Investment, subsidy and productivity in Indian agriculture: an empirical analysis

Using time series data, this study compares the effectiveness of public investment with that of subsidies on the total factor productivity (TFP) of Indian agriculture at the national and subnational levels. Our findings show that public investment is more effective than subsidies in raising agricultural productivity in both the short and long run. At the national level, the elasticity of public investment ranges from 0.03 to 0.10 in the long run and from 0.03 to 0.05 in the short run. At the state level, too, we find a positive and significant effect of public investment in the short and long run. But the impact of subsidies is mixed: subsidies negatively impact the TFP of most states (barring a very few developed states). The implication is that for the efficient and sustainable growth of Indian agriculture, the government needs to gradually convert subsidies into investment.