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Credit Constraints and Distress Sales in Rural India: An Econometric Analysis


  • D.Rajasekhar
  • Gagan
  • B.S


Abstract The literature on rural credit market has generally assumed that farm households are rationed in their access to subsidised formal credit. Due to lack of infrastructure and poor access to institutional credit, exploitation of farmers in interlocked credit market is expected to be high. The distress amount in product selling is more likely to be influenced by the bargaining capacity of the farmer borrower. Underfinance, intensity of the additional liquidity to meet the cost of production and household consumption, and the monopsony nature of paddy market also force the farmers to get into interlocked credit market. This further leads to distress sale of paddy. The empirical analysis from Kalahandi district of Orissa, India shows that the access to formal credit is limited in rural areas although there exist a high demand for it. This suggests a high degree of credit rationing by the formal lender in Kalahandi. The study also suggests that minimisation of underfinance for crop loan and proper implementation of regulated price by the government can be helpful to reduce the distress sale. JEL Classification:

Suggested Citation

  • D.Rajasekhar & Gagan & B.S, 2004. "Credit Constraints and Distress Sales in Rural India: An Econometric Analysis," Econometric Society 2004 Far Eastern Meetings 410, Econometric Society.
  • Handle: RePEc:ecm:feam04:410

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    Cited by:

    1. Gagan Bihari Sahu & D Rajasekhar, 2017. "'Urban Bias' in the Flow of Funds and Deposit Mobilisation: Evidence from Karnataka, India," Working Papers id:12045, eSocialSciences.
    2. Mujawamariya, Gaudiose & D'Haese, Marijke, 2012. "In search for incentives to gum arabic collection and marketing in Senegal: Interlocking gum trade with pre-finances from traders," Forest Policy and Economics, Elsevier, vol. 25(C), pages 72-82.
    3. Gagan Bihari Sahu & D. Rajasekhar, 2005. "‘Urban Bias’ in the Flow of Funds and Deposit Mobilisation:Evidence from Karnataka, India," Working Papers id:276, eSocialSciences.
    4. Debdatta Pal & Arnab Laha, 2014. "Credit off-take from formal financial institutions in rural India: quantile regression results," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 2(1), pages 1-20, December.

    More about this item


    Keywords: Credit; Formal; Informal and Distress Sale;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements


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