Institutional credit for green revolution and dry-farming areas in India

Abstract

This paper examines the relationship between the degree of agricultural progress and institutional credit. More specifically it examines the relationship between the proportion of area covered under HYVs of foodgrains and (a) the density of Rural Financial Institutions (RFIs), (b) various types of agricultural credit, and (c) default rate of 'direct' agricultural credit from the cooperatives. Moreover, it also examines the relationship between this default rate and various types of cooperative credit for agriculture. These relationships are examined by utilizing cross sectional data of 10 states in India for 3 years. The paper found that the degree of agricultural progress is positively associated with the density of RFIs and overall amount of credit per hectare. Secondly similar relationship was found for the share of credit for (a) agricultural input subsystem, (b) stability and growth of current production in agricultural production subsystem, and (c) 'kind' credit in short-term crop loans. The paper also found that the default rate of 'direct' cooperative credit for agricultural production subsystem was inversely related to the share of (a) agricultural input subsystem credit in 'indirect' credit, (b) stability and growth of current production credit in 'direct' credit for agricultural production subsystem and that of (c) 'kind' credit in short-term crop loans for agricultural production subsystem from the cooperatives. The paper makes recommendations about how to increase the share of these three types of credit in dry farming areas. These recommendations are made because these types of credit have direct bearing on improving factor productivities, loan recoveries, growth rate in agricultural production and value added, and viability of RFIs.