Flow of Institutional Credit to Agriculture in India: An Analysis of Five Major States

Abstract

The paper examines the patterns of institutional credit flows to agriculture in five major states of India during the last few decades. These five states are Andhra Pradesh, Uttar Pradesh, Punjab, Haryana and Maharastra. Although there are some differences among these states in terms of area, socio-economic factors etc, all these states are agriculturally dominant states in the country. These states together contributed about half of the country’s total foodgrain output during the period 1990-91 to 2000-01. These states also together contributed about 49 percent of rice output towards the country’s pool during the same period. The main objectives of the study are: (i) to examine the patterns or trends of institutional credit flow to agriculture in five major states of India, (ii) to examine the correlation of agriculture credit disbursement per hectare with the use of modern farm inputs and (iii) to examine the policy implications of changing trends of institutional credit flow to agriculture sector and use of other modern farm inputs on the future state economies. The entire study is based on the state level secondary data. The study showed that (i) the flow of institutional credit to agriculture has been increasing over the period, thereby reducing the dominant role of informal credit sources including money lenders from Indian agriculture and (ii) a state with the highest (or the lowest) intensity of institutional credit disbursement per hectare was not having the highest (or the lowest) mean value of the use of an input in agriculture during the study period.