7

CHAPTER
Factors of Production

For a country like India, the largest contribution to growth

and productivity will probably come about from more
efficiently using land, labour and capital, thus they must be
used more efficiently.
— Bibek Debroy,
Chairman, Economic Advisory Council
to the Prime Minister (2017-24)

Fig. 7.1.

1. What are the factors of

The Big
Economic Life Around Us
7 – Factors of Production

production?
Questions
2. How are these factors
interconnected?
3. What is the role of human
capital in production, and what
are its facilitators? 163

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 Fig. 7.2. A glimpse at the production of some goods

Introduction
Have you ever wondered how your clothes, shoes, school bag,
furniture, phone, computer, etc., are made? Every product
around you goes through a production process before it finally
reaches you. This production process involves using resources
or inputs required to produce the final product. The resources
or inputs used in producing goods and services are hence called
Exploring Society: India and Beyond | Grade 8 Part 1

factors of production.

Meet Ratna, who runs a small restaurant named Pause Point,

on the city outskirts. Popular among highway travellers for its
tasty, high-quality food, Pause Point is growing with a team of
seven people who assist Ratna in managing the business. When
she started five years ago, she had to choose a location, organise
Business:
A firm, a money for rent and equipment, hire staff, buy ingredients, and
shop, a plan how to make her dream a success.
factory,
etc., which
produces or Businesses combine various inputs or factors of production to
sells goods
or provides create goods and services, which also generate opportunities for
164 a service. people to engage in economic activities.

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 LET’S EXPLORE
Æ In small groups, study the economic activities around your
locality. What are the different types of goods and services
being made or provided?
Æ Here’s a small report that Latha, Asha, Mohan, and Kiran
made. You can make your own report for shops of your choice.

Types of Number Goods produced

Types of inputs
in the or services
shops required
locality provided
Packaged goods,
Grocery Food grains,
13 perishables,
shops milk, bread
storage space

Raw ingredients
Restaurants/ Cooked meals, like vegetables and
8
food stalls snacks, beverages fruits, gas, utensils;
cook/helper

Fresh produce,
Vegetable Fresh vegetables
15 baskets, weighing
vendors and fruits
scale, cart or stall

Tools, spare parts,

Mobile repair, knowledge and
Mobile
4 mobile skills of mobile
repair shops
accessories components and
functions

Haircut, Scissors, creams,

Salons/
3 grooming, beauty beauty products,
parlours
services water, electricity
Economic Life Around Us
7 – Factors of Production

Looking at your group’s report, think about the following:

Æ Where do people get the money that they need for their
business?
Æ Where did the hairdresser get trained?
Æ Who taught the food vendors to cook?
Æ What motivated the business owners to start their business?
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 In economics, the inputs used in a production process or the
factors of production are classified into four types — land,
labour, capital and entrepreneurship. Technology is a facilitator
and a crucial factor that enables businesses to produce more
goods with the same or fewer inputs. Let’s learn more about
these inputs in the sections ahead!

Factors of Production
Land (natural resources)
The word ‘land’ in economics encompasses not only geographical
land but also natural resources like soil, forests, water, air,
sunlight, minerals, oil, and natural gas. Recollect the chapter on
Natural Resources and Their Use, where we discussed different
types of resources that nature gifts to us and how we use them.
Businesses either purchase the required land or pay rent to use
it for a period of time.

LET’S EXPLORE
Revisit the table in your report. Which of the items on your
list can be labelled as ‘land’?

Labour (human resources)

Labour is essential in production, involving physical and mental
Exploring Society: India and Beyond | Grade 8 Part 1

Skill:
The ability effort. Carpenters, farmers, construction workers, teachers,
to do an
activity and doctors use varying levels of physical strength, knowledge,
or job and skill. Everyone contributes differently through their work,
well with
helping create goods and services for society’s needs.
practice
and
training. People as a resource
Human beings play a key role in economic activities and
production processes as they apply their knowledge, skills,
and decision-making abilities to create goods and services. For
example, a police officer maintains law and order, a scientist
invents new technologies, a chef develops new recipes, etc.
They all require a special set of knowledge and skills to perform
166 well. Of course, they all must be dedicated to their work to do

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 Fig. 7.3. Worker at a tea plantation Fig. 7.4. Chemical engineer

Fig. 7.5. Carpenter Fig. 7.6. Software developer

a good job. The word labour refers to the physical and mental
effort used in production. However, human capital refers to the
specialised skills, knowledge, abilities and expertise required to
perform that labour. Thus, human capital is not just the basic
Economic Life Around Us
7 – Factors of Production

efforts of labour but also the quality and efficiency of that labour.

Facilitators of human capital

Education and training

Education helps individuals gain knowledge, starting with basic
literacy and extending to expertise in specific fields. What you 167

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 Fig. 7.7. Education and training

Training: learn in school enriches your knowledge and prepares you to

It is the solve real-world problems. For example, a civil engineering
process of
learning the student learns principles of design and materials, which are
required applied to building infrastructure like roads and bridges. The
skills to do a
particular job challenge lies in creating durable, cost-efficient, and eco-
or activity. friendly solutions. This is achieved through training, such as
Cognitive: observing construction sites, testing materials, understanding
It refers to safety procedures and hands-on application. With education
the process
of learning, and training, individuals are prepared to excel in their careers.
knowing and
understanding. Healthcare
Good health supports cognitive development, allowing children
Exploring Society: India and Beyond | Grade 8 Part 1

to attend school regularly and learn better. Similarly, workers

are able to give their best, physically and mentally, when they
are of sound body. They are able to do more in shorter time
periods, be creative, and do not have to be away from work due
to ill health.

THINK ABOUT IT
How do infrastructure and healthcare systems like hospitals,
primary healthcare centres, doctors, pharmacies, diagnostic
labs, etc., contribute to developing human capital?

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 Social and cultural influences
A culture of hard work, continuous improvement, and
endeavouring to do things well has helped countries to
move forward. There is a Japanese concept called kaizen,
which means ‘continuous improvement’. This concept has
been applied in Japan since the mid-1940s and has helped
Japan achieve higher standards of living for its people.
Another example could be that of the German work
ethic, which is deeply rooted in their history. Germany is
renowned for its high-quality industrial output. They place
a high value on punctuality, attention to detail and quality.
These qualities of their human capital contributed to their
rise as a global leader in technology and manufacturing.

LET’S EXPLORE
Æ Let’s do a small experiment. Make a list of 10 working
adults in your family and neighbourhood. Ask them
to describe the culture at their workplace. Share notes
with your classmates. What did you discover? What
are some adjectives that occur more frequently?
Æ In the Tapestry chapters, you have seen examples
of the art and architecture in India across several
centuries. What do you think are the factors that
enabled their creators to achieve such high levels of Productivity:
Ability to do
excellence? Discuss in groups and share in class. more in a
particular time
period.
Challenges to human capital
Adult literacy
Our nation has come a long way in various aspects rate: Percentage
of human capital since independence. Literacy is an of people aged
Economic Life Around Us
7 – Factors of Production

15 and above
important characteristic of the population and helps
who can read
enhance the skills and productivity of human capital. The and write with
Adult Literacy Rate in India is 85 per cent for males and understanding
a short, simple
70 per cent for females as of 2023, as per the World Bank statement about
estimates. Despite progress in many areas, India faces their everyday
life.
challenges in developing human capital.
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 THINK ABOUT IT
Æ Shivay, a student at Saraswati Vidyalaya in Grade 8,
had to drop out of school two years back as his father
lost his job. How do you think the loss of schooling
years will affect Shivay when he grows up?
Æ What problems could businesses face when they do
not find workers with the required skills?

According to the Economic Survey of

India 2024, 65 per cent of people in
India are below the age of 35 years.
This means that India has a young,
productive population, which may
help the country reap the benefits
of a demographic dividend. The
demographic dividend refers to
the benefit a country gets when it
has a large number of young and
working people. When more people
Fig. 7.8. Students writing an exam are working and earning, and fewer
people depend on them, the country
can grow businesses and improve living standards. To take
advantage of this potential, individuals must have access to
quality education, health, training, and skilling, which would
Exploring Society: India and Beyond | Grade 8 Part 1

contribute to the nation’s progress. You will learn more about

this in the year ahead in the chapter on Demographics.

THINK ABOUT IT
Are some jobs more important than others? What would
happen if nobody cleaned the streets, collected the trash,
farmers stopped cultivating the crops, doctors were not
available to treat patients, and so on?

Today, there is a vast variety of jobs requiring different kinds

of skills. However, India has had a rich legacy of skill-based
170
knowledge systems and workmanship.

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 India’s ancient skill heritage
For ancient Indians, work was a form of expressing their nature
and striving for perfection, an offering to the deity or the
receiver, as the case may be. It had to be created or done with
devotion. The tools (a type of technology) used were worshipped;
this tradition continues as i hwa arm p or yudha p .
So, creating products involved a unique blend of al (art) and
idy (knowledge). Knowledge was passed on from generation
to generation, and also built on. The hilpa h stras are ancient
texts that contain detailed design guidelines on sculptures,
paintings, buildings, wooden items, and jewellery. For example,
texts on sculpture prescribe exact specifications regarding
postures, colours, measurements, and proportions of figures.

DON’T MISS OUT

Generations of families of sculptors have worked on
constructing India’s temples over centuries. They used their
skills without expecting to see the finished outcome. They
pursued excellence, considering work as worship by practising
regularly and learning new techniques.

Stitched shipbuilding
Indians used a unique stitching technique dating back over
2000 years to make ships and boats, which they used to conduct
maritime trade and cultural exchanges across the Indian Ocean.
The technique involved stitching wooden planks together using
cords instead of nails, which made them flexible and helped the
ships navigate the Indian Ocean with ease.
Economic Life Around Us
7 – Factors of Production

Fig. 7.9. Re-creation of a 5th-century stitched ship

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 LET’S EXPLORE
Æ Many of the traditional techniques of production have
either disappeared or are on a decline. For example, the
stitching of ships saw a severe decline after the arrival of
Europeans in the Indian Ocean in the 16th century. This
technique is now used for small fishing boats.
Æ Why do you think the use of indigenous techniques has
declined? Discuss in the class.
Æ Find out some techniques and products from your region
that showcase human effort and skill. Explain briefly
using drawings and text in the class.

Capital
Capital: Businesses also require capital that comprises monetary
In economics, resources and durable assets like machinery, tools, equipment,
any asset,
whether
vehicles, vending carts, computers, shops, factories, office
physical or buildings, etc., for their day-to-day operations. Just as Ratna
financial, used would have required money to take the land on lease, buy
to produce
goods and the furniture and kitchen equipment, etc. These are all called
services. ‘capital’ — money plus human-made resources that are used to
produce goods and services.
Capital is essential to a manufacturing unit or a services sector
Exploring Society: India and Beyond | Grade 8 Part 1

enterprise. But where do businesses get the capital? Generally,

Fig. 7.10. Machinery Fig. 7.11. Loans

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 personal savings, family, and friends are the first source of funds
Interest:
and support for individuals when they start a business, just as The amount
Ratna did when she started her business. However, the funds of money
paid by the
were insufficient for Ratna to start the business, so she took a borrower of
loan from the bank to meet the shortfall. She paid interest along a loan to the
with a part of her loan amount over a period of time. Similarly, lender for
using their
large companies require a lot of money to expand their business; money for a
hence, they raise money from the general public through the specific time.
stock market. The stock market is a special type of market Dividend:
where shares are bought and sold. Large companies raise money An amount
of money
from the public by offering them a share of the profits, called
paid
a dividend. In other words, big businesses can raise money or regularly by
financial capital through such a market and can sell shares of a company
to its
their business. You will learn the exact mechanism of how this shareholders
works in the higher grades. out of its
profits.

LET’S EXPLORE
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?

Entrepreneurship
Entrepreneurship means starting your own business or creating
something new to solve a problem. An entrepreneur is a person

Economic Life Around Us

7 – Factors of Production

Fig. 7.12. Bamboo and cane products, Fig. 7.13. Food processing
Arunachal Pradesh 173

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 Fig. 7.14. Pottery products, Delhi Fig. 7.15. Petrochemical plant

who comes up with an idea, takes risks, gathers other factors

Startup of production, and works hard to make their startup idea
A startup is an
successful.
entrepreneurial
venture An entrepreneur’s vision for solving a problem helps bring
with limited
resources that innovative products and services to the market that benefit
aims at rapid society and the nation. At the same time, they also create job
growth and
opportunities and support livelihoods. In return, they derive a
expansion
while deep sense of satisfaction from seeing their dreams become a
leveraging reality and serving the people.
technology.
Thus, an entrepreneur is one who:
Exploring Society: India and Beyond | Grade 8 Part 1

An Entrepreneur

Takes risks Combines

by investing various
money and factors
time of production

Makes key Contributes to

problem and decisions the welfare of
is resolute to regarding the society with his/
solve it with operation and her innovation
an innovative functioning
solution of his/her
business

174 Fig. 7.16. Tasks performed by an entrepreneur

Chapter 7.indd 174 08-07-2025 10:25:12

 The man who dreamed big for India
J.R.D. Tata — entrepreneur,
industrialist and philanthropist
Jehangir Ratanji Dadabhoy (J.R.D.)
Tata was one of India’s greatest
entrepreneurs and played a big role in
building modern India. He was born
in 1904 and became the head of the
Tata Group, one of the largest business
groups in the country. He believed
that businesses should not only make
money but also help society. He started Fig. 7.17. J.R.D. Tata
India’s first airline, Tata Airlines, in
1932, which later became Air India. Under his leadership, the
Tata Group expanded into many areas like steel, cars, power,
and chemicals. J.R.D. Tata was also known for caring about his
workers and believed in providing them with good working
conditions. He was a man of vision, hard work, and honesty.
In 1992, he received the Bharat Ratna, India’s highest civilian
award, for his great service to the nation.

THINK ABOUT IT
Æ What could be the lessons for young entrepreneurs that
you can gather from the above case?
Æ Does the existing knowledge of the entrepreneur help in
finding solutions to the problem at hand? Or do they need
to seek other sources?
Æ Is profit the only motivation for an entrepreneur? Why or
Economic Life Around Us
7 – Factors of Production

why not?
Æ What are the other personality traits required to be a
successful entrepreneur?

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 Technology: An Enabler
of Production
Technology means the application of scientific knowledge. For
example, a camera converts light into electrical signals to create
a digital image. Any production-related activity uses some form
of technology. Some early forms of technology that have existed
since ancient times are still in use today.
Today, newer and advanced technological developments are
applied in various areas, making our lives easier. For example,
payments can be made at the click of a button through UPI
(Unified Payments Interface); farmers can get advance weather
updates; Global Positioning Systems (GPS) can discover the
shortest routes for transporting goods, and so on.
Exploring Society: India and Beyond | Grade 8 Part 1

Fig. 7.18. Drones spraying fertilisers to Fig. 7.19. Robots assisting in

improve crop health surgical processes

Have you noticed how old technology gets replaced by a new,

better one?
This process makes it easier for people and businesses to get
things done and improve how they work. For example, instead
of sending letters by post, we now use email to communicate
with people quickly and at a lower cost. However, remember
that technological progress does not always mean replacing
old technologies — some, like pulleys and wheelbarrows, are
still in use.
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 Fig. 7.20. A wheelbarrow on a Fig. 7.21. Pulley used in boats
construction site

Now, let’s look at examples of how technology is helping students

learn, build new skills, and find jobs.

Technology paving the way for accessing knowledge,

skills, and job opportunities
A variety of online courses are avail-
able to students through Government
platforms like SWAYAM (Study
Webs of Active Learning for Young
Aspiring Minds), which offers courses
for Grade 9 onwards and operates
on Massive Open Online Courses
(MOOCs) through which learners can Fig. 7.22. Online learning
explore subjects like robotics, aquaculture, textile printing, and
so on that are free of cost. Students benefit from learning at their
own pace, from anywhere, while pursuing other jobs or courses.
Online portals, like the Government’s National Career Service,
help people find job opportunities across various sectors, from
Economic Life Around Us
7 – Factors of Production

plumbing to accounting. This is how technology has eliminated

geographical barriers, allowing people access to knowledge,
skill development and jobs in India and abroad. The services to
these online portals can be accessed through the following links:
ƒ https swayam.go .in
ƒ https www.ncs.go .in
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 LET’S EXPLORE
Æ Can you think of some technological advancements that
have impacted the lives of people and communities
around you? Talk to elders at home and in the
neighbourhood about it.
Æ Think of an invention that you would like to make to
solve a problem. Write its related information on a piece
of paper, such as its name, what it does, and how it works,
sketches or drawings of what it would look like, and so
on. Discuss with your classmates.

How are the Factors Connected?

The factors — land, labour, capital, entrepreneurship and
technology are combined to produce goods and services, and
the proportion of each factor used depends on the product.
For example, output from the agriculture, construction, and
handicraft sectors relies more on labour and thus is labour-
intensive, while semiconductor chips or satellites require more
capital, specialised machinery, and are capital-intensive.
These factors complement each other and are interconnected;
in case of some missing or misused factors, production can
become inefficient or can be halted. However, in some cases,
Exploring Society: India and Beyond | Grade 8 Part 1

new techniques can change the proportion used and output.

For instance, increased machine use in agriculture can lower
dependence on labour. Similarly, 3-D printing can help revive
the dying art forms in textiles by producing handloom products
at a large scale to serve the market. The production inputs are
available at different geographic locations. Businesses can
procure them from these varied locations and combine the
inputs to produce goods and services. Thus, the geographic
interconnectedness provides businesses with access to varied
inputs. However, production activities sometimes face severe
supply chain challenges. The supply chain is a network of
individuals, organisations, resources, activities and technology
178 that are involved in the production and sale of goods.

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 When a disruption in the supply chain occurs due to relying
on sources from far-off places, instead of local inputs, it results
in a halt in the production process, as was the case during the
COVID-19 pandemic.

DON’T MISS OUT

India is the world’s second-largest mobile phone manufacturer
after China in 2025! Let’s understand these ideas through a flow
chart depicting mobile phone manufacturing.

The process of mobile phone assembly

START

R&D team Acquire land Acquire raw Assemble

conceptualises and set up materials components &
new features factory install software

END

Distribution Mass production Test phone

to retail stores & packaging (functionality, quality
& performance)

Fig. 7.23

Human effort is involved at every stage of production to design,

supervise, and improve products and processes. For example,
Economic Life Around Us
7 – Factors of Production

teams of software, electrical, and mechanical engineers, along

with project managers, use their expertise to develop a product.
The entrepreneur provides guidance on how resources should
be used. Then, procuring resources like land, factory space,
machinery, and skilled workers requires financial resources.
Together, all these inputs are essential, working like puzzle
pieces to create the goods and services we rely on! 179

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 Responsibilities towards
Factors of Production
When we produce goods, we use natural resources like land,
water, and minerals. However, these resources are limited and
can be harmed if we are not careful. For example, in Tamil Nadu,
many people earn money by working in leather factories. This
helps the local economy, but the waste from these factories can
pollute rivers and soil. In the same way, when old smartphones
are not recycled properly, harmful substances like lead and
mercury can leak into the ground and water. This pollution can
be dangerous for people, animals, and plants. That is why it is
important for producers to use natural resources responsibly —
so that we can meet our needs today without making it harder
for future generations to meet theirs. They should try to reduce
waste, avoid pollution, and protect the environment while
making products.

THINK ABOUT IT
How are local communities and biodiversity affected by such
activities? Do you also know some places around you that have
seen water and land degradation over time? Discuss in class.

So, it is important for producers to adopt sustainable practices

to replenish natural resources for future use.
Exploring Society: India and Beyond | Grade 8 Part 1

Fig. 7.24. Recycling industrial wastewater Fig. 7.25. Use of recycled products as inputs
180 before releasing it into water bodies

Chapter 7.indd 180 08-07-2025 10:31:45

 Apart from land and natural resources, businesses have
responsibilities towards their workers and employees, which
are summarised below.
ƒ Fair compensation and working conditions: Employers
need to ensure that workers are paid fairly for their labour
and that they work in a safe environment.
ƒ Skill development and training: There is a responsibility
to invest in training and education to ensure that workers
develop the skills necessary to remain competitive in the
labour market.
ƒ Workplace rights and protections: Laws and regulations
for workers’ rights relating to fair treatment, preventing
discrimination, and providing benefits like health care or
paid leave should be adhered to.
Businesses are motivated to address social and environmental
concerns in their operations to benefit society and biodiversity
through Corporate Social Responsibility (CSR). This includes
reducing polluting activities, addressing the well-being of local
communities, treating employees and customers with respect,
and so on.

DON’T MISS OUT

India was the first nation in the world to bring a Corporate
Social Responsibility law in 2014 that mandated companies to
spend 2 per cent of their average profits of the last three years
on CSR activities.

Before we move on ...

Æ Land, labour, capital and entrepreneurship are factors
Economic Life Around Us
7 – Factors of Production

of production that are used in a particular proportion to

produce goods and services. These factors complement
each other and are interconnected.
Æ Human capital is the knowledge, skills, experience, and
ability of individuals that contribute to their ability to
perform work and create economic value. It is influenced
181

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 by education, training, health, use of technology, and
social context that make people more productive in the
workforce.
Æ The resources help in the production of goods and services
that serve society and need to be preserved and utilised
judiciously.

Questions and activities

1. How are the factors of production different from each
other? What are the difficulties you faced in classifying the
factors of production in the exercise given in-text?
2. How does human capital differ from physical capital?
3. How do you think technology is changing how people
develop their skills and knowledge?
4. A skill is something you learn and practice to get better.
It helps you do things well, like playing a sport, creative
writing, solving math problems, cooking, or even
communicating well with people. If you could learn one
skill today, what would it be and why?
5. Do you think entrepreneurship is the ‘driving force’ of
production? Why or why not?
Exploring Society: India and Beyond | Grade 8 Part 1

6. Can technology replace other factors like labour? Is this

good or bad? Support your answer with the help of an
example.
7. How do education and skill training affect human capital?
Can they substitute for each other, or do they complement
each other?
8. Imagine you want to start a business that produces steel
water bottles. What kind of inputs are needed? How would
you obtain them? Suppose one of the factors is missing;
what happens to your business operations?
9. Interview an entrepreneur or founder to understand their
motivation to start a business and the opportunities and
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 challenges they saw. You can work in pairs to create a
questionnaire to collect the information and share what
you have learned in a report.
10. Think like an economist. Let’s explore what happens when
things change. If you were Ratna, what would you do in
the following situations? Discuss with your classmates.
I. Suppose the rent for your space suddenly doubles.
ƒ Will you raise the price of the food served to cover
the costs?
ƒ Will you look for a cheaper location?
ƒ How does this affect your business?
II. Imagine one of your helpers quits suddenly.
ƒ Can the remaining workers manage the same
amount of work?
ƒ Will you need to offer a higher salary to attract a
new worker?
III. You receive a small loan to invest in better technology
for your restaurant.
ƒ Will this increase the production or improve
quality?
ƒ Will it help you reach more customers?
IV. Suppose another restaurant opens in the
neighbourhood.
ƒ How will you attract and keep your customers?
ƒ Will you improve your service, reduce prices, or
offer something new?
V. What government laws or rules should be changed to
Economic Life Around Us
7 – Factors of Production

improve the ease of doing business?

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