Structural Process and Agriculture Credit in Haryana

Abstract

Available data suggest that agricultural credit has been rising in recent years as a share of both the value of inputs and the value of output. There are wide regional disparities in the disbursement of agricultural credit by scheduled commercial banks. At the same time the share of agricultural GDP in total GDP is falling. In this context, this paper examines the role of direct and indirect agriculture credit in the agriculture production taking care of the regional disparities in agriculture, credit disbursement and agriculture production in an econometric framework using Dynamic Panel Data Analysis with Instrumental Variables using Arellano-Bond Regression. The analysis suggests that the direct agriculture credit amount has a positive and statistically significant impact on agriculture output and its effect is immediate. The number of accounts of the indirect agriculture credit also has a positive significant impact on agriculture output, but with a year lag. These results reveal that even though there are several gaps in the present institutional credit delivery system like inadequate provision of credit to small and marginal farmers, paucity of medium and long-term lending and limited deposit mobilisation and heavy dependence on borrowed funds by major agricultural credit purveyors, agriculture credit is still playing a critical role in supporting agriculture production in Haryana.