Public Investment in Agriculture and Growth: An Analysis of Relationship in the Indian Context

Abstract

This chapter analyses the relationship between public investment in agriculture and irrigation and agricultural growth in the Indian context. We construct a time series of revenue and capital expenditure on agriculture and irrigation for seventeen major states covering the period 1981–81 to 2013–14 to determine their impact on agricultural growth. The analysis reveals that low and inadequate public capital formation during the nineties impinged upon farmers’ investments and jeopardized technological change and agricultural growth. A big push in resource allocation towards agriculture and irrigation from early 2000s is an important policy initiative. A significant increase in expenditure on irrigation system in less developed states has helped to arrest deceleration in productivity growth and stimulated private investment. However, capital intensity in agriculture has not increased in a significant way that could partly explain a slow pace of growth in many states. The data suggests that there is large interstate variation in public spending implying that the developed states tend to spend more on agriculture compared to the less developed agriculturally dependent states, except Himachal Pradesh and Jammu & Kashmir. Notwithstanding such interstate disparities, the empirical analysis shows its significant impact on agriculture income. The findings bring forth an urgent need to accord due priority to the agricultural sector in the fiscal policy. It recommends increased budgetary outlays to the poorer states and capital deepening for higher agricultural productivity and income.