An Analytical Study of Capital Formation in India: With Special Reference to Indian Agriculture

An increase in the stock of capital in a fixed period is known as capital formation of an economy. The capital formation depends upon three factors-formation of savings, mobilization of savings and investment. Agriculture sector still dominates the Indian economic scene by providing livelihood to majority of the population. In most of the developing countries including India, agricultural development is a precondition for economic development. Capital formation is one of the basic factors for increasing production. This is all the more important in the agricultural sector where we are faced with the task of increasing production to keep pace with the increase in population against the odd of the vagaries of monsoon. The judicious use of natural resources for sustainable production of agriculture, adoption of advanced technology and development of infrastructure for facilitating all agricultural activities, ensuring food security in the broader sense of making adequate nutritious food available and accessible to all and making agriculture a profitable activity at par with other industries in the sphere of global economy are the problems that can be successfully tackled only with a strong capital base. This requires a close monitoring of the status of capital formation which is turn things on the nature of statistical system and quality of data available for measurement of capital formation. The share of agriculture in GDP has registered a steady decline from 18.6 per cent in 2004–05 to 14.6 per cent in 2009–10 (at 2004–05 prices). The declining share of agricultural sector in the GDP is a characteristic of all developing economies. The gross capital formation (GCF) in agriculture sector relative to GDP in this sector has an increasing trend from 15.8 per cent in 2005–06 to 21.3 per cent in 2008–09.