Declining Public Expenditure in Indian Agriculture.

Declining Public Expenditure in Indian Agriculture. (Reference: India’s Agricultural Development under the New Economic Regime: Policy Perspective and Strategy for the 12th Five Year Plan Vijay Paul Sharma, W.P. No. 2011-11-01, IIM(A), November 2011.)

A ‘big push’ for public expenditure in agriculture is required to bring about technical change in agriculture, and higher agricultural growth. It is evident that there has been a significant decline in the allocation of public outlay on agriculture as a percent of total public outlay during the post-reforms period compared to what it was in pre-reforms period (Desai and Namboodiri 1997). The share of gross capital formation in agriculture and allied sector in total gross capital formation (at current prices) has declined from about 11.7 percent in 2001-02 to 6.89 percent in 2006-07 and further to 6.6 percent in 2007-08. However, there has been a marked improvement in its share during the last couple of years and reached a level of 8.5 percent in 2008-09 and marginally declined to 8.2 percent in 2009-10. The GCF in agriculture and allied sectors as proportion to the GDP in agriculture which stagnated around 14 percent during the first half of last decade, increased to over 20 percent in 2009-10. However, the GCF in agriculture and allied sectors as percentage to total GDP has remained stagnant at around 2.5 to 3.0 percent. In order to achieve over 4-4.5 percent growth in agriculture sector, there is a need to step up investment in agriculture.

Share of public expenditure on agriculture and alliedsectors declined from about 6 percent in 6th Plan to about 4.5 percent in Tenth plan. During 11th Plan a higher allocation

of public sector resources was projected for agriculture and allied activities, Rashtriya Krishi Vikas Yojana, in the form of 100% grant-in-aid, was launched in the 11thFive-Year Plan with a projected allocation of Rs. 25,000 crore over and above the other ongoing

programmes to incentivize the States to make higher investment in agriculture. The RKVY,

which provides sufficient flexibility to the States to take into account local needs, has helped in increasing allocation to agricultural sector. Since public participation is highly essential for

successful implementation of agricultural development programmes, people’s involvement in the development endeavors will help

Irrigation, which is a leading input for agricultural growth, expenditure also witnessed a

declining trend (10% in Sixth plan to about 8% in Tenth plan). However, the share of public

sector expenditure under rural development in total expenditure increased from 6.4 percent inthe Sixth plan to 9.2 percent in the Tenth plan. The expenditure on food and fertilizer subsidies has also increased significantly from 6.7 percent in Seventh plan to about 16 percent in Eleventh plan. Two main reasons for reduced share of public sector expenditure under agriculture and allied activities are: one, increased and larger public expenditure on rural development schemes like the Mahatma Gandhi National Rural Employment Guarantee Act.

(MNREGA), other rural development and poverty alleviation programmes, and two, increased and larger spending on food and fertilizer subsidy. It is interesting to note that public expenditure on agriculture research and education as proportion of total expenditure on agriculture and allied sectors, which declined during 7th and 8th plans, increased significantly during the subsequent plan periods. However, public spending on agriculture research, education, and extension is about 0.6-0.7 percent of agricultural GDP (Chand, et. al. 2011),which is much lower than the international norm of 2 percent.

The rationale for higher public spending on agriculture research, education, and extension lies in that fact that (i) public spending for this purpose has high value of marginal product based internal rate of return ranging from about 21 percent to 46 percent (Desai and Namboodiri 1997 and Chand, et. al. 2011), (ii) the sector has budget constraints for increasing number of extension workers, and (iii) it is further needed to undertake development and transfer of location specific new technologies by re-orienting ICAR’s research and SAUs’ higher education (Pal and Singh, 1997, Challa, et. al. 2011). These would require a big jump in allocation of budget for the agriculture and allied sectors both at the central and State government levels in total public spending. The public expenditure for technology-led agricultural growth must be prioritized in favour of agricultural research and education including extension; irrigation and flood control; soil and water conservation; rural infrastructure, rural financial institutions, and rural development and poverty alleviation programmes for creating community assets that directly contribute to agricultural growth.