Correct Option
A high capital-output ratio (COR) or Incremental Capital-Output Ratio (ICOR) signifies that a larger amount of capital is required to produce an additional unit of output. This indicates low capital productivity or inefficient utilization of capital. Consequently, even with high savings and substantial capital formation, the conversion of this investment into a significant increase in economic output is constrained because each unit of capital generates less output.
Incorrect Options
Weak administrative machinery (a) can impede efficient resource allocation and project implementation, indirectly affecting capital productivity and overall economic efficiency.
Illiteracy (b) can limit the availability of skilled labor, hinder technological adoption, and reduce human capital formation, thereby impacting overall productivity and the quality of output.
High population density (c) can put pressure on existing resources, infrastructure, and lead to diminishing returns if not managed effectively, potentially affecting per capita output.
While these factors can influence economic growth and the overall efficiency of an economy, they do not directly explain the specific phenomenon of capital formation failing to translate into a proportionate increase in output. The capital-output ratio directly measures the efficiency with which capital is converted into output, making it the most direct explanation for the given scenario.