Trends and patterns of institutional credit flow for agriculture in India

Abstract

Purpose

The aim of the study is to attempt to analyze the trends and patterns of institutional credit flow, deployed by the CBs, SCBs and RRBs, for production and investment purposes in agriculture and allied activities in India in the light of banking sector reforms initiated in the early 1990s.

Design/methodology/approach

The study is based on secondary data collected from the Handbook of Statistics of Indian Economy, 2009‐2010 published by the Reserve Bank of India, Agricultural Statistics at a Glance, Economic Survey of India, etc. The data relating to institutional credit at the all India level were collected for 1971‐1972 to 2007‐2008. The period from 1971‐1972 to 1980‐1981 is considered as the beginning of multi‐agency approach and bank branch expansion, from 1981‐1982 to 1990‐1991 is regarded as the pre‐reform period, from 1991‐1992 to 2007‐2008, as the post‐reform period. In order to examine the extent of institutional credit flow for development of agriculture and allied activities, the indictors such as the average institutional credit per hectare cultivated area and as percentage of agricultural GDP were estimated, besides the CAGR during different periods.

Findings

The study found that the annual growth rate of total institutional credit for agriculture and allied activities was much higher during the reform period as compared to that of pre‐reform period. The average institutional credit per hectare and as a percentage of agricultural GDP has gone up significantly during the reform regime. The RRBs followed by the SCBs registered highest growth rates of production credit as compared to that of CBs during the entire period; it was higher during the reform than the pre‐reform period. The growth rate of investment credit was highest for SCBs followed by the RRBs as against the CBs during the reform period. It has been observed that the CBs have lost their historical prime position in provision of agricultural credit. The growth pattern of production as well as investment credit constituted what can be described as the “U‐shaped” curve. This implies that the bulk of the increase in institutional credit for agriculture and allied activities during the reform period was attributed to the banking sector reforms initiated in the early 1990s.

Research limitations/implications

The data on institutional credit provided by the SCARDBs and PCARDBs were not included under the co‐operative sector prior to 1999‐2000, and it covered credit by only PACs. Hence, the temporal comparability of data on institutional credit under the co‐operative sector for the period 1998‐1999 to 2007‐2008 with that of earlier periods may be erroneous.

Practical implications

Adequate and timely inflow of both production and investment credit for development of agriculture and allied activities through further reforms in the banking sector would go a long way in sustained growth of agriculture and food security for a great majority of the rural masses in India.

Originality/value

The study establishes the “U‐shaped” curve for the growth pattern of institutional credit for development of agriculture and allied activities in India. This follows that the increase in the growth rates of institutional credit during 1991‐1992 to 2007‐2008 was largely due to the banking sector reforms.

Citation

Biradar, R.R. (2013), "Trends and patterns of institutional credit flow for agriculture in India", Journal of Asia Business Studies, Vol. 7 No. 1, pp. 44-56. https://doi.org/10.1108/15587891311301016