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Trends in Rural Savings and Private CapitalFormation in India
SWP382
World Bank Staff Working Paper No. 382
April 1980
Prepared by: Raj Krishna and G.S. Raychaudhuri, ConsultantsSouth Asia Programs Department
Copyright © 1980The World Bank
1R, H Street, N.W.iington, D.C. 20433, U.S.A.
views and interpretations in this document are those of t1 i7 D
irs and should not be attributed to the World Bank, to ii JI=J fl lID) \\/7 r,ed organizations, or to any individual acting in their beh U UL D (( ,t2J 1
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The views and interpretations in this document are those of the authors and
should not be attributed to the World Bank, to its affiliated organizations,
or to any individual acting in their behalf.
WORLD BANK
Staff Working Paper No. 382
April 1980
TRENDS IN RURAL SAVINGS AND PRIVATE CAPITAL FORMATION IN INDIA
This paper reports on trends in rural household savings, net private
capital formation in agriculture and the growth and composition of tangible
net wealth in rural India from 1950-1973. It also presents fresh estimates of
the marginal and average propensities to save and invest during the period
with respect to measured as well as permanent and transient income. The
results show that there has been an acceleration of saving and capital form-
ation in more recent years.
Prepared by: Raj Krishna and G. S. Raychaudhuri, Consultants.South Asia Programs Department
Copyright (c) 1980The World Bank1818 H Street, N.W.Washington, D.C. 20433, U.S.A.
TRENDS IN RURAL SAVINGS AND PRIVATE CAPITAL FORMATION IN INDIA
TABLE OF CONTENTS
Page No.
1. Introduction ................................................. 1
2. Growth of Saving and Capital Formation ....................... 3
3. Marginal Propensities to Save and Invest ..................... 9
4. Propensities in the Fifties and Sixties ...................... 14
5. Saving Out of Permanent and Transient Income .... ............. 19
6. Some Disaggregative Estimates ................................ 23
7. Tangible Wealth and Asset Composition ........................ 26
Appendix A: The Rural Household Savings Series .... .............. 34
Appendix B: Net Capital Formation in Agriculture Series ......... 38
Appendix C: Tangible Wealth of Rural Households .... ............. 39
Bibliography ..................................................... 41
TRENDS IN RURAL SAVINGS AND PRIVATE
CAPITAL FORMATION IN INDIA1950-51 - 1973-74
by
Raj Krishna @G. S. Raychaudhuri @
1. Introduction**
This paper reports on trends in (a) rural household savings,
(b) net private capital formation in agriculture and (c) the growth and
composition of tangible net wealth in rural India during the 24-year period
1950-51 to 1973-74. It also presents fresh estimates of marginal and average
propensities to save and invest during this period with respect to measured
as well as permanent and transient income. Previous time series studies have
covered the earlier period 1950-51/1962-63. (Gupta, 1970, and Datta Roy
Choudhury, 1968.) The saving propensities estimated in one of these studies
are comparable with our estimates for this earlier period. But there has been
an acceleration of saving and capital formation in more recent years, and,
therefore, the saving propensities estimated by us for the recent period
1960-61/1973-74 are distinctly higher.
* The first draft of this paper was prepared for the World Bank.
** Thanks are due to Chandra Mazumdar and Anil K. Gupta for competent
statistical assistance, and to Sartaj Alam Kidwai for computer
programming.
The authors are grateful to an anonymous reviewer for comments which
induced the addition of Section 6 to an earlier version.
@ Professor of Economics and Reader in Economics respectively in Delhi
School of Economics.
- 2 -
The paper is organized as follows.
The next Section presents the basic data on the growth of saving
and private capital formation - aggregate and per capita - in different Plan
periods, and particularly in the period since the start of the Green Revolution
in 1967. Variations in the average saving rate and the average rate of private
capital formation are also analyzed.
Section 3 contains estimates of the marginal propensities to save
(MPS) and invest (MPI) 1/.
From the computed functions we have estimated the positive intercept
on the income axis which measures the income level at which positive saving
begins. We call it the "critical minimum income" necessary for income to ex-
ceed consumption. The relationship of this critical income to the poverty
line is very instructive.
The fourth Section compares our time series estimates of saving pro-
pensities with those of earlier time series studied. Some all-India cross-
section saving rates estimated on the basis of data collected by the National
Council of Applied Economic Research have also been reviewed.
The fifth Section separates savings out of permanent and transient
income. The MPS out of permanent income appears to be higher than out of
measured income. Transient saving seems to augment or reduce permanent saving
by 8 to 9 percent on the average.
Section 6 presents some evidence on variations in saving rates across
different regions and the returns to investment in modern inputs and assets.
1/ We shall hereafter use "investment" as an abbreviation for privatecapital formation in agriculture.
Section 7 analyzes the growth of reproducible tangible net wealth
(RTW) in the rural areas on the basis of comparable estimates for 1950, 1961,
1966 and 1972 developed by the Central Statistical Organization (CSO) and the
Reserve Bank of India (RBI). Gini coefficients, available for 1961-62 and
1971-72, roughly measuring the degree of inequality in the distribution of
RTW, are also reported. They indicate no significant change in the degree
of inequality.
Livestock Census data contain considerable information on the asset-
composition of phiysical capital. Trends in this composition are also dis-
cussed in Section 6.
2. Growth of Saving and Capital Formation
Two basic time series - net rural household saving (S), and net
domestic private capital formation in agriculture (NDCFA) - for the period
1950-51 to 1973-74 have been developed in Table 13 and plotted in Figure 1.
The saving series includes RBI figures for rural household saving up to 1959-
60, and CSO figures for the remaining 14 years 1/. The NDCFA series is
obtained from the National Income/Accounts Statistics of the CSO 2/. Private
capital formation includes construction, machinery and equipment, livestock
and change in stocks.
1/ The latter have been computed so as to be comparable with the earlier
RBI figures. (See Appendix A.)
2/ Some adjustments have been made. (See Appendix B.)
Rural Saving, Private Investment and Income(Per capita in 1960-61 prices)
Rs. I ndia, 1950-51/1973-7435
yr - Per capita rural income (Rs).ndcfa - Per capita private invastment in agriculture (Rs).
s - Per capita rural saving (Rs).
30 y
- -- - /~~~001- 00
25
20
1 5 ndcfa -
1 0 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974
Financial year beginning April
World Bank-20516
The average rural saving rate series is shown in Table 1 and plotted
in Figure 2 (a). It will be seen that the saving ratio has recorded a dis-
appointingly modest upward trend. Over the whole 21 year period it averaged
only 2.8 percent. In the first two Five Year Plans it averaged 2.3 percent.
It rose to 2.5 percent in the Third Plan and then again to 3.8 percent in the
Fourth Plan period. A significant step-up in the ratio occurred in the years
beginning 1965-66 when price support and the new technology were introduced.
The ratio increased from 2.5 percent in the Third Plan to 3.5 percent in the
eight years beginning 1966-67. But even after this increase, the level of the
saving rate remains very low indeed. The rural sector is still apparently
unable to save even 5 percent of its income - the ratio which Arthus Lewis
(1954) characterized as the typical indicator of a backward pre-development
economy.
For an explanation of this low level we must recall the fact that
at least 41.4 percent of the rural population remained below the poverty line
(Rs 42.45 per capita per month) even in 1973-74 on the basis of consumption
(a) The income series used for calculating the saving ratio is the sum of
the long-period rural savings series constructed by us and the ruralcomponent of the CSO estimate of aggregate consumption. Aggregate CSO
consumption is broken up into rural and urban consumption on the basis
of the rural: urban consumption ratio implicit in the National Sample
Survey data for each year.
Although the NSS consumption series are considered more satisfactory,
experiments with an alternative rural income concept in which this
series is used yielded inconsistent and incredible results for the two
periods 1950-51/1962-63 and 1960-61/1973-74. This outcome is clearly
due to the fact that the CSO and RBI saving estimates are related to
CSO income estimates and not to NSS data. Therefore, the choice was
made to use CSO consumption data to get the rural income series. This
choice has produced consistent and meaningful results for the whole
period 1950-51/1973-74. These results are also in harmony with other
bodies of independent cross-section data on rural saving, rural capital
formation etc.
- 6 -
TABLE 1
RATIO OF RURAL SAVING AND INVESTNENT TO INCOME: INDIAPER CAPITA (1960-61 PRICES)
AverageNet Saving/ of Plan Net Investment/ Average of
Year Rural Income Periods Rural Income Plan Periods
(Percent)
1950-51 2.35 2.35 1.07 1.07
1951-52 2.40) 1.69)
1952-53 2.24) 0.91)
1953-54 2.36) 2.27 1.56) 1.58
1954-55 2.22) 1.67)
1955-56 2.11) 2.06)
1956-57 2.42) 3.30)
1957-58 2.03) 2.18)
1958-59 2.39) 2.32 2.95) 2.89
1959-60 2.37) 2.89)
1960-61 2.39) 3.14)
1961-62 2.02) 2.63)
1962-63 2.44) 2.87)
1963-64 2.51) 2.51 3.18) 3.29
1964-65 2.39) 3.49)
1965-66 3.18) 4.28)
1966-67 3.78) ) 4.44) )1967-68 3.07) 3.22) 3.77) 3.99)
1968-69 2.90) ) 3.75) )) )
1969-70 3.82) ) 3.50 4.18) ) 4.35
1970-71 3.74) ) 4.64) )1971-72 3.49) 3.79) 4.47) 4.57)
1972-73 4.10) ) 4.95) )1973-74 3.80) ) 4.59) )
Average(1950-51/1973-74) 2.80 2.98
Ratios of Rural Saving and Private Investmentto Rural Income, India, 1950-51/1973-74
(1960-61 prices)6
S - Rural savingYr -Rural income
ndcfa - Private agricultural investment
.+*- *. ... *-, nd~~~~_Udcf a1 *
4 A
s/yr
3
2
1 **Ip S
1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974
Financial year beginning April
World Bank-20517
expenditure data collected by the NSS. 1/ This population cannot afford any
positive saving. The capacity to save should also be negligible for millions
of people just above the poverty line. For as we shall see in the following
Section, saving bcomes significant only at levels of income much above the
poverty line. Thus only a fraction of the rural population are able to save.
And the saving ratio is significantly high for only a small minority of the
population. It is not surprising, therefore, that the average saving rate of
the rural economy as a whole should remain small even after some acceleration
of income growth in the last decade.
A comparison of trends in rural saving and rural investment ratios
cannot be properly made because the time series of rural investment is not
available. We have data only on private net capital formation in agriculture
(NDCFA) which excludes capital formation in rural non-agricultural sectors.
The ratio of NDCFA to rural income (YR) will:therefore be an underestimate of
the true rural investment/rural income ratio. But we find that over the whole
period of 24 years even this lower-limit ratio (NDCFA/YR) has averaged 2.98
percent which is slightly higher than the average rural saving ratio (2.80
percent).
The fact that the investment ratio is slightly higher than the
saving ratio is significant, for it implies that the urban sector has been
making a net contribution to capital formation in agriculture. In spite
of this contribution, however, the investment ratio exceeds the saving
ratio only by a small margin.
1/ Ministry of Planning reply to a question in Parliament, 29 June 1977.
The contribution of the urban sector also explains the fact that,
although the rural household saving growth rate (3.5 percent) has remained
below the all-India household saving growth rate (5.6 percent), the agri-
cultural investment growth rate (7.0 percent) has exceeded the all-India
investment growth rate (4.6 percent). As a result the share of net capital
formation in agriculture in net domestic capital formation has gone up from
11.5 percent to 19.7 percent between 1950-51 and 1973-74. The proportion
still remains low, but there is no basis for the common impression that the
share of rural areas in aggregate annual investment has been falling.
(Table 2.)
TABLE 2
GROWTH RATES OF SAVING & INVESTMENT /a
1950-51/1973-74
Growth Rate
S1. Items Rural All-India
No. (At 1960-61 prices) TPercent)
1. Per Capita Household Saving 3.55 5.60
2. Per Capita Capital Formation /b 7.03 4.61
/a Saving in current prices is deflated by the implicit nationalincome deflator, and NDCFA in current prices is deflated by the
investment cost index. (See Appendix B.)
/b Agriculture only.
In spite of considerable investment in modern agricultural assets
the capital-output ratio in agriculture remained almost unchanged. It was
1.27 in 1950 and 1.28 in 1971. (Datta Roy Choundhury 1977.)
3. Marginal Propensities to Save and Invest
The marginal propensity to save has been derived with the basic
linear regression:
(1) St a + b YR + u
- 10 -
Here S is rural saving and YR rural income. This equation has been estimated
with S and YR measured as aggregates in current as well as in constant prices,
and as real quantities per capita. (Table 3.)
The results show that the marginal propernsity to save 1/ (MPS) has
been 11 percent (Table 3, Equation 3.4), which is substantially higher than
the average (2.80 percent). Therefore, the elasticity 2/ of saving with
respect to income is quite high (about 3.93).
The marginal and average net investment rates 3/ turn out to be
18.2 and 2.98 percent and the elasticity 2/ of NDCFA with respect to rural
income is also high (5.88). (Table 4, Equation 4.4).
These are promising results for they imply that real rural saving
per capita can grow nearly four times and agricultural capital formation per
capita can grow nearly six times the growth rate of real rural income per
capita. If government policy is effective in sustaining a satisfactory rate
of growth of rural income, rural saving and farm investment can be relied
upon to grow much more than income. But of course the spontaneous growth
of rural saving and investment can be accelerated still further if banking
facilities are expanded in the rural area, and more attractive physical and
financial assets are offered.
Although the estimated income elasticities of rural saving and farm
investment are encouraging, the fact remains that the average saving and invest-
ment rates (about 3 percent) are disconcertingly low. Until the incidence of
1/ Estimated with real quantities per capita.
2/ At the means of variables.
3/ Estimated with real quantities per capita.
TABLE 3
RURAL SAVINGS REGRESSIONS: INDIA
1950-51/1973-74
Serial Dependent Regression Coefficients -2
Number Variable Constant YR YR/N YR/NNPD YR/NNPD/N R Elasticity
3.1 S -174.658 0.043 0.974 1.392(7.438) (29.412)
3.2 S/N -5.984 0.047 0.967 1.562(8.622) (25.922)
3.3 S/NNPD -308.082 0.059 0.888 2.049(-6.821) (13.543)
3.4 S/NNPD/N -22.134 0.110 0.695 3.925(-5.442) (7.309)
S : Rural Saving in Current Prices N : Rural Population
YR : Rural Income in Current Prices NNPD : Net National Product Deflator
t-values are shown in the parentheses.
All equations are linear.
- 12 -
poverty diminishes and income rises to a critical level, internal rural invest-
ment effort will have to be supplemented by resource flows from the urban non-
farm sector.
The sfving equation estimated by us enables us to compute the
"critical minimum" level of per capita income at which positive saving is
possible. The level is given by the horizontal intercept of the equation on
the income-axis (calculated by equating the estimated regression to zero).
Thus equation 3.4 yields Rs. 201.22 per annum as the critical per capita
rural income (in 1960-61 prices).
This figure may be compared to the Dandekar-Rath poverty line for
rural households: Rs 180 per annum in 1960-61 prices. Though it would have
been more appropriate to compare the poverty line with the intercept of a
cross-section regression, we can still draw the general inference that, on
the average, households in rural India can have positive saving only after
they have crossed the poverty line. The estimated intercept suggests that
real income per capita should rise at least 10 percent above the poverty line
before a typical household can afford to save.
We can even conceive of using the critical minimum income, esti-
mated from a saving regression, as a legitimate alternative way of defining
the poverty line itself, the logic being that a household may be properly
supposed to have risen above poverty only if and when its income exceeds
consumption.
There is another interesting question on which the estimated rural
saving equation throws some light. We can ask: how much will rural income
have to rise in order that higher rural saving ratios of the order of, say
5, 8 and 10 pereent may be achieved? This question can be answered if we
TABLE 14
AGRICULTURAL INVESTMENT REGRESSIONS: INDIA1950-51/1973-74
Serial Dependent Regression Coefficient -2Number Variable Constant YR YR/N YR/NNPD YR/NNPD/N R Elasticity
4.1 NDCFA -217.693 0.048 0.966 1.525(7.741) (25.104)
4.2 NDCFA/N -7.758 0.053 0.930 1.752(6.876) (17.059) I
4.3 NDCFA/IDW -556.200 0.088 0.932 2.717(10.841) (17.453)
4.4 NDCFA/IDW/N -40.480 0.182 0.689 5.876(5.848) (7.060)
NDCFA : Net Domestic Capital Formation in Agriculture N : Rural Population
YR : Rural Income in Current Prices NNPD : Net National Product Deflator
t-values are shown in the parentheses IDW : Rural Investment Deflator (Weighted)
All equations are linear.
- 14 -
rewrite the estimated saving function in the form
(2) S/Y = 0.11 - 22.13y
This saving ratio function is pictured in Figure 3. In the Fourth Plan period
(1969-70/1973-74) the saving rate had risen to 3.8 percent while per capita
rural income averaged Rs 291.95 (in 1960-61 prices). The equation suggests
that a 5 percent saving rate would require income to rise to about Rs 369;
an 8 percent saving rate would require an income of Rs 738 and a 10 percent
rate Rs 2,213. In other words, the Fourth Plan level of rural income would
have to increase 2.5 times and 7.5 times for the rural saving rate to become
8 and 10 percent respectively. And even a 5 percent saving rate would require
a 26 percent increase in rural income. Since the rate of growth of rural in-
come per capita has averaged only 0.8 percent per annum over a long period,
it is clear that a substantial escalation of the rural income growth rate
will be necessary before the rural saving rate attains a reasonable level and
the rural growth process becomes self-sustained. Meanwhile, a net inflow
of resources from urban to the rural sector will continue to be necessary.
4. Propensities in the Fifties and Sixties
As stated in the beginning of Section 2, the foregoing results
have been derived with a 24-year time series of rural saving constructed by
pooling the Reserve Bank figures for the first 10 years and the CSO figures
for the latter 14 years. The pooled series has enabled us to get long-
period magnitudes of saving propensities. But there are some conceptual
differences between the RBI and CSO series. And there is reason to believe
that the saving propensity should have been higher in the second period which
Average Rural Saving FunctionIndia, 1952-53/1973-74
0.120... . . . . . .. . . . . . .. . . . . . . . . . . . ................. ... . . . . . . .........-.------1......----1S--"-----
0.10-
~~~~~~~~~~~~~~~~~~~~~~~S0.0 =011 -22. 13 y-10.08
0.06- / .1ll
0.04__ _ _ _ _ _
0.02
0 1 200 600 1000 1400 1800 2200 Y
-0.02-
s = Average saving rate-0.04 - r = Average saving rate out of ,er capita real income (per cent)
y = Per capita income in 1960-61 prices (Rs) (Rs.)
-0.06 anl01
World Bank-20518
- 16 -
includes the years of the Green Revolution. Therefore, separate regressions
have also been estimated for the two periods. The key results are summarized
in Table 5.
TABLE 5
RURAL SAVING PROPENSITIES IN THE FIFTIES AND SIXTIES
Marginal AveragePeriod (Percent) (Percent) Elasticity
I 1950-51/1962-63 1.33 2.33 0.57
II 1960-61/1973-74 11.79 3.14 3.75
I + II 1950-51/1973-74 11.03 2.80 3.93
It is evident that the marginal propensity to save (MPS) (out of
real income per capita) in the second period is about 9 times what it was in
the first period. Some of this large difference is perhaps due to the under-
estimation of saving in the earlier period by the Reserve Bank. But even
allowing for this, it is clear that with the more rapid growth of rural income
per capita in the second period the incremental saving rate escalated 1/. And
the elasticity of saving with respect to rural income which was slightly more
than half in the early period increased to nearly 4 in the latter period. How-
ever, the average saving rate went up only moderately from 2.3 to 3.1 percent.
Our estimates of saving propensities for the earlier period are
comparable with those derived in an earlier study by Uma Datta Roy Choudhury
(1968). She estimated the marginal propensity to save out of per capita real
income in rural India to be 0.96 percent over the period 1950-51/1962-63. Our
estimate is 1.33 percent. Her estimate of the average propensity to save is
1/ Growth rates of real rural income per capita during 1950-51/1962-63and 1960-61/1973-74 were 0.42 percent and 1.17 percent per annumrespectively.
- 17 -
2.06 percent and ours 2.33 percent (Table 6). The difference is mainly due
to the different concepts of income used 1/. But in both studies the co-
efficient of determination of the saving function for the earlier period is
very low (0.11, 0.14) and the estimated marginal propensities to save are not
significant 2/.
TABLE 6
RURAL SAVING PROPENSITIES OBTAINED IN VARIOUS STUDIES: INDIA(1950-51/1962-63)
MPS* APS* Elasticity Deflator Deflator
(Percent) R2 of Saving of Saving of Income
Uma DattaRoy 0.96 2.06 0.14 0.14 Construc- GNP
Choudhury /b (1.32) /a tion Cost Deflatorof RuralBuildings
K. L. Gupta /c 3.05 - 0.91 - GNP GNP
(10.80) Deflator Deflator
Krishna andRaychaudhuri /b 1.33 2.33 0.11 0.57 NNP NNP
(1.14) Deflator Deflator
/a Parentheses show t-value./b Real capita rural saving out of real per capita rural income.
/c Real per capita rural saving as a function of real per capita dis-
posable agricultural income.* MPS = Marginal propensity to save. APS = Average propensity to save.
1/ We have applied the NSS rural/urban consumption rato to CSO estimates
of aggregate consumption to get rural consumption. She has applied the
same ratio to aggregate national income to get rural income.
2/ There is one more study by K. L. Gupta, (1970), in which a much higher
and significant estimate of the marginal propensity to save (3.05 per-
cent) was obtained for the same period. (Table 6.) His results are
surprisingly different from and inconsistent with those of our study
and the Datta Roy Choudhury study. The saving data used are the same
in all the three studies. But income is defined by Gupta as real, dis-
posable agricutural income per capita, the deflator being the implicit
GNP deflator. Unfortunately his income series is not available for
comparison.
- 18 -
A few all-India cross-section studies of rural saving have also
been completed with the National Council of Applied Economic Research (NCAER)
data for 1962, 1967-68 and 1968-71. The average and marginal propensities to
save estimated in these studies are summarized in Table 7. The MPS is avail-
able only for two years: 1962 which is the last year of our earlier period
(1950-51/1962-63), and 1967-68 which lies in the middle of our second period
(1960-61/1973-74) and was the first bumper crop year after the introduction
of the new hybrid-seed technology. The saving propensities in Tables 5 and 7
TABLE 7
ESTIMATES OF RURAL SAVING PROPENSITIES
Household Sample MPS* APS* 2
Year Size (Percent) R Elasticity
NCAER Data (Cross-Section)
1962 8,527 16.8 5.5 0.93 3.05
1967-68 2,380 36.0 8.2 - 4.39
1968-69 /a 4,118 - 3.0 - -
1969-70 Ia 4,118 - 5.0 - -
1970-71 /a 4,118 - 5.9 - -
1970-71 /b 4,118 22.0 6.9 0.29 -
Time SeriesEstimates(This Paper) Period II 11.8 3.1 0.60 3.75
/a MPS were not estimated with data from these years.
/b Bhalla (1976). Measured Income.* MPS = Marginal propensity to save.
APS = Average propensity to save.
are not strictly comparable as they are derived from time series and cross-
section equations respectively. But it does seem that cross-section estimates
of saving propensities, regarded as long-period equilibrium parameters, tend
to be higher than time-series estimates. It is also clear that the cross-
section average saving rate fluctuates from year to year and, as we would
- 19 -
expect, it is higher in the good crop seasons such as 1967-68 and 1970-71
than in bad or average seasons.
In a recent study Bhalla (1976) has estimated alternative cross-
section saving equations with 1970-71 NCAER data. He defines saving as change
in net worth. Income is defined in three alternative ways: measured income
(Y) and two concepts of permanent income (Y and Y ). Y is estimatedp35 px px
by adding up the returns to all household assets. Y 35 is estimated with
particular weights attached to the measured income of the current and two
preceding years. Transitory consumption occurs as an additional variable
in the Bhalla saving function besides the income variables. The marginal
propensity to save with respect to measured and permanent income turned out
to be 22 and 23 percent respectively. The APS was 6.9 percent with the net
worth concept of saving. Both these cross-section estimates are also higher
than our time series estimates.
5. Saving Out of Permanent and Transient Income
In another set of experiments an attempt has been made to differen-
tiate between transient and permanent income as contributors to saving. Per-
manent income in year 't' is defined as the average of measured income in the
current and two preceding years (t, t-l and t-2). Thus:
(3) YPt ( t t- + t-2 )/3.
Transient income in period 't' is then the difference between measured income
and permanent income:
(4) YTt = yt ( t t-l t-2)/3-
The saving function is
(5) St a + b YPt + c YTt + ut.
- 20 -
The estimated function (5) with data for 24 years 1950-51/1973-74 in per
capita real terms is
(5') St = - 29.587 + 0.139 YP, - 0.026 YTt*(-9.113) (11.518) (-0.884)
(-2 = 0.862)
(t-values are shown in the parentheses.)
The implicit elasticity of saving with respect to permanent income (at means
of variables) is 4.85.
The coefficient of transient income is non-significant. But the
marginal propensity to save out of permanent income turns out to be higher
(13.9 percent) than the MPS out of measured income (11.0 percent). (Regres-
sion 3.4 in Table 3.)
This implies that, if the growth of income was more stable, the pro-
pensity to save would be higher. But because income fluctuates widely from
year to year saving is also unstable and the propensity to save is reduced.
In order to study the effect of income fluctuations on saving we have com-
puted two components of measured saving: (1) saving out of permanent income
which may be called "permanent saving" and (2) "transient saving" computed
as measured saving minus permanent saving. These components are shown in
Table 8 and Figure 4. It is interesting to observe that in 6 out of 22 years
irregular saving out of windfall income augmented permanent saving by 8.2
percent on the average. But in the remaining 16 years windfall losses reduced
permanent saving by 9.2 percent on the average, the reduction ranging between
0.5 percent and 22.9 percent. Thus, income fluctuations produce measureable
variations in saving, from year to year, of the order of 8 to 9 percent on
the average above or below the normal level.
- 21 -
TABLE 8
DECOMPOSITION OF MEASURED SAVING INTO "PERMANENT" AND "TRANSIENT"SAVING: INDIA (1952-53/1973-74)
"Measured" "Permanent" "Transient" Ratio of TransientYear Saving Saving Saving to Permanent Saving
(Rs Per Capita in 1960-61 Prices) (Percent)
1952-53 5.69 5.46 0.23 4.21
1953-54 6.12 5.99 0.13 2.17
1954-55 5.50 5.93 -0.43 -7.251955-56 5.50 5.73 -0.23 -4.011956-57 6.10 5.42 0.68 12.551957-58 5.62 6.76 -1.14 -16.861958-59 6.30 7.37 -1.07 -14.521959-60 6.12 7.65 -1.53 -20.00
1960-61 6.26 6.95 -0.69 -9.931961-62 5.23 6.78 -1.55 -22.861962-63 6.28 6.74 -0.46 -6.821963-64 6.47 6.56 -0.09 -1.37
1964-65 6.66 7.44 -0.78 -10.481965-66 8.60 8.04 0.56 6.971966-67 10.22 8.63 1.59 18.421967-68 8.92 9.21 -0.29 -3.151968-69 8.47 10.21 -1.74 -17.041969-70 11.05 11.11 -0.06 -0.541970-71 10.92 11.17 -0.25 -2.241971-72 10.31 11.33 -1.02 -9.00
1972-73 11.84 11.28 0.56 4.961973-74 11.20 11.39 -0.19 -1.67
Maximum 11.84 11.39 1.59 (a) +18.4(b) - 0.5
Minimum 5.23 5.42 -1.74 (a) + 2.2(b) -22.9
Mean 7.70 8.05 -0.35 (a) + 8.21(b) - 9.23
(a) For positive terms.
(b) For negative terms.
Per Capita Rural Saving: India, 1952-53/1973-74
Rs. (1960-61 prices)1 2
12 ~~~~sr - Measured saving
sp -Permanent savin-g. 10- st - Transient saving / /
6 ~~~~~~~~~~~~~~~~~~sr
4
2 S4~~~~~~~~~~~~~~ .
-2 -~~~~~
O ,, * ,
-2~~9 0 ' *.,., 99- ". .,.- 9 9 9 9 9 - --. * 9'--*.,..,
195;2 1954 1956 1958 1960 1962 194 1966 1968 1970 1972 1974
Financial year beginning April
World Bank-20519
- 23 -
6. Some Disaggregative Estimates
The analysis presented here is basically "Keynesian" and
"aggregative" in the sense that income is the sole variable used to explain
saving, and the argument abstracts from variations in saving rates across
different classes of farmers, and different regions of the country. Ideally,
the influence of the varying returns to investment on the rates of saving
of various groups of farmers, in various regions, should be analyzed. But
disaggregated data on returns, and regional rural income and saving series,
are not available.
However, there are bits of evidence suggesting (1) that the rural
saving rate has been relatively higher in the irrigated, new technology
regions; (2) that, therefore, the increase in the saving rate in the late
sixties and early seventies should have been partly induced by the higher
returns expected from new technology; (3) that returns from working capital
as well as fixed investment in new technology have indeed been quite attrac-
tive; and (4) that the composition of rural capital has been changing pro-
gressively in favor of assets embodying more productive, modern technology.
Substantial data on this last point are presented in Section 7 below.
On the saving being higher in more irrigated progressive areas, we have the
results of some local cross-section studies. For the famous high-technology
district of Ludhiana in Punjab State the average saving rate in the first
five years of the introduction of HY seed varieties (1966-67/1970-71) was
found to range between 22 and 35 percent on a sample of 72 farms. (In this
district the irrigation ratio rose to 80 percent and the HYV area ratio to
nearly 60 percent in those years.) (Kahlon et.al. 1972). In the Nainital
district of U.P. State in 1967-68 the average investment/income ratio on a
- 24 -
sample of 156 farms is reported to have been as high as 17 to 44 percent.
And it was distinctly higher on innovating small and medium farms.
INVESTMENT RATIO ON A SAMPLE OF NAINITAL FARMS, 1967-68
Investment Ratio Irrigation Ratio HYV Area Ratio
(Percent) (Percent) (Percent)
Innovating Farms:Small 28.14 74.0 28.1
Medium 44.3 75.0 24.1Large 43.3 78.8 31.8
Other Farms:Small 26.7 38.0 4.5
Medium 17.5 37.2 4.0
Large 43.7 48.7 6.2
Source: Shah and Singh 1969.
Similar evidence is available about some districts of South India. In a
sample of 36 farms the average investment ratio was 18 percent in Baptala
district and 31 percent in Chittoor district in Andhra Pradesh State in
1965-67. (The irrigation ratio was 30 percent in Baptala and 42 percent in
Chittoor.) (Misra and Mallick 1969). In the well-endowed district of
Coimbatore in Tamil Nadu State of South India the saving rate on a sample of
30 farms (with a 40 percent irrigation ratio) averaged 10 percent on small
and medium farms and 17.8 percent on large farms. (Rajagopalan and
Krishnamoorthy 1969.) For Western India a study of 87 Sangli farms in
Maharashtra State estimated saving rates averaging 12 to 16.6 percent for
four subgroups in 1970-71. (Chauhan et. al. 1972).
These estimates of saving/investment rates are not strictly com-
parable because different concepts of income, saving and investment have
been used by the authors. In general, they are gross magnitudes, whereas
our all-India time-series pertain to net quantities. However, the general
- 25 -
level of local, cross-section saving/investment ratios varying between 10
and 44 percent, is clearly far higher than (3 to 15 times) the all-India time
series ratios of the order of 3 percent (Table 1). Therefore, there can be
little doubt that in the better-irrigated, more rapidly innovating regions,
saving/investment rates tend to be much higher than in the country as a whole.
In part, the better irrigation/innovation situation should be influencing
saving by raising the level of income itself. But to some extent it may also
be inducing farmers directly to save/borrow/invest proportionately more at the
margin by raising expected returns. Unfortunately, the lack of data does not
allow the separation of these effects.
In spite of high saving/investment rates in some regions, the all-
India saving/investment rate remains low because the poorer, drier and less
dynamic regions (farms) dominate it. To cite an example, the average (net)
saving rate was found to be only 2.2 percent for a set of 72 farms in the
Hooghly district of West Bengal State in 1970. (Chakravarti 1970). This is
even less than the all-India average.
Just as the variation of the technological level underlies wide
cross-section differences in the saving rate, it is also the basic explana-
tion of the rise in the saving rate over time after the mid-sixties (already
noted in Section 4.)
As regards rates of return to modern input and assets it may be
noted, first, that physical yield increases of the order of 100 to 200 percent
above present levels are feasible with the modern seed-water-fertilizer
technology. (Singh 1978.) Cereal yields can be raised from less than 1,000
kgs. per hectare to 2,500 kgs. in the case of rice, and 4,000 to 5,000 kgs.
in the case of wheat. And pulses and oilseed yields can be raised from
- 26 -
600-700 kgs. per hectare to 1,000-1,500 kgs. per hectare. Second, under
irrigated conditions, marginal physical output-input ratios of the order of
10 or more, for fertilizer nutrient inputs, are quite common. Financial
return-cost ratios for fertilizer use lie between 2 and 3 for paddy and 2.9
to 4 for wheat. (FAI 1978). These facts make investments in modern seed-
water-fertilizer technology very attractive. When medium and long-term
investments are considered, the return prospects are equally attractive.
On the basis of a number of studies of returns to net farm investments, the
Agricultural Refinance and Development Corporation of India (ARDC) has found
that the financial return to minor irrigation investments ranges between 20
and 50 percent. The return to land development in command areas of irriga-
tion systems exceeds 50 percent. The return to dairy-buffalo units also
exceeds 50 percent. The return to mechanised fishing boats ranges between
20 and 25 percent and the return to investment in citrus, coconut, pepper,
cashew and rubber investments ranges between 18 and 49 percent. The social
return is of course much higher in all these cases. (ARDC 1978.)
These figures point to the existence of strong incentives for the
raltively higher rural saving/investment rates in the more dynamic, irrigated
regions, and in the recent decade of accelerated technical change.
7. Tangible Wealth and Asset Composition
In a recent paper Datta Roy Choudhury (1977) has presented revised
and comparable estimates of reproducible tangible wealth (RTW) in various
sectors of the Indian economy in 1950, 1961, 1966 and 1971. Her concept of RTW
in agriculture includes farm buildings, construction works, land improvement,
irrigation structures, livestock, machinery, transport and other equipment,
- 27 -
and inventories. (The value of land and intangibles is excluded.) Her
estimates show that in constant (1960-61) prices the RTW in agriculture in-
creased from Rs 6,514 crores in 1950 to Rs 10,625 crores in 1971 at the
rate of 2.36 percent per annum. But the share of agriculture in the total
national RTW declined from 30 percent to 18 percent because the growth of
total RTW was faster (4.9 percent per annum). Thus it is clear that the
growth of RTW has been much slower in agriculture than in the whole economy.
This findings is not inconsistent with the fact noted in Section 2
that net capital formation in agriculture has been growing at a higher rate
(7.0 percent) than net capital formation in the whole economy (4.6 percent).
The explanation is that these latter figures refer to the growth of annual
investment and the figures in the preceding paragraph to the growth of the
total stock. It is quite possible that the share of agriculture in annual
investment increases and yet its share in the total stock falls if its initial
share in investment as well as in stock is very low.
As the figures in Table 9 show, this is, in fact, what really
happened. While the share of agriculture in the increment of RTW increased
from 7 percent in the decade 1951-61 to 15 percent in the decade 1961-71,
its share in the total stock of RTW fell steadily from 30 percent to 20 per-
cent in the first decade and 20 percent to 18 percent in the second decade.
- 28 -
TABLE 9
SHARE OF AGRICULTURE IN REPRODUCIBLE TANGIBLE WEALTH (RTW)
AND IN THE INCREMENT OF RTW, 1950-51/1970-71
Decade DecadeIncrease Increase
RTW RTW in RTW in RTWAgriculture Total Agriculture Total
(Rupees Crores* in 1960-61 Prices)
1950-51 6,514 21,485 - -
(30.3)1960-61 7,685 38,990 1,171 17,505
(19.7) (6.7)
1970-71 10,625 58,546 2,940 19,556(18.1) (15.0)
Figures in parentheses are percentage shares in the total.
*1 crore = 10 million.
Source: Datta Roy Choudhury (1977)
Another noteworthy finding of a study by Divatia (1976) is that
the concentration ratio for rural assets remained undiminished between 1961-62
and 1971-72. It was 0.65 in 1961-62 and 0.66 in 1971-72. The bottom 10 per-
cent of rural households owned 0.1 percent of total rural assets, and the top
10 percent owned 51 percent of rural assets both in 1961-62 and 1971-72.
This has the important implication that up to 1971-72 the land reform legis-
lation and other policies had no impact on the distribution of rural property.
In order to study the composition of assets (other than land) we
have calculated the aggregate value of the following aricultural assets in
constant 1960-61 prices: wooden and iron ploughs, carts, sugarcane crushers,
persian wheels, fishery equipment, electric and oil pump sets, tractors, oil-
crushers, other modern equipment, livestock, land improvement and irrigation
- 29 -
works, and residential and non-residential house property. 1/ (Table 10)
Figures for land improvement, irrigation works, house property and fishing
equipment have been obtained from Reserve Bank data and for other items from
the quinquennial Livestock Census data. The total value of these assets ex-
cluding residential house property (in 1960-61 prices) increased from 10,285
crores to Rs 15,591 crores, i.e., by 81 percent over the 21-year period 1951
to 1972. The implicit annual growth rate is 1.97 percent. 2/
When we examine trends in the composition of assets, we find that
livestock accounted for the largest share (66 percent) in the total value of
assets in 1951. But this share declined to 53 percent in 1972.
The second largest component of RTW, namely, land improvement and
irrigation works, accounted for 17 percent of the total reproducible tangible
wealth in 1951. 3/ But this proportion rose to nearly 25 percent in 1972.
1/ Some modern agricultural implements, viz., shellers, harvester combines,planters, sprayers and dusters have not been included in our RTW esti-mates for 1972 as data on their prices could not be obtained.
2/ The items covered and the sources of quantity and price data used by usare given in Appendix C. Our estimate of the total value of assets ishigher than the Datta Roy Choudhury (1977) estimate. (Table 11). Thedifference is due to four factors. First, we have valued the physicalstock in every Livestock Census year at the same price without allowingfor any depreciation of the depreciated part of the stock. Secondly,the prices used by us may be different from those used by Datta RoyChoudhury in the case of some assets. Our price sources are given inAppendix C; the Datta Roy Choudhury sources are not known to us. Third-ly, the price deflation procedures used by us may be different fromDatta Roy Choudhury's. Fourthly, our estimates include private invest-ment only. This makes a difference particularly in the case of landimprovement and irrigation works.
Our reason for developing independent estimates was the intention tostudy the changes in the composition of assets. The Datta Roy Choudhurystudy did not detail the composition.
3/ Public investment in land improvement and irrigation works, for 1949-50,1960-61 and 1965-66, amounting to Rs 229 crores, Rs 1,158 crores andRs 2,300 crores respectively (in current prices) has not been includedhere.
- 30 -
The share of non-residential farm buildings declined from 12 to 9
percent.
TABLE 11
REPRODUCIBLE TANGIBLE WEALTH IN AGRICULTURE /a
Annual CompoundValue Growth Rate
(Rs Crores 1960-61 Prices) (Percent)
Uma Datta 1950 1961 1971RoyChoudhury /b 6,514 7,685 10,625 2.36
Raj Krishna 1951 1961 1972andRaychaudhuri /c 10,285 12,124 15,591 1.97
/a Excluding residential house property.lb Including public sector investment.Ic Excluding public sector investment.
But the share of machinery and equipment increased. In fact, it escalated from
5 percent to 13 percent during 1951-72.
Thus a significant modernization of the asset structure seems to have
occurred, with livestock growing at the low rate of 1 percent, non-residential
building stock too at the low rate of 0.6 percent, but land improvement and
irrigation facilities growing at the rate of 3.8 percent and machinery and
equipment more than 6 percent per annum for two decades.
In Table 12 we have analysed the growth in the stock of agricultural
equipment at a disaggregated level. It appears that two traditional items,
wooden ploughs and carts, accounted for 78 percent of the total value of equip-
ment in 1951. But their share fell to 43 percent in 1972. Thus the relative
importance of these traditional items in the stock of equipment declined
during the period. The number of wooden ploughs increased only 25 percent,
and carts only 33 percent; but on the other hand the number of improved iron
- 31 -
ploughs increased nearly 6 times, from less than 1 million to more than 5
million.
A similar trend is discernible in the case of irrigation equipment.
The number of traditional persian wheels increased only marginally by 4 per-
cent over the whole 21-year period. Their share in the total value of equip-
ment declined from 5.5 percent to 1.5 percent. On the other hand, the number
of oil and electric pumps increased more than 28 times, from about 96 thousand
in 1951 to nearly 2.8 million in 1972. In fact, in 1972 pumps became the
second largest component of farm equipment accounting for 30 percent of the
total value of equipment, next to carts accounting for 40 percent. Here we
have clear evidence of heavy private investment in irrigation during the two
decades.
The third most important component of farm equipment came to be
tractors. Their number grew more than 16 times from about 7,800 to 125,000.
And their share in the total value of equipment rose from 2 percent to 12
percent.
The investment in bullock-driven cane-crushers declined from Rs 30
crores to Rs 27 crores, while the investment in power crushers increased three
times, from Rs 4 crores to Rs 12 crores (in 1960-61 prices).
The investment in traditional oil crushers also declined from
about Rs 11 crores to Rs 4 crores. But the investment in fishery equipment
increased phenomenally: more than 8 times from Rs 15 crores to Rs 117 crores.
The overall picture that appears, then, is that the total value of
equipment increased 3.8 times from Rs 544 crores to Rs 2,072 crores; and the
composition of equipment underwent a radical transformation, with the share
- 32 -
of traditional items, e.g., carts, wooden ploughs, persian wheels, bullock-
driven cane-crushers and very small oil-crushers declining, and the relative
share of modern equipment including iron ploughs, oil and electric pumps,
tractors, power crushers and fishery equipment increasing.
Thus there can be no doubt that Indian farmers, especially medium
and large farmers, have been modernizing their asset structure to accommodate
more productive forms embodying the new technology. The constraints on the
growth of productive investment are obviously not due to any lack of adaptive-
ness on their part, but to the low overall saving rate, inadequacy of external
finance, lack of knowledge of profitable investment opportunities, and supply
bottlenecks.
- 33 -
TABLE 13
RURAL SAVING, INCOME AND CAPITAL FORMATION, INDIA1950-51/1973-74
Private Invest-ment in
Rural Saving Agriculture Rural Income
(Rs Crores)
1950-51 166.30 59.35 7,088.60
1951-52 170.70 99.90 7,407.93
1952-53 163.50 57.15 7,306.39
1953-54 180.50 100.27 7,636.28
1954-55 147.90 104.84 6,672.79
1955-56 153.70 135.54 6,992.99
1956-57 187.70 233.36 7,763.85
1957-58 179.50 181.71 8,843.81
1958-59 212.20 246.10 8,870.73
1959-60 212.50 248.82 8,959.99
1960-61 225.30 295.65 9,422.11
1961-62 195.80 264.77 9,711.98
1962-63 248.30 303.45 10,195.37
1963-64 284.30 348.14 11,314.87
1964-65 326.80 434.01 13,668.12
1965-66 467.80 559.47 14,706.57
1966-67 649.50 630.07 17,170.65
1967-68 628.60 622.96 20,500.91
1968-69 603.00 672.26 20,790.97
1969-70 834.25 820.46 21,851.08
1970-71 864.75 967.56 23,131.05
1971-72 868.60 933.59 24,892.58
1972-73 1,125.00 1,152.09 27,400.011973-74 1,279.27 1,406.76 33,632.43
Annual CompoundGrowth Rate(Percent) 10.15 13.92 7.51
For sources and methods of estimation, see Appendices A and B.
- 34 -
APPENDIX A
THE RURAL HOUSEHOLD SAVING SERIES 1950-51/1973-74
Estimates of net rural household saving in India for the period
1950-51 to 1962-63 are available in the Reserve Bank fo India (RBI) Bulletin,
March 1965. The RBI estimate is based mainly on data collected in the Bank's
All India Rural Credit Survey of 1951-52 (AIRCS), the Follow-Up Survey of
1956-57 and the Rural Debt and Investment Survey of 1961-62. Saving in the
form of physical assets and inventories was estimated with these bodies of
data for the three bench-mark years 1951-52, 1956-57 and 1961-62.
For the estimate of financial investments of the rural sector the
Reserve Bank used its own survey data as well as data collected in the Rural
Household Saving Survey (1962) by the National Council of Applied Economic
Research (NCAER). Adding financial investments to estimated saving in the
form of physical assets and deducting net borrowings from the urban sector
the Reserve Bank computes the net saving of the rural household sector.
The estimated saving for the three bench-mark years formed 3.3 per-
cent, 3.7 percent and 3.3 percent of agricultural income (including income
from animal husbandry, forestry and fishery). The average of these three
ratios, 3.4 percent, was applied by the Reserve Bank to the time series of
agricultural income to get the time series of saving for the whole period
1950-51/1962-63 because the variation in thle average saving as between bench-
march years was found to be very small.
For the period 1960-61 onwards the Central Statistical Organization
(CSO) has published estimates of net saving in the entire national household
sector in the National Accounts Statistics, October 1976. The breakup of total
household sector saving into rural and urban saving has not been given by the
- 35 -
CSO. But since for the earlier period (1950-51/1962-63) Reserve Bank figures
for total as well as household saving are available, the time series of the
ratio of rural to total saving for this period was computed. The average for
the nine years 1954-55/1962-63 turned out to be 25 percent with a very small
coefficient of variation. Hence we have computed the rural saving series for
the recent period 1960-61/1973-74 by applying a constant ratio (25 percent)
to the total household saving series.
The combined time series of rural saving for the whole period
1950-51/1973-74 includes figures for 1950-51 to 1959-60 based on RBI data and
figures calculated for 1960-61/1973-74 on the basis of CSO data.
An alternative rural saving series for the later period 1960-61/
1973-74 was also generated without using a constant ratio between rural saving
and total household saving. Rural saving (RBI) was regressed on total house-
hold saving (RBI) for the period 1954-55/1962-63 and the estimated regression
was used to estimate rural saving (1960-61/1973-74) with the given CSO series
of total household saving. The two alternative rural saving series computed
by the "constant ratio method (CRM)" and the "regression method (RM)" are
shown in Table A.1. The RM estimates are consistently lower than CRM estimates,
the difference widening from Rs 4 crores in 1961-62 to Rs 248 crores in 1973-74.
The lower series also yields a lower marginal propensity to save for the whole
24-year peirod (6.9 percent) than the higher series (11.0 percent) used in
the text (equation 3.4).
- 36 -
TABLE A.1
RURAL SAVING IN INDIA(1960-61/1973-74)
Year Saving CRM Saving RM CRM - RM(Rs Crores)
1960-61 225.30 215.02 10.281961-62 195.80 192.17 3.631962-63 248.80 233.23 15.571963-64 284.30 260.74 23.561964-65 326.80 293.66 33.141965-66 467.80 402.91 64.891966-67 649.50 543.72 105.781967-68 628.50 527.45 101.051968-69 603.00 507.69 95.311969-70 834.25 686.86 147.391970-71 864.75 710.49 154.261971-72 868.50 713.39 155.111972-73 1,125.00 912.12 212.881973-74 1,279.25 1,031.63 247.62
Annual CoumpoundGrowth Rate(Percent) 15.67 13.97
The main reason for preferring the higher (CRM) series for the
analysis in the text is that the rate of growth of the CRM series in constant
prices (5.6 percent) is closer to the rate of growth of net domestic private
capital formation in agriculture (7.0 percent) than the lower RM series
(4.4 percent) (Table A.2). It is also closer to the rate of growth of the
deposits of primary agricultural credit cooperatives (11.4 percent). The RM
series does seem to underestimate real rural saving.
- 37 -
TABLE A.2
GROWTH RATES OF RURAL SAVING,INVESTMENT AND DEPOSITS
1950-51/1973-74(1960-61 PRICES)
Rural Saving (CRM) 5.61Rural Saving (RM) 4.38Net Domestic Private Capital
Formation in Agriculture 9.17Primary Agricultural Credit
Cooperative Deposits 11.37
An additional reason for using the CRM series is that for four years
for which independent cross-section data are available from the NCAER the
average saving ratio computed from the CRM series is nearer the cross-section
ratios. (Table A.3).
TABLE A.3
AVERAGE SAVING RATIOS
BENCHMARK YEARS
NCAERCross-Section CRM Series RM Series
Ratio Ratio RatioYear (Percent) (Percent) (Percent)
1961-62 5.5 2.02 1.981968-69 3.0 2.90 2.451969-70 5.0 3.82 3.161970-71 5.9 _ 3.74 3.09
- 38 -
APPENDIX B
NET CAPITAL FORMATION IN AGRICULTURE SERIES1950-51/1973-74
Estimates of capital formation in the agricultural sector for the
period 1960-61/1972-73 are obtained directly from NAS, 1976 (National Accounts
Statistics 1960-61/1974-75, October 1976). They include capital formation in
agriculture proper, forestry and fishing, i.e., capital formation in the
primary sector minus capital formation in mining. For the earlier period
(1950-51/1959-60), estimates have been derived by extrapolating backwards the
share of the agricultural sector in total net capital formation.
Net capital formation in agriculture (NDCFA) in current prices has
been deflated to get NDCFA in 1960-61 prices. The deflator is the weighted
average of the real construction cost series prepared by R.N. Lal (1977) and
the machinery and equipment wholesale price series constructed by the authors.
The weights used are .9 and .1 respectively for the construction and equipment
indices. The weights are chosen on the basis of the average asset composition
of rural reproducible tangible wealth in 1951, 1961 and 1972.
- 39 -
APPENDIX C
TANGIBLE WEALTH OF RURAL HOUSEHOLDS
The list of items included in our definition of tangible wealth
and the sources of quantity and price data used to evaluate them are shown
in the following table.
QUANTITY AND PRICE DATA USED FOR ESTIMATING TANGIBLE WEALTH
Source ofSource of Price Data/ Source of
Item Quantity Data Deflator Value
Machinery and Equip- Quinquennial CSO for some Reserve Bankment including items Livestock States. Min- of India (RBI)1 to 7 in Table 12. Census. nistry of Bulletin.Item 8 in Table 12 Agricultureincludes seed drills, for some items.threshers and tractors- Wholesale Priceoperated mould board Index forand disc ploughs, disc Machinery andharrows, tillers, Equipmentlevellers, seed-cum- deflation.fertilizer drillsand trailers.
Forestry and Fishery Quinquennial Wholesale Price RBI Bulletin.Equipment Livestock Index for
Census. Machinery andEquipment.
Livestock Quinquennial Agricultural RBI BulletinLivestock Situation in and AIDIS*,Census. India (Ministry RBI.
of Agriculture).CSO for someitems.
Rural Buildings R.N. Lal's Mukherjee(including Residen- Construction and Shastry,tial and Non- Cost Index for AIDIS, RBI.Residential). Deflation
Land Improvement R.N. Lal's Mukherjeeand Irrigation Construction and Shastry.Works. Cost Index RBI Bulletin.
Land RBI Bulletins.AIDIS, RBI.
* AIDIS: All-India Debt and Investment Survey (1971-72), RBI.
- 40 -
Some items could not be included, namely, certain types of equip-
ment and plantations because comparable quantity data and/or price data for
them were not available. Durable consumer goods have also not been included.
Details of extrapolations/intrapolations and deflations used are available
with the authors.
- 41 -
REFERENCES
1. ARDC 1978: Agricultural Refinance and Development Corporation,"Trends in Long Term Investment in Agriculture," Bombay, May 1978.
2. Bhalla, Surjit S.: Aspects of Savings Behaviour in Rural India,Princeton University and Brooking Institution, 1976. (Mimeo).
3. Central Statistical Organization: National Income Statistics -Estimates of Gross Capital Formation in India for 1948-49 to1960-61, New Delhi, 1961.
4. Central Statistical Organization: Estimates of National Income1948-49 to 1962-63, New Delhi, February 1964.
5. Central Statisticsl Organization: National Accounts Statistics1960-61 -- 1974-75, New Delhi, October 1976.
6. Chakravarty, S.K., "A Recent Change in Saving - Investment Directionof the Small Cultivators in West Bengal (Case Studies of HooghlyDistrict)," Indian Journal of Agricultural Economics, Vol. XXVII,October-December 1972, pp. 64-74.
7. Chauhan, K.K.S., S. Mundle and D. Jadhav, "Income, Savings andInvestment Behaviour of Small Farmers," Indian Journal of AgriculturalEconomics, Vol. XXVII, October-December 1972, pp. 43-50.
8. Datta Roy Choudhury, Uma: "Income, Consumption and Saving in Urbanand Rural India," The Review of Income and Wealth, Vol. 24, March 1968.
9. Datta Roy Choudhury, Uma: "Industrial Breakdown of Capital Stock inIndia," The Journal of Income and Wealth, Vol. 1, No. 2, April 1977.
10. Directorate of Economics and Statistics, Ministry of Agriculture andIrrigation: Seventh Livestock Census, New Delhi, 1951.
11. Directorate of Economics and Statistics, Ministry of Agriculture andIrrigation: Eighth Livestock Census, New Delhi, 1956.
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13. Directorate of Economics and Statistics, Ministry of Agriculture andIrrigation: Tenth Livestock Census, New Delhi, 1966.
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