Purpose This research was conducted in Southern Karnataka, comprising both progressive and less progressive areas, to gain a better understanding of the institutional and non-institutional sources and drivers of farm capital formation. Design/methodology/approach The study was carried out in Southern Karnataka, and the sample respondents were chosen using a random sampling approach. For the study, two districts were chosen based on the proportion of agricultural gross domestic product (GDP) of each district to the total agricultural GDP of the state and named as progressive (proportion of GDP contribution to the state is highest) and less progressive district (proportion of GDP contribution to the state is least). There were 120 farmers chosen from each district, for a total sample size of 240. The research covers the years 2009–10 through 2022–23. A robust regression approach was used to determine the factors that influence agricultural capital formation. Findings A substantial share of borrowings for agricultural asset investment comes from informal sources; mainly friends and family – accounting for 39% in progressive and 56% in less progressive areas. This indicates limited access to formal finance, particularly in less-developed regions. Robust regression results show that institutional credit is a significant driver of capital formation, highlighting its importance in promoting agricultural investment. However, the continued reliance on informal sources points to gaps in the accessibility and outreach of formal financial systems, especially in less progressive areas. Overall, while institutional credit supports capital formation, there is a need to strengthen its reach and inclusiveness to reduce dependence on informal credit and ensure balanced agricultural development. Research limitations/implications The study has several intrinsic limitations, despite its best efforts to be all-inclusive. Because the investment data is solely relied on recollection, the results might be impacted by recall bias. Originality/value The findings are significant because they emphasize the role that institutional credit plays in capital formation. This is because most farmers may not have investable surpluses on hand, and institutional credit increases capital formation while lowering farmers' reliance on non-institutional sources of farm investment credit. The dynamics of private capital development, particularly at the farm level, have received little attention, despite the fact that significant study has been done on many aspects of public capital formation overall. Most studies also examined the macro-level sources of borrowed funds, but this one focused on the micro-level by distinguishing districts as progressive and less progressive.
KR et al. (Mon,) studied this question.