Truncated Access to Institutional Agricultural Credit as a Major Constraint for Rural Transformation: Insights from Longitudinal Village Studies

Abstract

The study has examined the trend of formal credit growth and its influence on rural transformation in terms of accelerating growth in household income levels. It has also identified the factors influencing the access to formal agricultural credit in the study regions, viz. eastern and semi-arid tropics (SAT) of India. The longitudinal household level data of about 1200 households in three states each in these two regions have been analysed for the period 2010 to 2013. The study has observed that the poor access to formal credit has compelled these households to take loan from informal sources who sometimes charge interest @ 60 to 120 per cent per annum, threatening the livelihoods of these smallholders and poor households. During the study period of three years (2010 - 2013), no change in situation was visible in these villages and the access to formal sources of agricultural credit seems to remain truncated. The main reasons for this disturbing trend is the lack of institutional framework to provide cheap and subsidized credit to these marginal and landless households, who take land on lease for cultivation. The Tobit model has been fitted to determine the accessibility to formal agricultural credit in these regions. The study has highlighted the need of building a strong and inclusive financial infrastructure to provide necessary credit support