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The Department of Agricultural Economics was created in 1971 in the Division of Economics of Himachal Pradesh University, Shimla. It was transferred to the Faculty of Agriculture in the Agricultural Complex, Palampur in July, 1978.   Since then it has been functioning as a major Department in the College of Agriculture. The Department is engaged in its three-fold mandate of teaching, research and extension education.  The Department is well equipped with facilities for high quality teaching and research. As regards teaching, it offers courses both at undergraduate and postgraduate levels. Till date, it has produced 38 Ph.D. and 190 M.Sc. students. The course curricula have been continuously refined and modified in view of the developments at the national level. The department has completed about 98 externally aided research projects funded by the Indian Council of Agricultural Research (ICAR), Government of India, Government of Himachal Pradesh, Directorate of Marketing (DMI), ICIMOD, Kathmandu, SJVN Limited, Department of Science and Technology, Indian Council of Social Sciences Research (ICSSR) and Japan International Cooperation Agency - Official Development Assistance (JICA-ODA), etc. Through the output of these projects, it has been supplying valuable policy inputs to these agencies. The research agenda has also been continuously updated keeping pace with the general agricultural development scenario in the state and the country. While in 1980s, the research focus was primarily on working out the economics of different crops and crop related enterprises, evolving farming systems  and study of the problems of small and marginal farmers, the emphasis in the nineties shifted, inter alia, towards understanding the implications of ongoing process of liberalization and globalisation for the economic viability  of hill and mountain agriculture. More recently, the research issues related to environmental and natural resource economics including implications of climate change for the farm livelihoods as well as the economics of organic and natural farming have also been included in the research agenda of the department. The department is also contributing immensely in the area of extension education by imparting subject specific trainings to the farmers, extension personnel of various departments and other stakeholders.

With the merger of the Department of Extension Education with the Department of Agricultural Economics in 2009, it has been rechristened as the Department of Agricultural Economics, Extension Education & Rural Sociology.