Chapter 2 Public Investment in Agriculture and Growth: An Analysis of Relationship in the Indian Context Seema Bathla 2.1 Introduction The brunt of a cut down in public expenditure following the economic reforms from 1991 was largely borne by the agriculture, irrigation and rural development sectors. This relative ‘neglect of agriculture’ in India’s fiscal policy slowed down the increasing trend in area irrigated by public canals (Gulati and Bathla 2002; Chandrasekhar and Ghosh 2002). The net area irrigated by private sources of irrigation did not increase significantly. A near stagnancy in irrigation intensity coupled with recurrent droughts and high cost of inputs led to a situation of agrarian distress (Haque 2016). To arrest the situation, almost all the states in the country increased budgetary outlays towards agriculture from early 2000s along with the drought relief measures and rural employment generation programmes. Hike in minimum support price of key crops and an increased flow of institutional credit were other policy measures, primarily taken to incentivize farmers (Chand and Parappurathu 2012). A high public expenditure priority enabled public capital formation in agriculture and input subsidies to grow at an annual rate of 6% during 2000–2013. It also led to a much higher rate of growth in private investment in agriculture at almost 9% per annum in real terms (at 2004–05 prices). The irrigation intensity rose from 30 to about 50%, and agriculture was able to attain an all time high growth at 3.8% annually during this period. The most striking feature was a phenomenal rate of growth of agriculture in many laggard states between 5 and 8%. These outcomes suggest that public expenditure is crucial for the growth of Indian agriculture and hence should be accorded appropriate fiscal space. This chapter is an attempt to empirically test this relationship based on time series data on public investment in agriculture–irrigation and gross state domestic product S. Bathla (&) Centre for the Study of Regional Development, Jawaharlal Nehru University, New Delhi, India e-mail: seema.bathla@gmail.com © Springer Nature Singapore Pte Ltd. 2017 S. Bathla and A. Dubey (eds.), Changing Contours of Indian Agriculture, DOI 10.1007/978-981-10-6014-4_2 13