शनिवार, २२ जुलै, २०१७

Credit flow in agriculture – A puzzle..

Last year, we had a good discussion over agriculture and its future. I always thought that the credit flow in Indian agricultural market is not enough. Agricultural sector in India is continuously facing insufficient credit delivery (Godara, R. L., Singh, P., & Singla, S. (2014).). Authors also point out that the Indian banking system is not willing to give any king of credit to farmers especially small and marginal. Therefore government must encourage the credit delivery as credit is very important. In India, proper agricultural credit supply is badly required for agricultural production (Das, A., Senapati, M., & John, J. (2009)). By using Panel Data Analysis, authors show that there is an immediate, significant and positive impact of direct agricultural credit on agricultural output. Indirect agricultural credit has also positive and significant impact on agricultural output but the effect is not immediate. Credit has also positive impact on use of inputs in agriculture (Narayanan, S. (2016)). But author finds that the GDP is not sensitive to the credit.
But now I am confused. Yesterday I was looking for data related to the agricultural credit and agricultural productivity. I was astonished. Credit flow is increasing continuously. There is no doubt about it. But the total agricultural loan outstanding is also increasing continuously. For a while, suppose we accept the fact that the credit growth is helpful for agricultural growth. Then with given credit supply, agriculture output and productivity must be improved. If these two variables are improved, then the outstanding loan amount must be declined. But this is not happening. 


Then where is this amount going? Capital formation in agriculture sector is also declining, So this amount is not being used for capital formation.

Then it means either cost of production is very high and increasing continuously or there are some leakages in whole system. If it is because of first reason then we should focus more on productivity of given sector. And if it is because of second reason then we have to take some serious steps to maintain the health of financial institutions. It's like either Green revolution or Financial reform!!!

(Continue..) 

References - 
Godara, R. L., Singh, P., & Singla, S. (2014). Agriculture Credit in India: An Analytical Study. International Journal of Latest Trends in Engineering and Technology (ISSN: 2278-621X), 3(3). Das, A., Senapati, M., & John, J. (2009). 
Impact of agricultural credit on agriculture production: an empirical analysis in India. Reserve Bank of India Occasional Papers, 30(2), 75-107. 
Narayanan, S. (2016). The productivity of agricultural credit in India. Agricultural Economics, 47(4), 399-409.

Data sources -
Indiastat, RBI, World bank.

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