(a) What are the major components of public expenditure on agriculture in India? Would you recommend any changes in the pattern…

Public Expenditure on Agriculture: Components and Reorientation

Public expenditure on Indian agriculture comprises two distinct streams: capital expenditure (productive investment in major and medium irrigation, agricultural research and development, soil conservation, and rural infrastructure) and revenue expenditure (current transfers, input subsidies on fertilizers, power, canal water, credit interest subventions, and farm loan waivers). Data from the Central Economic Advisory and National Accounts Statistics indicate a structural imbalance: while total budgetary allocations to agriculture have grown, the share of Gross Capital Formation (GCF) financed by the public sector has stagnated below twenty percent of total agricultural spending, overshadowed by rapidly escalating revenue subsidies.

To stimulate sustainable agricultural growth, public expenditure requires systematic rebalancing. As demonstrated by Ramesh Chand and the Chand-Radhakrishnan framework, the marginal returns on investment in agricultural R&D, extension services, and rural infrastructure exceed the returns on input subsidies by a factor of five to ten. Input subsidies for power, water, and fertilizers have reached a point of diminishing returns, causing widespread soil nutrient imbalances and groundwater depletion. Policy must redirect resources from distortionary open-ended input subsidies towards high-yielding capital assets: scaling public investment in agri-R&D from the current 0.4 percent of agricultural GDP to at least 1.0 percent, expanding micro-irrigation under PM Krishi Sinchayee Yojana, and modernizing post-harvest storage through the Agriculture Infrastructure Fund.

Significance of Planning in Market-Based Development

In a liberalized economy, planning has transitioned from command-and-control resource allocation to indicative and strategic planning. The market mechanism alone fails to optimize long-term investments in rural public goods, manage ecological commons, or address severe information asymmetries faced by fragmented smallholders. Indicative planning, operationalized through NITI Aayog’s Strategic Frameworks and Action Agendas, provides long-term policy predictability, corrects market failures, and aligns private investment with national development priorities.

An analytical tension persists between decentralized market price signals and centralized planning priorities. While market forces reflect short-term scarcity, they often exacerbate regional inequality and environmental degradation. As articulated in the Twelfth Five Year Plan’s inclusive growth framework and highlighted by M.S. Swaminathan, planning must act as a corrective countervailing force. Decentralized, agro-ecological planning coordinates public investments across states, rectifies market-driven regional disparities, and ensures that market-led growth does not compromise ecological sustainability or food security for marginal producers.

Post-Liberalisation Procurement Policy and Agricultural Prices

Post-1991 procurement policy evolved from ad-hoc state intervention toward targeted Minimum Support Price (MSP) operations. Key structural shifts included the introduction of the Decentralised Procurement Scheme (DCP) in 1997 to decentralize state-level grain handling, the launch of the Electronic National Agriculture Market (e-NAM) to foster unified price discovery, and the PM-AASHA umbrella framework comprising the Price Support Scheme (PSS), Price Deficiency Payment Scheme (PDPS), and pilot Private Procurement and Stockist Scheme (PPSS).

However, procurement operations remain heavily skewed toward open-ended buying of paddy and wheat in select northwestern and southern states. This creates significant price distortions:

• Crowding Out Private Trade: Open-ended procurement at above-market clearing prices disincentivizes private participation in grain trade, storage, and processing.
• Regional Price Divergence: Concentrated procurement artificially inflates farm-gate prices in the northwest, while farmers in eastern states, lacking effective state procurement machinery, frequently face distressed sales below the declared MSP.
• Fiscal and Cropping Distortions: The open-ended system ties up public resources in excessive buffer stocks, generating high carrying costs for the Food Corporation of India and biasing cropping patterns away from water-efficient pulses, oilseeds, and nutri-cereals.

A sustainable agricultural strategy demands shifting expenditure from input subsidies to public capital formation, utilizing indicative planning to mitigate market failures, and replacing open-ended physical grain procurement with decentralized price deficiency mechanisms to preserve competitive market dynamics.