Exploring the Factors that Determine Flow of Agricultural Credit to Indian States

Abstract

The issue of agriculture and agricultural credit has always gained importance in the context of India. The present research looks at various important aspects of agricultural credit which include growth trends and determination of factors that influence flow of credit to the different states. The findings are based on analysis of twenty-nine states for the period 2007-08 to 2017-18. The empirical research shows wide disparity across regions with the maximum flow to the southern region and the minimum to the north-east of the country. The study traces the growth in agricultural loans and finds that nature of the curve is in the quadratic form where the rate of decline is much less compared to the rapid rise in the growth of loans in all the regions. With regard to the panel regression model, cropping intensity, lending rate and inflation rate have a significant effect on flow of credit to states (at 1% level). However, though the share of agriculture in the state GDP matches the expected sign, the coefficient is not significant even at 10%. The study is a unique one which is an improvement over the earlier studies. However, non-availability of data for all states and exclusion of non-financial considerations at the state level are limitations of the study.