2711171852oc 8

Capital Formation in Indian Agriculture :
Issues and Concerns
BRIJESH 0 PUROHIT
V RATNA REDDY
\T/
National Bank for Agriculture and Rural Development
Mumbai
1999
Occasional Paper—8
Capital Formation in Indian Agriculture

Issues and Concerns
BRIJESH C PUROHIT
V RATNA R^DY
Natlcmal Bmik for Agriculture and Rural Development

Mumb^
19^
Published by National Bank for Agriculture and Rural Development, Department of Economic
Analysis and Research, Jeevan Seva Complex (Annexe), S.V. Road, Santacruz (W),
Mumbai - 400 054 and Printed at Karnatak Orion Press, Fort, Mumbai - 400 001.
ACKNOWLEDGEMENTS
We are grateful to Prof. S.S. Acharya, Director, IDSJ for his helpful com-
ments and encouragement to complete this study. Our sincere thanks to
Prof. V.S. Vyas, Professor Emeritus and formerly Director, IDSJ for his en-
couragement throughout and initiating this study. Thanks are due to Prof.
M.S. Rathore for his valuable help at various stages of the study. Thanks
are due to Prof. Vidya Sagar for his valuable comments. We are grateful
to NABARD for the valuable comments and financial support to carry out
this study at IDSJ. Our sincere thanks to various officials at the CSO, New
Delhi and Directorates of Economics and Statistics of Andhra Pradesh,
Kerala, Rajasthan and Tamil Nadu for their valuable help and cooperation.
Thanks are due to Mr. Virendra Shrimali and Mr. Sanjay Mathur for their
research assistance. The computer and secretarial asistance of
Mr. G.G. Rajan, Ms. Rachel Varkey and Ms. Neeru Mendiratta is gratefully
acknowledged. We are also thankful to our library staff for their valuable
help in carrying our this study.
Authors
111
Shri Brijesh C. Purohit and Shri V. Ratna Reddy, Institute of Development
Studies, 8-B, Jhalana Institutional Area, Jaipur - 302 004.
The usual disclaimer about the responsibility of the National Bank as to the
facts cited and views expressed in this paper is implied.
IV
CONTENTS
SI. No. Title Page No.
I. Introduction 1
II. The Present Study 2
III. The Data and Coverage 3
IV. All India Scenario 4
V. Pattern of Capital Formation in Agriculture at the

State Level 16
V. a. Pattern of Capital Formation in Agriculture in

Andhra Pradesh 21
V. b. Pattern of Capital Formation in Agriculture in Kerala 28
V. c. Pattern of Capital Formation in Agriculture in Rajasthan 33
V. d. Pattern of Capital Formation in Agriculture in Tamil Nadu 36
VI. Complementarity Between Public and Private Sectors:

All India and State Level Scenario 41
VII. Factors influencing the Capital Formation in

Indian Agriculture 51
VII. a. Budgetary Expenditure on Agriculture and Allied Sectors 52
VII. b. Marginal Efficiency of Capital 55
VII. c. Technology and Terms of Trade in Agriculture 57
VII. d. Institutional Credit and Role of Credit Institutions 60
VII e. Role of Infrastructure and Linkages Between

Public and Private Investment 62
VIII. Policy Implications 64
References 67
Appendix Tables 70
Annexure I : Methodology of Estimation of Gross Fixed

Capital Formation at State Level 78
1. Methodology of Estimation: Kerala 78
2. Methodology of Estimation: Rajasthan 81
3. Methodology of Estimation: Andhra Pradesh 84
4. Methodology of Estimation: Tamil Nadu 86
Annexure Tables 88
VI
I. Introduction
During the late eighties and early nineties, a concern has been raised
about the falling share of public sector capital formation in agriculture. With
the presumption that there exists high complementarity between public and
private capital formation, it is contended by various studies that declining
trend in the former is lil<ely to have adverse impact on overall capital
formation of the sector^ This might impede the overall growth of the sector
and its contribution to the GDP may fall further. However, the underlying
tenet of complementarity between public and private sector capital formation
in agriculture has also been questioned by one recent study (Mishra and
Chand, 1995). The main criticism by this study about earlier works is as
follows: i) basic premise of other studies that higher rate of capital
formation may lead to higher rate of agricultural growth is misleading. In
fact, this may depend upon the efficiency of the capital use and not merely
on the availability of it. ii) generally most of the earlier works have
presumed that there exists complementarity between public and private
capital formation without giving sufficient reasoning. In reality, the exact
nature of relationship could be either of complementarity, substitution type or
mere independence, this could be established by means of looking at the
technical nature of investment in public and private sectors and their
relationship. Thus, the econometric techniques for establishing correlation or
using regressions to point out complementarity between public and private
capital formation may be misleading, iii) the data base published by C.S.O.
and used by most of the studies pertaining to capital formation may be
away from the reality since C.S.O, estimates of capital formation in the
household sector which accounts for the bulk of production and investment
activities in agriculture are not only inadequate but also underestimates^.
This is due to the fact that: a) change in stock as associated with the
household sector by C.S.O. cover only the increase in inventories of
livestock and due to lack of data do not cover increase in inventories
including supplies and materials, work in progress and crop output help by
the farming households during the accounting period, b) even in the case
of change in inventories in livestock attributed to the household sector,
there is an under-estimation and c) the gross fixed capital formation (GFCF)
is also underestimated and the estimates of GFCF tend to capture year to
year fluctuations of agricultural output into the asset construction in the
household sector.
Thus bearing in mind the aforesaid limitations of earlier works, the study by
Mishra and Chand (1995) tries to explain the behaviour of capital formation
1. See, for instance, Rath, 1989, Gulati and Bhide, 1993, Rao, 1994, Johl, undated,
Krishnamurthy, 1985, Bhattacharya and Rao, 1988, Shetty, 1990.
2. Mishra and Chand (1995), ibid., p. A-66.
both in public and private sectors, in terms of relative shifts in public policy
in favour of private investments in agriculture since late 1970's as well as
the political economy leading to this policy shift. The study observes that
growth in private sector capital formation, since 1987-88, has more than
compensated the decline in the public sector capital formation. The study
thus challenges the earlier held view regarding complementarity between
public and private investment in agriculture. It argues that earlier
researchers including Hanumantha Rao and Krishnamurthy have cited
examples which really represent inducement affect and not complementarity
between public and private investment, that too the former is not
necessarily in agriculture but which create enabling conditions in agriculture
like power, roads etc. Thus, in order to measure the complementarity it is
necessary to compare the direction and rate of movement of two times
series. In order to be complementary, these series should have the same
direction and their movements should be of similar orders. However, at the
macro level especially for the decade beginning 1983-84, the two series of
public and private capital formation tended to be divergent. These authors
argued that complementarity should be explored at the level of investment
projects and could be more prominent in the "construction of assets" sub
groups. Even at that level also, probably the complementarity has not been
pervasive and strong enough to determine the movements of the public
and private capital formation series. In the opinion of these authors, the
examples of complementarity should be lil<e public investment in the
construction of major and minor irrigation works and private (complementary)
investment in construction of field channels, drainage, bunding, levelling of
fields etc. This kind of pure complementarity is rather difficult to find in the
Indian context. Therefore, the problem of the relationship between the
private and public sector capital formation should be posed and analysed
more carefully rather than as one of complete dependence by way of
complementarity or of complete autonomy".
II. The Present Study
It should, however, be noted that conceptual framework of Mishra and

Chand which doubts the complementarity hypothesis needs further
explorations by analysing not only the all-India trends but simultaneously
also looking into state level data. Since there exists considerable variations
across the Indfan states both in their agricultural development and capital
formation, the trends in public and private capital formation should be
different across the various states. Thus, along with all-India trends, it is
important to identify the state level trends in capital formation and decipher
the factors influencing them to establish whether the private investment can
3. Mi'shra and Chand, ibid., A-70.
4. Mishra and Chand, ibid, A-70.
compensate for a decline in public investment? Especially in the long run, it
becomes all the more pertinent to analyse state level variations to highlight
whether the public sector could be disregarded and entire investment in
agriculture and be left to private sector alone. However, the issue acquires
an additional dimension, with the presumption that the private sector may
follow the tenets of profit maximisation, and, thus, achieving the objective of
reducing inter and intra regional inequality may become doubtful. Further,
keeping in view the crucial role that the nature of capital formation can
play in overcoming regional inequalities, from a policy perspective the issue
of the contemplemenarity between public and private capital formation in
agriculture at the state level assumes greater significance.
The present study is an attempt to address some of the above issues in

detail. The main objectives of the study include: (i) estimate and examine
the trends in capital formation, private and public, and its composition in
Indian agriculture, (ii) to establish the link beJween public and private capital
formation in agriculture and assess their relative importance in agriculture
growth, (iii) to identify and estimate the factors influencing public as well as
private capital formation in agriculture, and (iv) to suggest policy options,
specifically in the context of liberalisation, for strengthening the process of
capital formation in agriculture.
The study is divided into eight sections. The following section describes the
data base and methodology. The section IV analyses the trends In capital
formation in agriculture in India. This is followed by a description of trends in
four Indian states, namely, Andhra Pradesh (A.P.), Kerala, Rajasthan and Tamil
Nadu (T.N.). The issue of complementarity in public and private sectors at the
all-India level as well as at state level is taken up in section VI. An analysis of
the factors influencing the capital formation in agriculture is carried out in
section VII. The final section brings forth the policy implications.
IH. The Data and Coverage
Ttre study is based on secondary data. The various official publications

comprise the data source. At the all-India level, the information has been
collected from various publications of C.S.O. At the state level, the
information has been collected from the publications of directorate of
Economics and Statistics of four states, namely, A.P., Kerala, Rajasthan
and T.N. The choice of these states is guided by the availability of
information for capital formation in agriculture. For other states so far, the
data are either not available or grossly inadequate. Besides, other important
sources of data include the publication of C.S.O., Economic Survey, plan
documents, and Reserve Bank of India bulletins.
The data for all-India level cover the period from 1950-94, Ttie state level
series for A.P., Kerala and T.N. has the coverage for 1980-89. The data
for Rajasthan covers the period for 1980-93. Most of our analysis has been
attempted at 1980-81 prices.
In the four states covered by us, data base has been prepared by the
Directorate of Economics and Statistics of respective states using C.S.O.,
guidelines and as such these are comparable. The exact methodology followed
in preparing the state level estimates for these states is presented in Annexure
II. Generally a comparable break up especially in terms of public and private
sectors and item-wise, namely, construction, machinery and equipment is
available for all these states. However, there are slight differences in further
disaggregation within public and private sectors. In case of A.P., for instance,
the data for public sector covers further sub-classification in terms of
administrative departments, non departmental undertakings and local bodies.
Similar sub-classification in Kerala and T.N., however, omits the category of
local bodies. In case of Rajasthan, however, the break-up does not give further
sub-classification within the public sector. Similarly in terms of item-wise break
up there are differences. For instance, in case of A.P., the construction
component in gross fixed capital formation in agriculture (GFCFA) has been
further sub-divided into buildings, roads and bridges and other constructions.
Similar break up in Kerala comprises of an additional heading called as land
development. In case of Rajasthan and T.N., however, further sub-division
under the item of construction component in GFCFA is not available. Unlike
this, the sub-classification of the item, namely, machinery and equipment is
covered in terms of plant and machinery and transport equipments, in a similar
manner, in both A.P. and Kerala. However, such break-up in GFCFA is
machinery and equipment is not available with the data set for Rajasthan and
T.N. Likewise, except for Kerala estimates of GFCFA in household sector are
not provided separately.
IV. All India Scenario

An overview of all-India trend in gross domestic product (GDP) and gross
capital formation (GCF) is presented in Tables 1 and 2. In the duration of
1960-94, there has been an impressive growth in aggregate GDP. It
increased from Rs. 62904 crores in 1960-61 to Rs. 236064 in 1993-94
(Table 1). In terms of sectors of the economy, however, the GDP in
agriculture increased by 2.19 times. The corresponding rise in manufacturing
and construction and service sectors is observed as 5.42 times and 5.33
times respectively (Table 1). In terms of relative contribution of these
sectors, the share of agriculture in GDP has declined from around 51
percent to 30 percent. By contrast the contribution of other sectors, namely,
manufacturing and service sectors has gone up (Table 1). The former of
these increased its share in GDP from 20 percent (in 1960-61) to 29
percent (in 1993-94). The service sector, however, has increased its share
much higher than the other sectors. Its relative contribution in the GDP has
gone up from 29 percent to around 41 per cent. These sectoral shares,
thus, indicate that with the development process the sectors other than
agriculture have increased their significance.
Table 1 : Sectoral GDP (1980-81 Prices)
Agricul- Mining Service Total Agricul- Mining, Service Total
ture IVIft & GDP ture Mfg. & GDP
Constm. Constm.
1960-61 31995 12588 18321 62904 3 Yearly Moving Averages

1961-62 32022 13529 19305 64856
1962-63 31385 14476 20367 662288 31800.66 13531 19331 64662.66
1963-64 32119 15904 21558 69581 31842 14636.33 20410 66888.33
1964-65 35082 16999 22777 74858 32862 15793 21567.33 70222.33
1965-66 31208 17520 23394 72122 32803 16807.66 22576.33 72187
1966-67 30764 18002 24090 72856 32351.33 17507 23420.33 73278.66
1967-68 35339 18450 24996 78785 32437 17990.66 24160 74587.66
1968-69 35283 19414 26144 80841 33795.33 18622 25076.66 77494
1969-70 37551 21075 27483 86109 36057.66 19646.33 26207.66 81911.66
1970-71 40214 21380 28832 90426 37682.66 20623 27486.33 85792
1971-72 39459 21995 29885 91339 39074.66 21483.33 28733.33 89291.33
1972-73 37479 22818 30751 91048 39050.66 22064.33 29822.66 90937.66
1973-74 40178 23256 31758 95192 39038.66 22689.66 30798 92526.33
1974-75 39566 23714 33017 96297 39074.33 23262.66 31842 94179
1975-76 44666 25024 35278 104968 41470 23998 33351 98819
1976-77 42085 27229 36966 106280 42105.66 25322.33 35087 102515
1977-78 46309 29057 38853 114219 44353.33 27103.33 37032.33 108489
1978-79 47375 31623 41506 120504 45256.33 29303 39108.33 113667.6
1979-80 41323 30645 42268 114236 45002.33 30441.66 40875 66 116319.6
1980-81 46479 31664 44083 122226 45059 31310.66 42619 118988.6
1981-82 49139 34141 46320 129600 45647 32150 44223.66 122020.6
1982-83 48358 35756 49355 133469 47992 33853.66 46586 128431.6
1983-84 53525 38992 51793 144310 50340 66 36296.33 49156 135793
1984-85 53544 41330 55092 149966 51809 38692.66 52080 142581.6
1985-86 53698 44242 59408 157348 53589 41521.33 55431 150541,3
1986-87 52782 47603 63539 163924 53341.33 44391.66 59346.33 157079.3
1987-88 53053 50232 67431 170716 53177.66 47359 63459.33 163996
1988-89 62214 53866 72381 188461 56016.33 50567 67783.66 174367
1989-90 63263 59398 78792 201453 59510 54498.66 72868 186876.6
1990-91 65653 63700 82900 212253 63710 58988 78024.33 200722.3
1991-92 64118 62867 86998 213983 64344.66 61988.33 82896.66 209229.6
1992-93 68017 65472 91398 224887 65929.33 64013 87098.66 217041
1993-94 70231 68251 97582 236064 67455.33 65530 91992.66 224978
Source: C.S.O., Various Publications.
The sectoral shares in GDP are someway also reflected in the sectoral
contribution to country's gross capital formation (GCF). In absolute terms,
the GCF in agriculture increased by 3.44 times from Rs. 1777 crores in
1960-61 to Rs. 6119 crores in 1993-94. By contrast, the corresponding
increase in manufacturing and service sectors was 4.98 times and 4.20
times respectively (Table 2). In terms of trienniums the data presented in
Table 2(a) indicate that agriculture sector's contribution to GCF (i.e., GCFA)
had started declining in seventies. Ignoring the exceptional years (of 1978-
81 and others) there has been a continuous decline in GCFA from around
20 per cent in 1969-70. to around 11 percent in 1993-94. A noteworthy
feature of these sectoral composition of GCF is that despite the increasing
share of service sector, its relative contributions to GCF has been much
lower than manufacturing sector and it has declined in fact from around 46
per cent in Triennium ending (TE) 1962-63 to 41 percent in TE 1993-94.
Pertinently, these trends in GCF indicate that falling (increasing) share of a
sector in GDP necessarily does not mean a falling (increasing) GCF in the
sector. The nature of the sectoral activity and efficiency of use of capital
may be important factors in determining the growth in sectoral GCF.
Moreover, the temporal variations in the sectoral activity may also have
significant impact in determining the sectoral GDP and GCF.
Table 1(a) : Sectoral Shares in GDP (Percentage)
Agriculture Mining, Mfg. and Service

Sector Construction Sector Sector
1960-61 50.86 20.01 29.12

1961-62 49.37 20.86 29.76
1962-63 47.38 21.85 30.75
1963-64 46.16 22.85 30.98
1964-65 46.86 22.70 30.42
1965^6 43.27 24.29 32.43
1966-67 42.22 24.70 33.06
1967^8 44.85 23.41 31.72
1968-69 43.64 24.01 32.34
1969-70 43.60 24.47 31.91
1970-71 44.47 23.64 31.88
1971-72 43.20 24.08 32.71
1972-73 41.16 25.06 33.77
1973-74 42.20 24.43 33.36
1974-75 41.08 24.62 34.28
1975-76 42.55 23.83 33.60
1976-77 39.59 25.62 34.78
1977-78 40.54 25.43 34.01
1978-79 39.31 26.24 34.44
1979-80 36.17 26.82 37,00
1980-81 38.02 25.90 36.06
1981-82 37.91 26.34 35.74
1982-83 36.23 26.78 36.97
1983-84 37.09 27.01 35.89
1984-85 35.70 27.55 36.73
1985-86 34.12 28.11 37.75
1986-87 32.19 29.03 38.76
1987-88 31.07 29.42 39.49
1988-89 33.01 28.58 38.40
1989-90 31.40 29.48 39.11
1990-91 30.93 30.01 39.05
1991-92 29.96 29.37 40.65
1992-93 30.24 29.11 40.64
1993-94 29.75 28.91 41.33
Source: C.S.O., various publications.

Table 2 : Capital Formation In Indian Economy (Rs. Crores)
Agriculture & Allied Manufacturing & Service All
Sectors Construction Sectors Sectors Sectors
1960-61 1777 4491 5507 11775

1961-62 1773 4156 4884 10813
1962-63 1928 5001 5763 12692
1963-64 2094 5159 6282 13535
1964-65 2262 5647 6314 14223
1965-66 2478 6274 5991 14743
1966-67 2486 7187 5782 15455
1967-68 2714 6137 6040 14891
1968-69 2838 5166 5245 13249
1969-70 3016 6604 5482 15102
1970-71 2884 6823 6843 16550
1971-72 3059 7223 7659 17941
1972-73 3317 6781 7538 17636
1973-74 3352 7944 8711 20007
1974-75 3123 9718 7888 20729
1975-76 3556 9854 9498 22908
1976-77 4457 8707 9334 22498
1977-78 4281 10018 8116 22415
1978-79 5447 12391 10306 28144
1979-80 5414 12261 9659 27334
1980-81 4903 12975 10479 28357
1981-82 4798 15632 14571 35001
1982-83 4860 16101 12727 33688
1983-84 4457 15857 13188 33502
1984-85 4790 15848 14313 34951
1985-86 4607 18909 17512 41028
1986-87 4724 19695 16936 41355
1987-88 4846 20251 15967 41064
1988-89 4733 25880 14148 44761
1989-90 4791 22023 17449 44263
1990-91 5076 24227 20583 49686.
1991-92 5212 21846 19660 46718
1992-93 5870 27663 18604 52137
1993-94 6119 22384 23145 51648
Source: Same as Table 1.
A graphic presentation of GCF for tfie TE 1963-94, for instance, confirm

that curvature of GCF for the aggregate economy, agriculture, manufacturing
and service sectors tended to vary for different time horizons (Fig 1 to 4).
In case of agriculture sector, particularly the curvature of GCF tended to
vary for the period between 1960-76, 1972-83 and 1980-94. Thus, Table 3
presents linear growth rates for these periods for GDP, GCF and GFCF for
the aggregate economy and agricultural sector. A comparison of these
growth rates suggest that for the entire duration of 1960-94, the GDP in
agriculture sector has grown at 2.49 percent per annum which is much
lower than 4.01 percent for GDP in the entire economy. The same, in fact,
has been the case for the different periods presented in Table 3. It should
be noted, however, that despite falling share of agriculture in total GDP, its
Figure 1 : GCF in Indian Agriculture & Allied Sectors
(aggregate, public & pvt.)
6000
5000'
4000 ~
M
0)
%^
o
o 3000
m
2000
1000
0••*Try"riT"T"r <• s i j i i ? i' '^ "<•••):••r-r"!r""r-n—r~r~'r"T

63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 94
Year (triennium ending)
Figure 2 : GCF in Indian Manufacturing & Allied Sectors
25000*^^pAHWW^^W<^BO0lAtfQM<^co^K^
20000'
15000
M
O
o
(0
10000'
5000,
Public GCF
63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 94
Figure 3 : GCF in Indian Service Sector
(aggregate, public & private)
•Kir«nA*A'pV>WAMM>
22000
20000
18000^
16000-
14000
»
g 12000i
Total GC
n A
E 10000
\./
8000-
^J
Private G0F
6000
Public GCF
4000,
2000AY"'J( •"•{ f' t •••"rT^—rnrT'*f''T—^•r,Y',y,imf^—j-rrp

63 65 67 69 71 ?3 75 77 79 81 83 85 87 89 91 94
10
Figure 4 : GCF in Indian Economy
(aggregate, pubiic & private)
55000
50000
45000
40000-
35000-
«
a
o
o
c 30000
M
cc
25000- Total GCF
2C000-
15000.
Public GCF
10000-
500o\ 1—I—I—I—I—I—I—I—I—I—i—I—I—I—I—I—I—I—I—I—I—r—I—I—I—I—r
63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 94
11
growth rates reflect a movement in tandem with the increasing growth rates
of aggregate GDP for the time intervals considered here. Nonetheless in
case of GCF and GFCF, despite the similarity in trends between aggregate
economy and agriculture sector, the duration of 1980-94 is marked by a
drastic decline in growth for GCF and GFCF for the agriculture sector. For
instance, as against the fall in rate of growth for GCF from 6.37 percent
per annum (in 1972 83) to 4.15 percent (in 1980-94), the agriculture sector
depicts a decline from 4.96 ppa to 1.57 ppa. Similar observation holds for
GFCF (Table 3). This kind of drastic decline in growth in GCFA and
GFCFA suggests a need to look into a break up of capital formation
originating in public arid private sectors.
Table 2(a) : Sectoral Shares in Gross Capital Formation

(Three Yearly Moving Averages; Percentages)
Agriculture and Allied Mining Mfg & Service
Sector Construction Sector Sector
1962-63 15 53 38 68 45.79
1963-64 1564 38 65 45.70
1964-65 1553 39 08 45.39
1965-66 16 07 40 19 43.73
1966 67 16.27 43 01 40 72
1967 68 17.02 43 46 39.51
1968 69 18.44 4241 39 15
196970 19 81 4141 38.77
1970 71 1946 41 41 39.13
1971 72 1806 41 64 40.30
1972-73 17.76 39.95 42 28
1973 74 17 50 39 49 4301
1974 75 16.77 41 87 41.35
1975 76 15 76 43.23 4100
1976-77 16.84 42.76 40.40
1977 78 1813 42.14 39.73
1978 79 19 42 4259 37.99
1970 80 19.44 44.51 36.05
1980 81 18.80 44.88 36.31
1981 82 1667 45.06 38.27
1982 83 1500 46.07 38,93
1983 84 1381 46.57 39.62
1984 85 1381 AG.BO 39.38
1985 86 1265 46.23 41.It
1986-87 12.03 46.41 41.56,
1987-88 11.48 47.68 40.84
1988-89 11.25 51,76 36.99
1989-90 11.05 52.39 36.56
1990-91 10.51 &t.92 37.56
1991-92 10.70 mm 40.95
1992-9a 10.86 m.sF 39.56
1993-»ft tl.^ miR! 40.80
Source: Same as Tatite' H.
12
Figure 5 : GCF in Indian Agriculture & Allied Sectors
6000
5000 ^
4000 '
«
o
u
3000'
2000
1000
O ^ y ' T ' " t""'f""t t y....y»>yw..(... ,yii ,^., ..y y,.i.^^v~y„T,î...,j,,i-, , ji ^ i.y..i,j| |.i.ii.)||....,|.,.-„|-,.i.Y-
63 65 67 69 71 73 75 77 83 ffi 87 ® Si 94
13
Based on C.S.O. data (Appendix Table 3), Table 4 presents percentage
shares of public and private sectors in capital formation in Indian
agriculture. Generally in the duration covered by the period TE 1962-63 to
TE 1993-94, the private sector has comprised a major proportion which
varied between 60-80 percent of total GCFA. However, the graphic
presentation of these shares of public and private sectors in GCFA
indicates 1978-79 and 1979-80 as the outlets (Fig. 4). An exclusion of
these two points by omitting averages ending 1979 to 1982 provides a
smooth series of GCFA and a graphic presentation of its public-private
components in Figure 5 depicts a kink free or relatively smooth curves^.
Table 3: Linear Growth Rates (Percent per annum)

1960-76 1972 83 1980-94 1960-94
Aggregate Economy
GDP 3.26 3.75 5.13 4.01
GCF 4.16 6.37 4.15 4.73
GFCF 3.35 6.12 5.63 4.96
GCFPUB 4.23 6.49 2.54 4.58
GCFPVT 4.09 6.26 5.51 4.85
Agriculture Eind Allied Sectors
GDP 2.17 2.27 3.13 2.49
GCF 4.42 4.96 1.57 3.09
GFCF 3.78 5.48 1.86 3.16
GCFPUB 320 7.34 -4.22 2.47
GCFPVT 4.99 3.68 4.23 3.38
Source : Same as Table 1.
Table 4 : Capital Formation in Indian Agriculture

Public & Private Sectors (Percentage)
Public Private Total
1962-63 3629 63.71 100.0
196a€4 36.74 63.26 100.0
1964-65 36.68 63.32 100.0
1965-66 35.41 64.59 100.0
1966^7 33.17 66.83 100.0
1967-68 30.31 69.69 100.0
1968-69 28 58 71.51 100.0
1969-70 27.72 72.28 100.0
1970-71 28.27 71.73 100.0
1971-72 28.48 71.51 100.0
1972-73 30.51 69.49 100.0
1973-74 31.08 68.91 100.0
contd..
These kinks in the curves are possibly caused by the erratic nature of change in
stocks in the private household sector resulting in sharp changes in the private sector
capital formation during TE 1978-79 to TE 1980-81. The estimates of change in stock
in the private household sector are not reliable due to the method adopted by C.S.O.
(See, Mishra and Chand, P. A-68).
14
Public Private Total
1974-75 31.44 68.55 100.0
1975-76 30 62 69.37 100.0
1976-77 31.27 68.73 100.0
1977-78 33.59 66.41 100.0
1978-79 33.98 66,02 100.0
1979-80 34.53 65.47 100.0
1980-81 35.28 64.72 100.0
1981-82 37.60 62.39 100.0
1982-83 39.12 60.87 100.0
1983-84 40.11 59.89 100.0
1984-85 39.75 60.25 100.0
1985-86 38.97 61.03 100.0
1986-87 35.90 64.10 100.0
1987-88 33.94 66.06 100.0
1988-89 32.43 67.57 100.0
1989-90 30.40 69.60 100.0
1990-91 2807 71.93 100.0
1991-92 24.87 75.12 100.0
1992-93 22.45 77.55 100.0
1993-94 20.96 79,04 100.0
The trends in capital formation in Indian agriculture are presented in Table

5. The simple growth rates for these are also presented in Table 6. It is
noteworthy that capital formation in public sector grew at a positive rate
during the period TE 1962-63 to TE 1975-76 and TE 1975-76 to TE 1982-
83. After reaching a peak of 12 percent per annum, there was a decline in
capital formation in the public sector since early eighties at a rate of 3
percent per annum (Table 6). This decline is more marked for the TE
1984-85 to TE 1987-88 when a negative rate of around 5 per cent is
depicted. The decline in public sector capital formation is reflected in total
capital formation in the agriculture sector. Its growth rate declined from
around 6 percent until early eighties to around 2 percent only in the
following decade with the decline being more marked for 1984-85 to 1987-
88.
Table 5 : Percent Change In Capital Formation in Indian Agriculture

Time period Public Private Total
Triennium Ending Sector Sector
1962-63 to 1975-76 54.53 99.4 83.11

1975-76 to 1982-83 85.43 27.37 45.16
1982-83 to 1984-85 -1.58 -4.11 -3.12
1984-85 to 1987-88 -14.18 10.18 0.49
1987-88 to 1993-94 -25.10 45.17 21.33
1982-83 to 1993-94 -36.70 53.37 18.13
15
Table 6 : Annual Percent Change in Capital Formation in
Indian Agriculture

1962-63 to 1975-76 4.19 7.65 6.39

1975-76 to 1982-83 12.2 3.91 6.45
1982-83 to 1984-85 -0.78 -2.05 -1.56
1984-85 to 1987-88 -4.73 3.39 0.16
1987-88 to 1993-94 -3.58 6.45 3.05
1982-83 to 1993-94 -3.34 4.85 1.65
However, the falling trend in total capital formation in Indian agriculture

seems to have reversed since 1987-88 despite the persistently declining
public sector. This is depicted by a 3 percent per annum growth in 1987-
88 to 1993-94 (Table 6). Interestingly, these trends in private capital
formation in this declining phase of eighties to early nineties (i.e., 1982-83
to 1993-94) has been positive. In fact the fall in total capital formation
seems to has been arrested due to an accelerated growth of private sector
at 6 per cent per annum for the trenniums 1987-88 to 1993-94 (Table 6).
These trends in capital formation in Indian agriculture namely, decline in

public sector, more than compensatory growth in private sector and resulting
recovery in overall capital formation raise pertinent questions. The latter
could be posed as : (1) do the state level trends confirm similar
phenomenon? (2) does it mean that the claims of earlier studies regarding
complementarity in public and private sector hold no longer? (3) in case
there is no complementarity, what is the nature of relationship between
public and private sector capital formation in Indian agriculture? We take up
these questions in seriatum in the following sections.
V. Pattern of Capital Formation in Agriculture at the State Level
As mentioned in Section III, the analysis at the state level has a much
shorter coverage owing to non-availability of data. Nonetheless, this section
aims at studying the state level trends for the four states, namely, A.P.,
Kerala, Rajasthan and T.N. This is carried out with a view to substantiate
the all-India trend by state level analysis for the duration of 1980-90.
Table 7 presents the gross fixed capital formation in agriculture (GFCFA)

and state domestic product in agriculture (SDPA) for 1982-83 to the latest
triennium for the state covered by our analysis. The state level variations in
terms of capital formation are noteworthy. As against the all-India trend, in
16
Table 7 : Gross fixed Capital Formation in Agriculture (GFCFA) and SDP in Agriculture (SDPA); A.P.,
Kerala, Rajasthan, T.N. and All-India (Three Yearly Moving Averages, Rs. Lal(hs)
StateWear 1980-81 81-82 82-83 83-84 84-85 85-86 86-87 87-88 88-89 89-90 90-91 91-92 92-93 Percent
per
annum
ANDHRA PRADESH
GFCFA 24918 28469 35363 40343 49650 56218 63418 25.75
SDPA 387198 447300 474842 505997 502567 551116 667224 12.05
GFCFA/SDPA (%) 6.44 6.36 7.45 7.97 9.88 10.2 9.5
KERALA
GFCFA 13618 15870 17763 20298 22504 25471 28731 18.5
SDPA 157042 179325 208256 220492 233950 249689 281765 13.24
GFCFA/SDPA (%) 8.67 8.85 8.53 9.21 9.62 10.2 10.2
RAJASTHAN
GFCFA 22834 23958 24394 24735 25341 25337 21247 16652 12782 13547 15400 3.26
SDPA 224329 258212 270998 277369 254498 227866 265175 294260 363690 354833 384932 7.16
GFCFA/SDPA (%) 10.18 9.28 9.00 8.92 9.96 11.12 8.01 5.66 3.51 3.82 4.00
TAMIL NADU
GFCFA 21465 21062 20364 17659 21184 23879 25383 3.04
SDPA 199476 227531 252483 312673 353653 389615 414974 18.00
GFCFA/SDPA (%) 10.76 9.26 8.07 5.65 5.99 6.13 6.12
ALL INDIA (Rs. Crores)

GFCFA 4676 4507 4477 4377 4429 4450 4543 4609 4730 4895 5280 1.29
GDPA 47992 50341 51809 53589 53341 53178 56016 59510 63710 64345 65929 3.74
GFCFA/GDPA (%) 9.74 8.95 8.64 8.17 8.30 8.37 8.11 7.74 7.42 7.61 8.01

the states of A.P., and Kerala, the GFCFA has grown at faster rates than
the SDPA. The reverse has been the case for the states of Rajasthan and
T.N. In the former, the GFCFA has even declined at the rate of 3 percent
per annum. These differences in growth rates of GFCFA and SDPA are
reflected in their ratios also. As such, therefore, the GFCFA as a percent
of SDPA has increased from 6 to 9 percent in A.P. and 9 to 10 percent
in Kerala. The same has declined, however, in Rajasthan from 10 to 4
percent and 11 to 6 percent in T.N. (Table 7).
It is pertinent to observe that during the decade of eighties, the growth of

GFCFA in A.P. and Kerala has been higher than all-India average (Table
9). By contrast Rajasthan and T.N. have shown negative growth in the
duration. Moreover, in the TE 1984-85 to TE 1987-88, when the growth in
GFCA at the all-India level was at the lowest (0.16 percent per annum),
the growth of GCFA was much higher in the states of A.P. and Kerala. By
contrast, it was negative in T.N. In Rajasthan, however, the growth of
GCFA remained around 1 percent, which is higher than comparable all-India
growth.
Table 8 : Percent Change in Capital Formation in Indian Agriculture:

All India and State Level
Triennkim Ending Sector Sector
All India
1962-63 to 1975-76 54.53 99.4 83.11
1975-76 to 1982-83 85.43 27.37 45.16
1982-83 to 1993-94 -36.70 53.37 18.13
1984-85 to 1987-88 -14..18 10.18 0.49
1987-88 to 1993-94 25.10 45.17 21.33
An(#ira Pradesh
1982-83 to 1988-89 83.56 33.32 55.67
1984-85 to 1987-88 21.02 31.50 25.63
1987-88 to 1988-89 -1.14 4.86 1.62
Kerala
1982-83 to 1988-89 -38.05 57.45 16.59
1984-85 to 1987-88 -14.41 34.52 16.90
1987-88 to 1988-89 -10.68 8.77 3.64
Rajasthan
1982-83 to 1992-93 -4.26 -55.57 -32.56
1984-85 to 1987-88 -9.70 12.86 3.86
1987-88 to 1992-93 11.67 66.21 39.22
Tamil Nadu
1982-83 to 1988-89 40.34 -33.50 -13.41
1984-85 to 1987-88 0.10 -10.10 -5.74
1987-88 to 1988-89 0.37 4.66 2.38
18
Table 9 : Annual Percent Change in Capital Formation in Indian
Agriculture: all India and State Level
All India
1962-63 to 1975-76 4.19 7.65 6.39
1975-76 to 1982-83 12.2 3.91 6.45
1982-83 to 1991-92 -3.34 4.85 1.65
1984-85 to 1987-88 -4.73 3.39 0.16
1987-88 to 1991-92 -3.58 6.45 3.05
Andhra Pradesh
1982-83 to 1988-89 13.93 5.55 9.28
1984-85 to 1987-88 7.01 10.5 8.54
1987-88 to 1988-89 -1.14 4.86 1.62
Kerala
1982-83 to 1988-89 -6.34 9.57 2.76
1984-85 to 1987-88 -4.80 11.51 5.63
1987-88 to 1988-89 -10.68 8.77 3.64
Rajasthan
1982-83 to 1992-93 -0.43 -5.56 -3.26
1984-85 to 1987-88 -3.24 4.29 1.29
1987-88 to 1992-93 2.33 13.24 7.84
Tamil Nadu
1982-83 to 1988-89 6.72 -5.58 -2.23
1984-85 to 1987-88 0.03 -3.37 -1.91
1987 88 to 1991-92 0.37 4.66 2.38
It is pertinent to explore whether the composition of capital formation at the

state level has public-private sector movements in tune with all-India trends.
In this regard, the state level variations can be also observed from Table
9. For instance, like the all-India movements the capital formation in public
sector has declined both in Kerala and Rajasthan. The capital formation in
private sector has been compensating for negative growth in public sector
capital formation in Kerala for TE 1982-83 to TE 1988-89. Similar has been
the case for Rajasthan for the TE 1987-88 to TE 1992-93. By contrast, as
against the all-India trends, the growth in public sector GFCA is higher in
A.P. and T.N. In the latter, however, private sector growth in GCFA has
been negative. These state level variations, thus, indicate that nature of
public-private sector relationship in capital formation in Indian agriculture has
State specific dimensions which require a separate analysis for individual
state. Bearing this in mind, the following section provides a somewhat
detailed analysis for the states.
19
Figure 6 : GCF in Agriculture in A.P.
40000
35000
30000 -
Total GCF ^
«
« 25000
c
DC
20000
Public GCF.
15000
Private GCF'-'
10000 T
1983 1984 1985
—r-
1986 1987 1988 1989
1986
20
V a. Pattern of Capital Formation In Agriculture In Andhra Pradesh
The major features of GCFA in A.P. include (1) positive growth in GFCA
(2) a dominant and growing public sector (3) within public sector
administration departments being the major contributor, with nearly 91
percent of public sector GFCFA originating in the latter. (4) higher share of
construction (60.70%), and both within public and private sectors the
construction component being dominated by items of irrigation projects, flood
control, soil conservation, areas development, forest clearance, land
reclamation and plantations.
In Andhra Pradesh, between 1980 and 1989, the gross capital formation in
agriculture (GCFA) has increased from Rs. 20,623 lakhs to Rs. 37,447.92
lakhs at 1980-81 prices (Table 10). The linear growth has been 7.55
percent per annum. In terms of the sub-sectors, agriculture and allied has
been the major component. It comprised 95-96 percent of the GCFA in the
state (Table 11). The growth has been negative for fishing (-0.85 percent),
whereas the other sub-sectors, namely, agriculture and allied activities and
forestry and logging recorded a linear growth rate of 7.78 percent p.a. and
5.39 percent p.a. respectively.
Table 10: State Gross Domestic Capital Formation by type of

Industry of use in A.P., during the years 1980-81 to 1988-89 at
constant prices
(Rs. in Lakhs)
1980 81 1981-82 1982-83 1983-84 1984-85 1985^86 1986-87 1987-88 1988-89
Agri. & allied 19419.00 19485.80 30651.40 23665.02 30456.85 34414.08 38375.72 35063.12 35935.06
activities
Forestry & Logging 572.00 218.80 447.86 884.61 1028.01 686.74 774.63 549.79 740.13
Fishing 632.00 932.35 600.23 728.35 446.66 531.52 624.56 681.04 772.73
Total 20623.00 20636.95 31699 50 25277.97 31931.52 35632.33 39774.91 36293.95 37447.92
Source: Directorate of Economics & Statistics, Government of A.P. Hyderabad.
Table 11: State Gross Domestic Capital Formation by type of

industry of use in A.P. during the years 1980-81 to 1988-89 at
constant prices (Three Yearly Moving Averages)
(Rs. in lakhs)
Years TE Agri & allied Forestry & Logging Fishing Total
1982-83 23185.40 (95.33) 412.89 (1.70) 721.53 (2,97) 24319.^
1983-84 24600.74 (95 10) 517.09 (1.99) 753.64 (2.91) 25871.48
1984-85 28257.76 (95.4) 786.83 (2.55) 591.75 (1.99) 29636.33
1985-86 29511.99 (95.36) 866.45 (2.80) 568.84 (1.84) 30947.28
1986-87 34415.55 (96.20) 829.80 (2.32) 534.24 (1.50) 35779.59
1987-88 35950.98 (96.55) 670.39 (1.80) 612.37 (1.64) 37233.74
1988-89 36457.97 (96.35) 688.19 (1.82) 692,78 (1.83) 37838.93
Source: Estimated.
Note: Figures in the parentheses denote percentage to total.
21
Public Vs. Private Sector
The share of private sector in GCFA in A.P. has been increasing since
1985-86 (Figure 6). Between 1980-81 to 1984-85, the share of public sector
increased from around 41 percent to 58 percent. However, since 1985-86,
the share of private sector has been on the rise. Except the year 1986-87,
share of private sector has consistently increased from around 46 percent
to 50 percent (Table 12). A similar situation is depicted even by looking
into changes between the trienniums. For instance, between the TE 1982-
83 and TE 1985-86 the increase in GCFA in public sector has been 60.61
percent. By contrast, in the latter period, i.e., TE 1985-86 and TE 1988-89,
the increase in public sector GCFA has been only 14.28 percent (Table
13). As against these trends, the GCFA in private sectors between these
two periods increased by 0.63 percent and 32.48 percent respectively
(Table 13).
Table 12 : Estimate of Gross Capital Formation in Andhra Pradesh,

1980-81 to 1988-89 (Percentage of Public and Private)
(constant prices)
Years Agri. & A1 Agriculture Animal Hus. Forestry Fishing Total
Public
1980-81 39.78 42.77 13.27 100.00 32.75 41.24
1981-82 32.65 36.42 5.17 100.00 39.85 33.69
1982-83 53.49 58.21 -0.55 100.00 26.43 53.63
1983-84 56.14 52.55 100.00 100.00 27.63 56.86
1984-85 56.76 54.69 100.00 100.00 19.22 5763
1985-86 53.87 51.88 ipo.oo 100.00 20.88 54.26
19M-87 55.63 54.81 100.00 100.00 18.97 55.92
1997-88 51.38 50.20 100,00 100.00 14.34 51.42
1988-89 49.64 48.00 100.00 100.00 9.24 49.80
Private
1980-81 60.22 57.23 86.73 0.00 67.25 58.76
1981-82 6735 63.58 94.83 .0.00 60.15 66.31
1982-83 46.51 41.79 100.55 0.00 73.57 46.37
1983-84 43.86 47.45 0.00 0.00 72.37 43.14
1984-85 43.24 45.31 0.00 0.00 80.78 42.37
1985-86 46.13 48.12 0.00 0.00 79.12 45.74
1986^7 44.37 45.19 0.00 0.00 81.03 44.08
1987-88 48.62 49.80 0.00 0.00 85.66 48.58
1988-89 50.36 52.00 0.00 0.00 90.76 50.20
Source: Directorate of Economic & Statistics, Government of A.P., Hyderabad.
22
Table 13 : Estimate of Gross Capital Formation in Andhra Pradesh,
1980-81 to 1988-89 (Three yearly moving average) (constant prices)
(Rs. in lakhs)
Years Agri. & A1 Agriculture Animal Hus. Forestry Fishing Total
Public
1982-83 10156.06 10032.41 123.65 412.89 245.74 10814.69
1983-84 12009.94 11794.21 215.74 517.09 243.81 12770.85
1984-85 15656.50 15419.98 236.52 786.83 148.57 16591.90
1985-86 16370.95 16014.15 356.80 866.45 132.67 17370.08
1986-87 19058.18 18974.98 83 20 829.79 105.10 19993.07
1987-88 19300.54 19238.82 61.72 670.39 109.04 20079.98
1988-89 19067.27 19082.02 -14.76 688.18 95.85 19851.30
Private
1982-83 13016.26 10878.46 2150.87 0.00 475.79 12492.05
1983-84 12577.71 11386.42 1582.20 0.00 509.83 13087.55
1984-85 12601.25 12487.38 826.40 0.00 443.18 13044.43
1985-86 13141.02 14185.02 0.00 0.00 436.16 13577.19
1986-87 15357.36 16292.46 0.00 0.00 429.15 15786.51
1987-88 16650.43 17485.20 0.00 0.00 503.34 17153.76
1988-89 17390.69 18259.53 0.00 0.00 596.92 17987.62
Total
1982-83 23172.32 20910.88 2274.52 412.89 721.53 24306.74
1983-84 24587.66 23180.63 179794 517.09 753.64 25858.40
1984-85 28257.76 27907.37 1062.92 786.83 591.75 29636.33
1985-86 29511.98 30199.18 356.80 866.45 568.84 30947.27
1986-87 34415.55 35267.44 83.20 829.79 534.24 35779.59
1987-88 35950.97 36724.02 61.71 670.39 612.37 37233.73
1988-89 36457.96 37341.56 -14.76 688.18 692.77 37838.93
Source: Estimated.
Sub-sector Composition Within Public Sector
Within the public sector. In A.P. the major contribution to GCFA (nearly
91%) comes for administrative departments. This is followed by local bodies
and non-departmental undertal<ings which currently contribute around 5 and
3 percent respectively. However, there have been fluctuations in these
shares. Except the year 1981-82, the administrative departments's share
ranged between 90 and 95 percent of total public sector GCFA (Table 14a
23
to 14c). Likewise, the shares of non-departmental undertakings and local
bodies moved in the intervals of 2-7 percent and 1-5 percent respectively.
Table 14(a): Estimate of gross capital formation - Administrative

departments in Andhra Pradesh 1980-81 to 1988-89 (constant prices)
(percentages)
1980 81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89
Agriculture & Allied 82.13 90.39 94.10 86.13 90.24 92.98 88.25 89.63 87,86
Agriculture 81.76 89.80 93.58 85.81 89.88 92.66 89.54 89.41 87.69
Animal Husbandry 0.36 0.59 0.53 0.32 0.35 0.32 -1.29 0.22 0.17
Forestry & Logging 6.29 3.15 0.61 3.96 4.56 2.43 3.09 2.76 3.41
Fishing 2.32 5.50 1.09 1.33 0.48 0.48 0.50 0.36 0.02
Total 100.74 99.04 95.80 91.42 95.28 95.89 91.84 92.75 91.29
Source: Estimated.
Table 14(b): Estimates of gross capital formation - Non-Departmental

undertaking in Andhra Pradesh 1980-81 to 88-89 (constant prices)
(percentages)
1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89
Agriculture & Allied 7.34 0.00 1.64 4.98 2.63 1,74 6.66 1.53 2,60
Agriculture 4.63 0.00 2.25 1.56 1,97 0,26 6.65 1.10 2.14
Animal Hust)andry 2,70 1.19 0.00 3.42 0,66 1.48 0.02 0,43 0,46
Forestry & Logging 0.44 0.00 2.02 2.19 1,03 1.12 0.39 0.18 0,56
Fishing 0.12 0.00 0.00 0.07 0,00 0.09 0,03 0.16 0,36
Total 7.89 0.00 3.66 7.24 3.66 2.95 7,09 1.88 3.52
Source: Estimated.
Table 14(c): Estimates of gross capital formation - Local bodies in

Andhra Pradesh 1980-81 to 88-89 (constant prices) (percentages)
1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89
Agriculture & Allied 1.38 1.99 0,69 1.34 1.08 1.15 1.07 5.37 5.19
Agriculture 1.38 1.99 0.69 1.34 1.08 1.15 1.07 5.37 5.19
Animal Husbandry 000 0,00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Forestry & Logging 0.00 0,00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Fishing 0.00 0,00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total 1.38 1,99 0.69 1.34 1.08 1.15 1.07 5,37 5.19
Source: Estimated.
24
Components of GCFA In Public and Private Sectors
Within the public sector, the trends in terms of the components of GCFA
are noteworthy. Over the duration between 1980-89, generally the share of
construction remained between 60-70 percent. The machinery and
equipment comprised around 30-40 percent. (Table 15). However, it is
pertinent to observe the pattern of movement of these two series. In public
sector, since 1980-83, the construction component went on falling from
around 62 percent to 35 percent. This was accompanied by the increase in
machinery and equipment component. The latter increased in the same
duration from around 34 percent to 59 percent. However, since 1983-87,
there was increasing trend in construction and it rose from 53 percent to
aroTjnd 79 percent. There was simultaneous fall in machinery and
equipment component from around 45 percent to 21 percent. In the last
two years, namely 1987-88 and 88-89, again there was a decline in
construction from 70 percent to 67 percent. Whereas the machinery and
equipment component rose from 28 per cent to 32 percent (Table 15). It is
also noteworthy that in the public sector within the construction, the
component referred as "others" dominated, which comprised of irrigation
projects, flood control projects, area development, forest clearance, land
reclamation and orchards and plantations (Tables 15 & 16 a to c).
Comparing the above trends with the corresponding trends in private sector,
it is interesting to observe that except for the two years namely 1986-87
and 1987-88, the movements of private sector are similar in direction to
public sector (Table 16).
Table 15: Estimates of gross capital formation - All Institution in

Public Sector In A.P., 1980-81 to 1988-89 (constant prices)
(percentages)
1980-81 1981-B2 1982-83 1983-84 1984-35 1985-86 1986-87 1987-88 1988-89
Construction
Buildings 5.25 3.93 3.18 4.88 2.94 4.52 13.60 3.17 3.20
Road & Bridges 0.20 0.25 0.13 0.28 0.23 0.23 0.22 0.24 0.22
Other Construction 56.63 57.18 31.34 47.84 66.00 66.62 65.68 66.68 63.94
Total 62.09 61.36 34.66 52.99 69.18 71.37 79.50 70.08 67.37
Machinery and Equipment

Plant & Machinery 32.05 33.21 27.80 18.07 17.33 19.20 19.45 20.86 22.94
Transport 1.91 2.63 1.32 2.29 0.62 1.35 1.20 1.75 1.86
Net (P) of Second 0.01 2.99 29.93 24.21 11.42 7.94 0.17 5*50 7.29
hand Phy. assets
Total 33.97 38.84 59.05 44,57 29.36 28.49 20.82 28.12 32.09
Source: Estimated.
25
Figure 7 : GCF in Agriculture in Kerala
16000
14000-
Total GCF
12000-
10000'
Private GCF ^--'

8000'
. . « « • - • "
6000-
Public GCF
[•••••iiim,,i,„
4000.
2000- noocaaeoDWO
1983 1984 1985 1986 1987 1988 1989
26
Table 16: Estimates of gross capital formatioh by type of Assets in
Private Sector A.P., 1980-81 to 1988-89 (constant prices)
(percentages)
1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89
Construction
Buildings 39.50 4.34 5.45 6.66 5.93 5.57 4.42 4.48 5.46
Other Construction 1285 42.82 39 86 55.39 60.84 56.13 57.03 54.59 49 53
Total 52.36 47.15 45.31 62 05 66.77 61.70 61.45 59.08 54.99
Machinery & Equlpement

Plant & Machinery 28 63 49.44 52.18 33.12 30.95 36.05 35 98 37.98 41.67
Transport 1.24 3.41 2.51 3.58 2.28 2.26 2.57 2.94 3.34
Total 29 88 52.85 54.69 36.69 33.23 38.30 38 55 40.92 45.01
Source: Estimated.
Table 16(a): Gross Capital Formation by type of Assets in

Non Departmental Undertakings In Public Sector in A.P.,
1980-81 to 1988-89 (constant prices) (percentages)
1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89
Construction
Buildings 25.98 — 10.72 17.09 6.20 21.44 4.16 4.93 0.39
Other Construction 0.00 — 7.70 0.38 5.17 7.35 74.39 25.^ 55.10
Total 25.98 — 18.42 17.47 11.38 28.78 78.55 30.91 55.48
Machinery & Equipment

Plant & Machinery 36 05 —. 11.69 41.28 1.00 22.61 2.47 1.85 3.13
Transport 9.23 — 6.33 8.35 0.00 16.23 1.31 23.;^ 425
Total 45.29 — 18.02 49.63 1.00 38.84 3.78 25.63 7.39
Source: Estimated.
Table 16(b): Estimate of gross capital formation in Local Bodies in

Public Sector in A.P., 1980-81 to 1988-89 (constant prices)
(percentages)
1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987^88 1988^9
Construction
Buildings 13.06 24.82 19.17 16.48 19.37 19.51 19.53 4.57 457
Other Construction 4249 28.37 34.17 34.47 34.78 34.49 34.40 82.21 82.24
Total 55.55 53.19 53.34 50.94 54.15 54.01 53.93 86.78 86.81
Machinery & Equipment

Plant & Machinery 4.33 6.38 5.83 5.53 5.53 5.57 5.54 1.28 1.26
Transport 2.20 2.84 2.50 2.55 2.37 2.44 2.62 2.93 2.97
Total 6.53 9.22 8.33 8.09 7.91 8.01 8.16 4,20 4.23
Source: Estimated.
27
Table 16(c): Gross Capital Formation by type of Assets In
Government Administrative Departments In Public Sector A.P.,
1980-81 to 1988-89 (constant prices) (percentages)
1980^1 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89
Construction
Buildings 5.46 2.23 0 75 0.91 0.17 2.90 22.14 1.71 0.74
Other Construction 81.35 85.79 24.49 45.40 69.36 78.06 72.80 79.34 79.16
Total 86.81 88.02 25.24 46.30 69.54 80.96 94.94 81.05 79.90
Madiinery & Equipment

Plant & Machinery 5.78 0.31 6.52 4.25 6.80 4.46 6.73 4.38 4.25
Transport 0.61 1.06 0.05 0.31 0.32 0.08 0.01 0.04 0.09
Total 6.39 1.37 6.57 4.57 7.12 4.54 6.75 4.98 4.33
Source: Estimated.
V b. Pattern of Capital Formation in Agriculture in Kerala
The main features of GCFA in Kerala include: (i) a positive growth in

GCFA (ii) dominant and growing private sector (iii) entire GCFA in fishing
and forestry originating in private and public sector respectively (iv)
government and departmental enterprises comprising a major component of
GCFA in public sector and (v) machinery and equipment component
dominating in fisheries.
Over the period from 1980-89, the GCFA in Kerala has grown from
Rs. 11,474 lakhs to Rs. 16,648.87 lakhs in 1980-81 prices (Table 17).
Table 17: Gross Fixed Capital Formation In Kerala for the Years
From 1980-81 to 1988-89 By Industry of Use of Constant Prices
(Rs. in lakhs)
1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89
Construction
1. Agriculture 10505.00 12422.26 11614.76 9511.75 10282.49 12827.12 1117853 11513.87 13362.45
2. Forestry & 268.00 374.65 153.10 218.13 127.61 116.82 17.34 35.99 20.98
Logging
3. Fishing 700.00 931.46 1168.01 1641.80 1981.09 2143.49 2332.78 2734.68 3265.44
Total 11473.00 13728.37 12935.87 11371.68 12391.18 15087.42 13528.65 14284.56 16648.87
Source: Directorate of Economics & Statistics, Government of Kerala, Thiruvananthapuram,
28
After a decline unit TE 1984-85, the GCFA in Kerala continuously increased
(Table 18a & Figure 7). Among the sub-sectors, the agriculture proper has
comprised between 80 and 91 percent. This is followed by fishing and
forestry, which remained between 6-19 percent and less than one percent
to 2 percent respectively (Table 18b). However, there has been a
consistent decline in the share of agriculture proper which has fallen from
91.56 percent in 1980-81 to 80.26 per cent in 1988-89. By contrast, the
share of fishing has been consistently increasing to reach 19.61 percent in
1988-89 from 6.10 percent in 1980-81. (Table 18b). As against these
trends, the contribution of forestry in GCFA is nearing negligible (Table
18b).
Table 18(a) : Gross Fixed Capital Formation in Kerala for the Years
From 1980-81 to 1988-89 By Industry of Use at Constant Prices
(Rs. in Lakhs) (three yearly moving averages)
Agriculture Forestry Fishing Total
1982-83 11514.01 265.25 933.16 12712.42

1983-84 11182.93 248.63 1247.09 12678.65
1984-85 10469.67 166.28 1596.97 12232.92
1985-86 10873,79 154.18 1922.13 12950.10
1986-87 11429:38 87.25 2152.45 13669 09
1987-88 11839.85 56.72 2403.65 14300.22
1988-89 12018.29 24.77 2777.64 14820.70
Source: Estimated.
Table 18(b) : Gross Fixed Capital Formation in Kerala for the Years
From 1980-81 to 1988-89 By Industry of Use at Constant Prices
(Percentages)
Agriculture Forestry Fishing
1980-81 91.56 2.33 6.1

1981-82 90.48 2.73 6.78
1982-63 89.79 1.18 9.03
1983-84 83.62 1.92 14.43
1984-85 82.98 1.03 1598
1985-86 85.02 0.77 14.21
1986-87 82.63 0.13 17.24
1987-88 80.6 0.25 19.14
1988-89 80.26 0.13 19.61
Source: Estimated.
29
Public Vs. Private
In Kerala there has been a consistent rise in the share of private sector in
GFCA. The latter's share has increased from around 54 percent in 1980-81
to 79 percent in 1987-88 (Table 19). Except for 1988-89 which depicts a
marginal improvement, the public sector's share in the same duration has
been declining from around 46 percent to 21 percent (Table 19).
Table 19 : Gross Fixed Capital Formation in Kerala - By Industry of

Use In Public and Private Sectors for The Years From 1980-81 -
1988-89 in constant prices (percentages)
Years Agriculture Forestry & Fishing Total
Logg,
Public Private Public Private Public Private
1980 81 47,67 52.33 100,00 100.00 45,99 54,01

1981-82 46.08 53.92 100,00 100.00 44,42 55.58
1982-83 41.21 58.79 100,00 100.00 38,19 61.81
1983-84 41.70 58.30 100,00 100.00 36,80 63.20
1984-85 38.56 61.44 100,00 100,00 33,03 66.97
1985-86 36.19 63.81 100,00 100.00 31,54 68.46
1986-87 31.66 68.34 100,00 100.00 26,29 73.71
1987-88 25.75 74,25 100,00 100.00 21,00 79.00
1988^9 26.41 73.59 100,00 100,00 21,32 78:68
Source: Estimated.
It should be pointed out that entire GCFA in fishing in Kerala originates

from private sector only. Whereas the GCFA corresponding to forestry
remains in the domain of public sector alone.
Within the public sector, the share of Government and departmental

enterprises (GADE) has been consistently increasing. Except 1982-83, the
share of GADE in GCFA in Kerala's public sector has gone up from 93.67
percent to 98.58 percent (Table 20). By contrast, the share of non-
departmental commercial undertakings (NDCUs) in the public sector GCFA
has fallen from 6.33 percent to 1.42 percent during this period.
Table 20: Share of Different Institutions in Public & Private Sector

GFCFA in Kerala from 1980-81 to 1985-86 - [percentages]
Public Sector Private Sector
Years GADE NDOVs HH Live stock Fishing
1980-81 93,67 6.33 86,46 2.24 11.29
1981-82 94.66 5,33 85,04 2.75 12.21
1982-83 94.19 5,81 82,45 2.93 14,6
1983-84 95 14 4.85 74,41 2.75 22.84
1984-85 96.03 3.96 73,48 2.64 23,87
1985-86 97.57 2,42 76,16 3.08 20,75
1986-87 97.97 2,03 73,86 2.75 23,39
1987-88 98.58 1,42 73,02 2.74 24,23
Source: Estimated.
30
Within the private sector, the share of household sector in QCFA has
declined. Except the years 1985-86 and 1986-87, its share has failen from
86.46 percent (in 1980-81) to 73.02 percent (in 1987-88). With minor
fluctuations, the share of livestock in private sector GCFA in Kerala has
remained around 3 percent. However, major increase in the share of GCFA
in private sector has been in fishing. Except for 1985-87, it has increased
from 11.29 percent to 24.23 percent (Table 20). A similar picture is
portrayed by the three yearly moving averages (Table 21).
It is also pertinent to note that the household sector in Kerala has been
increasingly dominated by the rural component (Annexure Table 2). At the
same time, the fisheries has been mainly associated with machinery and
equipment, especially the mechanized and non-mechanized boats etc. (Table
22).
Table 21 : Gross Fixed Capital Formation in Kerala, by Industry of

Use and by Type of Institution from 1980-81 to 1988-89
(at constant prices) (three yearly moving averages)
1. Agriculture II. Forestry and III. Fishing Iv. Grand Total
Logging
Public Sector Private Sector Public Sector Private Public Private Total
Sector
GA&DE NDCUs HHS Live GADE&E NDCUs
Stock
1982-83 4946 227 6146 195 177 88 933 5438 7274 12712
1983-84 4625 201 6143 214 178 71 1247 5075 7604 12679
1984-85 4053 187 6013 217 136 31 1597 4407 7827 12233
1985-86 4052 139 6437 245 133 21 1922 4345 8604 12950
1986-87 3944 104 7110 271 75 12 2152 4135 9533 13669
1987-88 3646 69 7824 301 49 8 2404 3772 10529 14300
1988-89 3305 39 8358 317 21 4 2778 3369 11453 14821
Source: Estimated.
Table 22: @r<oss Fixed Capital Formation in Kerala - at Constant

Prices (1980-81 to 1988-89) (Rs. in '000)
Tijfpe j*t iBoats 1980-81 1981-82 1982-83 1983,84 1984-85 1985-66 1986-87 1987-88 1988-89
iHtedtante^ Boats
t . © i i l fKrittters 25.90 •2&m mm ;2;i.aD 20.01 18.73 17.72 16.71 15.66
2. 'Prawlers 44.06 mm s o .eg© M.T7 57.80 60.92 64.03 67.04 69.61
3. Uners 6.09 AM 4.33 3.91 3.41 2.95 2.57 2.25 1.97
4. Others 5.93 5.04 4.47 4.02 3.56 3.10 2.72 2.36 2.06
Non-Mechanized B o ^ s
1. Beachscine boat 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
2. Plant bink boats 18.02 20.50 18.52 16.71 15.22 14.30 12.95 11.64 10.36
3. Dugsoat canoes 000 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0,00
4. Catamarans 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 000
5. Others 0.00 e.cc 0.00 0.00 0.00 0.00 0.00 0.00 0.34
Total TOO.O 100.00 100.00 100.0 100.00 100.00 100.00 100.00 100.00
Source: Estimated.
31
Figure 8 : GCF in Agriculture in Rajasthan
30000
Total GCF
25000
20000 •
Private GCF
15000
M
DC
Public GCF \
10000
5000
0-"—I 1 —I 1 1 ^-i——r— 1 -1 1— -r—

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
32
V c. Pattern of Capital formation in Agriculture in Rajasthan
The main features of GCFA in Rajasthan include: (i) a decline in GCFA (ii)
dominant public sector, and (iii) construction being the main component of
GCFA both in public and private sectors.
Over the period from 1980-81 to 1992-93, the gross fixed capital formation
in agriculture (GFCFA) in Rajasthan has declined with a linear rate of 0.376
percent per annum. In this duration it declined from Rs. 21425 lakhs to
Rs. 18388 lal<hs at 1980-81 prices, l-lowever, there are mixed trends over
different time period encompassing the entire duration of 13 years (Figure
8). In terms of three yearly moving averages in the trienniums ending
1982-83 and 1986-87, there was an increase by 10.98 percent. This was
followed by a major decline by 49.55 percent from TE in 1987-88 to TE
1990-91 and a recovery in the TE 1991-92 to TE 1992-93 by 13.68
percent (Table 23).
Table 23 : Estimates of Gross Fixed Capital Formation (GFCF) at

Constant Prices In Agriculture in Rajastlian
(Rs. In Lac) (Three Yearly iVIoving Averages)
Years Public Private Total
1982-83 10241 12592 22834

1983-«4 10490 13468 23958
1984-85 9723 14671 24394
1985-86 8855 15880 24735
1986-87 8729 16613 25341
1987-88 8780 16557 25337
1988-89 9115 12132 21247
T989-90 8942 7710 16652
1990-91 8771 4011 12782
19914iS 9017 4530 13547
1992-^ SSkS 5594 15400
Source: Estinated, original iinfermation Obtained from Directorate of Economics & Statistics, Government of
Rajasthan, Jaipur.
Public Vs. Private Sectors
In terms of public and private sectors, tliere are interesting notable trends.
From 1980-81 to 1987-88, the GFCFA in private sector remained higher
than its public counterparts. Since 1989-90, however, curve for GFCFA in
public sector has remained above its private counterparts (Figure 8). Viewed
from the three yearly moving averages, it is observed that ug^ the TE
1988-89, GFCFA in private sector in Rajasthan had moved m opposite
33
direction to its public sector counterpart. For instance, from TE 1984-85 to
TE 1986-87 the public sector GFCFA had shown a decline, whereas the
private sector had depicted a positive trend. The reserve was the case for
the next two trienniums, namely, TE 1987-88 and TE 1988-89 when
GFCFA in public sector had been increasing (Table 23). However, since TE
1989-90 the movements in GFCFA in public and private sectors have
followed similar negative or positive directions.
Share of Agriculture of GFCF vis-a-vis Other Sectors
In comparison to other sectors, the share of agriculture in total GFCF in

Rajasthan has been declining. In public sector GFCF for instance, its share
has declined from 22.71 percent in 1980-81 to 16.92, 8.61 and 14.05
percent respectively in 1985-86, 1990-91 and 1992-93 (Table 24). Relatively,
there has been consistent increase in share of manufacturing (unregistered)
which increased from 9.94 percent in 1980-81 to 17.27 percent in 1992-93.
Electricity, Gas and Water supply and Public Administration continue to
occupy an important place in GFCF with their current share in public sector
GFCF being as 28.22 percent and 18.54 percent respectively.
Table 24 : Estimates of Gross Fixed Capital Formation (GFCF) of

Public Sector in Rajasthan by Type of Assets at Current Prices
(in Percentage)
Years Agriculture EGAWS Manufacturer Public Others Total

(Unreg.) Admin.
1980-81 22.71 34.53 9.94 18.68 14.14 100.00

1985-86 16.92 32.52 11.56 18.93 20.07 100.00
1990-91 8.61 28.58 14.98 14.83 33.00 100.00
1992-93 14.05 28.22 17.28 18.54 21.91 100.00

Note : Others - manufacturing (regd.).
Table 25 : Estimates of Gross Fixed Capital Formation (GFCF) of

Private Sector In Rajasthan by Type of Assets (constant prices)
Years Agriculture Manufacturer Manufacturer Resi. Residence Total

(Reg.) (Unreg.) BIdgs.
1980-81 26.16 21.44 11.67 39.82 091 100.00

1985-66 25.47 29.44 10.83 33.26 1.00 100.00
1990-91 6.66 33.04 16.76 41.8 1.74 100.00
1992-93 10.17 29.18 17.61 41.49 1.55 100.00
34
The declining share of agriculture in relation to other sectors is more
dominant in private sector (Table 25). In 1981, more than one fourth of
GFCF (i.e., 26.16 percent) originated in agriculture. The same is, however,
around one tenth (i.e., 10.17 percent) in 1992-93. Currently a major chunk
of GFCF in private sector in Rajasthan (around 47 percent) is emerging in
manufacturing (registered and un-registered) and residential buildings (41.49
percent).
Components of Gross Fixed Capital Formation In Agriculture (GFCFA)
Within the agriculture sector, the share of sub-sectors, namely, forestry and
fishing, has been almost negligible in private sector (Table 26 & 27). The
same has been less than or around one percent in public sector.
Table 26 : Estimates of Gross Fixed Capital Formation (GFCF) in

Rajasthan at Constant Prices for Construction Assets [3 Yearly
moving averages] [Public and Private] [Rs. in Lakh].
Years Public Private Total Public Total Public Total
1982-83 9357.49 5018.36 14375.85 348.39 348.39 11.85 11.85

1983-84 9573.18 5072.61 14645.79 389.62 389.62 10.96 10.96
1984-55 9023.29 5156.29 14179.58 357.59 357.59 14.65 14.65
1985-86 8093.07 5326.79 13419.85 381.81 381.81 12.02 12.02
1986-87 8049.45 5641.64 13691.09 409.31 409.31 10.00 10.00
1987-88 8009.32 5633.48 13642.80 474.09 474.09 4.01 4.01
1988-89 8387.14 5706.96 14094.10 490.28 490.28 9.41 9.41
1989-90 8185.00 5659.35 13844.35 403.74 403.74 8.04 8.04
1990-91 7937.03 5901.18 13838.21 488.20 488 20 14.16 14.16
1991-92 7990.59 6097.45 14088.04 646.69 646,69 12.85 12.85
1992-93 8549.58 6788.32 15337.90 934.66 934.66 12.85 12.85
Table 27 : Estimates of Gross Fixed Capital Formation (GFCF) in

Constant Prices for Machinery & Equipment [3 Yearly moving
averages] [Public and Private] [Rs. in Lakh].
Years Public Private Total Public Total Public Private Total
1982-83 501.24 7570.34 8071.58 19.73 19.73 2.63 3.55 6.18

1983-84 494 99 8392.24 8887.23 19.19 19,19 2.32 3.27 5.59
1984-85 320.21 9511.48 9831.70 4.46 4.46 2.80 2,82 5.62
1985-86 357.17 10549.71 10906.88 7.73 7.73 3.62 3.56 7.18
1986-87 238.63 10966.07 11204.69 17.22 17,22 4.15 4.81 8.96
1987-88 252.46 10923.55 11176.01 36.58 36,58 3,08 0.43 3.50
1988-89 194.63 6430.30 6624.92 31.69 31.69 1.39 -4,87 -3.48
1989-90 308.59 2054.48 2363.07 25.84 25.34 10.74 -4.28 6.46
1990-91 311.49 -1889.36 -1577.87 6.21 6.21 13.57 -0,69 12.88
1991-92 338.90 -1571.41 -1232.50 12.37 12.37 15.66 3.94 19.60
1992-93 269.67 -1198.11 -928.44 33.37 33.37 5.19 4.07 9.26
35
The available break-up of GFCFA, in terms of construction and machinery
and equipment, depicts discernible opposite trends in public and private
sectors (Annexure Table 3 and 4). In the public sector, for instance, the
share of construction which remained around 78 percent came down to
around 74, 46 and 60 percent respectively In 1985-86, 1990-91 and 1992-
93. In comparison to this, the share of construction in private sector
increased from around 56 percent In 1980-81 to around 46 percent, 56
percent and 58 percent respectively in the years 1985-86, 1990-91 and
1992-93. Unlike the public sector, through the changes in machinery and
equipment in private sector have not been so sharp, yet relatively Its share
in private GFCFA has declined to 42 percent in 1992-93 from 44 percent
in 1980-81. These differences in the shares of construction and machinery
& equipment indeed indicate that composition of capital formation in public
and private sector has.been changing overtime. As a matter of fact, lesser
construction activity in the public sector is being indicated by this changing
composition.
V d. Pattern of Capital Formation in Agriculture In Tamil Nadu
The main features of GCFA in T.N. include : (i) declining GCFA (ii)
dominant private sector (ill) major shares of forestry and logging belong to
public sector. By contrast fishing mainly remains in private sector and (iv)
state government departmental enterprises being the major contributor to
public sector GCFA.
In the duration of 1980-89, GFCFA in Tamil Nadu increased from

Rs> 154329 lakhs to Rs. 558408 lakhs. In terms of trinniums, the GFCFA
in the state declined by 25.21 percent between TE 1982-83 to TE 1985-86
and it recovered in the latter TE 1986-87 to TE 1988-89 with an increase
by 8.84 percent (Table 28).
Table 28 : Gross Fixed Capital Formation in Agriculture & Allied

Sector in Tamil Nadu, 1980-81 to 1988-89 (three yearly moving
averages, constant prices, Rs. In lakhs)
Year Public Sector Private Sector Total
1982-83 5252.07 14052.59 19304.66

198a«4 6908.92 11905.56 18814.48
1984-85 7390.59 9931.25 17321.84
1985-86 7532.24 6904.92 14437.16
198e«7 7128.29 8229.34 15357.63
1987-88 7398.09 8929.07 16327.16
1988-89 7370.96 9345.11 16716.07
Source: EstimatBd, original information obtained from Directorate of Economics & Statistics, Government of
T.N., Mackas.
36
Figure 9 : GCF In Agriculture In Tamil Nadu
20000
18000
16000
14000 \
\ Private GCF
- 12000 4
c
«
10000
8000 ^
'^^^^^•tm-mrr-rm-jim'
6000
4 Q 0 0 ^*''>w>««AW»*îVw.'*r.w iriiTfir>rrfiriinfvviriTf|-iritMn<MirBitMWiiiirrfin
"T"^ T —r— T
1983 1984 1985 1986 1987 1988 1989
1986
Year (triennlum ending)
37
Table 28 (a) : Share of Agriculture & Allied, Forestry & Logging and
Fishing in Tamil Nadu (By Triennium)
Year Agril & Allied F & Logging Fishing
1982-83 62.43 5.89 31.68

1983-84 67.4 7.45 25.15
1984-85 72.07 9.11 18.82
1985-86 85.11 10.27 4.62
1986-87 82.36 8.72 8.92
1987-88 81.82 8.33 9.84
1988-89 78.28 8.61 13.1
Within the GFGFA, the agriculture proper comprised between 60-80 percent.
This share increased from around 62 percent to 85 percent in the TE
1982-83 to TE 1985-86. However, since TE 1986-87, the agriculture proper
declined from around 82 percent to 78 percent. (Table 28a). Similar trend
in observable for forestry and logging whose share in the corresponding
duration increased initially from around 6 to 10 percent and fell in the latter
period to around 9 percent. The reverse trends are observed for fishing
which in the latter period (i.e., TE 1986-87 to TE 1988-89) recovered from
the earlier steep decline to around 13 percent (Table 28a).
Public Vs. Private Sectors
The aforesaid trends also reflect the changing shares of public and private
sectors. Pertinently the major shares of forestry and logging and fishing
belong respectively to public and private sectors. (Table 29). Nearly 95
percent of GFCFA in forestry and logging for the entire duration from 1982-
89 originated in public sector. By contrast, more than 90 percent of GFCFA
in fishing came from private sector (Table 29). These trends coupled with
the agriculture proper are reflected in the overall shares of public and
private sectors in GFCFA. Though for almost entire duration, the private
sector has been dominant, yet there appear two phases (Figure 9). in one
of these phases, comprising the TE 1982-83 to TE 1985-86, the private
sector steadily declined from around 73 percent (in TE 1982-83) to 44
percent (in TE 1985-86). In the second phase of TE 1987-88 to TE 1988-
89, the private sector recovered and increased from 53 percent (in TE
1986-87) to 56 percent (in TE 1988-89; Table 29). In absolute terms, the
public sector depicted an increase of 43.41 percent and 3.40 percent
respectively in these two phases (Table 30). By contrast, in absolute terms
the private sector depicted a decline of 50.86 percent and an increase by
13.56 percent in the corresponding phases (Table 31).
38
Table 29 : Share of Public & Private Sector in GFCFA in
Tamil Nadu
Year Agri. & Allied F & Logging Fishing Total
Public Private Public Private Public Private Public Private
1982-S3 33.81 66.19 95 5 1.59 98.4 27.21 72.79

1983-84 45.6 54.4 95 5 2.58 97.42 38.45 61.54
1984-85 49.23 50.77 94.99 5 3.88 96.12 44.8 55.14
1985-86 49.52 50.48 95.44 4.56 17.49 82.51 55.43 44.57
1986-87 45.28 54.71 95.45 4.55 8.95 91.04 46.41 53.58
1987-88 44.68 55.32 95.45 4.54 8.15 91.85 45.31 54.69
1988-89 44.84 55.15 94.99 5 6.12 93.88 44.09 55.9
Table 30: Estimates of Gross Fixed Capital Formation of Public

sector in Tamil Nadu by Industry of use 1980-81 to 1988-89 [three
yearly moving averages] [at constant prices] [Rs. in lakhs]
Year Agri. Forestry & Fishing Total
Logging
1982-83 4074.60 1079.90 97.56 5252.07

1983-84 5521.67 1270.60 116.66 6908.92
1984-85 5844.62 1425.79 120.18 7390.59
1985-86 6090.70 1331.60 109.93 7532.24
1986-87 5727.66 1277.86 122.77 7128.29
1987-88 5968.71 1298.42 130.96 7398.09
1988-89 5868.77 1368.15 134.04 7370.96
Table 31: Estimates of Gross Fixed Capital Formation of Private

sector in Tamil Nadu by the type of Industry of use 1980-81 to
1988-89 at (constant prices) (three yearly moving averages)
Year Agri. & allied Forestry & Fishing Total
Logging
1982-83 7977.86 56.79 6017.94 14052.59

1983-84 7392.42 66.87 4446.27 11905.56
1984-85 6832.96 75.09 3023.20 9931.25
1985-36 6279.32 63.57 562.03 6904.92
1986-87 6920.51 60.91 1247.93 8229.34
1987.88 7390.89 61;86 1476.32 8929.07
1988-89 7217.11 72.07 2055.92 9345.11
39
The composition of public sector in GFCFA indicated that a major share
(around 71 percent) originates from state government departmental
enterprises, this is followed by government administrative departments
(around 26 percent) and government non-departmental enterprises (around 3
percent). In the duration of 1980-85, these shares have fluctuated
respectively in the interval of 62-81 percent, 16-34 and 2-6 percent (Tables
32 to 34.
Table 32 : Gross Fixed Capital Formation of state government

admlhistrative departments in Tamil Nadu by the 'Type of Industry
of use' 1980-81 to 1988-89 (as percentage to total public sector)
Industry 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89
Agri & Allied 18.61 14.55 17.56 25.35 27.54 25.35 23.92 32.62 24.66
Rshing 1.71 1.29 1.27 1.53 1.43 1.15 1.87 1.38 1.27
Total 20.32 15.84 18.84 26.88 28.97 26.50 25.79 34.00 25.93

departmental enterprises in Tamil Nadu by the 'Type of Industry of
use' 1980-81 to 1988-89 (as percentage to total public sector)
Industry 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89
Agri & Allied 56.41 64.93 59.10 56.98 49.60 57.59 57.19 45.77 54.65
Fishing 20.08 16.69 18.75 14.50 15.56 14.24 13.99 16.01 16.70
Total 76.50 81.62 77.85 71.48 65.16 71.83 71.18 61.78 71.35

non-departmental enterprises In Tamil Nadu by the 'Type of Industry
of use' 1980-81 to 1988-89 (as percentage to total public sector)
Industry 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89
Agri & Allied 0.15 0.26 0.08 0.07 0.19 0.03 0.03 0.11 0.11
Forestry & Logging 2.60 1.85 2.68 • 1.54 5.57 1.54 2.51 3.82 2.48
Fishing 0.44 0.43 0.56 0.03 0.11 0.10 0.49 0.30 0.13
Total 3.18 2.53 3.32 1.64 5.87 1.67 3.03 4.22 2.72
40
Vi. Complementarity Between Public and Private Sectors: All India
and State Level Scenario
As observed in section I, the use of complementarity between public and

private sectors has attracted considerable attention by various researchers.
Since an existence of complementarity between public and private sector or
its absence is likely to have an Impact on the overall investment and
growth of agriculture sector, the government policies should take due
cognigence of such phenomenon in deciding upon public outlay for the
sector. While it is convincingly argued by Mishra and Chand (1995) that the
complimentarity can not be determined by a simple causal relationship
(positive) between private and public investment. In the same vein we
argue that the substituability of public investment with private investment
can not also be determined by a simple causal relationship (negative in this
case) or by looking at the compensatory impact of private investment on
the total capital formation in agriculture. In other words, it is not rightly to
say that private capital can replace public investment as long as the total
investment continues to grow. One has to understand the implications of
public vis-a-vis private investment i.e., the accrual of benefits from these
investments. A cursory look at the type of investment by public and private
agencies makes it clear that the benefit flows are more equitable, inter and
intra regionally, in the case of public investment when compared to private
investment. As long as quity aspects continue to dominate our policy
agenda, the issue of complimentarity and substituability between public and
private investment in agriculture remain secondary.
Following the argument of Mishra and Chand (1995), the phenomenon of

complementarity should not be confused with a causal relationship or
inducement effect between public and private investment in agriculture. In
fact "complementarity is not only a relationship of being or coming together
to form a unity but also of acting together so as to produce an outcome
which neither of the complements can produce all by itself^". Conceptually,
therefore, we should also bear in mind the fact that the examples xited by
earlier researchers^ of public investment in infrastructure like rural link road
or rural power supply which creates enabling condition for agriculture and
may induce private investment in agriculture in tractors or tube wells denote
inducement effect and not the complementarity. The instances of
complementarity would include private investment in field channels which
come up in a canal irrigation project as the irrigation benefit from canal
irrigation cannot materialise in the absence of former. As against it, the
example of private investment in tubewell in a canal command area is
more a phenomenon of external benefits emerging from the canal irrigation
6. Mishra and Chand (1995), ibid, P. A-69.
7. See, for instance, Rao (1994).
41
system. The absence of the latter does not prevent the benefits emerging
from private tubewells. Thus bearing in mind the distinction between
complementarity and* other phenomenon like causal relationships, inducement
effect or external benefits emerging from public investment in agriculture, the
appropriate method for measuring complementarity would not be based on
a regression analysis, if there is a priori reason to believe that public and
private investment in agriculture are complementary, an appropriate method
would involve finding out "the direction and rate of movement of the two
time series", namely, public and private investment in agriculture which
should be the same and of similar order starting from any initial position.
Adopting the logic, thus, we have prepared the graph of the indices of the
public and private capital formation in agriculture at the constant prices of
1980-81 and common base year of the triennium ending 1982-83. These
indices and graphs are presented for all-India as well as state level (Table
35, Figures 10-14).
Viewed from these graphs of the public and private capital formation indices
at the all-India level as well as the growth rates given for the capital
formation series both in public and private sectors in Table 3 and 6, it
could be observed that movement of two series, in the decades of 1960's
and 1970's was broadly in the same direction. The two series had grown
at different rates, however, in these two decades (Table 3 and 6). Further,
a divergent movement of these series is notable since 1983-84. After this
year, private sector capital tormation series is marked by a continuous
growth and the reverse has been the case for public sector until the latest
year of 1993-94. These diverse movements of the two series with
differential growth rates generally fail to bringout any clear relationship
between the public and private sector capital formation.
The Indices for capital formation for the states of A.P., Kerala, Rajasthan
and T.N. are also presented in Table 35. These have been presented in
graphic form in figures 11 to 14. It could be observed from these graphs
also does not provide any clear pattern between public and private capital
formation in agriculture for any of the four states. In A.P., for instance,
although the direction of movements of two series is the same but the
latter have different growth rates. By contrast, in Kerala, both the series
have been moving in opposite directions. The public sector series is
declining with more than commensurate rise in private sector, indicating a
substitution type relationship. Similar phenomenon of substitution between
public-private sectors is prominent in T.N. till 1986 and later it resembles a
positive relation. In Rajasthan, however, these series are moving in opposite
direction since TE 1988-89 with a steeply declining private sector. The latter
is not being compensated by the growth in public sector, thus, ruling out
substitution type nature between the two series. To sum up, at the
42
Figure 10 : Index of GCFA in Indian Economy
(base 1982-83, public & private)
160f
140^
120
100
u
o
M
•a Private GCF
1963 1967 1971 1975 1979 1983 1987 1991 1994
Year (trlennium ending)
43
Figure lib?: Indeacjpf fiCFIk; In A>P.
(base 1982-8% publics&fpriyê>
^r<'^*>w•?«<^^«»>;<o>:o(•>>>u<>l*M^w»*
190 T
180
170
160
150
<
u.
O Public GCF
O 140 i
X
•
•a
c
130
120
110-
Private GCFj
100"
"T—
1983 f984 1985 1986 1987 1988 1989
Year (trieririium ending)
44
Figure 12 : Index of GCFA In Kerala
(base 1982-83, pUbllc & private)
160
150
140
130
i20
Private GCpy
ou.
X 110'
o
•a
100-
90 Public GCF
80'
70
60 ~1 T
^VAU.oAau«daMie«A.*i!sa
^----^1-'-'--'''--'—^'
1983 1984 1985 198&
198© 1987 1988 1989
Vear (triennlum ending)
45
Figure 13 : Index of GCFA in Rajasthan
140 '
Private GCF x"

/
120 '
100
u
o 80 •':
»
C
40
20 L 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
46
Figure 14 : Index of GCFA in Tamil Nadu
150
140
Public GCF
130^
120
110
2
o
100
X
•o
c 90
'\ Private GCF
80
70
60 •
50 \y
40 T
1983 1984 1985 1986 1987 1988 1989
47
aggregate level the above analysis does not provide any clear cut evidence
regarding the relationship between public and private capital formation in
agriculture at the all-India as well as at the state level. Therefore, it is
necessary to examine the relationship using more rigorous techniques like
regression analysis. Though simple regression analysis is not sufficient to
prove ^ e complementarity argument, it would at least help in understanding
the existing relation (causal) between public and private capital formation in
agriculture.
Table 35 : Index of GCFA (Base 1982-83)

Year TE All India A.P. Kerala Rajasthan T.N1.
Public Pvt. Public Pvt. Public Pvt. Public Pvt. Public Pvt.
1962-63 34.89 39.37

1963-64 37.37 41.36
1964-65 40.46 44.89
1965-66 42.48 49.80
1966-67 42.10' 54.48
1967-68 40.85 60.37
1968-69 40.32 64.77
1969-70 41.70 69.87
1970-71 43.35 70.71
1971-72 44.80 72.28
1972-73 49.60 72.59
1973-74 53.10 75.6:3
1974-75 54.04 75.73
1975-76 53.92 78.51
1976-77 61.12, 86.35
1977-78 72.49 92.10
1978-79 84.61 105.65
1979-80 91.77 111.85
1980-81 97.61 115.11
1981-82 99.78 106.40
1982-83 100.00 100.00 100.00 100.00 100.00 100.00 190.00 100.00 100.00 100.00
1983-84 99.37 95.37 118.10 97.00 93.32 104.54 102.43 106.96 131.55 84.72
1984-85 98.42 95.90 153.42 96.68 81.04 107.60 94.94 116.51 140.72 70.67
1985-86 94.77 95.38 160.62 100.63 79.90 118.28 86.47 126.11 143.41 49.14
1986-87 88.99 102.11 184.87 117.01 76.04 131.05 85.23 131.93 135,72 58.56
1987-88 84.46 105.65 185.67 127.14 69.36 144.75 85.73 131.49 140.86 63.54
1988-89 81.43 109.02 183.56 133.32 61.95 157.45 89.00 96.34 140,34 66.50
1989-90 76.70 112.84 87.31 61.23
1990-91 71.93 118.48 85.64 31.85
1991-92 65.84 127.80 88.05 35.97
1992-93 63.37 141.37 95.74 44.42
1993-94 63.30 153.37
Source: C.S.O. Data, Appendix Table 3, 13, 21, 23, 30 & 31..
Note : Blanks in the above table indicates non-availability of data.
48
Here our intention is to establish the kind of relationship that is existing
between public and private investment at the all India level and state level.
So far, the attempts at all-India level have been used to indicate and
analyse phenomenon such as complementarity. It is also pertinent, however
to carry out state level analysis to determine whether the direction of public
investment policies in agriculture in the states covered by us follow the all-
India trends. Such a comparative analysis will highlight the significance of
state specific variation in agriculture policies in influencing the direction of
public-private investments in agriculture. The purpose is to examine whether
the regional picture commensurates with the macro picture.
For this purpose we have estimated, the elasticity coeiildent between public
and private investment at the all India level and for the four selected states
using the following functional form:
Log (PVTGCFC,^,) = a -H (b) log (PUBGCFC,)
The estimated elasticities are presented below :
STATE PERIOD EUSTICITY SIGNIFICANT AT
1. ALL INDIA 1980-81 to 1993-94 -0.968 1 Percent

2. ANDHRA PRADESH 1980-81 to 1988-89 0,5159 1 Percent
3. KERALA 1980-81 to 1988-89 0.1625 Not significant
4. RAJASTHAN 1980-81 to 1992-93 1.5265 Not significant
5. TAMIL NADU 1980-81 to 1988-89 0.8065 1 Percent
Our estimated elasticity for all India is -0.97 and significant at 1 percent
level. This indicates the strengthening of the phenomenon of substituability
between public and private capital during the process of liberalisation, as
the elasticity for the period 1980-81 to 1991-92 was estimated at -0.50 by
Mishra and Chand (1997). But, our state level estimates provide a different
picture. For all the states the estimated elasticities are positive and also
significant for two states. One reason for this opposite trend could be the
difference in the time period. Even in this regard Ihe elasticity estimate for
Rajasthan, for which we have the data till 1992-93, does not support the
all India picture. The positive elasticity at the state level indicates a
complimentarity or inducement effect of the public investment on private
investment.
More importantly, as mentioned earlier, the role of public investment in

agriculture goes beyond the kind of impact it will have on private
investment. While its inducement effect on private investment is well
established (for recent estimates see Dhawan, 1996), the repercusions of
49
the substitutability argument are not addressed in the literature. In what
follows here, we highlight some of the important aspects of public capital
formation in agriculture in an attempt to negate the substitutability of public
investment with private investment. Two important features of public capital
formation are i) creation of public goods, and ii) core investment. As
evident from number of studies a large portiori of capital formation in
agriculture goes towards irrigation development. While the public capital
formation in agriculture goes toward large and medium irrigation, private
capital is invested on well irrigation. Of these two the former is community
based and equitably distributed than the private capital which is mainly
individual based. Similarly, private capital flows as they are guided by profit
maximisation, tend to concentrate in better endowed regions leading to
regional inequalities. Though these arguments call for an indepth and
disaggregate analysis at the regional level, our state level analysis provides
some insights in this regard. Of our selected states, agriculturally more
developed states like A.P. and T.N. have shown an increase in private
capital formation along with the public capital formation. On the other hand,
there is no such correspondence in the case of agriculturally backward
states like Rajasthan and Kerala. This indicates that private investment is
not coming forward even to the extent of inducement effect, let alone
substituting the public investment. If one looks at the investment pattern of
public and private capital formation, it is glaringly evident that some of the
important areas like forestry are totally left out by private sector. While it is
irrational to expect private investment in forestry in the existing institutional
set up, it is unwise to neglect such important areas under the disguise of
minimising public investment. But for the public capital, creation of
environmental goods will come to a standstill. On the contrary, ona can
observe environmentally unfriendly investments in the private domine such
as increasing investments in ground water exploitation with least concern for
its development and investments in fisheries which focus on increasing short
run yields rather than sustainable yields. This kind of investments not only
disturbs the ecological balance but also aggravate inequity.
Secondly, the role of private sector is rather limited in case of core

investments such as infrastructure development. Most important among
these are roads, electrification, communication, market yards, godowns, cold
storage facilities, etc. All these are interlinked and depend on one another.
Here the availability of roads are vital for the development of other facilities
like market yards. In the given conditions only public investment goes
towards creating this core infrastructure like roads, and the private
investment, if at all, in the construction of market yards, etc., only follows
or induced by the availability of the road. While corporate sector can play a
vital role in creating the core infrastructure, the entry of corporate sector
into agriculture in such a big way is not feasible in the present socio-
50
economic context. Indian agriculture which is small farmers dominated is not
ready for such a takeover as it will pauperise these small and marginal
farmers. Even for freeing the land lease market, that is being debated
presently at the central level, it is argued that there has to be a ceiling on
the extent of land leased in so that the entry of corporate sector is
checked. Even if free entry is allowed to corporate sector, its entry will be
limited to potential areas leaving the less endowed regions to their own
fate. This has happened even in western agriculture where the subsistence
agriculture terrains are protected (subsidised) by the state as it is not
lucerative for the corporate sector. Therefore, the role of corporate sector in
Indian agriculture in promoting capital formation in agriculture is rather
limited in the present context. Even in the event of limited entry of
corporate sector into agriculture, it can not substitute public capital
formation, especially in terms of its impacts.
Thus, the preceding discussion emphasises the need for public capital
formation in agriculture in the given socio-economic conditions irrespective of
the nature of relationship it has with private capital formation. It is
necessary not only to induce or boost the private investment but also due
to the fact it can not be substituted in certain areas. In this regard the
recent budgetary thrust towaards agriculture is in the right direction. Unless
agriculture sector is receives a major boost in terms of productive
investments such as irrigation and infrastructure development, it would be
highly unlikely to achieve the targeted growth rates in the long run. And it
would be rather optimistic to expect such massive investments from the
private sector.
VII. Factors Influencing the Capital Formation In Indian Agriculture
Our above analysis does not provide an evidence of complementarity

between public and private sectors. For almost entire duration, there have
been movements in capital formation in agriculture indicating a growing role
of private sector. Even at the state level, except Rajasthan, the growing
prominence of private sector is evident. In A.P., for instance, since 1985-86
GFCFA in private sector began to become prominent. Similar is the case in
Kerala since 1980-81. In Tamil Nadu also from 1987 onward the pattern
favoured the private GFCFA.
In this background, there emerge the following two pertinent questions: (i)
what are the factors which influence public as well as private capital
formation in Indian agriculture? and (ii) what could be the policy options to
strengthen the process of capital formation specifically keeping in view the
ongoing process of liberalisation in Indian economy? The answers to
second question partly emerge indeed from an analysis of the factors
influencing public-private capital formation. In this regard, it is pertinent to
51
observe that earlier studies have focussed their attention on explaining
various factors that might have led to a decline in public sector capital
formation. Thus, at the all-India level, presuming complementarity between
public and private sectors, the falling GFCFA in public sector has been
explained in terms of : (i) decline in the proportion of expenditure on
agriculture and allied sector in the aggregate (plan and non-plan)
expenditure of the centre and states and (ii) fast growth of agriculture
subsidies or rising proportion of expenditure on revenue account (Shetty,
1990; Rao, 1994). Raising doubts about the presumed complementarity
between public and private sectors, the decline in public sector GFCFA at
the all-India level has been explained, however, in terms of political
economy of agriculture policies which led to public financing of private
sector GFCFA (Mishra and Chand, 1995). Therefore, in analysing the
factors responsible for decline in the public sector capital formation we
proceed with the assumption of an absence of complementarity between
public and private capital formation. Since the budgetary outlay forms the
basis of public investment in agriculture, firstly we examine whether there
has been a considerable decline in this outlay and further proceed in this
section to analyse price and non-price factors influencing the process of
capital formation in Indian agriculture.
VII a. Budgetary Expenditure on Agriculture and Allied Sectors
The aggregate disbursement of central and state governments on agriculture

and irrigation in the duration 1970-89 are presented in Table 36. There has
been a continuous increase in this expenditure both in absolute amounts as
well as proportion of total expenditure of the government. Between 1970-71
to 1979-80, this expenditure increased with an annual increase of 28.67
percent. In the latter period of 1980-81 to 1988-89, it recorded almost the
same annual increase of 28.75 percent. Even as a proportion of total
expenditure of the government, the budgetary expenditure on agriculture
and irrigation increased from around 8 to 13 percent in 1970-79 and
remained mostly between 11-14 percent in 1980-89. In fact, this expenditure
recorded an impressive increase as a proportion of GDP originating in
agriculture. From around 3 percent in 1970-71, this ratio increased to 8.6
percent In 1980-81. It further rose from around 9 percent in 1984-85 to
more than 12 percent in the years 1985-89. It could also be observed from
the Table that agriculture GDP grew at a higher rate in 1980s compared to
1970s and thus the increase in its ratio with the expenditure on agriculture
and irrigation reaffirms a real growth in budgetary expenditure on the
sector.
A similar impression of risingt tr©ncl of public expenditure is further confirmed
looking into expenditure on the agriculture and allied sectors in different
52
Table 36 : Expenditure on Agriculture and Irrigation by Central and State Governments
(Rs. crores)
Aaareoate to Disbursements of Central and State Govemments
Excluding GDP Origina-
Interest Pay- ting in Agri-
Revenue Account Capital Account Total Total ments Sub- culture at (4) as (3) as (8) as (8) as
Year Agri- Irrigation Total Agri- Inigation Total Col. sidies and Current percent percent percent percent
culture culture 4+7 Defence Prices of (8) of (6) of (10) Of (11)
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15)
1970-71 173 59 232 1 296 297 529 8847 6838 16821 43.86 19.93 7.74 3.14
1971-72 216 69 285 2 348 350 635 10511 8044 17105 44.88 19.83 7.89 3.71
1972-73 161 238 399 19 348 367 766 12319 9547 18772 52.09 68.39 8:02 4.08
1973-74 167 260 427 11 349 360 787 13482 10407 24836 54.26 74.50 7.56 3.17
1974-75 230 382 612 340 551 891 1603 16255 12533 27057 38.18 69.33 12.79 5.92
en 1975-76 292 435 727 350 659 1009 1736 19912 15500 26651 41.88 66.01 11.20 6.51
CO
1976-77 410 486 896 46 939 985 1881 22298 17029 27105 47.63 51.76 11.05 6.94
1977-78 518 574 1092 -63 1135 1072 2164 24422 18544 32238 50.46 50.57 11.67 6.71
1978-79 659 717 1376 128 1327 1455 2831 28194 21504 32815 48.60 54.03 13.16 8.63
1979-BO 628 792 1420 293 1506 1799 3219 31670 23838 33586 44.11 52.59 13.50 9.58
1980-81 720 928 1648 344 1675 2019 3667 39160 30247 42466 44.94 55.40 12.12 8.64
1981-82 871 1059 1930 149 1864 2013 5591 44479 34057 47736 34.52 56.81 16.42 11.71
1982-83 1002 1167 2169 84 1979 2063 4232 52057 39645 50527 51.25 58.97 10.67 8.38
1983-84 1219 1409 2628 163 2196 2859 4987 59989 45157 61241 52.70 64.16 11.04 8.14
1984-85 1390 1574 2964 751 2428 3179 6143 71654 53637 65135 48.25 64.83 11.45 9.43
1985-86 3300 2097 5397 639 2681 3320 8717 84470 62677 69911 61.91 78.22 13.91 12.47
1986-87 4011 2674 6685 -49 2880 2831 9516 101602 74975 74438 70.25 92.85 12.69 12,78
1987-88 3855 3102 6957 -80 3057 2977 9934 111162 80174 81458 70.03 101.47 12.39 12.20
1988-89 4584 3595 8179 73 3234 3307 11486 129231 91970 — 71.21 111.16 12.49 —
Source: Shetty, S.L . 1990, "Investment in Agriculture, Brief Review of Recent Trends'. Economic and Political Weeklyi, February 17-24.
plan periods. As depicted in Table 37, in the third to fifth plan periods, the
expenditure on agriculture and irrigation increased from 20.50 percent to 22
percent with slightly higher variation in the intervening plans. Since 1980-81,
however, the plan allocations under rural development and special area
development programmes have been listed separately and the allocations
under the heads of agriculture and irrigation combinedly appears to be
reduced. But as Mishra and Chand (1995) have argued, a large proportion
of rural development expenditure (nearly 68 percent and 57 percent
respectively in sixth and seventh plans) is being spent on IRDP and nearly
55 percent of the latter goes towards asset formation in agriculture and
allied sectors and, therefore, combining these separate heads of expenditure
in latter periods of sixth and seventh plans, we find that the total plan
expenditure on the sector has remained almost of the same magnitude. It,
thus, comprised nearly 24 percent and 22 percent in the sixth and seventh
plan periods (Table 37).
Table 37 Plan Expenditure and Outlay of Development During

FIve-Year Plans: Centre, States and UTS
(Rs. crores)
Sixth Plan Seventh Plan
(1980-85) M 985-90)
Sector of Third Annual Fourth Fifth Annual Actual Outlay Actual Outlay
Development plan plan plan plan plan
(1961-66) (1966-69) (1969-74) (1974-79) (1979-80)
1. Agriculture and 1088.90 1107.00 2320.40 4864.90 1996.50 6623.5 5695.1 1279.6 10523.6
& allied activities (12.70) (16,70) (14.70) (16.10) (12.30) (6.10) (5.80) (5.80) (5.80)
2. Rural — — — — — 6996.8 5363.7 15246 5 8906.1
development (6.40) (5.50) (7.00) (4.90)
3. Special area — — — — — 1580.3 1480.0 3470.3 2803.6
programme (1.40) (1.50) (1.60) (1.50)
4. Irrigation & 664.70 471.00 1354.10 3876.50 1287.90 10929.9 12160.0 16589.9 16938.6
flood control (7.80) (7.00) (8.60) (9.80) (10.60) (10.00) (12.50) (7.60) (9.40)
5. Total of 1753.60 1578.10 3674.50 8741.40 3284.40 26130.5 24698.8 48099.3 39171.9
(1) to (4) (20.50) (23.80) (23.30) (22.10) (27.00) (23.90) (25.30) (22.00) (21.70)
6. Plan total 8576.50 6625.40 5778.80 39426.20 12176.50 109291.7 97500.0 218729.6 180000.0
(100.00) (100.00) (100.00) (100.00) (100.00) (100.00) (100.00) (100.00) (100.00)
Plan Exoenditure
Vlth Vllth
plan plan
(1980-35U1985-90)
1. Rural 6996.80 15246.50
development
2. Of wfiicfi IRDP 4762.79 8687.81
3. Share of IRDP 68.07 56.98
in rural
development
Notes : Figures in parentheses are percent share to the plan total
Source : 1. Economic Survey, 1993-94, Ministry of Finance.
2. Indian Agriculture In Brief, 1990 and 1992, Ministry of Agriculture.
54
Therefore, the cause of decline in public sector capital formation does not
lie with a reduced budgetary allocation. It is probably due to the fact that
this allocation is moving over time more towards current account side. As
depicted in Table 36, in the total expenditure by the government, indeed
the share of revenue expenditure has been continuously increasing. The
latter, in fact, increased from around 44 percent (in 1970-71) to 71 percent
(in 1988-89), implying a lower availability of funds for investment purposes.
A similar situation of rising share of revenue expenditure on agriculture and
allied activities is depicted for the states of A.P., Kerala, Rajasthan and
Tamil Nadu (Appendix Table 4 & 5). Over the years 1980-93, it increased
its share from nearly 91 to 97 percent, 90 to 93 percent, 92 to 94 percent
and 89 to 97 percent respectively in the above states. Moreover, in the
states of A.P., Kerala and Tamil Nadu, the total budgetary expenditure on
the sector as a proportion of GDPA has also declined and fell from 5 to 3
per cent (in 1980-93), 7 to 4 percent (in 1980-89) and 9 to 7 per cent (in
1980-98) respectively. Thus, unlike the all-India trend, the factor of declining
proportion of total outlay on agriculture and allied sectors relative to the
SDP in these states might have been additionally responsible for the
decline in public sector capital formation in agriculture.
VII b. Marginal Efficiency of Capital
This brings us to another pertinent fact regarding the efficiency of use of

capital despite its declining proportion in state budgets and SDP. It is
suggested by some researchers that it is not merely the size of GFCFA
but its efficient use that may be taken into account while discussing the
growth in GFCFA. It is quite likely that the sanrie amount of capital with
improved efficiency may lead to higher GDP. We have tried to examine this
pertinent question whether the decline in public sector GFCFA at the all-
India and state level has been associated with an improved efficiency of
capital. Table 38 presents incremental GDP in agriculture as well as
incremental capital output ratios and marginal efficiency of capital. The table
also provides an estimate of GFCFA as a percentage of sectoral SDP in
agriculture. It could be observed that at all-India level the years of earlier
five year plans, namely third and fourth plans (respectively 1961-66 and
1969-74) were marked by high ICOR. This is owing to initial policy
emphasis on development of irrigation facilities as well as low growth in
agriculture production in the duration. Between the third and fourth plan, the
period of annual plans (1966-67 to 1968-69) comprises an abnormal phase
of severe droughts in two years followed by a pick up in the last year
resulting in high growth in sectoral GDP and abnormally low ICOR.
However, from fourth plan onwards until the end of seventh plan there has
been an increase in the marginal efficiency of capital from 0.12 to 0.558.
This is because sectoral growth in GDP in the successive periods was
55
relatively higher than the sectoral growth in fixed capital Formation. Thus,
despite a decline in real capital formation in absolute terms, efficiency in its
use has improved in the eighties relative to the period of 1970's.
Likewise there has been a rising trend in the ratios of gross fixed capital
formation to sectoral GDP in agriculture in percentage terms. The latter
increased from 7.5 percent (in fourth plan) in 9.15 percent (in sixth plan).
Though there has been a decline in this ratio to 8.02 percent in seventh
plan, yet for the entire duration of eighties (1980-81 to 1989-90) it depicts
an improvement over the earlier plan periods. The available information for
the sixth and seventh five year plan pertaining to marginal efficiency of
capital in agriculture presented in Table 38 for the states with the exception
of T.N., however, do not corroborate the improved efficiency of capital
depicted at the all-India level. It could be observed that despite the
declining GFCFA, its percentage in agriculture sector's SOP has been
increasing in all the states. For instance in A.P., this percentage increased
from VI plan to VII plan from 6.78 percent to 9.41 percent. Likewise in
Kerala it increased from 8.67 percent to 9.84 percent. However in
Rajasthan and T.N. it depicted a decline respectively from 8.59 percent to
7.12 percent and 9.25 percent to 5.99 percent.
Table 38 : Marginal Efficiency of Capital :

Ail India (1961-91) and States (1981-89)
Period Incremental GFCF ICOR 1/ICOR GFCF as
GDP in Agricul- % of GDP
ture (Rs. crores) in Agriculture
All-India
1961-62 to 1965-66 (Third Plan) 138 2067 15.01 0.067 6.39
1966-67 to 1968-69 (Annual Plans) 1810 2638 1.46 0.686 7,74
1969-70 to 1973-74 (Fourth Plan) 348 2908 8.36 0.120 7.a)
1974-75 to 1978-79 (Fifth Plan) 883 3665 4.15 0.241 8.37
1980-81 to 1984-85 : (Sixth Plan)
All India 2058 4554 2.21 0.452 9.15
A.P. 438 296 0.675 1.481 6.78
Kerala 256 157 0.615 1.625 8.67
Rajasthan 233 242 1.036 0.965 9.62
T.N. 265 210 0.791 1.264 9.25
1985-86 to 1989-90 : (Seventh Plan)
All India 2517 4510 1.79 0.558 8.02
A.P. 481 524 1.10 0.917 9.41
Kerala 184 242 1.32 0.757 9.84
Rajasthan 46 227 4.87 0.200 8.S9
T.N. 406 220 0.54 1.844 5.99
1980-81 to 1989-90 :
All India* 1881 4539 2.41 0.414 8.61
A.P." 426 467 0.913 1.094 8.43
Kerala 208 207 0.991 1.009 9.42
Rajasthan"* 146 206 1.41 0.709 7.12
T.N. 359 216 0.60 1.665 7.02
Notes * : Period is from 1979-80 to 1989-90 Period is from 1981-82 to 1988-89. Period is
from 1981-82 to 1992-93.
56
Generally the ICOR has been increasing for the states. For instance
between the Vl and VII plans the ICOR in A.P., Kerala, Rajasthan, has
increased respectively from .675 to 1.089, from .615 to 1.319 and from
1.036 to 4.87. By contrast, in T.N. the ICOR declined in the same duration
from .791 to .542. Thus, as against all-India trend, the marginal efficiency
of capital in agriculture has declined in A.P., Kerala and Rajasthan.
This decline in marginal efficiency of capital at the state level needs, in

general, a reversal. It is all the more pertinent that the efficient use of
capital in agriculture is encouraged by policy measures particularly in the
state of Rajasthan which is marked by a negative growth in capital
formation.
Besides the budgetary expenditure and marginal efficiency of capital, there

are other price and non-price factors which influence the process of capital
formation in agriculture. Notably among the former of these, terms of trade
for agriculture, for instance, have a significant role. The latter of these
include the factors like technology, institutional credit and the role of credit
institutions, infrastructure and public-private sector linkages. In the following
discussion we analyse the role of these factors in detail.
VII c. Technology and Terms of Trade in Agriculture
As mentioned above, it should be emphasised that the capital formation is

significant for agriculture since it adds to productivity and increase in
income of farmers. The latter will enable farmers to continue investing in
agriculture for raising the agriculture production. It is in this context that the
role of above factors in the discussion on capital formation should be
analysed. Thus, a favourable terms of trade for agriculture would mean a
price rise for agricultural commodities, increased profitability and a high
propensity of farmers for investment and adoption of new technology may
be enhanced. There is, therefore, an inter-relationship between favourable
terms of trade and technology adoption by farmers.
However, in order to reflect upon the role of technology and terms of trade
we have to bear in mind a synoptic view of agricultural development in the
country with a focus on these two parameters. Broadly it could be noted
that the process of adoption of new technology basically took off since
1964-65. More particularly, some studies have preferred to designate the
period from 1978-79 to 1990-91 as modernisation phase owing to
increasing capacity utilisation in Indian agriculture (Dholkias, 1993). The
share of modern inputs of intermediate consumption like fertiliser, pesticides,
electricity and diesel as well as capital intensity (i.e., net fixed capital stocks
per hectare) has been increasing with the increased adoption of technology.
57
The former of these, for instance, increased their share from 2.58 percent
(in 1952-53 to 1964-65), to 16.83 percent (in 1967-68 to 1977-78) and to
29.18 percent (in 1978-79 to 1991-92) (Mishra and Hazell, 1996). Likewise,
capital intensity in the above duration increased from Rs. 2552 per hectare
to Rs. 3440 per hectare and to Rs. 4793 per hectare. In the wake of
adoption of technology, there was also a simultaneous improvement in
productivity for all crops. The latter increased from 1.71 per cent per
annum to 4.23 per cent and 3.77 per cent per annum in the respective
durations.
The gains in productivity owing to technology adoption depends upon

whether the terms of trade have favoured the agriculture sector.
Conceptually the former are either used as barter or gross terms of trade.
While recommending support/procurement prices of agricultural commodities,
the Commission for Agricultural Costs and Prices (CACP) since 1980 has
been taking into account barter terms of trade. These are defined as the
ratio between the prices received by the farmers for their produce and the
prices paid by them for the commodities purchased from the non-agriculture
sector. As against the barter terms of trade which basically represent the
prices at which quantities are traded among sectors, the relative valuation
of agricultural and non-agricultural products is denoted by gross terms of
trade. The latter may be defined as ratio of GDP in agriculture sector
(current/constant) prices and GDP in non-agriculture (current/constant) prices
(Kahlon and Tyagi, 1980). Measured either in barter or gross terms of
trade, thus, the duration of traditional technology (1952-53 to 1964-65), as
well as modern technology (1978-79 to 1991-92) was marked by an
unfavourable terms of trade (Appendix Table 6). The average for barter
terms of trade remained respectively as 85.6 and 86.4 in these durations.
Likewise the gross terms of trade remained on an average as 87.* wt^
88. 0 in the same durations. It has been only in the initial period cM
technology adoption (i.e., 1967-68 to 1977-78), when either of these tera»
of trade remained favourable to WQmMme sector. The respective values lor
the barter and gross terms of km^ for this tiaration remained as 100 and
103.8 respectively.
In order to e^^mine the relationship between tenurs M trad© and capital

formation in agriculture, we have regressed gross tenns i f ttOTte (GTOT)
against the share of capital formation in agriculture in fhe total capita!
formation in the entire economy (%GCFA). These estirridies are carried out
for long and short runs. Further, we have also tried to examine the
relationship between gross terms of trade (GTOT) and gross capital
formation in agriculture in absolute terms (GCFA) during the decade starting
from 1980-81. The estimated equations are as follow :
58
(I) %GCFA,, = 1.595489 + 0.134861 GTOT,*
(2.41) (0.036)
R=^ = 0.33; N = 30; OF = 28 (Period 1962-63 to 1991-92)
(II) %GCFA,, = -27.3004 + 0.421763 GTOT,*

(2.25) (0.20)
R2 = 0.32; N = 1 2 ; DP = 10; (Period 1980-81 to 1991-92)
(ill) TOTGCF,, = 1933.498 + 30.06176 GTOT,*

(174.88) (15.27)
R2 = 0.28; N = 12; DF = 10; (Period 1980-81 to 1992-93)
Note: Figures in brackets are standard errors. * and ** indicate levels of significance at 1 and 10 percent
levels respectively.
Our estimates reveal positive and significant relationship between terms of

trade and capital formation in agriculture both in short and long runs. In
other words, the share of agriculture and allied sectors in the total capital
formation and also the gross capital formation tend to increase along with a
favourable terms of trade. It may be noted that the impact of terms of
trade on total capital formation is stronger than that of on private capital
formation (the estimated coefficients are not significant and hence not
presented). This may be due to the reason that private capital formation is
more dependent on net gains accruing to agriculture and the availability of
institutional credit.
The combined impact of the technology and favourable or unfavourable

terms of trade on the process of capital formation will depend upon
whether the productivity gains owing to technology adoption have been able
to compensate for the unfavourable terms of trade. This could be viewed,
for instance, from the index of income changes which is obtained by
deflating the barter terms of trade with ^he productivity index for all crops
(Mishra and Hazell, 1996). On an average, this index moved favourably in
the latter durations of 1967-68 to 1977-78 and 1978-79 to 1991-92 with its
average value being respectively as 107.8 and 128^:3 (Appendix Table 6).
In the earlier duration of 1952-53 to 1964-65, it remained on an average
73.2. Based on this index, the annual income growth for the agriculture
sector in these three durations works out to be respectively 1 percent, 1.96
percent and 3.75 percent. Taking into account these annual income
growths, it is pertinent to observe that the adverse terms of trade had
affected the farmers income both in the duration of traditional technology
and modernisation phase. However, the higher increases in the farmers
income could compensate for adverse terms of trade in the latter phase.
As a result, despite a decline in public capital formation at a rate of 1.43
percent (in 19/8-79 to 1991-92), the private sector capital formation grew at
around 3 percent. The implications of this role of technology and terms of
trade are quite pertinent for policy making. In the wake of liberalisation,
59
thus, if the self-sustaining growth in farmers income could be maintained
either by managing favourable terms of trade or enhancement of
productivity through appropriate policy support including subsidised
technological know how and institutional credit for adoption of upgraded
technology, the compensatory growth in private sector capital formation
would also be sustained in future.
VII d. Institutional Credit and Role of Credit Institutions
Besides technology and terms of trade, however, other important factors

which also impinge upon the productive ability of agriculture sector are the
flows of institutional credit and the role of credit institutions in this process.
Though it is difficult to segregate the impact of institutional credit and new
technology, the evidence is more in support of institutional credit (Gandhi,
1996). In the context of the debate on .capital formation and liberalisation in
the economy, these aspects gain greater significance. Especially if we look
at the fact that despite the declining public capital formation in agriculture,
the flow of institutional credit has played a vital role in boosting private
investment in agriculture. In fact, during 1980s more than half of private
investment has been supported by institutional credit. This could be gauged
from the ratio of institutional term loans disbursed to agriculture to private
capital formation at current prices presented in Table 39. Over the period
1960-90, there has been a notable increase in this ratio. Between 1969-70
to 1979-80 this ratio increased from 25 percent to 33 percent. However,
since then there has been a sharp rise in this ratio. In fact, in 1980-81
and 1984-85, it was as much as 46 percent and 58 percent respectively. A
similar trend has been maintained in this ratio during the seventh plan
(1985-90) and it remained between 52 to 66 percent in the duration.
Moreover, in terms of green revolution and post-green revolution period, this
ratio rose from 29 percent to 50 percent. Given this significant magnitude
of institutional credit in the private capital formation, it is apparent that the
thrust on institutional financing of agriculture should continue. Therefore, the
current financial reform measures should not adversely affect the flow of
term credit to agriculture. It is in this context that the role of credit
institutions serving agriculture especially the cooperative banks, public sector
commercial banks, regional rural banks and NABARD has to be viewed. At
the moment, the net credit flow to the tune of 18 percent to agriculture
arid allied sectors continues on a priority basis. However, some far reaching
changes have already taaken place. These include deregulation of interest
rates on deposits and advances, restrictions on loan waivers and
introduction of norms and closer supervision of financial intermediary
institutions to prevent them from losses. The rationalisation and
reorganisation of the rural credit institutions are also some of the potential
policy reforms measures which are likely to be implemented in due course
60
with the increasing spate of reforms. These far reaching changes are likely
to adversely affect credit flows to agriculture.
Table 39 : Public Financing of Private Investment in Agriculture,

1969-70 to 1991-92 at Current Prices (Rs. Crore)
Year Direct Institutional Term Loans Ratio of (1) to Private Capital

to Agriculture Formation in Agriculture (Percent)
(1) (2)
1969-70 208 24.54

1970-71 229 26.43
1971-72 243 24.90
1972-73 366 33.86
1973-74 343 26.49
1974-75 417 28.30
1975-76 498 27.99
1976-77 669 29.87
1977-78 641 30.53
1978-79 850 28.78
1979-80 1082 32.88
1980-81 1378 46.36
1981-82 1556 46.01
1982-83 1636 42.99
1983-84 1968 42.57
1984-85 2508 58.27
1985-86 2603 55.45
1986-87 3208 66.29
1987-88 3682 62.66
1988-89 3539 54.10
1989-90 4070 52.46
1990-91 4297 46.64
1991-92 4121 37.94
Average of
(1) Green revolution Perbd :
(169/70 to 1979/80) 29.34
(ii) Post-green revolution period :

(1980/81 to 1991/92) 50.19
Source: 1. Same as in Table 1.

2. Report on Currency and finance, Vol. 1, Reserve Bank of India, Bomlbay, varfetiS issues.
At present, of the total lending to agriculture, cooperative banks and

commercial banks account of 57.5 percent and 37.5 p&tGmi respeetiêly Of
the short term credits. Their shares in the medium/long term credits remain
around 30 percent and 65 percent respectively. At the moment, regional rurl
banks have only 5 percent share in either short or long term advances to
61
agriculture sector (Economic Survey, 1994-95, p. 129). Therefore, in order
to maintain the lending to agriculture sector at the current level such that
the process of private capital formation is not hampered, it is necessary to
"put in place an institutional structure by reforming, rationalising and
reorganising the existing ones, which is viable, efficient, observes the
prudential norms, mobilises rural savings and meets the increasing credit
needs of the agriculture and allied activities in a competitive financial market
environment" (Mishra, p. A. 21, 1997).
VII e. Role of Infrastructure and Lini<ages Between Public and Private

Investment
Even while refuting the complimentarity between the public and private
investment, the role of public investment in terms of infrastructure especially
in irrigation cannot be undermined. In fact, public infrastructure provides the
necessary support for agrarian development. There have been many
empirical studies favouring the positive and promotional impact of public
investment on its private counterpart. Most of the studies working within a
multiple regression framework estimate the elasticity of private investment
with respect to public investment in the range of 0.26 to 0.90. For
instance, earlier studies of Krishnamurthy (1985) and Chakarvarty (1987)
estimated this elasticity to be 0.60 and 0.62 respectively. Shetty (1990) for
the period 1960-87 found it to be 0.66, whereas Storm (1993) reported it
to be 0.904 for 1962-86. More recently NCAER (1995) for the period 1960-
90 and joint research team of Institute of Economic Growth and Delhi
School of Economics (1994) estimated it to be 0.26 and 0.98 respectively.
Another cross section analysis of 17 states for the year 1981-82,
establishes the elasticity of private investment on canal irrigation to be 0.25
(Dhawan, 1996). By contrast, for the period 1980-92, Mishra and Chand
(1995) find this elasticity as -0.50. These differences in the magnitude of
elasticity are possibly owing to nature of specifications and period coverage.
For instance, like Mishra and Chand (1995), not working within a multiple
regression framework and regressing private on public investment, Mishra
and Hazell (1996) found these estimates for elasticity as 1.551, 0.688 and
-0.313 for the periods respectively of 1960-70, 1970-80 and 1980-90. Thus,
despite the fact that there is an absence of complementarity between public
and private investments in agriculture, all these estimates of elasticity
establish that there is a significant relationship between public investment in
agriculture and private investment by the farmers.
Therefore, while analysing the importance of public investment in

infrastructure we should re-emphasise that it is not simply the
complementarity and substitutability between public and private capital
formation which is all important. Indian agriculture still continues to be small
62
farmer dominant. In fact the proportion of small farmers is on the rise.
Liberalisation is resulting in a rise in input costs. Though output prices are
also on the rise, small and marginal farmers with their limited marketable
surplus are not in a position to share the price gains. As a result these
farmers are increasingly becoming non-viable. As long as enough alternative
sources of income (employment) are not available, this large majority of
people will tend to join the ranks of unemployed and under-employed. And
liberalisation does not seem to result in creation of such massive
employment in the near future (Reddy, 1996).
These farmers are not in a position to make productive investments in

agriculture. This is more so in arid and semi-arid regions which account for
two third of the cropped area. This is the reason why we get a different
picture from Rajasthan. The only way to protect them is through productive
public investment. Irrigation should continue to be the major thrust area of
public investment. In fact, any public investment in, say canal irrigation, has
the potential to raise the farm incomes over a period of time. The
subsequent rise in comes, savings and farm investments in the wake of
such public irrigation systems as well as crop diversification taking place
following the development of irrigated area will span over a time horizon.
By contrast, excessive private investment in irrigation (ground water
exploitation) is not only aggravating the existing inequalities but also leading
to environmental problems such as drying up of aquifers and desertification.
Role of public sector in the arid and semi-arid regions has been marginal.
Increased role of public sector in providing irrigation to these regions may
imply higher outlays for agriculture. The common argument that the
objective of raising resources for agriculture could be served by cutting or
abolishing all input and food subsidies which are cornered by well to do
regions and farmers is empirically untenable (Acharya, 1997a, b). As a
matter of fact the policy of agricultural subsidy helped in achieving self
sufficiency in food grains, fair sharing of gains of technology and public
investment between the farmers and the consumers, improved economic
access to food and development of backward and dryland regions. The
increased economic access to food in turn helped the industry and
government to keep their wage bills low as the wages in the organised
sector are linked to prices of consumer goods and good grain prices have
a considerable weightage in the price index. Further the input subsidies
also helped the government in keeping the food subsidy bill low. Thus, the
benefits of input and food subsidies have been shared by "all sections of
the society, i.e., surplus producing farmers, other farmers who are net
purchasers of fooad grains, landless labourers, urban consumers and the
industry" (Acharya, 1997a, b). Therefore, in exploring for budgetary
resources to raise agricultural outlays, it may be desirable to look at the
avenues in other sectors where explicit/hidden subsidies and duty evasions
63
may be prevalent and the repercussions of withdrawal are not against the
interest of poor (Acharya, 1997a, b).
The main purpose or objective of public investment is not to induce or

attract complementary private investment. Its objective is to enhance the
productive capacity of the resources for the society as a whole in an
equitable manner.
Given this objective of public investment, private investment can not be a

substitute for it. Public capital formation leads to increased social welfare
while private capital formation leads to individual welfare. As long as we
have economic dualism in the society they cannot be substitutes. And as
long as we have 'equity' as one of the main policy objectives we can not
leave a majority of vulnerable population to tend themselves or to the
mercy of market.
VIM Policy Implications
The policy implication of our analysis pertaining to capital formation in

Indian agriculture are closely linked to the ongoing economic reform
programmes in the country. Some of the developments following the
reforms are noteworthy. In fact in the last five years of economic reform
programmes in the country agriculture has been playing a major supportive
role. The exports of the sector have risen in this period. From the 12
percent in pre-reform period, the agricultural exports now comprise over 14
percent of the total exports of the country. This has helped to contain
balance of payment deficit. With the successive good performance of
agriculture and comfortable food grain supply, there has been a success In
containing the inflation below two digit level. Moreover a trend growth rate
of food production of 2.6 percent per annum during 1980s which
supersedes the population growth rate in the country. Further, by employing
nearly two-thirds of the country's labour force it serves a major social
objective in. helping to reduce poverty and regional disparity. In view of the
significance of agriculture sector it has been argued that the ongoing
reforms should bring about a parity between agricultural and industrial
sectors. It has been suggested that policy reforms should be aimed at
removing existing restrictions on agricultural exports, withdrawal of input
subsidies and priority sector treatment to agricultural sector, and removal of
ceilings on land ownership to create conditions for corporate agriculture. It
has been argued that more market freedom created by these potential
reform measures may induce more private investment and boost private
capital formation through higher growth in production, income and exports.
Keeping in view these potential reform measures and our above analysis
there emerge a number of critical priority areas of concern.
64
It is important to recognise that despite more and more liberal policy
environment for private investment in agriculture, the public investment need
to be stepped up in certain areas. Especially the major and medium
irrigation in the country need to be enhanced. As suggested by the
Committee on Pricing of irrigation Water (1994), about 90 percent of the
ultimate groundwater potential had been utilised by 1990 and this source of
irrigation, in fact, formed the basis of private minor irrigation investment in
the past. The area of major and minor irrigation solely falls on public sector
and hence supports our non-substitutability argument.
Our attempt to address the issues relating to Capital Formation in Indian

agriculture using all-India as well as state level information pertaining to the
states of Andhra Pradesh, Kerala, Rajasthan and Tamil Nadu suggest the
need for fresh thinking at policy level. It is pertinent to note that at the all-
India level and in most of the states covered by us, there has been a
decline in the share of public sector in gross fixed capital formation in
agriculture. However, the statistical evidence does not indicate the existence
of substituability between public and private capital formation at the state
level, though it holds good at the all India level. It is relevant to note that
our state level findings do not corroborate with the all India level analysis.
The state level results are in support of the complementarity or inducement
effect hypothesis propounded by many other researchers. Therefore, it is
not correct to generalise the all India picture. Though our study is only a
pointer it emphasises the need for disaggregate analysis at the state level
as the generalisation of all India level picture would result in erroneous
policy formulations.
In the light of our findings it is worth pointing out that the state
government's policies in regard to expenditure on agriculture sector does
not have an important role to influence the public sector capital formation in
agriculture. It is evident that in the states covered by us there has been a
declining trend in budgetary outlay on agriculture. The latter has declined
both as a proportion of total revenue and capital budgets. Similarly the
public expenditure as a proportion of total GDP has also declined. The
falling share of sate government expenditures on agriculture and allied
activities seems to be a dominant factor in determining the currently
declining shares of public sectors in capital formation in these states. Partly
the declining marginal efficiency of capital has also been responsible. There
is, therefore, a need to step up public expenditure on agriculture and allied
sectors in these states. At the same time, the decline in marginal efficiency
of capital at the state level needs, in general, a reversal. It is, therefore,
necessary to encourage efficient use of capital in agriculture by policy
measures that help the farmers to adopt a better technology. It is in this
context that the rise in prices of fertilisers and user charges for electricity
65
and canal water should be seen as steps in the right direction. Reducing
price distortions through cost based pricing not only results in efficient use
of resources but also helps in achieving more equitable distribution of
resources such as water.
Further, as indicated by above analysis, technology has played a major role
in enhancing the productivity, income and private investment in agriculture.
Moreover, in the post-reform era the agriculture sector has to compete in
an Integrated world economy. To maintain a favourable terms of trade for
agriculture a renewed impetus on agricultural research and development is
necessary. This would require an increased public expenditure to encourage
innovative research in the areas of dry farming and diversification of
agriculture in rainfed areas to plantations, horticulture and dairy. This might
help in boosting employment and income through fetching better
international markets of Indian agricultural products (Mishra, 1997, Chand,
1995, Salethy, 1995).
Thus, the private sector has been growing despite the above factors,
namely, the decline in public sector capital formation and falling efficiency of
capital. However, this does not suggest that entire onus can be left to
private sector alone. Even with liberalisation in order to maintain self-
sustaining growth in farmers' income as suggested by our analysis, it is
necessary to manage favourable terms of trade for agriculture or provide
policy support to enhance productivity by means of physical infrastructure
and yield increasing technical knowhow and institutional credit for technology
upgradation. Institutional credit has played and continues to play a
significant role in private capital formation despite the financial reforms in
the recent years. It is pertinent that the financial reform measures should
not adversely affect the flow of term credit to agriculture. The rationalisation
and recognisation of the existing agricultural financing institutions should
thus aim at improving efficiency of the existing institutional structure which
could mobilise rural savings to meet increasing credit needs of the
agricultural and allied sectors in a competitive financial environment. In this
regard, it may be pointed out that in order to promote capital formation
institutional credit should be more targeted. In fact it was observed in a
recent study (Mani, et. al, 1996) that despite the substantial increase in
institutional credit in the recent years, the share of long term credit that is
vital for capital formation, has remained low at 15-20 percent. Besides, the
availability of investment per hectare is much lower than the prescribed
norms. Setting of enhanced targets in this regard would further augment
the capital formation in agriculture.
Despite an increased role and encouragement to private sector with

liberalisation, the role of public investment has to be that of enhancing the
66
productive capacity of the resources for the society as a whole in an
equitable manner. As long as equity remains one of the main policy
objectives, the onus of majority of vulnerable population cannot be left to
market forces. The increased social welfare cannot be achieved by leaving
the responsibility entirely to private sector and therefore private investment
cannot be a substitute for public investment.
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69
Appendix Table 1 : Capital Formation in Indian Economy
Agriculture and Allied Sectors (Rs. Crores)
GFCF CHST GCF GCFPUB GCFPVT
1960-61 1694 83 1777 622 1155

1961-62 1768 5 1773 632 1141
1962-63 1884 44 1928 734 1194
1963-64 2033 61 2094 763 1331
1964-65 2237 25 2262 808 1454
1965-66 2428 50 2478 849 1629
1966-67 2450 36 2486 740 1746
1967-68 2704 10 2714 738 1976
1968-69 2700 138 2838 819 2019
1969-70 2899 117 3016 818 2198
1970-71 2748 136 2884 833 2051
1971-72 2902 157 3059 901 2158
1972-73 3073 244 3317 1091 2226
1973-74 3048 304 3352 1032 2320
1974-75 2857 266 3123 956 2167
1975-76 3104 452 3556 1084 2472
1976-77 3846 611 4457 1442 3015
1977-78 3945 336 4281 1604 2677
1978-79 4444 1003 5447 1774 3673
1979-80 4640 7a74 5414 1850 3564
1980-81 4765 138 4903 1937 2966
1981-82 4587 211 4798 1897 2901
1982-83 4676 184 4860 1863 2997
1983-84 4259 198 4457 1901 2556
1984-85 4497 293 4790 1843 2947
1985-86 4374 233 4607 1655 2952
1986-87 4416 308 4724 1572 3152
1987-88 4561 285 4846 1585 3261
1988-89 4651 82 4733 1482 3251
1989-90 4614 177 4791 1301 3490
1990-91 4925 151 5076 1315 3761
1991-92 5147 65 5212 1135 4077
1992-93 5768 102 5870 1177 4693
1993-94 6085 34 6119 1294 4825
Contd....
70
Appendix Table 1 : Capital Formation in Indian Economy
Mining, Manufacturing and Construction Sector
(Rs. Crores)
1960-61 3318 1173 4491 1740 2751

1961-62 2836 1320 4156 1796 2360
1962-63 3633 1368 5001 2044 2957
1963-64 4156 1003 5159 2557 2602
1964-65 4424 1223 5647 2616 3031
1965-66 4978 1296 6274 3169 3105
1966-67 5176 2011 7187 3223 3964
1967-68 5087 1050 6137 2937 3200
1968-69 4655 511 5166 2687 2479
1969-70 5122 1482 6604 2780 3824
1970-71 4984 1839 6823 2852 3971
1971-72 4815 2408 7223 3051 4172
1972-73 5890 891 6781 3302 3479
1973-74 5207 2737 7944 3768 4176
1974-75 5651 4067 9718 4305 5413
1975-76 8063 1791 9854 4952 4902
1976-77 7678 1029 8707 5627 3080
1977-78 8411 1607 10018 5705 4313
1978-79 9418 2973 12391 6091 6300
1979-80 8514 3747 12261 6823 5438
1980-81 9331 3644 12975 7594 5381
1981-82 11612 4020 15632 8451 71871
1982-83 13075 3026 16101 9437 6664
1983-84 13726 2131 15857 9146 6711
1984-85 13818 2030 15848 9981 5867
1985-86 15126 3583 18909 11524 7385
1986-87 16884 2811 19695 11773 7922
1987-88 17308 2943 20251 11873 8378
1988-89 17870 8010 25880 10594 15286
1989-90 19455 2568 22023 11141 10882
1990-91 21503 2724 24227 12036 12191
1991-92 21905 -59 21846 12128 9718
1992-93 22913 4750 27663 10612 17051
1993-94 24948 -2564 22384 9420 12964
Contd
71
Appendix Table 1 Capital Formation in Indian Economy
Services Sector ,„ ^
(Rs. Crores)
1960-61 4781 726 5507 2443 3064

1961-62 4968 -84 4884 2387 2497
1962-63 5520 243 5763 2953 2810
1963-64 5774 508 6282 3153 3129
1964-65 5999 315 6314 3398 2916
1965-66 6193 -202 5991 3394 2597
1966-67 5613 169 5782 2606 3176
1967-68 5481 559 6040 2987 3053
1968-69 5401 -156 5245 2496 2749
1969-70 5557 -75 5482 2399 3083
1970-71 6030 813 6843 3299 3544
1971-72 6634 1025 7659 3698 3961
1972-73 7314 224 7538 4660 2878
1973-74 7512 1199 8711 4169 4542
1974-75 7007 881 7888 3496 4392
1975-76 6950 2548 9498 4994 4504
1976-77 7335 1999 9334 5257 4077
1977-78 7571 545 8116 3136 4980
1978-79 8288 2018 10306 4654 5652
1979-80 8499 1160 9659 4356 5303
1980-81 9521 958 10479 4469 6010
1981-82 10209 4362 14571 5555 9016
1982-83 10856 1871 12727 5461 7266
1983-84 10723 2465 13188 5683 7505
1984-85 12145 2168 14313 6775 7538
1985-86 12392 5320 17512 6075 11437
1986-87 13966 2970 16936 7216 9720
1987-88 13905 2062 15967 5545 10422
1988-89 15433 -1285 14148 7220 6928
1989-90 15993 1456 17449 8199 9250
1990-91 17664 2919 20583 8241 12342
1991-92 18079 1581 19660 6784 12876
1992-93 19013 -409 18604 8774 9830
1993-94 21241 1904 23145 10540 12605
Contd
72
Appendix Table 1 Capital Formation in Indian Economy
All Sectors ,„ ^
(Rs. Crores)
19e0-61 9793 1982 11775 4805 6970

1961-62 9572 1241 10813 4815 5998
1962-63 11037 1655 12692 5731 6961
1963-64 11963 1572 13535 6473 7062
1964-65 12660 1563 14223 6822 7401
1965-66 13599 1144 14743 7412 7331
1966-67 13239 2216 15455 6569 8886
1967-68 13272 1619 14891 6662 8229
1968-69 12756 493 13249 6002 7247
1969-70 13578 1524 15102 5997 9105
1970-71 13762 2788 16550 6984 9566
1971-72 14351 3590 17941 7650 10291
1972-73 16277 1359 17636 9053 8583
1973-74 15767 4240 20007 8969 11038
1974-75 15515 5214 20729 8757 11972
1975-76 18117 4791 22908 11030 11878
1976-77 18859 3639 22498 12326 10172
1977-78 19927 2488 22415 10445 11970
1978-79 22150 5994 28144 12519 15625
1979-80 21653 5681 27334 13029 14305
1980-81 23617 4740 28357 14000 14357
1981-82 26408 8593 35001 15903 19098
1982-83 28607 5081 33688 16761 16927
1983-84 28708 4794 33502 16730 16772
1984-85 30460 4491 34951 18599 16352
1985-86 31892 9136 41028 19254 21774
1986-87 35266 6089 41355 20561 20794
1987-88 35774 5290 41064 19003 22061
1988-89 37954 6807 44761 19296 25456
1989-90 40062 4201 44263 20641 23622
1990-91 44092 5794 49886 21592 28294
1991-92 45131 1587 46718 20047 26671
1992-93 47694 4443 52137 20563 31574
1993-94 52274 -626 51648 21254 30394
Notes: GFCF = Gross Fixed Capital Formation, CHSTK = Change in Stocl<, GCF = Gross Capital
Formation, GCFPUB = GCF in Public Sector, GCFPVT = GCF in Private Sector. Source: C.S.O.,
Various publications.
73
Appendix Table 2 : GDP by sectors (Absolute Values)
(Rs. Crores)
Agriculture Mining Service Total
Mfg. & Construction GDP
1960-61 31995 12588 18321 62904

1961-62 32022 13529 19305 64856
1962-63 31385 14476 20367 66228
1963-64 32119 15904 21558 69581
1964-65 35082 16999 22777 74854
1965-66 31208 17520 23394 72122
1966-67 30764 18002 24090 72856
1967-68 35339 18450 24996 78785
1968-69 35283 19414 26144 80841
1969-70 37551 21075 27483 86109
1970-71 40214 21380 28832 90426
1971-72 39459 21995 29885 91339
1972-73 37479 22818 30751 91048
1973-74 40178 23256 31758 95192
1974-75 39566 23714 33017 96297
1975-76 44666 25024 35278 104968
1976-77 42085 27229 36966 106280
1977-78 46309 29057 38853 114219
1978-79 47375 31623 41506 120504
1979-80 41323 30645 42268 114236
1980-81 46479 31664 44083 122226
1981-82 49139 34141 46320 129500
1982-83 48358 35756 49355 133469
1983-84 53525 38992 51793 144310
1984-85 53544 41330 55092 149966
1985-86 53698 44242 59408 157348
1986-87 52782 47603 63539 163924
1987-88 53053 50232 67437 170716
1988-89 62214 53866 72381 188461
1989-90 63263 59398 78792 201453
1990-91 65653 63700 82900 212253
1991-92 64118 62867 86998 213983
1992-93 68017 65472 91398 224887
1993-94 70231 68251 97582 236064
Source: C.S.O., Various Publications^
74
Appendix Table 3 : Capital Formation In Agriculture
(Three Yearly Moving Averages)
Gross fixed Change in Gross Capital Gross Capital Gross Capital
Capital Stocks Formation Formation Formation
Public Private
1962-63 1782 44 1826 662.6666 1163.333

1963-64 1895 36.66666 1931.666 709.6666 1222
1964-65 2051.333 43.33333 2094.666 768.3333 1326.333
196S66 2232.666 45.33333 2278 806.6666 1471.333
1966-67 2371.666 37 2408.666 799 1609.666
1967-68 2527.333 32 2559.333 775.6666 1783.666
1968-69 2618 61.33333 2679.333 765.6666 1913.666
1969-70 2767.666 88.33333 2856 791.6666 2064.333
1970-71 2782.333 130.3333 2912.666 823.3333 2089.333
1971-72 2849.666 136.6666 2986.333 850.6666 2135.666
1972-73 2907.666 179 3086.666 941.6666 2145
1973-74 3007.666 235 3242.666 1008 2234.666
1974-75 2992.666 271.3333 3264 1026.333 2237.666
1975-76 3003 340.6666 3343.666 1024 2319.666
1976-77 3269 443 3712 1160.666 2551.333
1977-78 3631.666 466.3333 4098 1376.666 2721.333
1978-79 4078.33 650 4728.33 1606.66 3121.66
1979-80 4343 704.33 5047.33 1742.66 3304.66
1980-8l' 4616.33 638.33 5254.66 1853.66 3401
1981-82 4664 374.33 5038.33 1894.66 3143.66
1982-83 4676 1776666 4853.666 1899 2954.666
1983-84 4507.333 1976666 4705 1887 2818
1984-85 4477.333 225 4702.333 1869 2833.333
1985-86 4376.666 241.3333 4618 1799.666 2818.333
1986-87 4429 278 4707 1690 3017
1987-88 4450.333 275.3333 4725.666 1604 3121.333
1988-89 4542.666 225 4767.666 1546.333 3221.333
1989-90 4608.666 181.3333 4790 1456 3334
1990-91 4730 136.6666 4866.666 1366 3500.666
1991-92 4895.333 131 5026.333 1250.333 3776
1992-93 5280 106 5386 1209 4177
1993-94 5666.666 67 5733.666 1202 4531.666
1994-95 3951 45.33333 3996.333 823.6666 3172.666
Source: C.S.O., Various Publications.
75
Appendix Table 4 : Revenue Expenditure on Agriculture and Allied
Activities in A.P., Rajasthan, Kerala and T.N.
Years 1Revenue Exp. on AAA Revenue Exp. as % to Total Govt.
Exp. on AAA
A.P. Kerala Raj. T.N. A.P. Kerala Raj. T.N.
1980-81 14809 9131 11512 14962 90.84 90.46 92.50 89.07

1981-82 20609 10417 9687 22073 92.09 95.39 92.53 93.92
1982-83 20407 9561 10105 28578 92.41 94.73 94.64 92.63
1983-84 24967 15018 12312 35572 95.65 95.5 93.39 92.79
1984-65 37488 16098 17044 52208 92.53 94.76 95.65 93.7
1985-86 17646 9077 10703 18140 95,78 84.05 93.13 83.73
1986-87 16316 11177 12408 20702 89.46 84.76 92.58 85.98
1987-88 21396 11935 16648 27311 95.68 96.69 94.38 89.16
1988-89 24078 11827 17408 25852 96.09 89.26 93.56 86.55
1989-90 25446 14343 14654 36644 96.72 86.38 93.05 90.38
1990-91 27261 18697 22893 53306 97.22 85.07 94.01 94.12
1991-92 34271 26070 27187 75519 97.67 85.71 92.9 95.29
1992-93 47373 44989 33971 143796 97.09 93.58 93.74 97,00
Source: RBI Bulletin on Cun-ency and Finance; Various Issues.
Appendix Table 5 : Capital Expenditure on Agriculture and Allied

Activities in A.P., Rajasthan, Kerala and T.N.
Years Capital Exp. on AAA Capital Exp. as % to Total Govt.
Exp. on AAA
A.P. Kerala Raj. T.N. A.P. Kerala Raj. T.N.
1980-81 1494 963 933 1836 9,15 9.54 7.50 10.93

1981-82 1770 503 •^2 1429 7.91 4>61 7.47 6.08
1982-83 1675 832 572 2275 7,59 5.27 5.36 7.37
1983-84 1135 708 871 2764 4.35 4.50 6.61 7,21
1984-85 3025 891 775 3513 7.47 524 4.35 6.30
1985-86 777 1723 790 3524 4.22 15.95 6.87 16.27
1966-87 1923 2009 994 3376 10.54 15:24 7.42 14.iQ2
1987-88 965 408 991 3321 4,K 3.31 5.62 10.84
1988-89 980 1423 1198 4018 sm 10.74 6.44 13,45
1989-90 864 2261 1095 3902 3.28 13.62 6.^ 9.62
1990-91 779 3282 1458 3329 2.78 14.93 5.99 5.88
1991-92 817 4346 2079 3730 2.33 14.29 7.10 4.71
1992-93 1419 3086 2269 4444 2.91 6.42 6.26 3.00
Source: Same as Appendix Table 5.
76
Appendix Table 6 : Index Numbers for Various Measures of Terms of
Trade, Public and Private Investment and Rural Poverty
Year Barter Terms Gross Terms Index of
of Trade of Trade Income Cfiange
1952-53 104.4 108.5 60.0

1953-54 98.6 106.8 60.3
1954-55 99.5 87.8 61.7
1955-56 101.6 86.7 61.3
1956-57 103.7 100,0 65.7
1857-58 1029 97.3 61.2
i9S8-59 100.7 98.7 66.9
1959-60 98.4 96.7 62.8
1960-61 90.6 89.0 62.7
1961-62 92.3 91.1 62.7
1962-63 91.2 90.7 60.3
1963-64 83.5 101.4 56.6
1964-65 107.7 105,7 80.1
1965-66 1179 114.9 74.8
1966-67 129.3 126.6 80.1
1967-68 132.4 125.3 98.8
1968-69 120.4 124.8 89.8
1969-70 116.6 122.9 909
1970-71 114.5 110.4 94.1
1971-72 111.7 1096 92.0
1972-73 118.6 119.3 92.6
1973-74 1255 128.5 92.0
1974-75 114,6 119.7 93.4
1975-76 969 982 86.4
1976-77 1039 101.3 88.4
1977-78 113.2 100.7 97.9
1978-79 97.8 97t 94.2
1979-80 101.5 101:8 86.0
1980-81 100.0 100.0 100.0
1981-82 95.0 99.3 94.8
•\9ez-B3 97.0 93.0 99.0
1983-84 989 93.5 1074
1984-85 98.5 92.1 109 3
1985-86 94.4 91.4 106 2
1986-87 97.7 93.5 107,8
1987-88 99.5 97.1 114.2
1988-89 98.3 94.4 126.2
1989-90 98.3 95.7 129.2
1990-91 102.2 99.0 136.3
1991-92 107.0 106.3 143 3
Source: Mishra and Hazell (1996).
77
Annexure I : Methodology of Estimation of Gross Fixed Capital
Formation at State Level
1. METHODOLOGY OF ESTIMATION: KERALA'
Tfie commodities wfiicfi constitute fixed capital formation value at purchasers

price wfiich covers all costs connected with the acquisition and installation
of the items of assets. Indirect outlays for acquisition of the assets in the
form of advertising etc., are excluded. In the case of fixed assets produced
on, own account, these are valued at production cost including imputed
values in respect of own account labour employed. Estimates of gross fixed
capital formation can be prepared (1) by type of assets, (2) by industry of
use.
i) Type of assets:
Type of assets consists of (a) construction (b) machinery and equipment

and change in stock. The commodity flow approach is followed for con-
struction works undertaken with the use of specified construction material
and also for machinery and equipment.
(a) Construction: The value at site in the accounting year of five basic
construction input materials, viz., cement, iron and steel products, timber
and round wood, bricks and tiles and permanent fixtures and fittings are
considered under construction.
(b) Machinery and equipment: The various items of machinery and

equipment are classified into
(i) Capital goods

(ii) Parts of capital goods
(iii) Partly capital goods
(iv) Parts of partly capital goods
The total of (1) and specified percentage of (ii) to (iv) on the basis of ASI,
data, are taken as capital formation.
The estimates of gross domestic fixed capital formation in consiruction and

machinery and equipment are aggregated to arrive at the estimates of
gross domestic fixed capital formation by type of assets.
However, due to paucity of data, estimation of gross fixed capital formation

by type of assets is attempted only in the public (State Government) sector
in this report.
1. Source: Directorate of Economics and Statistics, Thiruvananthapuram.
78
ii) Industry of use:
The expenditure approach is primarily followed for estimation of gross fixed

capital formation (GFCF) by industry of use. The whole economy is classi-
fied by user Industries broadly in terms of the industrial classification used
for measurement of net domestic product. Each industrial activity is further
divided into public and private sectors whenever relevant. The private sector
under each activity has been further divided into organised and unorganised
sectors whenever data are available. The public sector is divided into ad-
ministrative departments of central and state Government and enterprises,
both departmental and non departmental.
iii) Agriculture including livestock:
(a) Agriculture proper: The expenditure of GFCF in State Government

Departmental enterprises have been culled out from the state government
budget document and of the non-departmental enterprises from the balance
sheet or annual reports of the enterprises.
The source of information of GFCF in the house hold sector of agriculture

is based on the expenditure on farm business available in AIDIS. The base
year estimates of gross fixed capital formation on the reporting households
in respect of rural and urban sectors are obtained separately from this
report.
The latest two census provide the number of rural and urban households
separately using the geometric growth rate. The number of households dur-
ing the year 1985-86 to 1988-89 have been estimated.
The per household gross fixed capital formation for the base year has
been arrived at by using the total gross fixed capital formation and the
number of households, as estimated from the survey results separately for
rural and urban sectors.
By making use of the per household gross fixed capital formation thus
obtained and the projected numbers of households from the census results,
gross fixed capital formation in farm business has been estimated both for
rural and urban sectors for the years from 1985-86 to 1988-89 at constant
prices.
The GFCF at current price has been obtained by using the index of aver-
age daily wages of unskilled labour in construction sector. The GFCF at
current price, thus obtained for rural and urban sectors have been finally
aggregated to obtain the GFCF from farm business.
79
b) Livestock: For the estimates of agriculture proper the value of
breeding stock, drought animals, dairy cattle etc. which form part of capital
formation has been added. As the annual data on livestock population are
not available, the different categories of livestock as given in the quinquen-
nial livestock census have been considered and the number of each cat-
egory estimated using geometric growth rates.
The data regarding bullocks and bulls over three years not in use, cows
over 3 years not in use, female goats of one year and above not in milk
etc., are excluded from the purview of capital formation. The cattle, male
over three years, cows in milk, buffaloes, male over three years, she buffa-
loes in milk, goats-female of one year and over in milk, males one year
and over (breeding) as provided in the census have been considered to
form part of capital formation of livestock component. The increment of
each category every year is estimated and then evaluated using the aver-
age price of the category each year. Only 4% of the male goats have
been considered to be the capital formation component of this category.
iv) Forestry and Logging :
The government of Kerala have taken over the private forests, of the state
by an Act. Therefore, the capital expenditure on forest preservation, exten-
sion etc., of the state is the contribution of the public sector only. The
capital formation component of this sub-sector is obtained from the analysis
of the State Government Budget.
v) Fishing :
The livestock census of 1982 and 1987 provide information on the number
of different categories of mechanized and non-mechanized boats and other
major fishing boats and equipment like fishing gears and catamarans
engaged in fishing activity. The number of fishing boats and equipments
during the years 1985-86 to 1988-89 has been estimated using the geo-
metric growth rate of the inter census years and then the increment during
each year, is worked out. The average price of the different categories of
boats and equipments each year collected from the state department of
fisheries have been used to evaluate the increment of boats each year.
The gross fixed capital formation in Fisheries sector is obtained at
current prices.
80
2. METHODOLOGY OF ESTIMATION: RAJASTHAN^
The estimates of the GFCF by industry of use have been built up directly,
using data from diverse sources, the details are given in the following para-
graphs :
I) Agriculture Including Livestock :
The estimates of gross fixed capital formation from agriculture including live-
stock have been prepared for public and private sectors separately. The
GFCF from Govt. Administration and Non-Departmental Commercial under-
takings have been included under public sector. The GFCF from household
sector and livestock part have been covered under private sector.
a) Public Sector : State Government Administration: The capital expen-

diture relating to State Government Administration have been culled out
from the State Govt, budgets. The expenditure incurred on Buildings and
other constructions, machinery-Equipment, Transport equipment and other
equipments of agriculture, animal husbandry, irrigation, area development
and multipurpose projects (both revenue and capital heads) have been
culled from the State Government Budgets.
The capital expenditure incurred on buildings. Machinery and Equipments by

Non-Departmental Commercial undertakings, viz. Rajasthan Land Develop-
ment Corporation and Rajasthan State Dairy Cooperative Federation have
been culled out from their annual accounts.
b) Private Sector: The major source of information for capital formation

in agriculture in the private sector is the data generated by All-India Debt
and Investment Survey 1981-82 (AIDIS). Bench estimated of GFCF for
household of farm business have been culled put from AIDIS (Rural -
Urban) 1981-82.
The results of AIDIS for 1981-82 for the Rural & Urban areas are available
in respect of the following items under fixed capital formation in farm
business :
1. Reclamation of Land.
2. Construction of new bunds and other improvement works.
3. New plantation and additions to existing orchards and plantation.
2. Source; Directorate of Economics and Statistics, Jaipur.
81
4. Construction of new wells and major alterations like broadening and
deepening of existing wells.
5. Construction of new irrigation resources and major alterations of

existing irrigation resources.
6. Purchase of new agricultural implementation, machinery, transport

equipments etc., of the traditional type and of the improved type.
7. Construction of new farm houses, grain golas and cattle sheds

(including those on the farms) and major alterations and additions to
existing structure.
8. Other capital expenditure - AIDIS Rural & Urban 1981-82 n.e.c.
The bench mark estimates for 1981-82, construction for reclamation of land,
construction of new bunds and major alterations and additions to existing
bunds and other land improvement have been altered for subsequent years
on the basis of data on net area sown in the state during respective
years. The bench mark estimates of construction of new wells and major
alterations, like broadening and deepening of existing wells, construction of
new irrigation resources and major alterations of existing irrigation resources
have been inflated for subsequent years (i.e., 1982-83 & onwards) on the
basis of data on net area irrigated by wells and tube wells, expenditure of
new plantations and addition to existing orchards and plantation have been
estimated for years 1982-83 and onwards with the help of data of area
under miscellaneous tree crops and groves and fruit plants. Such estimates
have been first arrived at constant prices. Similarly estimates in respect of
reclamation of land at current prices have been based on data on price
change reflected through wages paid to agricultural workers engaged in
med-bandl. Similarly, in case of construction of new wells etc., estimates at
current prices have been prepared by superimposing index numbers of cost
of construction on base data. In respect of new plantation and orchards
etc., the estimates on current prices are built by applying to base data the
wages of agricultural workers engaged in transplanation.
The bench mark estimates of expenditure on machinery and equipment on

farm business of rural and urban households has been taken from All India
Debt and Investment Survey 1981-82 for rural and urban households.
The bench mark estimates of expenditure on machinery and equipment by

rural and urban households have been increased on the basis of proportion
of number of agricultural implements in Rajasthan. Estimates thus arrived
are at constant prices. To build estimates at current prices, estimates have
82
been adjusted on the basis of index numbers of whole sale prices for
machinery and transport equipment group. These estimates also take into
account, changes in value of incremental livestock (breeding stocks draught
animals, dairy cattle etc.) which form part of fixed capital formation. For
estimating this component, all live stock excepting bulls and bullocks over
three years not in work or nor for breeding purposes, cows over three
years not in milk, young stock of goats under one year, female goats of
one year and above not in milk, pigs and poultry have been considered.
ii) Forestry and Logging :
The estimates of capital expenditure on forest preservation, plantation,

extention, afforestation in the public sector have been culled out from the
State Govt, budgets. In Rajasthan State, entire area under forest is admin-
istered by the Government. There are no private forest in Rajasthan State,
as such the estimates of gross fixed capital formation figures represents
public sector only.
hi) Fishing :
Estimates of gross fixed capital formation for fishing sector are based on
the yeanA/ise expenditure incurred by the State Govt, on buildings and other
construction, and machinery and equipments which have been culled out
from the State Govt, budgets.
For the private sector, estimates have been based on the stock of fishing
equipments, as available from quinquennial livestock census. Prices of fish-
ing equipments have been obtained for 1982-83 from surveys and Re-
search Office of Fisheries Department of the State. These bench mark es-
timates of total capital stock for the year 1982-83, have been moved back-
ward and forward on the.basis of proportion of GSDP for this sector. To
obtain the gross fixed capital formation during the years, from total capital
stock, the estimates of the previous years capital stock were deducted from
current years capital stock.
iv) Fixed Capitai Formation at Constant (1980-81) Prices :
The estimates of fixed capital formation at constant prices have been ar-
rived at after deflating the estimates at current prices by index Numbers of
Building and Construction cost (base 1980-81). Similarly in case of Plant &
Machinery the group index of Plant Machinery of wholesale price index has
been used, as a deflator.
83
3. METHODOLOGY OF ESTIMATION: ANDHRA PRADESH'
1) The methodology followed in the preparation of estimates of gross

capital formation is in accordance with the guidelines provided by the
Central Statistical Organisation, Government of India. The estimates
of Gross Capital formation are prepared at current prices for all sec-
tors of Economy by type of institutions, by type of Assets and by
type of industry use.
For the purpose of estimation of Gross Capital formation, capital

originating has been applied and the economy of the state has been
classified by user industries. Each sector has been further divided
into public and private sectors. The relevant public sector covers (i)
State administrative departments (ii) State Departmental Enterprises
(ill) State Non-departmental Enterprises and (iv) State Local Bodies.
The remaining sectors of economy are dealt under private sector.
Ii) Estimates of Gross Capital Formation in the State are prepared by

adopting the expenditure approach.
Estimates of Gross Capital Formation in State Government include:
i) Administrative Departments/and ii) Departmental Enterprises
The estimates of Gross Capital Formation of the State Government

h^ve been prepared from the details available In the budget
documents of the State Government for the years 1980-81 to
1988-89.
ii) The estimates of non-departmental undertakings are based on the

details of data available in the Annual Accounts of different sectors
of Industry use.
ill) Local Bodies: The estimates of Gross Capital Formation have been
prepared from the aggregates available in the local body Annual
Accounts i.e., Zilla Parishads, Municipalities, Panchayat Samities for
the years 1980-81 to 81-82 and by adopting appropriate ratios for
later years.
iv) Private Sector Capital Formation in Agriculture: The major source of

information on fixed capital formation in respect of farm business is
the "All India debt and Investment Surveys (AIDIS)" of 1971-72 and
3. Source: Directorate of Economics and Statistics, Hyderabad.
84
1981-82. The data was made available for the following eight items
under fixed capital formation in farm business.
I. Reclamation of land
ii. Bunding and other land improvements
iii. Orchards and plantation
iv. Wells
V. Other irrigation sources
vi. Agricultural implements, Machinery, Transport Equipment
vii. Farm houses, barons, animals sheds etc.
viii. Other items.
Apart from the above information the data relating Bunding and other land
improvements etc., was also collected from Agriculture department and Ag-
riculture Census.
For other sectors, the data available in A.S.I., N.S.S. sample and enterprise
survey are made use of.
85
4. METHODOLOGY OF ESTIMATION: TAMIL NADU*
A brief description of methodology followed for preparing estimates for the

Agriculture and Allied sectors of the economy is given below :
Agriculture and Allied Activities: For the preparation of the fixed capital
formation estimates the sector was divided into two parts public and private
sector. Data relating to public sector fixed capital formation were collected
from State Budget documents and annual accounts of three non depart-
mental enterprises. As regards the private sector, the following items were
covered.
i. Reclamation of land
ii. Budgeting and other land improvements
iii. Orchards and plantations
iv. Wells
V. Other irrigation sources
vi. Agricultural implements, machinery, transport equipments etc.
vii. Farm houses, barns animal sheds etc., and
viil. Others
As for private sector is concerned, the major sources of information on

fixed capital formation in respect of farm business was the All India Debt
Investment Survey (A.I.D.I.S.) 1981-82. The result available in A.I.D.I.S.
1981 were used as tench mark estimates for other years.
The data were available for eight items under fixed capital formation in
farm business. Estimates for other years were obtained by carrying forward
and backward the bench mark estimates for 1981-82 with the help of suit-
able price indicators.
Actual area reclaimed may be considered physical indicator for the item
"reclamation of land'. Expenditure on soil conservation may be used as a
physical indicator for the item "Bundings and other land improvement' Addi-
tional area under suit crops and plantations may be used as an indicator
4. Source: Directorate of Economics and Statistics, Madras.
86
for the item 'orchard and plantation'. The total number of wells may be
considered as an indicator for the item wells and area irrigated for the item
'other irrigation resources'. For preparing the estimates relevant indicator is
used. The estimates so arrived at by using physical indicators gave results
at constant prices. Index of wages of rural unskilled workers have been
used to arrive at current prices. For agricultural implements machinery
transport equipment, additional number of agricultural machinery implements
were taken into account and a suitable price index is used as indicator for
current prices.
A combined indicator based on index of agricultural production and index of

annual additions to the number of animals, breeding, dairy cattle and sheep
were used for the items 'Farm Houses', barns. Cattle sheds, etc., and
'others'.
Livestock sub Sector: The estimates for this sector were prepared on the
basis of geometric growth rate to the intervening period from the Livestock
Census 1977, 1982 and 1989. The prices of Livestock categories have
been collected for the required years.
Forestry and Logging: Estimates of Capital formation have been collected

for public and private sectors separately. The public sector covered 95% of
the forest area. The remaining part of 5% only covered under private sec-
tor. The value of fixed capital formation of public sector has been culled
out from budget documents and annual accounts of the non-departmental
enterprises. The value of fixed capital formation for private sector was esti-
mated using the estimated value of public sector.
Fishing: The public sector value is estimated from budget documents and
annual accounts of the non-departmental enterprises.
For private sector using Livestock Census 1977, 1992 and 1989 data have
been prepared for mechanized and non-mechanized boats and other major
fishing equipments. The data on gap years were filled up using Geometric
Growth Rate and worked out the annual addition to the respective items. A
suitable price index is used in order to arrive at current prices.
87
Annexure Table 1 - Gross Fixed Capital Formation in Non-
Departmental Commercial Undertakings in Kerala
(Category-wise) [percentages] Constant Prices
Category Land Build- Capital Other Expen- Trans- Machi-
Deve- ing work in const- diture port rj®ry &
lopment progress ruction during equip- office
constru- ments equip-
ction ments
1980-81
1. Agriculture 48.37 13.24 4.15 18.23 5,07 4.31 1.63
II. Forestry and Logging 45.63 13.62 35.02 0.66 0.00 3.78 1.30
Total 47.68 17.08 11.91 13.81 3.80 4,18 1.54
1981-82
1. Agriculture 49.95 26.69 3.47 5.02 0.00 7.22 7.65
Total 42.94 34.45 1.98 2.88 9.17 4.16 4.42
1982-83
1. Agriculture 40.43 27.88 11.63 33.89 0.00 1.31 2.04
II. Forestry and Logging 42.99 55,99 0,00 0.28 0.00 0.50 0.24
Total 40.80 31.94 9.95 29.03 0.00 1.19 1.78
1983-84
1. Agriculture 36.16 16.96 3.01 16,70 16.78 4.06 6.32
Total 30.44 21,61 2.54 14.38 22.20 3.42 5.41
1984-85
1. Agriculture 2.53 32,90 0.00 16.50 7.93 2.48 14.88
Total 2.25 32.23 0.00 21,90 7.05 2.54 13.67
1985-86
1. Agriculture 50.35 21.11 0,00 28.71 0.00 4.57 2.41
Total 50.01 24.36 0.00 25.36 0.00 4.08 2.49
1986-87
1. Agriculture 11.97 29.05 7.35 25.39 0.00 4.22 22.02
II. Forestry and Logging 29.19 2.68 66.87 3.2 0.00 0.00 2,90
Total 13.39 26.88 12.26 23,56 0.00 3.87 20.44
1987-88
1. Agriculture 7.37 18.46 4,33 33.46 0.00 7,33 30.96
II. Forestry and Logging 0.00 30.13 0.00 55,99 0.00 0.00 13.88
Total 6.47 19.89 3.80 36.22 0.00 6.43 28.87
1988-89
1. Agriculture 74.69 15.98 51.42 0.00 17.80 5.35 0.00
II. Forestry and Logging 0,00 0.00 19,48 0.00 0.00 0.00 80.52
Total 72.77 15.57 50.60 0,00 17.34 5.22 2.07
Source; Estimated.
88
Annexure Table 2 : Gross Fixed Capital Formation of Agriculture-
Household Sector (constant prices)
Years Rural Urban Total
1980-81 4307,00 1051.00 5358.00

1981-82 5184.98 1303.21 6488.19
1982-83 5246.67 1346.37 6593.05
1983-84 4251.11 1096.39 5347.50
1984-85 4822.53 1275.48 6098.01
1985-86 6253.15 1613.37 7866.53
1986-87 5806.26 1559.08 7365.34
1987-88 6489.05 1750.81 8239.66
1988-89 7454.68 2013.34 9468.02
Source : Estimated.
Annexure Table 3 : EiSlimates of Gross Fixed Capital Formation

(GFCF) of Private Sector in Rajasthan by Type of Assets at Constant
Prices (percentages) (Agri. + Forestry + Fishing)
Years Construction Machinery & Equipment
1980-81 55.68 44.32

1985-86 46.56 53.44
1990-91 55.82 44.18
1992-93 57.47 42.03
89
Annexure Table 4 : Estimates of Gross Fixed Capital Formation
(GFCF) of Public Sector in Rajasthan by type of Assets at constant
prices (percentages) (Agri. + Forestry + Fishing)
Year Constnjction IVIachlnery & Equipment
1980-81 78.04 21.96

1985-86 73.89 26.1
1990-91 46.22 53.78
1992-93 60.43 39.57
Source: Estimated, original information obtained from Directorate of Economics & Statistics, Government of
Rajasthan, Jaipur.
Annexure Table 5 : Gross Fixed Capital Formation of state

government administrative departments in Tamil Nadu by 'type of
industry of use' 1980-81 to 1988-89 (at constant prices)
(Rs. in lakhs) (Three yearly moving average)
Year Agri. Fisfiing Total
1982-83 872.19 72.22 944.41
1983-84 1368.52 95.51 1464.03
1984-85 1768.94 105.20 1874.13
1985-86 1965.26 104.32 2069.58
1986-87 1828.60 106.28 1934.88

1987-88 2045.67 108.86 2154.53
1988-89 2023.77 111.12 2134.89
90
Annexure Tabie 6 : Gross Fixed Capitai Formation of state
government departmentai enterprises in Tamil Nadu by 'type of
industry of use' 1980-81 to 1988-89 (at constant prices) (Rs. in lakh)
Years Agriculture Forestry & Logging Total GFCF
1982-83 3193.83 957.26 4151.09

1983-84 4144.35 1134.33 5278.69
1984-85 4067.25 1185.93 5253.17
1985-86 4117.85 1113.15 5231.01
1986-87 3892.66 1042.44 4935.09
1987-88 3918.60 1097.15 5015.75
1988-89 3838.84 1146.90 4985.75
Annexure Table 7 : Gross Fixed Capital Formation of state

government non-departmentai enterprises in Tamil Nadu by
'type of industry of use' 1980-81 to 1988-89 (at constant prices)
(Moving Averages Three Yearly) (Rs. in lakhs)
Year Agriculture Forestry & Logging Fishing Total
1982-83 8.58 122.64 25.35 156.57
1983-84 8.79 136.26 21.14 166.20
1984-85 8.43 239.86 14.98 263.28
1985-86 7.59 218.45 562 231.65
1986-87 6.41 235.42 16.49 258.32

1987-88 4.44 201.27 22.10 227.80
1988-89 6.16 221.25 22.91 260.32
Spgrce: Same as Table 28.
91

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Capital Formation in Indian Agriculture :

Issues and Concerns

Capital Formation in Indian Agriculture

Natlcmal Bmik for Agriculture and Rural Development

SI. No. Title Page No.

II. The Present Study 2

III. The Data and Coverage 3

IV. All India Scenario 4

V. Pattern of Capital Formation in Agriculture at the

V. a. Pattern of Capital Formation in Agriculture in

V. b. Pattern of Capital Formation in Agriculture in Kerala 28

V. c. Pattern of Capital Formation in Agriculture in Rajasthan 33

V. d. Pattern of Capital Formation in Agriculture in Tamil Nadu 36

VI. Complementarity Between Public and Private Sectors:

VII. Factors influencing the Capital Formation in

VII. a. Budgetary Expenditure on Agriculture and Allied Sectors 52

VII. b. Marginal Efficiency of Capital 55

VII. c. Technology and Terms of Trade in Agriculture 57

VII. d. Institutional Credit and Role of Credit Institutions 60

VII e. Role of Infrastructure and Linkages Between

VIII. Policy Implications 64

Annexure I : Methodology of Estimation of Gross Fixed

II. The Present Study

It should, however, be noted that conceptual framework of Mishra and

The present study is an attempt to address some of the above issues in

IH. The Data and Coverage

Ttre study is based on secondary data. The various official publications

IV. All India Scenario

1960-61 31995 12588 18321 62904 3 Yearly Moving Averages

Source: C.S.O., Various Publications.

Table 1(a) : Sectoral Shares in GDP (Percentage)

Agriculture Mining, Mfg. and Service

1960-61 50.86 20.01 29.12

Source: C.S.O., various publications.

1960-61 1777 4491 5507 11775

Source: Same as Table 1.

A graphic presentation of GCF for tfie TE 1963-94, for instance, confirm

0••*Try"riT"T"r <• s i j i i ? i' '^ "<•••):••r-r"!r""r-n—r~r~'r"T

2000AY"'J( •"•{ f' t •••"rT^—rnrT'*f''T—^•r,Y',y,imf^—j-rrp

25000- Total GCF

Table 2(a) : Sectoral Shares in Gross Capital Formation

Source: Same as Tatite' H.

Year (triennium ending)

Table 3: Linear Growth Rates (Percent per annum)

Source : Same as Table 1.

Table 4 : Capital Formation in Indian Agriculture

Source: Same as Table 1.

The trends in capital formation in Indian agriculture are presented in Table

Table 5 : Percent Change In Capital Formation in Indian Agriculture

1962-63 to 1975-76 54.53 99.4 83.11

Source: Same as Table 1.

Time period Public Private Total

1962-63 to 1975-76 4.19 7.65 6.39

Source: Same as Table 1.

However, the falling trend in total capital formation in Indian agriculture

These trends in capital formation in Indian agriculture namely, decline in

V. Pattern of Capital Formation in Agriculture at the State Level

Table 7 presents the gross fixed capital formation in agriculture (GFCFA)

ALL INDIA (Rs. Crores)

Source: Same as Table 1.

It is pertinent to observe that during the decade of eighties, the growth of

Table 8 : Percent Change in Capital Formation in Indian Agriculture:

Source: Same as Table 1.