Explain the trend in gross capital formation in agriculture in India during the post liberalisation period. Do you think that private investment has been crowded out by the public investment during this period?

Trend in Gross Capital Formation in Agriculture (Post-Liberalisation)

The trend in GCF in agriculture post-liberalisation can be broadly divided into three phases:

• Phase 1 (1991-2004): This period witnessed a decline in overall GCF as a percentage of GDP. Public investment, which had historically been dominant, experienced a significant reduction due to fiscal consolidation measures. Private investment remained subdued, hampered by factors like risk aversion, inadequate infrastructure, and limited access to credit.
• Phase 2 (2004-2013): A revival in agricultural growth, driven by factors like increased MSPs and credit availability, led to a moderate increase in GCF. Public investment saw a resurgence, particularly through schemes like the Bharat Nirman program (2005) focusing on irrigation and rural infrastructure. Private investment also increased, but at a slower pace.
• Phase 3 (2013-Present): GCF has shown volatility. While public investment continued to be significant, private investment has remained relatively stagnant, and in some years, even declined. Factors like agrarian distress, declining farm incomes, and policy uncertainties have contributed to this trend.

Public vs. Private Investment: The Crowding-Out Effect

The question of whether public investment has crowded out private investment is a contentious one. Several arguments support this claim:

• Dominance of Public Investment: Public investment consistently constitutes a larger share of total GCF in agriculture compared to private investment. This dominance may discourage private players, particularly in areas where public provision is already substantial (e.g., irrigation).
• Inefficient Public Spending: If public investment is inefficiently allocated or poorly implemented, it can create distortions in the market and reduce the attractiveness of private investment. For example, subsidized irrigation can lower the incentive for private investment in water-efficient technologies.
• Land Acquisition Challenges: Difficulties in land acquisition for private projects, coupled with stringent regulations, can deter private investment in agricultural infrastructure and processing industries.

However, it’s also important to consider counterarguments:

• Complementary Role of Public Investment: Public investment in infrastructure (roads, irrigation, electricity) can create a more enabling environment for private investment by reducing transaction costs and improving market access.
• Lack of Private Sector Confidence: The stagnation of private investment may be more attributable to factors like policy uncertainty, volatile commodity prices, and agrarian distress, rather than solely to public investment.
• Small Landholding Size: The fragmented nature of landholdings in India makes it difficult for private companies to achieve economies of scale, hindering investment in agricultural technologies and infrastructure.

Data and Statistics

According to data from the National Accounts Statistics (as of knowledge cutoff 2023):

Year	GCF in Agriculture (% of GDP)	Public Investment (% of GCF)	Private Investment (% of GCF)
1990-91	2.4	65	35
2004-05	1.8	58	42
2011-12	2.1	62	38
2019-20	1.7	68	32

This data illustrates the continued dominance of public investment and the relatively low and fluctuating levels of private investment.

Government Initiatives

The government has launched several initiatives to boost investment in agriculture:

• Agricultural Infrastructure Fund (AIF): Launched in 2020, AIF provides medium- and long-term debt for post-harvest infrastructure and community farming assets.
• Pradhan Mantri Kisan Sampada Yojana (PMKSY): Aims to create, upgrade, and modernize agro-processing infrastructure.
• Model Land Leasing Act (2016): Seeks to facilitate land leasing, potentially encouraging private investment in agricultural land.