Capital Formation in Indian Agriculture: A Review

This paper looks at the trends in investment behaviour in Indian agriculture with particular reference to the relationship between private capital formation and public capital formation. It also looks at inter-sectoral terms of trade. Determinants and reasons for the decline of Public capital formation, efficiency of capital use, and the demand for public capital formation in agriculture in the present Indian context. The declining trend of gross fixed capital formation in the eighties was reversed in the nineties mainly due to a good increase in private capital formation despite some decline in public capital formation. The complemantarity between public and private capital formation in agriculture still holds good at the all-India level, as well as, in states, though there seems to have occured some weakening of the inducement effect at the all-India level. Due to differences in composition, private capital cannot substitute public capital in agriculture. The impact of terms of trode on private capital formation increased over time. The efficiency of capital use declined during the nineties. There is higher demand for public capital formation in the present Indian context. The failure of the favouruble terms of trade to improve agricaltural production. productivity and thereby employment, the need for improving dry land agriculture and increased needs for research, extension and infrastructure development efforts in the liberalised trade regime; make non-price interventions with higher public investment an urgent need.