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PUBLIC INVESTMENT IN AGRICULTURE IN INDIA
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EP:509 Production Conditions in Indian Agriculture
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Submitted to
Dr.Vikash Rawal

Submitted by
Vishwmohan Bharti

Abstract
A large part of population in India depends on the agriculture and development of agriculture is necessary
condition for the development of country. Investment in any country plays a vital role in the development
of country. In India there are two source of investment; public sector and private sector. Public
expenditure in agriculture plays a vital role in the growth and development of agriculture. Public
investment and subsidies are two important part of government expenditure in agriculture. In this paper
we have analyzed the trends of public investment in agriculture. We have found the share of public
investment as a percentage of total public investment, total investment, Gross Domestic Product (GDP),
and Agriculture GDP. In this paper we have measured the public investment in agriculture as a Public
Gross Capital Formation in agriculture and Allied activities.

Introduction
Everything else can wait, but not agriculture was remarkably pointed out by Pt. Jawaharlal Nehru on
the eve of independence (Challanges of agrarian distress, 2015). Clearly Nehru overestimated the future
of agriculture economy of India as his remarks were set on the foot on the eve of independence when
almost all Indian population was engaged in agriculture and agriculture was given a remarkable
importance. Policymakers did not seem to have taken Nehrus idea of agriculture seriously because just
after decade and a half after independence, policymakers of five year plan under Mahalaonbis model in
1961 has highly emphasized on manufactures sector by movement of enormous amount of resources
towards secondary sector. India is the country where 48.9% share of population is dependent directly or
indirectly on agriculture, farmers are living on the edge where suicides and crop failure are common.
Most of farmers incur losses and even if they earn profit that is close to subsistence. NSSO data shows
average income of a firm household is Rs.6400 a month and average debt per firm households as RS.3917
a month.
Adam Smith argued that, however that increasing return based on the division of labor was much
more a feature of industry than agriculture, this doesnt mean agriculture is unimportant in development
process because it would be difficult for industry to develop at all without agriculture surplus (Thirlwall).
There are different determinant of the growth and development of agriculture. Investment in agriculture is
the one of the important reason for the development of agriculture in India. In India investment in
agriculture comes from both public and private sector. Most of studies show that public sector capital
formation in agriculture was moving with rising trend till 1980-81 after which it followed a decline trend
(Chand & Kumar, 2004). Ramesh Chand and Pramod Kumar (2004) argued that Public sector
investments mainly depend upon fiscal resources. AND the increase in farm subsidies and decrease in
revenue receipts from agriculture are causing an adverse impact on public sector capital formation.
Public sector capital formation, amount of institutional credit supplied to agriculture, and terms of trade
for agriculture and technology are important determinant of private sector capital formation (Chand &
Kumar, 2004). Some scholar claims that public investment and private investment in agriculture are
complementally and public investment in agriculture crowed in the private investment in agriculture.
Net borrowing of the government and financial surpluses emerging in revenue account of government
budget are the main determinant of supply of public investment in agriculture (Dhawan & Yadav, 1997).

Public investment in agriculture plays important role in India. Its not

only affect the only growth and development of agriculture but also it affects the rural poverty condition
in India. Public investment in agriculture reduces the rural poverty and increase the living standard of
rural people. Investment in agriculture develops the condition of Indian agriculture and these
developments contributes to significant and steady reduction in poverty and to improvement in nutrition
and human health (Mogues, Fan, & Benin, 2015). Government spending on productivity- enhancing
investment such as rural infrastructure, irrigation and agriculture research, have significantly contributed
to growths in agricultural productivity as well as rural poverty reduction (Fan & Hazell, 200).

Measuring Capital Formation

Capital formation in agriculture and capital formation for agriculture are two different investment process
regard to Indian agriculture (Dantawala, 1986).Narrow data series and broad data series are two different
series that capture the capital formation with regard to agriculture. The narrow data series comes closest
to capital formation in agriculture and the broad data series closest to capital formation for agriculture.
Central Statistical Organization (CSO) estimates on capital formation on agriculture with break-up of
public and private investment. Investment in irrigation schemes and plantation in forestry sector are the
part of the public sector investment in agriculture. About 90% of the Public Gross Capital Formation
(CGF) in agriculture goes to irrigation sector (Bisaliah, Dev, & Saiffullah, 2013). Private sector
investment comes from farm households and private corporate.90% share in private investment Comes
from household sector (Dave, 2014).Capital formation in production of fertilizers and pesticides, in
development of agriculture market, in rural roads in communication, in agriculture education, in rural
electrification etc are the important part of capital formation for agriculture. In this paper we are talking
about Gross Capital Formation in Agriculture and Allied activities rather than only Agricultures. So when
I will write Gross Capital Formation in Agriculture it means paper is talking about Gross Capital
Formation in Agriculture and Allied Activities.

Source of Agriculture Investment

As discussed earlier there mainly two sources of investment in agriculture; by public sector and private
sector. Investment in agriculture is measured by the capital formation in India. In this section I am going
to analyze the about public and private GCF in agriculture and allied activities during 1970-71 to 2012-13
at constant price 2004-05. Table A2 Shows the amount of capital formation in agriculture by both private
and public sector. The share of public Capital Formation in agriculture had decelerated from 32% in
1970-71 to 15% in 2012-13. From 1970-71 to 1980-81 public Gross Capital Formation in agriculture was
increasing year by year except in 1973-74 and 1974-75. While after 1980-81 it was decreasing till 199192. After 1991-92 there was mixed behavior sometimes it decreasing but the fluctuation was minor. But
private capital formation in agriculture was increasing in the most of period, even if it was decreasing in
some period it was not decreasing in larger period as public capital formation was decreasing.
Graph 1 Show the share of public GCF and Private GCF in Agriculture as
percentage of total Agriculture capital Formation. The maximum share public gross capital formation in
agriculture was about 55% in 1981-82 while the minimum share was about 13.5% in 2011-12. From
1970-71 to 1989-90 Public shares was more than 30% of total GCF in agriculture while after 1989-90 the

share is less than 30% in all period except 1994-96. From 1970-71 to 2012-13 only 8 times share of

Public gross capital formation in agriculture was greater than 40%.

Graph 1:Share of Public and Private CGF in AGRICULTURE at Constant Price (204-05)

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Public

Private

Source: From Table A2

GROWTH TRENDS
In this section we see the growth rates of gross capital formation in agriculture which is presented in
Table 1. The growth in total gross capital formation in agriculture is 4.8 while in Public sector it is only
2.9 from 1970-71to 2012-13.this shows the private sector growth is greater than public sector growth.
The growth in total capital formation in agriculture was 5.6% during 1970s and it had decelerated in the
1980s and recovered in 1990s but not as 1970s. It had reached 7.8 during 2000-01 to2009-10, but again it
has decelerated during 2010-11 to 2012-13.
The growth rate in Public capital formation in agriculture was 8% during 1970s
and it had decelerated in the 1980s and 1990s and recovered during 2000-01 to 2009-10 and again
decelerated during 2010-11 to 2012-13. In 1980s and 1990s growth was negative it means public capital
formation in agriculture was decreasing rather than increasing. And during 1990s the rate was about 4.2% which was very poor. The growth rate of public gross capital formation shows it is very low and
even some times the rate was decreasing.

Table 1: Growth Trends in Capital Formation in Agriculture at 2004-05 Price

PERIOD
1970-71 to1979-80
1980-81 to 1989-90
1990-91 to 1999-2K
2000-01 to 2009-10
2010-11 to 2012-13

PUBLIC
CGF
AGRICULTURE
8.0
-4.2
-0.3
9.2
3.5

1970-71 to 2012-13

2.9

in TOTAL
CGF
AGRICULTURE
5.6
0.3
3.0
7.8
4.4

in

4.8

Source: Calculated Compound growth rate from Table A2

Share of Gross Capital Formation in Agriculture as a percentage of total

Capital Formation in Agriculture.
Table A1. Show the share of public Gross capital formation in agriculture as a percentage of total public
capital formation and total gross capital formation in agriculture as a percentage of total Gross capital
formation during 1980-81 to 2012-13 at current price. Share of total capital formation in agriculture as a
percentage of total capital formation have decreased from 16.1% in 1980-81 to 8.6% in 2012-13. In this
33 period 22 times the share was less than 10% while 10 times it was between 10% to 13% and 1 time it
was 16.1. Share of private capital formation in agriculture as a percentage of total private capital
formation have also decreased from 17.7 in 1980-81 to 9.6 in 2012-13. Share of public capital formation
in agriculture as a percentage of total public gross capital formation have decreased from 14.4% in 198081 to 5.5% in 2012-13. The maximum share was 14.4 in 1980-81 and the minimum was 4.9 in 2010-11.
During this 33 period only 4 times it was greater than 10% while rest of 29 times it was less than 10%.

Trends in capital Formation as percentage of GDP

Table A2 shows the share of GCF in agriculture (Public, Private and total) as a percentage of Agriculture
and total GDP from 1970-71 to 2012-13 at constant price 2004-05. The share of aggregate GCF in
agriculture as percentage of total GDP has decelerated from 4.1% in 1970-71 to 2.7 % in 2012-13. The
maximum share was 5.7% in 1979-80 and the lowest share was 2.4% in various periods. There is only 2
periods in which there share is greater than 5%. Graph 2 shows the trends of Share of Aggregate Gross
Capital formation in Agriculture as percentage of total GDP is fluctationing. Graph 2 shows that a steady
increase from about 4% in the 1970-71 to about 5.5%in 1979-80 and thereafter it has fluctuated between
from 4.8 to 2.4.
The share of public capital formation in agriculture as percentage of total GDP had decelerated from
1.3% in 1970-71 to 0.4% in 2012-13. The maximum share was 2.4% in 1980-81 and minimum share was
0.4% in more than one time. Graph 2 shows the share of Public Capital Formation in Agriculture
decreasing after 1980-81 except some period. The share of public GCF in agriculture had steady
accelerated from 1.3% in 1970-71 to 2.4 in 1980-81 except during 1973-74 and 1974-75. After 1989-90
the share of public GCF as a percentage of aggregate GDP did not touch the single digit.

Graph 2: Share of GCF in agriculture as a percentage of total GDP

6.0
5.0
4.0
3.0
2.0
1.0
0.0

Public GCF in agriculture as % of total GDP

GCF in agriculture as % of total GDP

Source: From Table A2

Graph 3 shows the percentage share of GCF in agriculture as a percentage of agriculture GDP
from 1970-71 to 2012-13 at constant price 2004-05. The share of total Gross capital formation
in agriculture as percentage of total agriculture GDP has accelerated from 8.6% in 1970-71 to
21.2% in 2012-13. The maximum share is 21.2 in 2012-13 and the minimum share is 8.1% in
various periods. The gap between the share of total and public sector is increasing over the
period it means the share of private sector increasing over the period.
The share of Public GCF in agriculture as percentage of Agriculture GDP has accelerated from
2.8% in 1970-71 to 3.1 in 2012-13. The share was fluctuating between from 1.8% to 5.8%. The
share of public GCF in agriculture as percentage of agriculture GDP had accelerated from 2.8%
in 1970-71 to 5.8% 1979-80 after that it had decelerated till 2000-01 except some minor
increases in some period.

Graph 3: Share of GCF in Agriculture as a percentage of Agriculture GDP

25.0
20.0
15.0
10.0
5.0
0.0

PUBLIC GCF in agriculture as % of agricultural GDP

GCF in agriculture as % of agricultural GDP

Source: Table from Table A2

Conclusion
Analysis with Gross Capital Formation in Agriculture has confirmed acceleration in the amount of GCF
in agriculture. But when we see the trends as a percentage of Total GCF, Agriculture GDP, and total GDP
it has decelerated. The growth rate of public GCF in agriculture is very poor and evens the trend is
negative during some period. Public Gross Capital Formation in agriculture began to decline in 1980s.
Since the mid 1990s private investment in agriculture has stagnated while public investment has
continued decline. Since 1980s the share of Public Gross Capital Formation in agriculture has decelerated.
After 200-01 the share of GCF in agriculture as a percentage of agriculture GDP moved in upward
direction.

Bibliography
Bisaliah, S., Dev, S. M., & Saiffullah, S. (2013). Investment in Indian Agriculture Macro and Micro
Evidences. Academic Foundation.
Challanges of agrarian distress. (2015, April 28). The Hindu , p. 8.
Chand, R., & Kumar, P. (2004, December 25). Determinants of Capital Formation and Agriculture Growth
Some New Explorations. Economic and Political Weekly , 5611-5616.

Dantawala, M. L. (1986). Strategy of Agriculture Development since Independence. In M. L. Dantwala

(Ed.), Indian Agriculture Development Since Independence. New Delhi: Oxford and IBH Publishing Co.
Dave, H. R. (2014, November 20). Capital Formation in Agriculture-A Policy Priority and Expectations
from Bankers. (On the conference of In-Charge of Priority Sector Advances and Financial Inclusion
Division Of Commercial Bank at College of Agricultural Banking) . Pune.
Dhawan, B. D., & Yadav, S. S. (1997). Public Investment in Indian Agriculture: Trends and Development.
Economic and Politial Weekely , 32, 710-714.
Fan, S., & Hazell, P. (200). Government Spending, Growth and Poverty in Rural India. American Journal of
Agriculture Economics , 82 (4), 1038-1051.
Mogues, T., Fan, S., & Benin, S. (2015). Public Investment in and for Agriculture. European Journal of
Development Research , 27, 337-352.
Thirlwall, A. Theories of economic growth:why growth rates differ between countries. In A. Thirlwall,
Growth and Development with Special Reference to Developing Economies (pp. 122-164).

ANNEXURE
Table A1: Gross Capital Formation (GCF) in Agriculture and Allied Sector at
Current Price and its Percentage Share of Total GCF
GCF in Agriculture And Allied
Share Of Agriculture And
Sector
Allied Sector in Total GCF (%)
YEAR
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89

PUBLIC
1,876
2,072
2,227
2,469
2,705
2,807
2,910
3,296
3,417

PRIVATE
2,466
2,073
2,627
3,136
3,136
3,557
3,856
5,875
6,908

PUBLIC
14.4
11.5
10.3
10.8
9.9
8.8
7.8
9.1
7.9

PRIVATE
17.7
10.5
13.5
15.3
12.1
10.5
10.9
13.9
9.9

TOTAL
16.1
10.9
11.9
12.9
11.0
9.6
9.3
11.6
9.0

1989-90
3,308
12,253
6.7
10.5
8.8
1990-91
3,586
8,283
6.3
15.2
11.5
1991-92
3,608
12,253
5.8
10.1
8.3
1992-93
4,116
11,356
6.0
11.3
9.3
1993-94
4,874
13,834
6.2
12.3
9.8
194-95
5,952
13,633
5.8
10.8
8.6
1995-96
6,678
14,900
6.3
7.9
7.3
1996-97
7,214
18,930
6.6
8.6
8.0
1997-98
6,779
23,694
6.0
9.1
8.2
1998-99
7,476
28,570
5.8
9.6
8.4
1999-2K
8,668
48,124
6.3
13.9
11.7
2000-01
8,176
44,750
5.6
12.8
10.7
2001-02
10,354
61,342
6.5
14.3
12.2
2002-03
9,565
57,957
5.7
13.4
11.2
2003-04
12,219
54,472
6.4
10.8
9.6
2004-05
16,187
59,909
6.7
7.8
7.5
2005-06
20,739
69,204
7.1
7.4
7.3
2006-07
25,606
75,496
7.2
6.7
6.8
2007-08
27,638
95,679
6.3
6.8
6.7
2008-09
26,692
1,33,655
5.0
9.6
8.3
2009-10
33,201
1,51,325
5.6
9.2
8.3
2010-11
31,968
1,65,396
4.9
8.2
7.4
2011-12
36,887
2,14,818
5.3
9.2
8.3
2012-13
45,511
2,32,328
5.5
9.6
8.6
Source: Central Statistical Organization, New Delhi; National Accounts Statistics

Table A2: Gross Capital Formation (GCF) in Agriculture and Allied Sector at
Constant price (2004-05) and its Percentage Share of total GDP at Market
Price and Agriculture and Allied Activity GDP
Years

197071
197172
197273
197374
197475
197576

GCF in agriculture and allied

activities (at 200405 prices)
(Rs crore)
Public Private
Total
6,848
14,319
21,167
7,394
15,265
22,658
9,469
14,346
23,815
8,435
15,080
23,515
7,865
16,185
24,050
8,672
15,896
24,568

GCF in agriculture as % GCF in agriculture as %

of agricultural GDP
of total GDP
Public
2.8
3.1
4.1
3.4
3.3
3.2

Private
5.8
6.3
6.3
6.1
6.7
5.8

Total
8.6
9.4
10.4
9.6
9.9
9.0

Public
1.3
1.4
1.8
1.6
1.5
1.5

Private
2.8
3.0
2.8
2.8
3.0
2.7

Total
4.1
4.4
4.6
4.4
4.5
4.1

197677
197778
197879
197980
198081
198182
198283
198384
198485
198586
198687
198788
198889
198990
199091
199192
199293
199394
199495
199596
199697
199798
199899
199900
200001
200102
200203
200304
200405
200506
200607
200708
200809
200910
201011
2011-12
2012-13

11,902
13,081
14,125
14,732
16,240
15,234
14,910
15,434
14,786
13,220
13,175
13,114
12,107
10,601
10,546
9,239
10,048
10,593
11,389
11,349
10,872
9,162
9,716
10,283
9,457
11,601
10,299
12,683
16,187
19,940
22,987
23,257
20,572
22,719
21,500
21,184
23,866

17,724
18,160
22,280
21,707
16,757
12,606
14,229
16,676
15,078
15,176
16,925
23,518
21,750
23,559
40,568
26,339
35,712
28,668
25,114
24,685
28,109
32,214
37,174
58,307
52,652
69,117
63,215
57,238
59,909
66,664
69,070
82,484
1,06,555
1,08,420
1,20,754
1,35,988
1,38,197

29,627
31,241
36,406
36,439
32,998
27,840
29,139
32,110
29,863
28,396
30,101
36,632
33,857
34,160
51,114
35,578
45,760
39,261
36,503
36,034
38,980
41,376
46,890
68,589
62,109
80,718
73,514
69,921
76,096
86,604
92,057
1,05,741
1,27,127
1,31,139
1,42,254
1,57,172
1,62,083

4.6
4.6
4.9
5.8
5.7
5.1
5.0
4.7
4.4
4.0
4.0
4.0
3.2
2.8
2.6
2.4
2.4
2.5
2.5
2.5
2.2
1.9
1.9
2.0
1.8
2.1
2.0
2.2
2.9
3.4
3.7
3.6
3.1
3.4
3.0
2.8
3.1

6.9
6.4
7.7
8.6
5.9
4.2
4.8
5.1
4.5
4.5
5.1
7.2
5.8
6.2
10.2
6.8
8.6
6.7
5.6
5.5
5.7
6.7
7.3
11.2
10.1
12.5
12.2
10.1
10.6
11.2
11.2
12.6
16.3
16.4
17.0
18.0
18.1

11.5
11.0
12.6
14.4
11.6
9.3
9.8
9.8
9.0
8.5
9.1
11.2
9.0
8.9
12.8
9.1
11.0
9.1
8.1
8.1
7.9
8.6
9.2
13.1
11.9
14.6
14.2
12.4
13.5
14.6
14.9
16.1
19.4
19.8
20.1
20.8
21.2

2.0
2.0
2.1
2.3
2.4
2.1
2.0
1.9
1.8
1.5
1.4
1.4
1.2
1.0
0.9
0.8
0.8
0.8
0.8
0.8
0.7
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.6
0.7
0.7
0.7
0.6
0.6
0.5
0.4
0.4

Source: Central Statistical Organization, New Delhi; National Accounts Statistics

3.0
2.8
3.3
3.4
2.4
1.7
1.9
2.1
1.8
1.7
1.9
2.5
2.1
2.1
3.5
2.2
2.9
2.2
1.8
1.6
1.7
1.9
2.1
3.0
2.6
3.3
2.9
2.4
2.3
2.4
2.2
2.4
2.9
2.8
2.8
2.4
2.3

4.9
4.8
5.3
5.7
4.8
3.8
3.9
4.0
3.6
3.2
3.3
3.9
3.3
3.1
4.4
3.0
3.7
3.0
2.6
2.4
2.4
2.4
2.6
3.6
3.1
3.8
3.3
2.9
3.0
3.1
3.0
3.1
3.5
3.4
3.3
2.8
2.7