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

  • Seema Bathla


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.


Public investment Agriculture income Growth Private investment 


  1. Arellano M, Bond S (1991) Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Rev Econ Stud 58:277–297 CrossRefGoogle Scholar
  2. Armas EB, Osorio CG, Moreno-Dodson B, Abriningrum DE (2012) Agriculture public spending and growth in Indonesia, policy research working paper 5977, World Bank, Washington D.C. FebGoogle Scholar
  3. Bathla S (2014) Public and private capital formation and agricultural growth in india: state level analysis of inter-linkages during pre- and post-reform periods. Agric Econ Res Rev 27(1):19Google Scholar
  4. Bathla S (2016) Water scarcity and public investment in irrigation: some reflections and way forward, Yozna. July 1, New DelhiGoogle Scholar
  5. Bathla S, Joshi PK, Kumar A (2017) Revisiting investments and subsidies to accelerate agriculture income and rural poverty alleviation across the Indian states. International Food Policy Research Institute (IFPRI), New Delhi, Report (Unpublished)Google Scholar
  6. Bathla S, Thorat SK, Joshi PK, Bingxin Y (2017) Where to invest to accelerate agricultural growth and poverty reduction? Econ Pol Weekly 52(39):36–45Google Scholar
  7. Blundell R, Bond S (1998) Initial conditions and moment restrictions in dynamic panel data models. J Econometrics 87:11–143CrossRefGoogle Scholar
  8. Chand R, Kumar P (2004) Determinants of capital formation and agricultural growth: some new explorations. Econ Pol Weekly 39(52):5611–5616Google Scholar
  9. Chand R, Pandey LM (2008) Fertilizer growth, imbalances and subsidies: trends and implications. Policy paper. National Centre for Agricultural Economics and Policy Research, New DelhiGoogle Scholar
  10. Chand R, Parappurathu S (2012) Temporal and spatial variations in agricultural growth and its determinants. Econ Pol Weekly 47(26 & 27):55–64Google Scholar
  11. Chandrasekhar CP, Ghosh J (2002) The market that failed: a decade of neoliberal economic reforms in India. Leftword Books, New DelhiGoogle Scholar
  12. Chirwa E, Dorward A (2013) Agricultural input subsidies: the Malawi experience. Oxford University Press. Available online at:
  13. Dhawan BD (1998) Studies in agricultural investments and rural savings. Commonwealth Publishers, New DelhiGoogle Scholar
  14. Fan S (2008) (ed) Public expenditures, growth and poverty: lessons from developing countries. Oxford University Press, New DelhiGoogle Scholar
  15. Fan S, Brzeska J (2010) Production, productivity, and public investment East Asian agriculture. In: Pingali P, Evenson E (eds) Handbook of agricultural economics, vol 4. Amsterdam, The Netherlands, North-Holland, pp 3401–3434Google Scholar
  16. Fan S, Rao N (2008) Public investment, growth and rural poverty. In: Fan S (ed) Public expenditures, growth, and poverty. Oxford University Press, pp 56–108Google Scholar
  17. Fan S, Gulati A, Thorat SK (2008) Investment, subsidies and pro-poor growth in rural India. Agric Econ 39:163–170CrossRefGoogle Scholar
  18. GoI (Government of India) (various issues). Estimates of national accounts statistics. Central Statistical Organisation, New DelhiGoogle Scholar
  19. GoI (Government of India) (various issues). Agricultural statistics at a glance (various issues). Ministry of Agriculture, New DelhiGoogle Scholar
  20. GoI (Government of India) (various issues). Finance Accounts, Ministry of Finance, New DelhiGoogle Scholar
  21. Gulati A, Bathla S (2002) Capital formation in Indian agriculture: trends, composition and implications for growth. NABARD occasional paper no 24, MumbaiGoogle Scholar
  22. Gulati A, Narayanan S (2003) Subsidy syndrome in Indian agriculture. Oxford University Press, New DelhiGoogle Scholar
  23. Haque T (2016) (ed) Agrarian distress in India: causes and remedies. Concept Publishing Company (P) Ltd., New DelhiGoogle Scholar
  24. Hazell PBR, Haggablade S (1991) Rural-urban growth linkages in India. Ind J of Agr Econ 46(4)Google Scholar
  25. Mogues T, Bingxin Y, Fan S, McBride L (2012) The impact of public investment in and for agriculture: synthesis of the existing evidence, ESA working paper no 12–06, Food and Agriculture Organization of the United NationsGoogle Scholar
  26. Mogues T, Fan S, Benin S (2015) Public investments in and for agriculture. Eur J Dev Res 27:337–352CrossRefGoogle Scholar
  27. Ravallion M, Dutt G (1995) Growth and poverty in rural India, world bank policy research working paper 1405, World Bank, Washington D.C.Google Scholar
  28. Roodman D (2006) How to do xtabond2: an introduction to “Difference” and “System” GMM in Stata, working paper no 103, December, Centre for Global DevelopmentGoogle Scholar
  29. Sharma VP (2013) The role of fertilizer in transforming agriculture in Asia: a case study of the Indian fertilizer sector. Centre for Management in Agriculture, Indian Institute of Management, IndiaGoogle Scholar

Copyright information

© Springer Nature Singapore Pte Ltd. 2017

Authors and Affiliations

  1. 1.Centre for the Study of Regional DevelopmentJawaharlal Nehru UniversityNew DelhiIndia

Personalised recommendations