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An analysis of capital flows between the agricultural and non-agricultural sectors of India (English)

A study designed to determine the direction and magnitude of capital flows between the agricultural and nonagricultural sectors of India, within the context of subsidies and extraordinarily low taxation, shows that a large and rapidly increasing outflow of capital from the agricultural sector appears to be taking place. This outflow is occurring just when agriculture requires a large volume of investible funds for rapid expansion of food grain production. Investment requirements for agriculture can be estimated from growth in value added and a marginal capital output coefficient. After estimating the magnitude of total savings by the sector, the quantified parameters can be written into a model of the investment-savings gap of the sector. As a result of low private capital formation relative to agricultural savings, the model predicts a substantial, rapid net outflow of private savings. To reverse this dangerous trend, state governments must overcome resistance to full utilization of the taxable capacity of the agricultural sector, allocate subsidies more selectively, establish a large network of savings institutions in rural areas and encourage investment in technology, and increase deposit and interest rates. Statistical data are included. Numerous references.

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Citation

Schebeck,Emmerich M.

An analysis of capital flows between the agricultural and non-agricultural sectors of India (English). Staff working paper ; no. SWP 42 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/767861468268507597/An-analysis-of-capital-flows-between-the-agricultural-and-non-agricultural-sectors-of-India