Credit Deepening without Output Response? A State-level Panel Analysis of Institutional Agricultural Credit and Crop Output in India
Gina Naiding
Institute of Agri Business Management, Swami Keshwanand Rajasthan Agricultural University, Bikaner 334006, Rajasthan, India.
Gourav Dama
Institute of Agri Business Management, Swami Keshwanand Rajasthan Agricultural University, Bikaner 334006, Rajasthan, India.
Vishal Ghorela *
Institute of Agri Business Management, Swami Keshwanand Rajasthan Agricultural University, Bikaner 334006, Rajasthan, India.
*Author to whom correspondence should be addressed.
Abstract
Aims: To assess the growth, structure and regional distribution of institutional agricultural credit in India and to test whether credit expansion has been associated with higher crop output across major states.
Study Design: An analytical study based on national time series and a state-level panel of secondary data.
Place and Duration of Study: India; a national series for 1970-71 to 2024-25 and a panel of 20 major states for 2011-12 to 2023-24.
Methodology: Data published by the Reserve Bank of India, NABARD and the Ministry of Agriculture and Farmers Welfare were used. Compound growth rates with autocorrelation-robust confidence intervals, the Cuddy-Della Valle index, segmented trend regression, convergence measures, panel models and the Dumitrescu-Hurlin causality test were applied. The main fixed-effects model regressed log real crop gross state value added (GSVA) on one-year-lagged log real credit, irrigation intensity, log sown area, log rainfall and a trend.
Results: Credit flow grew fastest in 2004-05 to 2013-14 (23.12% per annum) and slowed significantly thereafter. The short-term share peaked at 78% in 2012-13 and fell to 59% by 2023-24. Across the states, real credit grew at 4.72% per annum against 2.71% for real crop GSVA, and credit intensity rose from 60% to 75% of crop GSVA. Credit growth and output growth were uncorrelated across states (r = −0.03, P = .89). The Hausman test favoured fixed effects (P = .003). The credit elasticity was −0.08 (P = .10), indicating that a 10% rise in real credit was associated with a statistically insignificant 0.8% decrease in crop output, whereas sown area, irrigation and rainfall were significant. No Granger causality was found in either direction.
Conclusion: Agricultural credit has deepened without a commensurate output response. Policy should move from volume targets to the end-use, term structure and regional allocation of credit.
Keywords: Agricultural credit, crop output, panel data, fixed effects, Dumitrescu-Hurlin causality, credit intensity, Kisan Credit Card, India