Capital Formation Across the Rural–Urban Interface of Bengaluru North: An Economic Analysis

Abstract

Pervading urbanisation creates uncertainty in prospects of agriculture across the rural–urban interface, which may affect capital formation for productive farm capital assets. To assess the capital investment behaviour of households north of Bengaluru and to identify factors influencing it, the present study used primary data at 2016–17 prices. Capital formation per hectare decreased from urban to peri-urban and rural areas (₹1.20 million, 0.67 million and 0.40 million, respectively). Investment on irrigation structure was highest throughout and formed half of the total farm investment in the rural area, owing to the dependence of agriculture on ground water. Another significant share of total capital was invested on labour saving farm machinery (18% in urban and peri-urban areas). Investment on livestock increased with urban influence and became a major livelihood source. The Cobb–Douglas type of production function revealed that land holding size significantly influenced the non-land capital stock throughout. The land sale status was non-significant in urban and peri-urban areas, whereas it was significant in the rural area, where most of the capital assets were generated out of land sale proceeds. The study concludes that urban influence increased investment on farm capital assets to cope with uncertainties in agriculture, namely acute labour shortage, increasing competition for water and increasing demand for livestock products.