Exploring the role of public investment and farm subsidy in driving farm TFP convergence across Indian states

Abstract This study examines the convergence in total factor productivity (TFP) and its sources across major agricultural states of India between 1990 and 2020. The study uses the system-GMM procedure, panel data and additional convergence analysis between high- and low-income states, as well as the early economic reform (1990–2004) and later economic reform (2005–2020) periods. Findings show an absolute β-convergence for all high- and low-income states during the early reform and later reform periods. Further, an absolute β-convergence shows a faster convergence in the later economic reform period than in the early economic reform period. The conditional β-convergence reveals that public agricultural expenditures enhance TFP growth and convergence. The findings from this study underscore the need for investments in Indian agriculture, particularly in rural infrastructure building, connectivity, farm research and education, warehousing and storage, irrigation development and crop husbandry and rationalization of input subsidies. However, selective input subsidies are a critical source of divergence in TFP and therefore call for rationalization.