evolution and status of credit to indian...

Copyright © Universal Multidisciplinary Research Institute Pvt Ltd

215

South -Asian Journal of Multidisciplinary Studies (SAJMS) ISSN:2349-7858:SJIF:2.246:Volume 3 Issue 5

EVOLUTION AND STATUS OF CREDIT TO INDIAN

AGRICULTURE

K.V. Praveen, K. Inbasekar, and P. Anbukkani

Division of Agricultural Economics, ICAR-Indian Agricultural Research Institute, New Delhi-12

Abstract

This paper attempts to review the evolution of institutional credit flow to agriculture in India, and

study its status and growth in different time periods. Secondary data from different official

publications are used in the study. Tabular analysis, compound growth rates, correlation analysis and

pooled panel data regression are used to meet the objectives. The total agricultural credit showed an

increasing trend in all the time periods considered in the study. Highest growth in total agricultural

credit was achieved in the Post-2000 period, followed by Post- liberalisation. Among different size

classes, the number of marginal and small farmers depending on institutional credit increased at faster

rate than that of other classes. Credit positively affects the agricultural Gross Domestic Product and is

also positively correlated with food grain production. Indebtedness was found to be high for states

that received highest volume of institutional credit. The procedure for availing credit should be

simplified and an improvement is required in the multi-agency network of credit delivery to

agriculture in India.

Highlights

Marginal farmers reported highest growth in availing of credit

Credit significantly increased agricultural GDP

Indebtedness are prevalent more in states receiving high volume of credit

Key words: Agricultural credit, Indebtedness, Panel data regression, Kisan Credit Card, India

Credit played importantpart in the progress of agriculturein India by aiding the small and marginal

farmers to adopt improved technologies. Flow of credit despite ensuring the resilience of Indian

farmers in the wake of frequent droughts and floods, also increased their marketable surplus. It is well

accepted that credit is a good incentive to the farmers for improving their production. It affects the

agricultural production both directly and indirectly. Credit supports the farmers in the purchase of

seeds, fertilizers, labour, etc. thus impacting the process of cultivation directly. Besides this, it is also

required forthe construction of farmsheds, and doing such activities related to marketing, storage and

processing of agricultural produce effectively, thus helping the farmers indirectly to increase the

overall farm profitability.

The credit requirements of the Indian farmers in the decades of 1950s and 1960s were primarily met

from the informal sources. The centre, after considering the compulsion of well-timed credit delivery


216


to the farmers for good crop production, programmed and implemented several policies and

established formal institutions. Reserve Bank of India, State Bank of India, and National Bank for

Agriculture and Rural Development are few such institutions that worked along with Regional Rural

Banks, Cooperative Banks and several other Scheduled Commercial Banks to deliver credit to the

needy farmers. Thus credit delivery to Indian agriculture became multiagency activity. Besides the

pan-India presence of these formal institutions, inequalities developed among regions, states and

farmer categories. Agriculturally developed regions and states along with some classes of farmers

were able to make use of these facilities while several other eligible ones could not. Inequality in

credit distribution also increased over time and there existed a widespread negligence towards

traditionally under-developed regions. This is a concern that has gained the attention of state and

central government, policy makers and researchers.

Regarding the utilization of credit, most of it was used forpurchase of manures and fertilizers.

Irrigation and seeds are other major inputs that got adequate credit in India (Singh and Mruthyunjaya,

1992). Optimizing the use of resources in agriculture was a major concern in both small and large

farms. With better credit delivery and improvised technologies, all classes of farmers were able to

achieve this in both irrigated and unirrigated farms. Crops that require more investment but which are

more remunerative also emerged with higher credit flow thus bringing a change in the cropping

pattern also (Poddar et al., 1995). Credit is a part of the total agricultural investment, and thus higher

credit indicates an overall improvement in the provision of inputs, which will improve the

productivity (Sriram, 2007).

Agricultural credit is primarily of two types, these are direct credit and indirect credit. Earlier one is

provided directly to the farmers to aid in the crop cultivation, whereas the later one is provided to

institutions that support agriculture. Direct credit include short term, medium term and long term

loans, whereas the indirect credit includes the funds to fertilizer subsidies, Food Corporation of India,

Warehouses etc. Studies suggest that direct agriculture credit has an immediate, positive and

statistically significant impact on agriculture output (Daset al, 2009).Formal credit also contributed

significantly to promote the use of improved inputs and better the private capital investments (Sidhu

et al., 2008).

Some studies alsoindicated a negative association among agricultural credit and agricultural

development. Agricultural credit even though increased the input use and bettered the private

investment in livestock and implements, its impact on output is not thatbig (Binswanger and

Khandker, 1992).The limitations that exist in the formal credit could be understood from the fact that

raising credit could not successfully increase the value of output from agriculture (Mohan, 2006).

Anegative relation between credit and crop productivity was suggested by correlation analysis. Its

impact on crop productivity is also not significant (Elumalai, 2011). All these issues suggest that


217


further improvement in credit delivery is required since the gap between cost of agricultural inputs

and supply of short term credit was increasing (Chand, 1992).

With this contrasting background, this paper attempts to briefly trace out the evolution of agricultural

credit and analyseits status and growth. The effect of credit on agricultural production, and the issues

related to farmers‟ indebtedness and lacunas in credit disbursement in India is also investigated.

Data Sources

This study focuses on the performance of agricultural credit in three periods Viz., pre-liberalization

period (1980-91), post-liberalization period (1991-2000) and post-2000 (2001-10). State level analysis

is conducted for the period 1980 to 2010 based primarily on secondary data published from various

sources like Reserve Bank of India, Ministry of Road Transport and Highways, Fertilizer Association

of India etc. The agricultural credit data obtained from Reserve Bank of India was divided by Gross

cropped area to arrive at per hectare agricultural credit. Among the variables used for analysing the

impact of agricultural credit on agricultural production, road density is expressed as percentage of

length of road in kilometre to total area of the state in square kilometres and fertilizer per hectare is

calculated by dividing total fertilizer consumption by gross cropped area in the state. While

urbanization is measured as the percentage of urban population in total state population, the annual

mean rainfall data from Indian Meteorological Department, Government of India is used to represent

rainfall. Another important variable used in the study is irrigation intensity which is calculated as

percentage of area under irrigation to total cropped area. The extent of farm indebtedness was

compiled from Situation Assessment Survey of Farmers, NSS 59th

Round, 2003.

Methodology

The performance of agricultural credit by various lending institutions was assessed by compound

annual growth rate. The Pearson correlation coefficient analysis was conducted to find the linear

association between food grain production, fertilizer consumption, irrigation and pesticide usage.

With substantial within state changes over time, the estimation for a panel data on states for the case

of credit is based on the pooled panel data regression specified as in equation (1):

𝑅𝑖𝑡 = 𝛼 + 𝛾𝑋𝑖𝑡 + 𝜀𝑖𝑡 (1)

In equation (1), the dependent variable 𝑅𝑖𝑡 is the agricultural gross domestic product at 2004-05 prices

in state 𝑖 at time 𝑡. The coefficients of interest are those on measures of agricultural development such

as agricultural credit, fertilizer consumption, road density, urbanization and mean annual rainfall

(included in 𝑋𝑖𝑡 ).

Results and Discussion


218


Evolution of Institutional Credit to Indian Agriculture

Agriculture is a way of living in India and the tradition that it holds dates back to centuries. Indian

agriculture is depended heavily on the fertile lands irrigated by monsoon along with a well spread

river system. Indebtednesscrawled into the farming community of India owing to the intermittent

failure of monsoon and the disadvantage that it caused to the crop production. This was a serious

concern even during the British era and the then government was compelled to provide credit

assistance to farmers during the drought years. The Cooperative Societies Act passed in the 1904

institutionalised the disbursement of credit to farmers through establishments known as cooperatives.

The structure of cooperative credit was then improvised to a three tier one through the setting up of

cooperative banks in the provinces. Later the Reserve Bank of India (RBI) was established in the year

1935. Agriculture credit department of the RBI harmonized all the agricultural credit activities in the

country.

All India Rural Credit Survey of 1954 stressed the importance of better rural credit facilities in the

country, and this lead to the establishment of State Bank of India in 1955. The reforms in the banking

sector of India from late sixties till eighties granted impetus to the commercial banks for providing

agricultural credit. Several ameliorations and improvements in the credit system, like the priority

sector lending and lead bank scheme of 1969, came as a sequel to these efforts. All these attempts

however were not enough to push the agricultural credit to the required level. The neglect of

agriculture sector by the banks which concentrated more on the industries, and the declining capacity

of the farmers to purchase the inputs during the green revolution era was serious concern to the policy

makers. Search for an institutional innovation to resolve these issues lead to the setting up of Regional

Rural Banks in 1975.

Later in the year 1982, the National Bank for Agriculture and Rural Development (NABARD) was

established. Since its establishment NABARD is providing credit for the promotion of agriculture in

India and it also refinances the rural institutions of finance. Micro-credit in rural India through the

concept of Self Help Groups (SHG) is one among the several efforts of NABARD to meet its

objectives. The financial reforms of the early nineties made its mark in the agricultural credit also by

deregulating the interest rates of cooperatives, RRBs and commercial banks, setting up of cautious

norms of accounting, higher refinance, etc (Mohan, 2004). Recent efforts to improve the delivery of

institutional credit to Indian agriculture includes the Kisan Credit Card (KCC) Scheme and SHG‟s-

Bank Linkage Programme.

In the year 1998-99 the KCC Scheme was initiated primarily to enhance the ability of the farmers to

purchase farm inputs. The Pan India scheme is accomplished throughthe banking network that

includes Commercial Banks (CB), Cooperative Banks and Regional Rural Banks (RRB). The credit

distributed through the scheme is available for all classes of farmers and it could be used to meet the


219


agricultural and consumption needs. Even though KCC as a creditinnovationis becoming very popular

and successful, it cannot be said to be fool proof. The inclinationin providing the credit through the

scheme, on the basis of size of holding and caste, has to be taken care of immediately (Kumaret al,

2011). Another concern which has come while executing the scheme is complexity in the procedure.

Sufficient training should be imparted to the borrowers regarding procedural formalities of financial

institutions could be helpful in increasing their access to KCC scheme.

Figure 1.Performance of Self Help Groups

The SHG - Bank Linkage Programme is another novel approach for providing financial services, to

benefit the poor, while creating capital assets. After 2000-01, the number of SHGs linked and loan

amount disbursed to them show exponential increase (Figure 4). Studies done to find out the impact

of this programme on credit delivery have arrived at promising results. The SHG units massively

assisted and cheered the poor by making them a role player in the progress of the rural society. The

need to oversee the running of the SHGs closely is however required from the part of the parent

agencies. Legal stature could be provided to better their operations (Sita et al., 2011).

The Union Budget 2014-15 also reflects the importance of agricultural credit as perceived by the

government. A totalof Rs. 8 lakh croreshave been set aside in the budget for agricultural credit.

Sufficient credit will be disbursed through NABARD to five lakh joint farming groups. A “Long

Term Rural Credit Fund” is decided to be set up for refinancing Cooperative Banks and RRBs with an

initial corpus of Rs. 5,000 crore. Apart from this Rs. 50,000 crore and Rs. 200 croreare allocated for

Short Term Cooperative Rural Credit, and NABARD‟s Producers Development and Upliftment

Corpus (PRODUCE) respectively.

0

2

4

6

8

10

12

14

16

18

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

Nu

mb

er o

f SH

G's

(in

Lak

h)

Ban

k Lo

an (

Cro

re R

up

ees)

Bank Loan (in Crore) Number of SHG's (in Lakh)


220


Status and Growth of Agricultural Credit in India

The credit supply to Indian agriculture has grown over the years and more importantly a

transformation has occurred in its structure. After the nationalisation of commercial banks, the money

lenders and landlords who were the supreme credit source for the farmers were replaced to a

considerable extend by the institutional sources. Table 1 presents the sources of rural credit (which

mainly comprises of credit for agriculture) in India over the years. The institutional agencies which

disbursed only 7.2 per cent of the total credit in the year 1951 has surpassed the non-institutional

agencies after the social and development banking policies in the decade of sixties. Growth in the

credit disbursement of cooperative societies and commercial banks has contributed heavily to this

achievement. The credit from non-institutional agencies even thoughdecreased, still contributed

around 43 per cent in 2002.

The number of operational holdings that took institutional credit increased from 1.19 crores to 2.52

crores between 1995-96 and 2006-07 (Table 2). The per cent growth in the size groups that took

institutional credit is highest for marginal holdings followed by small ones which is cheerful. Around

1.26 crore marginal operational holdings took institutional credit in 2006-07, compared to 0.04 crore

large and 0.21 crore medium holdings. This clearly indicates the increasing access to credit for

marginal and small farmers with the institutionalisation of agricultural credit.

Table 1. Structural transformation in the sources of rural credit in India (per cent)

Source of credit 1951 1961 1971 1981 1991 2002

Institutional Agencies 7.2 14.8 29.2 61.2 64.0 57.1

Government 3.3 5.3 6.7 4.0 5.7 2.3

Co-op. Society/bank 3.1 9.1 20.1 28.6 18.6 27.3

Commercial bank incl.

RRBs

0.8 0.4 2.2 28.0 29.0 24.5

Insurance -- -- 0.1 0.3 0.5 0.3

Provident Fund -- -- 0.1 0.3 0.9 0.3

Others institutional agencies -- -- -- -- 9.3 2.4

Non-Institutional Agencies 92.8 85.2 70.8 38.8 36.0 42.9

Landlord 1.5 0.9 8.6 4.0 4.0 1.0

Agricultural Moneylender 24.9 45.9 23.1 8.6 6.3 10.0

Professional Moneylender 44.8 14.9 13.8 8.3 9.4 19.6

Traders/Commission Agents 5.5 7.7 8.7 3.4 7.1 2.6

Relatives & Friends 14.2 6.8 13.8 9.0 6.7 7.1

Others 1.9 8.9 2.8 4.9 2.5 2.6

Total 100 100 100 100 100 100

Source: Pradhan, 2013.


221


The total agricultural credit, which includes both direct and indirect credit has shown an increasing

trend from the pre and post liberalization and post-2000 periods (Table 3). The inter-state disparities

were however more during the pre-liberalization period (Khan et al., 2007). Highest growth in total

agricultural credit was achieved in the Post-2000 period, followed by Post- liberalisation (Table 4).

During pre-liberalization period, credit growth was higher for SCBs followed by RRBs. The Post-

liberalization period witnessed 24 per cent growth in credit disbursement by RRBs. However, the

period after 2000 indicated higher credit disbursement growth for SCBs.

Table 2. Number of operational holdings availing institutional credit (Crores)

Size group (ha) 1995-96 2006-07 Percent growth

Marginal (below 1.0) 0.51 1.26 146.83

Small (1.0 - 1.99) 0.30 0.62 108.33

Semi-medium (2.0 - 3.99) 0.22 0.39 76.24

Medium (4.0 - 9.99) 0.13 0.21 58.42

Large (10 and above) 0.03 0.04 40.21

All groups 1.19 2.52 111.75

Source: Authors‟ calculation based on GoI, 2014

Table 3. Institutional credit for Indian agriculture (Rs crores)

Year

Direct Indirect

Loans issued Loans outstanding Loans issued Loans outstanding

1975-76 1675 3147 633 854

1980-81 3436 7539 - 2584

1985-86 7159 16234 - 6206

1990-91 10188 29316 2645 8092

1995-96 23692 46020 19237 27744

2000-01 48187 91654 99413 112578

2005-06 144021 239439 157307 201671

2010-11 344878 489325 - -

2011-12 453898 579666 - -

Source: RBI, 2014

Table 4. Compound Growth Rate of Agricultural credit disbursement during different periods (per

cent)

Period Co-operatives SCBs RRBs Total

Pre-Liberalization (1980-91) 10 (10) 15 (20) 11 (26) 12 (15)

Post-Liberalization (1991-00) 18 (13) 18 (9) 24 (15) 18 (11)

Post-2000 (2000-10) 11 (4) 34 (28) 29 (24) 24 (19)


222


Note: Figures in parenthesis are growth rates for outstanding amount

Source: Authors‟ calculation based on RBI, 2014

The components of the social and development banking of 1969 including the compulsory opening of

four rural branches per opening of an urban bank, priority sector lending and differential interest rates

were denounced by the advocates of financial liberalisation in the early nineties. The disbursement of

credit to agriculture was affected slightly during the nineties due to the policy reversal from the part of

the government. The comprehensive credit policy started in 2004, however brought back the

momentum to the credit disbursal. The intention of the government though this policy was to achieve

a growth of at least 30 per cent in the credit flow to agriculture every year. From 2004-05 onwards,

the actual agricultural credit disbursement is higher than the target level (Table 5). The highest

increment (31 per cent) was observed in the year 2006-07 followed by 2005-06 (28 per cent).

The scheduled commercial Banks (SCBs) and Co-operative banks (CBs) contributed88 per cent to

direct agricultural credit in 2009-10 as presented in the figure 2. Before 2004-05, cooperatives

dominated agricultural lending, but after 2004-05 Commercial Banks emerged as major agricultural

credit provider in India. The share of Regional Rural Banks also has increased from 4 per cent in

1980-81 to 12 per cent during 2009-10.

Figure 2.Shares of Various Agencies in Total Agricultural Credit (%)

Source: RBI, 2014

The direct institutional credit to agriculture comprises of both short-term and long-term credit. The

short-term credit which is provided to the farmers to meet their immediate financial needs in the

cropping season is important for the success of crop in a particular year, on the other hand long-term

credit is very important to make farming a sustainable one. In the year 2011-12 around Rs .346

thousand crores was disbursed as short-term and Rs 107 thousand crores as long-term direct loan to

agriculture.

0

10

20

30

40

50

60

70

19

80

-81

19

81

-82

19

82

-83

19

83

-84

19

84

-85

19

85

-86

19

86

-87

19

87

-88

19

88

-89

19

89

-90

19

90

-91

19

91

-92

19

92

-93

19

93

-94

19

94

-95

19

95

-96

19

96

-97

19

97

-98

19

98

-99

19

99

-00

20

00

-01

20

01

-02

20

02

-03

20

03

-04

20

04

-05

20

05

-06

20

06

-07

20

07

-08

20

08

-09

20

09

-10

per

cen

t

Co-operatives SCBs RRBs


223


The long-term credit to agriculture besides showing an increasing trend, also changed the composition

of end uses considerably (Table 6). During 2006-07, high tech agriculture accounted for 24 per cent

of total long term credit, which increased to 62 per cent during 2010-11. This is a reflection of the

diversification policy of the government towards more remunerative horticulture sector. The changing

consumption behaviour of both, the urban and rural population towards high value horticulture

commodities and the growth of agro-processing industries are the factors responsible for attracting

term credit to this sector. While the long-term credit to minor irrigation drastically reduced from 9 per

cent (2006-07) to 3 per cent (2010-11) that to farm mechanization, animal husbandry and land

development did not changed much.

Table 5. Target and Achievement of Agricultural Credit Flow in India (Rs. Crores)

Year Target Achievement Percentage achieved

2004-05 105000 125309 119

2005-06 141000 180486 128

2006-07 175000 229400 131

2007-08 225000 254657 113

2008-09 280000 301908 108

2009-10 325000 384514 118

2010-11 375000 446778 119

2011-12 475000 511029 108

2012-13 575000 607376 106

2013-14 700000 730765 104

Source: Ministry of Finance, 2013-14

Table 6. Long Term Credit Disbursed to Agricultural Sector by Financial Institutions (Rs. Crores)

Sub-sectors 2006-07 2007-08 2008-09 2009-10 2010-11

Minor Irrigation 8566 2840 3180 5197 4363

Land Development 2285 2553 2887 3669 3615

Farm Mechanisation 10113 8303 8334 10211 12800

Plantation and Horticulture 5266 5910 6045 6407 6610

Animal Husbandry 8045 9034 10398 10260 12773

Fisheries 1424 1248 1281 1854 1931

Hi-Tech Agriculture 21498 33325 41694 50797 82774

Other 33748 10052 17628 19463 7875

Total 90945 73265 91447 107858 132741

Source: Ministry of Finance, 2013-14


224


Effectof Credit on Agricultural performance

The effect of agricultural credit on the performance of agriculture was assessed by using correlation

and regression analysis. It was found that agricultural credit has strong positive correlation with the

other major inputs like fertilizer and irrigation along with food grain production (Table 7). The result

supports the fact that the increase in food grain production is brought about by the increased use of

cafeteria of inputs that includes fertilizers, irrigation, pesticides and rainfall other than credit.

To assess the causal relationship between agricultural GDP and agricultural inputs, pooled regression

analysis was done with the state level panel data. It was found that urbanization and agricultural GDP

are negatively associated. This is true since the urbanisation is and indicator of movement of the

region from agriculture to industries. Credit was found to be positively associated with agricultural

GDP and it also significantly affected it. This means that an improvement in agricultural GDP could

be brought about by increasing the disbursement of credit to agriculture sector. The coefficient of

determination (R2) value indicate that only 36 of the variation in agricultural GDP is explained by

selected explanatory variables, indicating strong endogeneity problem in assessing the impact of

agricultural credit on agricultural GDP (Table 8).

Table 7. CorrelationCoefficient between Food grain production and its important determinants:

(1981-82 to 2009-10)

Particulars Foodgrain Fertilizer Rainfall Credit Irrigation Pesticide

Foodgrain 1.00

Fertilizer 0.583*** 1.00

Rainfall -0.18810 0.0028 1.00

Credit 0.285*** 0.586*** -0.020 1.00

Irrigation 0.794*** 0.725*** -0.268*** 0.317*** 1.00

Pesticide 0.577*** 0.382*** -0.26401 0.207** 0.528*** 1.00

Note:*** and ** indicate statistical significance at 1 % and 5% respectively

Source: Authors‟ calculation

Table 8.Panel Data Regression Analysis (Dependent Variable: State wise Agricultural GDP)

Variable ParameterEstimate Standard Error

Intercept 26591*** 2633.99

Road Density 8.54 15.00

Fertilizer (kg/ha) 22.83 18.33

Urban (%) -408.1*** 80.51

Rainfall (mm) 23.70** 9.33

Credit (Rs/ha) 0.407*** 0.09

R2

0.36 -


225


Note: *** and ** indicate statistical significance at 1 % and 5% respectively.

Source: Authors‟ calculation

Farmers’ indebtedness

Indebtedness prevailing in the farming community is one factor that indicates the access to credit.

Almost 49 per cent of households in India are indebted which reveals the issues regarding the availing

and repayment of credit that farmers face. Based on the level of indebtedness, states could be

classified into three categories viz. highly indebted, medium indebted and least indebted.Among all

the states, Andhra Pradesh topped in the indebtedness (82 per cent) followed by Tamil Nadu (75 per

cent), Punjab (65 per cent) and Kerala (64 per cent). Most of the eastern India states like Manipur,

Mizoram, Jharkhand and Assam showed less than 25 per cent indebtedness.

Table 9.Extent of indebtedness

Category States and percentage of indebted households

Highly indebted Andhra Pradesh (82), Tamil Nadu (75), Punjab (65), Kerala (64),

Karnataka (62), Maharashtra (55), Haryana (53), Rajasthan (52),

Gujarat (52), Madhya Pradesh (51), West Bengal (50)

Medium indebted Tripura (49), Odisha (48), Uttar Pradesh (40), Chhattisgarh (40),

Sikkim (39), Nagaland (37), Himachal Pradesh (33), Bihar (33),

Jammu & Kashmir(32)

Least indebted Manipur (25), Mizoram (24), Jharkhand (21), Assam (18)

Source: Situation Assessment Survey of Farmers, NSS 59th Round, 2003


226


Figure 3. Position of states based on institutional credit flow to agriculture (Rs lakhs) and number of

indebted farmer households (‟00)

Figure 3 projects the position of different Indian states based on the on institutional credit flow to

agriculture (Rs lakhs) and number of indebted farmer households (‟00). The figure reveals that

Andhra Pradesh, the state which received highest volume of institutional credit is the one which is

most indebted. Uttar Pradesh, Tamil Nadu and Maharashtra could also be included in the same

category. In such states, the farmers are not able to productively utilise the huge credit that they

receive and repay the loan amount back. Some of the other states like Punjab, Haryana, Gujarat and

Kerala disburse decent amount of credit to farmers, and their indebtedness level is not that disturbing.

Interestingly, those states which inhabit least number of indebted farmer households, are the ones

which do not disburse adequate institutional credit to agriculture. The target of the states should be to

occupy the position of more credit flow and less indebtedness.

Issues in Agricultural credit disbursement

The issues in disbursement of credit to agriculture in India, helms from both, the supply and demand

for it. There exist severalelementsthat curb the process of serene delivery of agricultural credit. The

policies of government at different point of times along with the development of banking network and


227


other institutions of credit determine the quantum and efficacy of credit supply. Recovery rates of

institutional agencies are less compared to the informal sources of credit in rural India despite the fact

that the rate of interest is less in the formal. Fragile chunk of farmers belonging to SCs STs and OBCs

and those with lesser holdings depend more on non-institutional sources (Kumar, 2010). The

tenacious web of informal sources is the major snag to be overcome.

Difficulties, that the marginal and small farmers in India face in meeting the requirements for availing

institutional credit is another constraint. In several occasions, farmers fail to produce the collateral

security insisted by the institutional agencies for credit. The complexities in the procedural formalities

add to this. The number of rural branches that provide agricultural credit is inadequate, which

dissuade the farmers to approach the formal credit sources. Also the attitude of some of the credit

institutions towards resource poor farmers is not healthy. They consider the small and marginal

farmers as non-credit worthy(Birthal and singh, 1996).The institutional agencies in India have failed

to understand the distinct credit needs of the tenant farmer category to some extent. The credit that

they require will be less in volume but pressing. The multiagency system which was expected to fulfil

the total credit requirements of Indian farmers has not performed up to the mark. A well thought

improvement in the design and architecture of the formal institutional network is the need of the hour.

These polished institutions should be then able to understand the nature and urgency of the credit

needs of different categories of farmers and should reach them promptly (Satyasai, 2008).

Conclusion

The study traced the major landmarks in the evolution of agricultural credit delivery in India. Strong

institutional movements have resulted in drawing out the informal sources of credit, like money

lenders, to some extent. The early cooperative movement formed the base of formal credit delivery in

India. The three tier cooperative structure of credit delivery, operated successfully along with RRBs,

RBI, NABARD, SBI and other Scheduled commercial banks to increase the agricultural credit flow.

The reforms in the banking sector which includes the social control and nationalisation of banks also

contributed to it.

The total agricultural credit, which includes both direct and indirect credit, has shown an increasing

trend in all the time periods considered in the study. Highest growth in total agricultural credit was

achieved in the Post-2000 period, followed by Post- liberalisation due to the credit pushing policies in

these periods. The number of operational holding availing credit facilities also increased between

1995-96 and 2005-06. Among different size classes, the number of marginal and small farmers

depending on institutional credit increased at faster rate than that of other classes which is delightful.

A positive correlation exists between agricultural credit and food grain production. Also the

agricultural GDP is positively affected by credit. Indebtedness varied among different Indian states

and it was found to be high for states that received highest volume of institutional credit flow. The


228


marginalised classes of the society like SC/ST, OBC, and the small and marginal farmers‟ access to

institutional credit needs to be further improved. More schemes like that of Kisan Credit Card and

SHG-Bank Linkage programme should be developed. In order to extent the credit availability and

accessibility to small farmers, the Government should redesign the institutional network in such a way

that the complexities in the procedural formalities are reduced and the rural branches could positively

reach all the farmers on time.

References

Binswanger, H. and Shahidur Khandker. 1992.The Impact of Formal Finance on Rural Economy of

India. World Bank, Working Paper No. 949.

Birthal, S. and Singh, R. P. 1996. Access of rural households to institutional credit: A study in Eastern

Uttar Pradesh. Agricultural Economics Research Review9 (1): 21-35.

Chand, Ramesh. 1992. Agricultural Credit in India: Distributional disparities and overdues.

Agricultural Economics Research Review 5(2): 177-192.

Das, Abhiman, Manjusha Senapati and Joice John. 2009.Impact of Agriculture Credit on Agricultural

Production: An Empirical Analysis in India. Reserve Bank of India Occasional Papers30 (2):

75-107.

Elumalai, Kannan. 2011. Relationship between agricultural credit policy, credit disbursements and

crop productivity: A study in Karnataka. Indian Journal of Agricultural Economics 66 (3).

GoI. 2014. Input survey. Available at http://inputsurvey.dacnet.nic.in/. Viewed on 05-12-2014.

Khan A.R., Tewari S.K. and Shukla, A.N. 2007. Effect of liberalization on institutional agricultural

credit flow and its relationship with average cost of cultivation in Indian Agriculture.

Agricultural Economics Research Review20 (2): 227-234.

Kumar, Anjani, Chitra Yadav, Shiv Jee, Sant Kumar and Sonia Chauhan. 2011. Financial innovation

in agricultural credit market: Progress and Performance of Kisan Credit Card. Indian Journal

of Agricultural Economics66 (3).

Kumar, Anjani, Singh, K.M., and Shradhajali Sinha. 2010. Institutional credit to agriculture sector in

India: status, performance and determinants. Agricultural Economics Research Review 23(2):

253-264.

Ministry of finance. 2014. Annual Report 2013-14. Available at http://finmin.nic.in/reports

/AnnualReport2013-14.pdf. Viewed on 05-12-2014.

Mohan Rakesh. 2004. Agricultural Credit in India:Status, Issues and Future Agenda. Reserve Bank of

India Bulletin, November. Pp: 993-1007.

Mohan, Rakesh. 2006. Agricultural Credit in India – Status, Issues and Future Agenda, Economic and

Political Weekly, 41: 1013-1021.

NSSO.2005. Situation Assessment Survey of Farmers: Indebtedness of Farmer Households. Report

No.498 (59/33/1), Government of India.

http://inputsurvey.dacnet.nic.in/

http://finmin.nic.in/reports%20/AnnualReport2013-14.pdf

http://finmin.nic.in/reports%20/AnnualReport2013-14.pdf


229


Poddar Rajendra, S., Vijaya Kumar, H.S., Shankara Murthy, H.G. and Venkatesh Murthy, T.N. 1995.

Impact of Credit on cropping pattern and cropping intensity on farms in unirrigated and

irrigated villages in Bijapur district of Karnataka – An Application of Linear Programming

technique. Agricultural Economics Research Review8(1): 19-42.

Pradhan N.C. 2013. Persistence of Informal Credit in Rural India: Evidence from „All-India Debt and

Investment Survey‟ and Beyond. RBI Working Paper Series, W P S (DEPR): 05 / 2013.

RBI. 2014. Handbook of statistics on Indian Economy 2013-14. Available at

http://www.rbi.org.in/scripts/annualPublications.aspx?head=Handbook%20of%20Statistics%

20on%20Indian%20Economy. Viewed on 05-12-2014.

Satyasai.K.J.S.2008. Rural credit delivery in India: structural constraints and some corrective

measures. Agricultural Economics Research Review21 (2): 387-394.

Sidhu.R.S., Kamal Vatta, and Arjinder Kaur. 2008. Dynamics of institutional agricultural credit and

growth in Punjab: contribution and Demand-supply gap. Agricultural Economics Research

Review21(2): 407-414.

Singh, S.P., and Mruthyunjaya. 1992. Impact of short-term credit on income and employment of

marginal and small farmers of Aligarh district of Uttar Pradesh. Agricultural Economics

Research Review 5 (1): 48-59.

Sita Devi, Prbakar, C., and Ponnarasi, T. 2011. Impact of Microfinance Innovation in Pushing Back

Rural Poverty in Tamil Nadu. Indian Journal of Agricultural Economics 66 (3).

Sriram, M. S. 2007. Productivity of Rural Credit: A Review of Issues and Some Recent Literature.

Indian Institute of Management Ahmedabad, Working Paper No.2007-06-01.

http://www.rbi.org.in/scripts/

evolution and status of credit to indian...

Documents