PUBLIC EXPENDITURE IN AGRICULTURAL DEVELOPMENT

5.1. Economics - III

Submitted by

Surya Prabhat Pali

SM0117053

3rd Year, 5th Semester

National Law University and Judicial Academy, Assam

 TABLE OF CONTENTS

1. INTRODUCTION……………………………………………………………………. 3

1.1. Aims
1.2. Objectives
1.3. Literature Review
1.4. Research Questions
1.5. Research Methodology

2. THE MEANING PUBLIC EXPENDITURE AND

ITS ROLE IN DEVELOPMENT……………………………………………………. 6

3. THE MEANING OF AGRICULTURAL DEVELOPMENT

AND ITS IMPORTANCE…………………………………………………………….. 8

4. IMPACT OF PUBLIC EXPENDITURE ON FARMERS………………………….. 10

5. CONCLUSION AND SUGGESTIONS……………………………………………. 12

BIBLIOGRAPHY…………………………………………………………………… 13
 CHAPTER-1

INTRODUCTION

Any sector requires monetary support in order to grow, flourish and develop, hence the same goes
for the agricultural sector. And in such a sector the government’s role i.e. through public
expenditure would be of the most critical as this would be a sustained heavy expenditure that is
intended to bring welfare to the people unlike the private expenditure which is more intended on
profits.

However, the continuing underperformance of country’s agricultural growth in relation to the

targets set, questions are being raised about the magnitude, priorities and efficacy of public
expenditure for agriculture sector. Based on spatial, temporal and sector-wise dataset of public
expenditure made for agriculture, a key policy indicator of government’s priority towards its
development, the study explores the extent to which the level and composition of public
expenditures in the agricultural sector is consistent with both national and regional priorities. The
paper also studies the impact of public investment in agriculture on farm households.

This paper intends to provide insights into the pertinent question whether agricultural public
expenditures are strategically prioritised across regions and sectors, and in the light of these,
suggestions are made to enhance the use of limited public resources.

1.1. AIMS

The project aims to understand how public expenditure has helped in the development of the
agricultural sector.
1.2. OBJECTIVES

The objectives of the paper are:

● To understand what is the meaning of public expenditure and its role in development .
● To understand the meaning of agricultural development and its importance.
● To study the impact of public expenditure on agriculture.

1.3. LITERATURE REVIEW

● Akhil Gupta, Postcolonial Developments: Agriculture in the Making of Modern India,

Duke University Press (1998)

The study brings together recent critiques of development and work in postcolonial studies to
explore what the postcolonial condition has meant to rural people in the Third World. Focusing on
local-level agricultural practices in India since the "green revolution" of the 1960s. The author
examines narratives of village politics in Alipur to show how certain discourses influenced
governmental policies on the green revolution and the importance of public expenditure in the
growth of this village level agriculture.

1.4. RESEARCH QUESTIONS

The research questions are as follows:

1. What is Public Expenditure and what is its role in development?

2. What is the meaning and importance of agricultural development?
3. What is the impact of public expenditure on agriculture?
1.5. RESEARCH METHODOLOGY

The researcher has conducted a Doctrinal type of research to collect proper data and gather
appropriate information. The researcher has used library database and internet sources for
conducting research. Secondary sources have also been used and have added to the better
understanding of research subject. Multiple online articles have been referred to form the research
objective and questions which in turn forms the framework of the study.

This researcher has followed Bluebook 20th edition system of citation for this paper.
 CHAPTER-1

THE MEANING PUBLIC EXPENDITURE AND ITS ROLE IN DEVELOPMENT

Public expenditure is not merely a financial mechanism. It is rather a means of securing social
objectives. Socialism, in any sense, can be realised only through progressive taxation and their
distribution afterwards. Traditional economists held the view that the State should not interfere in
the general activity, for the government is merely an agent of the people to keep the political
organisation intact, hence it should spend public funds discreetly and sparingly.1

The objective of Public expenditure in the current period is of multiple. Firstly, its object is for the
provision of collective wants in order to optimise society’s consumption in a rational way and to
maximise social and economic welfare. Secondly, it plays a role in the control of the depressionary
tendency in the market economy. Public spendings should be designed to optimise the level of
investment in such a way as to maintain full employment with growth. In a free enterprise
economy, through public expenditure incurred for appropriate public works programme, the gap of
inadequacy of investment in the private sector has to be filled adequately. According to Keynes,
public spending is, thus, required to sustain the level of effective demand in an economy.2 Thirdly,
in a backward economy, public expenditure should accelerate the rate of economic development by
constructing the infrastructure of the economy and by increasing capital formation for augmenting
industrial activity for the production of goods and services. A new approach to public finance has,
however, evolved in the thirties since the Keynesian revolution in economic thought. Lastly,
modern economists believe that public expenditure has a positive role to play to achieve definite
ends. Its goal is to promote maximum social welfare. In fact, the significance of public spending

1
Laissez-faire, ENCYCLOPAEDIA BRITANNICA (Oct. 29, 2019),
https://www.britannica.com/topic/laissez-faire
2
Alan S. Blinder, Keynesian Economics, THE LIBRARY OF ECONOMICS,
https://www.econlib.org/library/Enc/KeynesianEconomics.html
lies in the supply of those essential services by the government for the satisfaction of collective
wants, which might not otherwise be provided economically and efficiently by the private sector.3
Its importance lies in its lubricating character also, as deficit spending of the government leads to
the creation of additional money, which facilitates trade and exchange and stimulates further
production and growth of national income.

Public expenditure is indeed an important exercise. It helps in building economic overheads for
example like roads, railways, irrigation, power, etc., the rate of economic development can be
boosted. Similarly, undertaking of social overheads such as hospitals, schools, etc. are also of great
help.4 It also brings about balanced regional growth, public expenditure can channelise the
allocation of resources in a proper way and avoid lopsided development and correct regional
imbalances. More public spending may be incurred in the backward regions to uplift their
economy. Most importantly, with regards to this paper, is augmentative role it plays in the
development of agriculture and industry, in ways such rural electrification programmes, can bring
about rural and agricultural development. In short, public expenditure has to create and maintain
conditions conducive to economic development.

3
Tushar Seth, Role of Public Expenditure in a Developing Economy, ECONOMIC DISCUSSION,
http://www.economicsdiscussion.net/economy/role-of-public-expenditure-in-a-developing-economy/1936
4
Dave Hall, Why we need public spending, EPSU (May 20, 2014),
https://www.epsu.org/article/why-we-need-public-spending
 CHAPTER-2

THE MEANING OF AGRICULTURAL DEVELOPMENT AND ITS IMPORTANCE

Agricultural development is the ability to develop some “better” system of agricultural production.
For many rural poor the world over, human labor is a major constraint to greater agricultural
production. Labor constraints during the plowing, weeding, or harvesting seasons are where oxen
can most easily fill the gap between what people can do and what they would like to do.5 Greater
efficiency and timeliness are easily accomplished if oxen are employed in all agricultural
operations. Many farmers plow with oxen and then leave them idle for the remainder of the year.
Employing the animals in labor-saving and profitable ways year round takes a great deal of
creativity. However, this creativity can pay great dividends when greater harvests are possible. The
implements needed for plowing, weeding, and transportation are often a larger constraint for many
farmers than the acquisition, training, and employment of animals and this is mainly due to the lack
of funds.

Agricultural development is one of the most powerful tools to end extreme poverty, boost shared
prosperity and feed a projected 9.7 billion people by 2050.6 Growth in the agriculture sector is two
to four times more effective in raising incomes among the poorest compared to other sectors. 2016
analyses found that 65% of poor working adults made a living through agriculture. Agriculture is

also crucial to economic growth: in 2014, it accounted for one-third of global

gross-domestic-product (GDP).7. In the past two decades there has been increasing emphasis on
rural development programmes and projects, and recognition that the development of rural areas is

5
Raghuram Rajan, Agriculture Development, ECONOMY WATCH (May 10, 2012)
https://www.economywatch.com/agriculture/development.html
6
Health, Nutrition and Population, THE WORLD BANK,
http://datatopics.worldbank.org/health/
7
Agriculture, forestry, and fishing, value added (% of GDP), THE WORLD BANK,
https://data.worldbank.org/indicator/NV.AGR.TOTL.ZS
just as important as the building up of urban, industrial complexes. Development must have two
legs: urban industrialization and rural improvement.

There are very strong reasons why resources should now be put into rural development. More than
half the people of the world and the vast majority of the people in developing countries (Asia,
Africa and Latin America) live in rural areas and gain part or all of their livelihoods from some
form of agriculture.8 Most of these people are also still very poor and dependent on agricultural
practices that have benefited little from modern technology. They live in isolated and often
inhospitable places, with little access to the resources they need to improve their agriculture. Many
lead their lives barely at subsistence level. Solely in terms of numbers of people, there is a very
strong case for giving high priority to rural development.

It can also be argued that agriculture is a vital part of the economy of any country and that its
development is critical to the development of the country's economy as a whole. Agriculture's
important role is one of production, both of food for the rural and the urban population and of cash
crops for the export market, to earn foreign currency. In this process demand is stimulated for other
products and services, and employment opportunities emerge to absorb the society's work-force.
As the cycle develops, the increasing agricultural production causes an increasing demand for
inputs, which ensures the resources required to maintain the agricultural production. Land is a basic
resource for most countries and the exploitation of that resource in the interest of its citizens is one
of the country's main responsibilities.

8
Kekane Maruti Arjun, Indian Agriculture- Status, Importance and
Role in Indian Economy, 4 IJFST 343-346
 CHAPTER-4

IMPACT OF PUBLIC EXPENDITURE ON FARMERS

This section explores an important question as whether recent spurt in agricultural expenditure has
enhanced farm households’ access to farm services. It is evident that, despite the fact that the major
and medium surface irrigation projects have been assigned a consistent investment priority since
last several decades, still half of the farmlands have no access to it. Canal irrigated areas as a
percentage of total area irrigated is declining and now constitute only one-fifth.9 Many of the
irrigation projects suffered huge time and cost overruns and therefore, growth in area irrigated
through publicly funded schemes slowed down and large number of unfinished irrigation projects
piled up. In spite of huge central assistance released under Accelerated Irrigation Benefits
Programme (AIBP), the success has been modest, and the utilisation of the irrigation potential was
also unsatisfactory.10 One of the notable achievements in the development of rural India has been
the rapid increase of electrification and use of electricity for agricultural purposes. In 1970, only 34
percent of the villages in rural India had access to electricity.11 But in 2010, this percentage had
increased to almost 90 per cent, and access to power has increased in terms of per capita electricity
consumption.12 This rapid increase in electrification not only contributed to agricultural
productivity growth through encouraging more irrigation, but also contributed to rural economy
through generation of non-agricultural employment opportunities. Also, The surface road length in
rural areas grew (4.3 per cent per annum) faster than that in urban areas (1.49 per annum) during
2001-08, which increased rural road density per 1000 population from 4.20 km to 4.86 km during
the same period.13

9
Tanvi Deshpande, State of Agriculture in India, PRS (Mar. 2017),
https://www.prsindia.org/sites/default/files/parliament_or_policy_pdfs/State%20of%20Agriculture%20in%20Indi
a.pdf
10
Id.
11
Id.
12
Praveen Jha and Nilachala Acharya, Expenditure on the Rural Economy in India’s Budgets since the 1950s: An
Assessment, 1 Review of Agrarian Studies
13
Id.
The role of government in provision of public services like agricultural research education and
extension is of utmost importance, and therefore, government plays a major role in its funding and
execution. At the national level, the real expenditure on agricultural research and education has
risen a little less than four-fold in the last two decades from Rs. 15 billion in 1990-91 to Rs 68
billion in 2010-11.14 The all India real spending on Agriculture R&E grew by 5.8 percent during
the nineties and maintained its growth momentum during the 2000 decade (7.2 per cent) too, but
substantial increase came only during the second half of the decade (13 per cent per annum) in
2010 to 2011.15 Breakthroughs are needed in water-saving technologies of cultivation,
enhancement of land productivity, natural resource management and climate-resilient agriculture
and public expenditure in research has helped significantly to come up with the solutions. It has
contributed in a large way to increasing agriculture production and productivity.16

With respect to budgetary allocation in the Union Budgets, it seems that agriculture, in the overall
budget, has never been prioritized, although the period of 11th FYP demonstrated some
seriousness by implementing schemes like RKVY(Remunerative Approach for Agriculture and
Allied sector Rejuvenation). This not only helped states in terms of prioritising their respective
annual budgets towards agriculture, but also resulted in achieving the targeted growth rate of 4
percent during the plan period for the first time in the history of planned development of our
country. However, if we look at the priority of this sector in the overall budget of the country, it
portrays quite a disappointing picture. The continuous decline in its share in the overall budget of
the country is something to be worried about. Further, an analysis of expenditure towards ‘agrarian
sector’ of the Union Budget portrays that expenditure towards irrigation purposes has been
receiving very little amount, which not only hindered the raising of the irrigation potential of the
country but also resulted in stagnated productivity of the sector. This has been presented to show
the adverse impact the lack of public expenditure can have on the agriculture development.

14
Pocket Book of AGRICULTURAL STATISTICS, GOVERNMENT OF INDIA (2011),
http://agricoop.nic.in/sites/default/files/pocketbook_0.pdf
15
Infra. note 15
16
Agricultural Research in India, DPH ( Jul. 2007)
http://base.d-p-h.info/en/fiches/dph/fiche-dph-7994.html
 CHAPTER-5

CONCLUSION AND SUGGESTIONS

These investments must, therefore, be treated as a composite strategy for rural development and a
sustained step-up in investments should be maintained in order to benefit agriculture, given that
benefits from these investments tend to materialise after a considerable time lag. The policy shift
towards raising capital expenditure in rural infrastructure and irrigation would translate into
economic gains only, if it is backed by responsive institutions as they form part of the enabling
environment for private investment. In addition to investment in creation of physical infrastructure,
the investment should be directed towards designing and up-scaling participatory and innovative
institutions, improved rural markets, technology development for disadvantaged regions and
groups and facilitating non-farm enterprises in rural areas. Substantial investment is further needed
for up-gradation of irrigation infrastructure, but efforts to strengthen the institutions for efficient use
of the investment and management of water resources will go a long way in increasing agricultural
productivity.

Thus, we see that the role of public expenditure plays a very significant role in the development of
agriculture. It it is important to note that Indian agriculture can hardly do without substantial state
support in all respects and can be concluded, that special and continuous policy attention would be
required to cope with the crises afflicting the sector.
 BIBLIOGRAPHY

BOOKS

Gupta, Akhil, Postcolonial Developments: Agriculture in the Making of Modern India, Duke
University Press (1998)

ARTICLES

Kekane Maruti Arjun, Indian Agriculture- Status, Importance and Role in Indian Economy, 4
IJFST 343-346

Praveen Jha and Nilachala Acharya, Expenditure on the Rural Economy in India’s Budgets since
the 1950s: An Assessment, 1 Review of Agrarian Studies

WEBSITES

Laissez-faire, ENCYCLOPAEDIA BRITANNICA (Oct. 29, 2019),

https://www.britannica.com/topic/laissez-faire

Alan S. Blinder, Keynesian Economics, THE LIBRARY OF ECONOMICS,

https://www.econlib.org/library/Enc/KeynesianEconomics.html

Tushar Seth, Role of Public Expenditure in a Developing Economy, ECONOMIC DISCUSSION,

http://www.economicsdiscussion.net/economy/role-of-public-expenditure-in-a-developing-econom
y/1936
Dave Hall, Why we need public spending, EPSU (May 20, 2014),
https://www.epsu.org/article/why-we-need-public-spending

Raghuram Rajan, Agriculture Development, ECONOMY WATCH (May 10, 2012)

https://www.economywatch.com/agriculture/development.html

Pocket Book of AGRICULTURAL STATISTICS, GOVERNMENT OF INDIA (2011),

http://agricoop.nic.in/sites/default/files/pocketbook_0.pdf