Analysis of agricultural credit in India
Date
1979
Authors
Jha, Ashok K
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Abstract
The relevance of agricultural credit is augmented in the
context of the increasing emphasis on rural development and mitigation
of poverty. This study aims to examine certain important facets
connected with agricultural credit in India. It is a macro analysis
at the National and State levels. Data from Reserve Bank of India's
surveys for 1951-52, 1961-62 and 1971-72 have been primarily used.
Despite the plethora of credit institutions established in
recent years, the bulk of agricultural credit still comes from non-formal
sources. Examination of credit disbursement in different States by
institutional agencies suggests their competitiveness rather than
complementarity and indicates a widening of the existing inter-regional
disparities. Better institutional credit arrangements and a high level
of literacy, satisfactory performance in implementation of land reforms,
use of irrigation particularly well irrigation, use of chemical fertilizers,
progress in rural electrification and development of marketing facilities
are significantly correlated.
The analysis shows that credit inadequacy is quantitative as
well as qualitative. However, contrary to the widely held view, the
quantitative shortfall cannot be explained by low interest rates in the
agricultural sector. Qualitatively, accessibility of credit to small
farmers continues to be impeded, although its importance is recognised.
Arguments, such as high default rates, generally advanced to explain
insufficient small farmer credit, do not stand the test of close scrutiny.
The view that interest rates be raised to expand small farmer credit has
little merit and in fact analysis indicates that there is scope for adopting differential rates of interest in
favour of small farmers.
The policy prescriptions suggested include a revamping of
management of credit institutions to increase credit supply in the
agricultural sector. It is recommended that a separate credit channel
exclusively for small farmers be established. This should function in
close association with Small Farmers' Development Agencies so that the
benefits of effective supervised credit become available to small farmers.
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