Impact of Agricultural Credit by Commercial Banks on Agricultural GDP

Abstract

The farming sector in India has always been an essential and significant part of the country’s economy. Agriculture has long been a significant employer of over 43% of the workforce and a large contributor to the nation’s Gross Domestic Product (GDP), (14.39%) but it has also experienced difficulties including exploitation and uneven regulations. Despite these challenges, agriculture remains essential for the country’s development, especially as it shifts towards a more business-oriented approach that requires access to capital. When looking at what factors influence agricultural productivity growth in India, attention to credit, inputs and policies can be signalled. Credit has been a crucial component in supporting agriculture for centuries and its importance has only increased as financial institutions have taken over from traditional non-institutional players such as moneylenders, friends and relatives. A significant factor in agriculture’s expansion, especially in spurring the Green Revolution, has been institutional financing. Institutional lending to the agricultural industry and allied fields has grown significantly over time. Based on regression analysis, this study examines the relationship between direct institutional credit and agriculture and allied services GDP by analysing data covering 19 years (1992-2011) using a Multi Linear Regression model to find determinants of agricultural development. The research has found that a strong correlation exists between credit and agricultural output along with other inputs like seeds, fertilisers, pesticides, tractors, power tillers and electricity. This has been reinforced by government interventions such as offering subsidies, providing extension services and developing infrastructure. Nonetheless, a nagging problem of climate change markets is out of control and gaps in the execution of policies continue to cross the horizons. For India to manage these changes, it will be necessary for the country to shift and take positive measures that will ensure sustainable agricultural growth in rural communities.