The study of capital formation in a particular sector of an economy is crucial for assessing current and future prospects of its growth. The analysis of capital formation and investment in agriculture showed that after a steep rise in the seventies, the gross capital formation in agriculture in India, at constant prices showed a significant decline till the end of eighties, both in relative as well as absolute sense which was mainly induced by the absolute fall in public investment accompanied by stagnation in private investment. Besides confirming the complementarity of public and private investment in Indian agriculture, the present study observed that probably falling proportion of farm business investment is further the cause of sustained loss in profitability over the past. This trend together with increasing proportion of small and marginal operational holdings eroded the capacity of the farmers to invest in agriculture. The study also highlights the neglect of structural adjustment issues of the sector over the eighties and draws special attention to an urgent need to put in order conceptual and methodological framework for preparation of capital formation series.