research paper on agricultural credit in india

Agricultural credit in India: determinants and effects

• Published: 10 July 2023
• Volume 58 , pages 169–195, ( 2023 )

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• Paramasivam Ramasamy   ORCID: orcid.org/0000-0002-6385-480X 1 &
• Umanath Malaiarasan 2  

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Credit is used as an instrument to raise the capital required to increase farm productivity, income and welfare of farmers, particularly small and marginal farmers who lack the capital to buy necessary inputs in time for agricultural operation. But the question of whether the goals of credit policies were met still remains unanswered. This study, therefore, attempted to estimate the effect of farm credit on investment, input expenditure, income and other welfare indicators using national-level farm household survey data. We used the logit function to estimate the determinants of credit access and the propensity score matching algorithm to estimate the effect of credit policies. Results revealed that only 33% of farmers have access to credit facilities and that middle-aged farmers and farmers with a larger farm size have shown a higher probability of accessing credit facilities, whereas farmers from underprivileged castes have shown the least probability of credit access. Nevertheless, credit access, overall, has significant positive effects on farm investments, such as land-building, livestock and machinery. It also has a significant positive effect on the farm revenue expenditure, including the expenditure on seeds, machinery, labour, irrigation, plant protection chemicals and livestock inputs. As a result, credit access has an incremental effect on farm income per hectare, livestock income and monthly consumption expenditure. The results imply that although farm credit policies have improved the welfare of beneficiary farmers, the credit distribution system seems to be inefficient as more than 60% of farmers do not have access to credit. This demonstrates that there is a need for inclusive and holistic policy interventions to include all farmers in the credit system, specifically offering term loans to small and marginal farmers. Apart from this, it is also suggested that simplified crop loan and Kisan Credit Card facilities be made available to tenant farmers.

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Data availability

This manuscript has used secondary data of various published reports and the data are available for cross references.

A confounding variable is a variable other than desired one being studied that is associated with both the output variables and the factor being studied. In this study, confounding variables (e.g., age, education, farm size, etc.,) may distort the effects of credit access on the output variables in question (Austin, 2011 ).

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Ramasamy, P., Malaiarasan, U. Agricultural credit in India: determinants and effects. Ind. Econ. Rev. 58 , 169–195 (2023). https://doi.org/10.1007/s41775-023-00187-8

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Accepted : 17 June 2023

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DOI : https://doi.org/10.1007/s41775-023-00187-8

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Journal of Agribusiness in Developing and Emerging Economies

ISSN : 2044-0839

Article publication date: 20 September 2022

This work examines the impact of institutional agricultural credit on crop productivity of some major crops such as paddy, cotton, wheat and pulses for small and marginal farmers across various social groups.

Design/methodology/approach

The cross-sectional field data on socio economic variables was collected from three Indian states from about 400 small and marginal farmers across various social groups using multi-stage stratified random and purposive sampling through a structured questionnaire by interviewing. The method of propensity score matching (PSM) was employed to calculate average treatment effect (ATE) and average treatment effect on the treated (ATET) by categorising sample farmers as treatment group and control group where crop productivity was considered as outcome variable and access to institutional credit was considered as treatment variable.

The PSM estimates reveal that ATE and ATET for all the selected crops are found to be significantly higher for the treated group vis-à-vis non-treated group suggesting that institutional agricultural credit has a statistically and significant positive impact on the crop productivity.

Research limitations/implications

Similar study can be extended for more crops and across regions in India for a universal coverage.

Originality/value

The agricultural credit policy of India has been to increase the access and availability of institutional farm credit. This has led to in general increase in the flow of formal farm credit to agricultural sector. However, the impact of institutional credit and crop productivity especially for small and marginal farmers across social groups is not well recognized in India using field data. Accordingly, this field data study contributes to the existing research by providing fresh evidence from field across social groups for both kharif and rabi crops using recent survey data from small and marginal farmers which has important policy implications.

• Institutional agricultural credit
• Small and marginal farmers
• Crop productivity
• Social groups
• Propensity score matching

Acknowledgements

Funding: This study was funded by Ministry of Education (MoE), Government of India under the Impactful Policy Research in Social Science (IMPRESS) supported and implemented by Indian Council of Social Science Research (ICSSR), New Delhi, India. The funding of MoE, Government of India and ICSSR is greatly appreciated.

Yadav, I.S. and Rao, M.S. (2022), "Agricultural credit and productivity of crops in India: field evidence from small and marginal farmers across social groups", Journal of Agribusiness in Developing and Emerging Economies , Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JADEE-05-2022-0092

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Current issues in agriculture credit in India: An assessment

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Advances in Life Sciences

Credit is one of the critical inputs for agricultural development. It capitalizes farmers to undertake new investments and/or adopt new technologies. Realizing the importance of agricultural credit in fostering agricultural growth and development, a study has been conducted to analyse the trends and impact of agricultural credit in India. The study was conducted based on secondary data collected from various sources such as government websites, annul reports of NABARD, Indiastat etc. The data were analysed using various techniques such as compound annual growth rate, standard deviation, instability index, analysis of variance and simple regression analysis. The study revealed that in the production credit (short term credit), highest compound annual growth rate was showed for commercial banks (25.66%) and in the case of medium term or long term loans for agriculture, regional rural banks showed a higher rate of growth with 17.74 per cent. The commercial banks are the major providers of agricultural credit at the ground level with a contribution 71 per cent. The ANOVA (single factor) results revealed that there is significant difference between the mean values of loans issued and loans outstanding among cooperative banks, commercial banks and regional rural banks. The simple linear regression analysis also depicted that agricultural credit has significant contribution in the agricultural GDP of the country and also on the agricultural exports from India.

The paper is aimed at highlighting the scope to strengthen Agriculture Finance system for the comprehensive growth of agriculture, food security and rural development. The scope of Agriculture Finance was limited to increase productivity by introduction of high yielding seeds, use of chemical fertilizers and pesticides, and making availability of institutionalized credit for purchasing the preceding inputs. Agriculture Finance till today was addressing institutionalization of credit at farmers’ level in marketing, trade, processing and agribusiness. The study reveals that; though the institutional credit in India to agriculture sector is increased in quantum, serious efforts are required to provide it to the right kind of people, at right time, on right places and in right quantity; that boost Indian agriculture sector in a right way.

Artha Vijnana

Deepak Shah

A sample of 50 households (25 households each from Kolhapur and Pune) was chosen over the period 1995-96 - 1999-2000 to basically study the credit experience of farming families depending on land holding size. Relative importance of formal and informal credit agencies in aggregate loans taken by small, marginal and large farmers, purpose of the loans, default rates, prevalence of excess demand for loans, if any have been analysed. One novel idea employed in the paper is that instead of credit rating agencies assessing the loan repayment capability of borrowers. the authors find out the length of relationship between a lender and its borrowers. Thus, small and marginal farmers may be seen to be the most trusted partners of cooperatives.

Kumardatt Ganjre

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