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Macro-Economic Policy Outcomes and Agriculture Relation between Fiscal Deficits and Investment in Agriculture

Munish Alagh

No WP2011-10-05, IIMA Working Papers from Indian Institute of Management Ahmedabad, Research and Publication Department

Abstract: In an earlier paper (Alagh, Munish, 2011) it was shown that macro economics matters in agriculture. The relevance of understanding the impact of macro-economic policy on agriculture was outlined, A forecasting exercise detailed the structure and response of supply to prices in the non foodgrain sector of the economy. The market and more generally macroeconomic policy impacts on agriculture needed to be understood. This is reviewed in this paper and it proceeds onwards from there to show that within macroeconomic policy specific policies such as an appropriate fiscal-monetary policy mix is relevant for the economy, and that fiscal policy should be seen as a process. It is shown that fiscal overspending outside agriculture should be curbed. The composition of fiscal policy relating to agriculture particularly public investment and subsidies is studied. It is seen that periods of sustainable deficits are periods of rising public investment in agriculture. ICOR’s are rising but less in the public sector suggesting externalities. Crowding in of private investment seems likely. Following this the political economy of fiscal policy in agriculture is briefly reviewed.

Date: 2011-10-19
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