tReNdS iN AGRiCuLtuRAL iNVeStmeNt iN iNdiA

Submitted by :ANKUR JAIN 2274 PRINCE VERMA - 2261 TUSHAR - 2284

Table of Contents
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Acknowledgement Abstract Objective Introduction Review of Literature Data and Methodology Regression Results CHOW test Conclusion Limitations References

ACKNOWLEDGEMENT

From the starting till the completion of this project, there are many people without whose assistance all my efforts would have been fruitless. I, therefore, acknowledge all who generously helped me by sharing their time, experience and knowledge with me without which this project would have never been accomplished. I must express my gratitude to Mr.Rajkumar (Project guide) whose perceptive guidance, constant encouragement, constructive criticism and affection were the light of guidance during my tenure of my work.

Abstract
In this project, we intend to study the trends in agricultural investment in india by using macro level data in both private as well as public sector. Our study involves analysis of data from year 1970 to 2011 on the prices of year 2004-05. Though there are innumerable factors that influence agricultural investment, but we will study the impact of savings and GDP on agricultural investment. Though it is quite obvious that savings and GDP have a positive relationship with agricultural investment, but our project analysis the extent of its impact as well as its variations over the time .

Objective
The focus of our analysis is to study the variations in private sector as well as public sector agricultural investment occurring over a time period of year 1970-2011, due to changes in savings and GDP of India. We also intend to determine whether there is a structural change in agricultural investment due to change in economic policies of 1991. We will also like to ascertain the composition of agricultural investment between public sector and private sector and its changes in that time period

Introduction

Agriculture, in most developing economies, is the core sector providing a livelihood to a significant proportion of the population, especially in rural areas. Since this sector faces the largest brunt of underemployment, unemployment and poverty, a growing agriculture and allied sector is expected to contribute vastly to overall growth and poverty alleviation. Increasing the productive capacity of agriculture through higher productivity has been an important goal in developing countries. It has been suggested that due to limited scope for expansion of arable land there is a need to increase yields to their technically highest levels through appropriate investment in basic infrastructure, human development, and research and extension services. This paper looks at trends in the agricultural Investment India over the period 1971-2011, identifies factors that affect agricultural investment and analyses constraints that have affected this sector. All-India level analyses highlight the role of public investment/ government expenditure as well as private investment on agriculture as being the crucial determinant in stepping up the rate of growth of agricultural production.

Literature review
The author, S.MahendraDev, ascertained in his article that share of private investment in total investment increased significantly over time from 50% in the early 1980s to 80% in the decade of 2000. It may be noted that 90% of the private is made by farmers for on farm production. For his research he use the data released by CSO (central Statistical organization) The estimates of CSO's public sector investment comprise mainly of investment in irrigation projects. Some researchers feel that this is an underestimate and there is a need for widening the definition of public investment by including investment in physical infrastructure (rural roads and electrification), social infrastructure (education and agriculture research), subsidies in agriculture, investment in anti-poverty programs, etc. because all of them are very important factors and helps in stimulating and give a push to agriculture investment

The author, S.L Shetty (FEB 17-24 ,1990), in his research paper stated that over the decade 1960-61 to 1970-71, gross capital formation in Agriculture at 1980-1981 price rose at an annual compound rate at 6.3% per annum(based on 3 yearly moving averages) and over the next decade of 1970s, it rose at the rate of 5.9% per annum. But during the subsequent seven year period up to 1987-88 such real gross capital formation in agriculture experienced on absolute decline at the rate of 2.6% per annum. The author, A Ganesh Kumar(OCT,17,1992), in his Article Falling Agriculture Investment and its consequences concluded that: 1) Though only about 30% of cultivable land in the country is under irrigation, it has acquired a crucial rate in determining the performance of Indian agriculture. 2) Since 1980-81, Agriculture Investment has shown a clear fall, both in level and also a percentage of the total investment. It had fallen to Rs. 4,360 crore (about 11% of the total in 1986-87. This fall in Agriculture Investment is affected in showing down the development of irrigation in the country. 3) While Total Agricultural Investment has grown by 2.74 times between 1960-61 to 1980-81. But Agriculture Investment fell in the 80s both in levels and as a percentage of total investment mainly due to fall in public investment and also because of slowing down of the development of irrigation. A fall in Public Investment in Agricultural sector reflects a bias in government policy in favor of non agricultural sector.

While we are discussing about the Agricultural Investment, role of Fertilizers cant be ruled out. The author R Thamanajakshi(JUNE 28 ,1969), in his report ascertained that the Fertilizer Corporation of India is the biggest producer of Chemical Fertilizer in the country. About 8 million of Fertilizers have already been produced in The Corporation operating factories, making a substantial contribution towards role of self-sufficiency in food.

Methodology
My research methodology requires gathering relevant data from the specified documents in order to analyze the material and arrive at a more complete understanding of the impact of savings and GDP on investment (GCF) in agriculture. I hope to shed light on the following questions through my research 1. To what extent GDP and savings explains variations in investment (GCF) in agriculture. 2. If there is any structural break in agricultural investment or not in the period 1990-1991. Study Area The empirical analysis is conducted using saving ,gross domestic product (GDP) and

investment (GCF) data pertaining to the time period (1971 to 2011) The data series were obtained from the Economic Survey published by the Ministry of Finance, Government of India The nominal values in the time series were converted to real values (2004prices) using a GDP deflator. The variables used in the study are total (total GCF), private (private sector GCF), public(public sector GCF), saving(total saving of all sectors) and GDP(gross domestic product) Nature of the data The data used for regression analysis is secondary data. The data (both dependent and independent variables) are taken at constant prices 2004-05. Statistical Analysis and Tools Data is analysed using SPSS version 16.0. P value below 0.05 is considered as statistically significant. Ordinary Least Squares method of regression analysis is used. Tests that have been undertaken to analyze the data are graphical analysis, t test, residual test and CHOW test.

Data and Methods

Gross Fixed Capital Formation - It is a macroeconomic concept. It consists of resident producers investments, deducting disposals in fixed assets during a given period. It also includes certain additions to the value of non-produced assets realized by producers or institutional units. Fixed assets are tangible or intangible assets produced as outputs from production processes that are used repeatedly or continuously for more than one year Gross Domestic Product - It is the sum total of factor incomes ( rent+ interest+ profit+ wages)generated within the domestic territory of a country, along with consumption of fixed capital, during a year Savings - Saving is income not spent, or deferred consumption. Methods of saving include putting money aside in a bank or pension plan.[1] Saving also includes reducing expenditures, such as recurring costs..

Estimation tests used Multiple Regression Analysis - Multiple regression analysis is a powerful technique used for predicting the unknown value of a variable from the known value of two or more variables- also called the predictors. Dependent and independent variables By multiple regressions, we mean models with just one dependent and two or more independent (exploratory) variables. The variable whose value is to be predicted is known as the dependent variable and the ones whose known values are used for prediction are

known independent (exploratory) variables. The multiple regression models In general, the multiple regression equation of Y on X1, X2, Xk is given by: Y = b0 + b1 X1 + b2 X2 + + bk Xk
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Interpreting regression coefficients Here b0 is the intercept and b1, b2, b3 bk are analogous to the slope in linear regression equation and are also called regression coefficients. They can be interpreted the same way as slope. Thus if bi = 2.5, it would indicates that Y will increase by 2.5 units if Xi increased by 1 unit. Graphical Analysis - Before one pursues formal tests, it is advisable to plot the time series. Such a plot gives an initial clue about the likely nature of the time series. It tells us whether there is an upward or downward trend or whether there is seasonality in the data. Such an intuitive feel is the starting point of more formal tests of stationary
350000 300000 250000 200000 private 150000 100000 50000 0 1971-72 1974-75 1977-78 1980-81 1983-84 1986-87 1989-90 1992-93 1995-96 1998-99 2001-02 2004-05 2007-08 2010-11 public total

The above diagram signifies that, though both the public as well as private sector agriculture investment has increased significantly after 1991 economic policy changes, but the increase in private investment is much higher than public investment.

F test- F-test is any statistical test in which the test statistic has an F-distribution under the null hypothesis. It is most often used when comparing statistical models that have been fitted to a data set, in order to identify the model that best fits the population from which the data were
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sampled. Exact F-tests mainly arise when the models have been fitted to the data using least squares The formula for the one-way ANOVA F-test statistic is

F= ESS/(k-1) RSS/(n-k)
Chow test -HOW TO TEST FOR STRUCTURAL BREAK
The CHOW test is a statistical and econometric test of whether the coefficients in two linear regressions on different data sets are equal or not

Steps involved in the Chow Test are as follows:1) Run the regression using all observations, before and after the structural break, Collect the RSS i.e. Residual Sum of Squares (with constant parameters) 2) Run two separate regressions, one before, RSS (1) and one after Structural break. The sum will produce the model not restricted. 3) Calculate the test statistic using the following F= (RSSr RSSnr) / k RSSnr / (n1 + n2-2k) Where: RSSr = Residual sum of squares on the model of all data. RSSnr = Sum of Residual sum of squares of the models on the two subset of data. K = Number of restrictions 4) The final stage of the Chow Test is to compare the test statistic with the criticalValue from the F-tables. 5) The null hypothesis in this case is structural stability, if we reject the nullHypothesis; it means we have a structural break in the data.6) We then need to decide how to overcome this break. 7) If there is evidence of a structural break, it may mean we need to split the dataInto 2 samples and run separate regressions.
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REGRESSION EQUATION
1. We will regress capital formation in agriculture on saving and GDP of India pertaining to i. Public sector ii. Private sector iii. Total Regression results obtained are as follows GCF=+1gdp+2savings

coeffecients value t-value P- value RSS total GCF -1762.34 -1.044 0.303 1 8.431 4.312 0 2.18E+09 2 3.537 3.686 0.001 public sector 1 2 1 2 620.988 0.311 1.266 -2383.42 8.119 2.271 2.033 0.88 7.288 -1.421 4.178 2.382 0.049 0.385 0

F-value 1.69E+03

R 0.989

7.13E+07

1.76E+03

0.99

private

0.164 0 2151000000 0.022

1.14E+03

0.984

The findings of our study can be concluded with reference to :1. Public sector investment 2. Private sector investment 3. Total investment

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Public sector After regressing public sector investment (GCF) on savings and GDP. The given equation is obtained:Public sector (gcf) =620.988+0.311GDP+1.266savings R=0.99 From the above equation we can conclude that both savings and GDP have positive relationship with public sector i.e. 1. Intercept value suggests that when savings and GDP are zero then Public sector (GCF) will be 620.998. 2. If GDP increases by 1 unit, public sector GCF increases by 0.311 units. 3. If savings increases by 1 unit, public sector GCF increases by 1.266 units. 4. The value of R of 0.99 suggests that about 99% of the variations in public sector GCF are explained by GDP and savings.

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Private sector After regressing private sector investment (GCF) on savings and GDP, The given equation is obtained:Private sector (GCF) =-2383.42+8.119GDP+2.271savings R=0.984 From the above equation we can conclude that both savings and GDP have positive relationship with public sector i.e. 1. Intercept value suggests that when savings and GDP are zero then Private sector (GCF) will be -2383.42 2. If GDP increases by 1 unit, private sector GCF increases by 8.119 units. 3. If savings increases by 1 unit, private sector GCF increases by 2.271 units. 4. The value of R of 0.984 suggests that about 99% of the variations in private sector GCF are explained by GDP and savings.

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Total Investment

After regressing public sector investment (GCF) on savings and GDP, The given equation is obtained:Total investment = -1762.34+8.431GDP+3.537savings R=0.989 From the above equation we can conclude that both savings and GDP have positive relationship with Total investment i.e. 1. Intercept value suggests that when savings and GDP are zero then Total investment will be 1762.34. 2. If GDP increases by 1 unit, Total investment increases by 8.431 units. 3. If savings increases by 1 unit, Total investment increases by 3.537 units. 4. The value of R of 0.989 suggests that about 99% of the variations in Total investment is explains by GDP and savings.

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CHOW TEST

1) The given table ascertains the structural change observed in the year 1991 in private sector capital formation:
private coeffecients value t-value p- value rss F-value R -2383.417 -1.421 0.164 whole period 1 0.984 8.119 4.178 0 2151000000 1.14E+03 2 2.271 2.382 0.022 1 11 21 2 12 22 40.981 5.642 0.215 -13489.1 14.589 -0.519 0.998 4.717 0.151 -2.402 3.713 -0.289 0.332 0 155821.035 0.881 0.028 0.002 0.776

1st period

846.056

0.99

2nd period

1.69E+09

463.743

0.982

RSSr =2151000000

N=40

k=3 n2=20

RSSur=1688155821 n1=20 F = (RSSr RSSur) / k RSSur / (n1 + n2-2k) F=3.1072768

We can conclude that there is a structural break in 1991 at 5% level of significance. This structural break is the effect of 1991 economic policy changes on private agricultural investment.

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2) The given table ascertains the structural change observed in the year 1991 in public sector capital formation
public coeffecients value t-value p- value rss F-value R 620.988 2.033 0.049 whole period 1 0.99 0.311 0.88 0.385 7.13E+07 1.76E+03 2 1.266 7.288 0 1 11 21 2 12 22 4.499 4.715 -2.64 2878.653 -1.008 1.8325 0.116 4.188 -1.979 2.928 -1.466 5.835 0.909 0.001 138057.2 0.064 0.009 0.161 5.18E+07 0

1st period

178.48

0.955

2nd period

758.877

0.989

RSSr =71300000

N=40 k=3

RSSur=51888057.19 n1=20 n2=20

F = (RSSr RSSur) / k RSSur / (n1 + n2-2k) F=4.2443039 We can conclude that there is a structural break in 1991 at 1% level of significance. This structural break is the effect of the 1991 economic policy changes in public agricultural investment.

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3) The given table ascertains the structural change observed in the year 1991 in total capital formation -

total GCF

coeffecients value t-value p- value rss F-value R -1762.34 -1.044 0.303 2178000000 1686 whole period 1 8.431 4.312 0 2 3.537 3.686 0.001 1 11 21 2 12 22 45.48 10.375 -2.246 -10609.8 13.581 1.316 0.981 7.67 -1.516 -1.788 3.272 0.693 0.34 0 198647.535 0.148 0.092 0.004 0.497

0.989

1st period

1.36E+03

0.994

2nd period

1.88E+09

619.891

0.986

Rssr =2178000000 Rssur =1884198648 F= (RSSr RSSur) / k RSSur / (n1 + n2-2k) F =1.7677196

k=3 n=40 n1=20 n2=20

Here, we can conclude that there is no structural break in 1991,in total investment at 5% level of significance. Therefore, it is evident that the effect of the structural break present in private as well as public agriculture investment is nullified by each other.

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Conclusion
We can conclude that though both private and public sector GCF have direct relationship with GDP, but GDP has a much stronger impact on private sector investment as compared to public sector investment. Impact of savings is also higher in private sector investment as compared to public sector investment. From CHOW test, we can conclude that there is a significant impact of new economic policy of 1991 on agricultural investment which can be seen as a structural change in private and public agricultural investment. But, there is no structural break in 1991,in total investment at 5% level of significance. Therefore, it is evident that the effect of the structural break present in private as well as public agriculture investment is nullified by each other.

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Limitations
1) We have studied the impact of GDP and savings on agricultural investment. It would be better if we would have also taken other factors into consideration such as employment in agriculture, real interest rate on agricultural credit, irrigation facilities availability etc. 2) Our analysis is limited to linear regression form but it could be expanded to other functional forms also.

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References
1) 2) 3) 4) Data has been collected from CSO(central statistical organization) website Damodar N Gujarati, 4th edition, Basic Econometrics S.Mahendra Dev, A note on Trends in Public Investment in India. A. Ganesh Kumar, (OCT 17, 1992) Falling Agriculture Investment and its consequences. 5) R Thamarajakshi, (JUNE 28, 1969) Intersectoral Terms of Trade and Marketed Surplus of Agricultural Produce, 1951-52 to 1965-66. 6) S.L. shetty, (FEB 17-24, 1990) Investment in Agriculture: Brief Review of Recent Trends.

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