Impact of Institutional Credit on Aggregate Agricultural Production in India during Post Reform Period

The study attempts to assess the impact of institutional credit on agriculture production by estimating Cobb Douglas agricultural production function for the pre reform (1972-91) and post reform (1992-2005) period in India using time series data. Study also analyses the trends and pattern of institutional credit during pre reform and post reform period. Annual average growth rate of institutional credit was lowest during the decade 1990-2000 and was highest during 1971-80. Institutional credit as percentage of agricultural gross domestic product increases more rapidly during the post reform period. Institutional credit per cultivated area also increases tremendously over the period since the total cultivated area remains more or less same over the period. Study also analyses sectoral share of total non food bank credit for the period 1980-2005. The share of agriculture sector in total non food bank credit deteriorated during the post reform period. In last cob Douglas production function has been estimated to assess the impact of institutional credit on aggregate agricultural production. Model estimated for the over all period 1972-2005 suggest that institutional credit has significant impact on aggregate agricultural production in India. Cob Douglas production function for the pre reform period (1971-91) gives coefficient which has significant impact on agricultural production. But the model estimated for the post reform period shows that institutional credit does not affect agricultural production. Study concludes that during post reform period the sectoral share agriculture sector declined and also the growth rate of agricultural credit deteriorated. During post reform period institutional credit is not a significant determinant of agricultural production in India.