Bank Credit to Agriculture in India in the 2000s:
Dissecting the Revival
Abstract: The growth of agricultural credit in India, which slowed down in the 1990s, revived after 2000. This paper examines the changes in growth and distribution of agricultural credit from commercial banks during the phase of revival. The paper notes two major components of the revival: (i) an increase in the number of bank branches in rural areas, and (ii) accelerated growth of the volume of agricultural credit. In both cases, growth was characterised also by greater inequality in the distribution of benefits. The distribution of bank branches and agricultural credit had six major features. First, even though the number of bank branches in rural areas rose after 2005, this growth did not keep pace with the growth of rural population. The reduction of total population per branch was faster than the reduction of rural population per branch, suggesting a greater penetration of branches in urban areas than in rural. Secondly, after 2000, indirect agricultural credit constituted a bigger share than previously to the growth of overall agricultural credit. Thirdly, there was a sharp increase in the share of large-size loans in agricultural credit. Fourthly, there was a substantial increase in the share of agricultural credit outstanding from urban and metropolitan branches of banks in the 2000s. Agricultural credit was increasingly diverted away from rural areas, particularly from the marginal and small farmers, and towards large business interests based in urban areas. Fifthly, there was a concentration of disbursal of agricultural credit from January to March, which are generally not the normal periods of borrowing by farmers. Sixthly, there was a sharp fall in the share of long-term credit in total agricultural credit after 1991. Consequently, the portion of agricultural credit that was used for fixed capital formation in agriculture became smaller.