Futuristic Private and Public Capital Requirements in Agriculture for Doubling Farmers’ Income across the States

Abstract

The government's aim to double farmer's real income by 2022–23 requires estimates on the magnitude of private and public capital formation in agriculture and allied activities in the past so that the futuristic investment requirements may be worked out. This paper estimates state-wise public investment ‘in’ and ‘for’ agriculture from 1981–82 to 2013–14, based on the capital expenditure on key economic heads in Finance Accounts and private (farm household) investment for 1981–81, 1991–92, 2002–03 and 2012–13 based on NSS-AIDIS (schedule 18.2) data. The incremental capital output ratios have been calculated to determine the rate of increase in agriculture and rural infrastructural investments, which would augment, if not double farm income over the 7-year period. The analysis indicates that both private and public investments in agriculture have increased manifold. Assuming that demand for output continues and capital-use efficiency remains unchanged, an investment rate of 26.1 per cent would facilitate doubling of farm income. In absolute terms, an additional investment of 645 billion on private account and 1900 billion on public account at 2015–16 prices would be required by 2022–23, which should grow annually at 10.8 per cent and 14.7 per cent, respectively. Though it is easier for the respective state governments to meet this target, it is more important to improve the marginal efficiency of capital in irrigation, rural energy and road-transport, by investing in area-specific and domain-specific needs so as to reap maximum gains. The government must prioritize investments in the less-developed eastern and rainfed states due to higher additional returns per unit of capital compared to that in the developed states. A substantial increase in the institutional credit is recommended to cover as many farmers as possible.