Revisiting investments and subsidies to accelerate agricultural income and alleviate rural poverty in India

Examine temporal and spatial trends in public and private expenditure on agriculture in India, and its welfare effects in terms of agricultural growth and mitigation of rural poverty. Covering the period 1981 to 2014, the study explores the relationship between public and private investments and farm input subsidies at the state level and estimates the trade-off between efficiency and equity in the goals of public intervention. Find that public spending on agriculture and irrigation increased during the 2000s, reviving agricultural growth to a great extent, but resources allocated to agriculture and other related categories in rural areas have not been commensurate with the total budgetary increase. The empirical analysis shows that agricultural productivity, terms of trade (prices), and nonfarm employment have a significant effect on rural poverty. However, the poverty effect of nonfarm employment together with rural wages is relatively greater in high-income states. Estimates on marginal returns from incremental public investments are higher in less developed agriculturally dependent states. Private investment in minor irrigation and public investment in agriculture research and development, education, rural development, and energy would maximize efforts to raise agricultural income and alleviate rural poverty. The payoffs from these investments are consistent across states. However, the impact of spending on irrigation and power subsidies in raising agricultural income is more effective in low-income states. This study advocates additional resource mobilization toward less developed states, which would be an essential step in the progression toward private investment in agriculture to promote growth with equity.