, more efficient the organization.

India’s ICOR has more than doubled in the last year,meaning we are now half as efficient as before in the use of our capital.

In 2011-12,we needed to invest 5.4 Rupees to make 1 rupee,i.e we were getting an average 18.5% returns on our money invested in businesses.In 2012-2013,the returns fell to 8.7%.

So what sort of returns do you make on money invested in  business?Is it above or below the national average? If you feel business is slower or that its increasingly difficult to turn out a decent profit.you are not alone…….

If this is the sort of returns promoters on an average can make on money,guess what investors , especially retail investors are likely to receive…..

A rational investor might say ‘to hell with taking a risk by investing money in businesses,its sovereign debt for me.Government bonds return as much as the average business.The only problem is the stubbornly high retail inflation. WPIs might show rosy figures but street prices at the retail level are a different story.When was the last time our political masters and bureaucrats tried purchasing a handful of chillies or a bunch of bananas to do a reality check?

So fighting against the pernicious effect of inflation means chasing poorly regulated credit societies, chitfunds and other collective investment schemes, MLM plans that are often thinly veiled ponzi schemes,improbable agro-investment schemes et al or investing in alternative investment funds, purchasing bullion,land , commercial and residential properties irrespective of rental yield and hoping for capital appreciation.

About Keerthika Singaravel

2 Responses to ICOR Figures And Corollary

  1. teri says:

    I liked reading this post.

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