Distribution of Agricultural Credit in the Pre and Post Reform Period

Agriculture plays a crucial role in the development of the Indian economy. It accounts for about 19 percent of GDP and about two thirds of the population is dependent on the sector. (Economic Survey, 2009). Recognizing the importance of agriculture sector in India’s development, the Government and the Reserve Bank of India (RBI) have played a vital role in creating a broad-based institutional framework for catering to the increasing credit requirements of the sector. The policy measures increased the institutional sources of credit. The policy measures increased the institutional sources of credit. In 1991-1992, the amount of loan issued by the co-operatives was Rs.3934 crore, whereas the scheduled commercial banks disbursed only Rs.2341 crore. The dominance of the co-operatives in the agricultural loan disbursement was retained till the year 2004-2005. In 2005-2006, the direct loan disbursement from the scheduled commercial banks was higher than the co-operative banks. The amount of direct agricultural advances from the scheduled commercial banks was Rs.45644 crore whereas it was Rs.35624 crore for cooperatives in 20052006, the regional rural banks provided Rs.12816 crore in the same year. The agricultural credit policies and the economic reform in general aim to have positive influence on the total volume of institutional credit. However, the rural banking system in India made tremendous quantitative achievement by neglecting the qualitative aspects of the credit delivery system (Shrivastava and Padma Saxena. 2007). Hence an attempt was made to analyze the “Impact of economic reform on the distribution of agricultural credit in India”. To findings of the study shows that the co-operative banks dominated in the total agricultural credit disbursement in the pre reform period. The loan outstanding in the direct agricultural credit was * ASSISTANT PROFESSOR OF ECONOMICS, AVINASHILINGAM INSTITUTE FOR HOME SCIENCE AND HIGHER EDUCATION FOR WOMEN, COIMBATORE, TAMILNADU, INDIA. IJMIE Volume 2, Issue 9 ISSN: 2249-0558 __________________________________________________________ A Monthly Double-Blind Peer Reviewed Refereed Open Access International e-Journal Included in the International Serial Directories Indexed & Listed at: Ulrich's Periodicals Directory ©, U.S.A., Open J-Gage as well as in Cabell’s Directories of Publishing Opportunities, U.S.A. International Journal of Management, IT and Engineering http://www.ijmra.us 244 September 2012 higher for the co-operatives than the scheduled commercial banks in the pre reform period. The dominance of the co-operatives in the agricultural loan disbursement was retained till the year 2004-2005. In 2005-2006, the direct loan disbursement from the scheduled commercial banks was higher than the co-operative banks. The distribution of agricultural credit in the post reform period was significantly higher than in the pre reform period. The economic reform 1991 had significant impact on the distribution of agricultural credit. INTRODUCTION Agriculture plays a crucial role in the development of the Indian economy. It accounts for about 19 percent of GDP and about two thirds of the population is dependent on the sector. (Economic Survey, 2009). The importance of farm credit as a critical input to agriculture is reinforced by the unique role of Indian agriculture in the macroeconomic framework and its role in poverty alleviation. Recognizing the importance of agriculture sector in India’s development, the Government and the Reserve Bank of India (RBI) have played a vital role in creating a broadbased institutional framework for catering to the increasing credit requirements of the sector. The policy measures increased the institutional sources of credit. In 1991-1992, the amount of loan issued by the co-operatives was Rs.3934 crore, whereas the scheduled commercial banks disbursed only Rs.2341 crore. The dominance of the co-operatives in the agricultural loan disbursement was retained till the year 2004-2005. In 2005-2006, the direct loan disbursement from the scheduled commercial banks was higher than the co-operative banks. The amount of direct agricultural advances from the scheduled commercial banks was Rs.45644 crore whereas it was Rs.35624 crore for cooperatives in 20052006, the regional rural banks provided Rs.12816 crore in the same year. The agricultural credit policies and the economic reform in general aim to have positive influence on the total volume of institutional credit. However, the rural banking system in India made tremendous quantitative achievement by neglecting the qualitative aspects of the credit delivery system (Shrivastava and Padma Saxena. 2007). Hence an attempt was made to analyze the “Impact of economic reform on the distribution of agricultural credit in India”. The following are the specific objectives of the study. IJMIE Volume 2, Issue 9 ISSN: 2249-0558 __________________________________________________________ A Monthly Double-Blind Peer Reviewed Refereed Open Access International e-Journal Included in the International Serial Directories Indexed & Listed at: Ulrich's Periodicals Directory ©, U.S.A., Open J-Gage as well as in Cabell’s Directories of Publishing Opportunities, U.S.A. International Journal of Management, IT and Engineering http://www.ijmra.us 245 September 2012 1. To analyse the trends in the distribution of agricultural credit in the pre and post economic reform period. 2. To assess the growth of agricultural credit in the pre and post reform period. 3. To compare mean difference in the distribution of agricultural credit between pre and post reform period. MRTHODOLOGY Data for the study were collected from the secondary sources. The secondary data on direct and indirect advances of agricultural credit, short term agricultural credit, state wise and union territory wise distribution of agricultural credit, determinants of disparity in the distribution of agricultural credit were collected from the Handbook of Indian economy, (2009), Reserve Bank of India, Bombay. The distribution of agricultural credit was classified into pre and post economic reform period. The pre economic reform period was considered the period between 1970-1991. The post economic reform period was between 1991-2008. In order to analyze the trends in the distribution of agricultural credit, compound growth rate was employed. The form of the equation used in the study was, Y= AB(x) t Y= The variable under study for compound growth rate a = constant x = time period b = coefficient of time trend Compound growth rate =Antilog (β-1)*100 To compare the distribution of agricultural credit between pre and post reform period, paired t test was applied. IJMIE Volume 2, Issue 9 ISSN: 2249-0558 __________________________________________________________ A Monthly Double-Blind Peer Reviewed Refereed Open Access International e-Journal Included in the International Serial Directories Indexed & Listed at: Ulrich's Periodicals Directory ©, U.S.A., Open J-Gage as well as in Cabell’s Directories of Publishing Opportunities, U.S.A. International Journal of Management, IT and Engineering http://www.ijmra.us 246 September 2012 t = error dard tan S X X 2i i 1 i 1 X = Mean of agricultural credit in the pre-reform period. 2i X = Mean of in agricultural credit in the post-reform period. RESULTS AND DISCUSSION TRENDS AND GROWTH OF DIRECT INSTITUTIONAL CREDIT FOR AGRICULTURE AND ALLIED ACTIVITIES Direct institutional credit is issued directly to the farmers to meet the cultivation and capital expenses in agriculture. Direct institutional credit to agriculture and allied activities is mainly provided by co-operative banks, commercial banks and regional rural banks. The table (1) shows the direct institutional credit for agriculture and allied activities in the pre reform period. IJMIE Volume 2, Issue 9 ISSN: 2249-0558 __________________________________________________________ A Monthly Double-Blind Peer Reviewed Refereed Open Access International e-Journal Included in the International Serial Directories Indexed & Listed at: Ulrich's Periodicals Directory ©, U.S.A., Open J-Gage as well as in Cabell’s Directories of Publishing Opportunities, U.S.A. International Journal of Management, IT and Engineering http://www.ijmra.us 247 September 2012 TABLE 1 DIRECT INSTITUTIONAL CREDIT FOR AGRICULTURE AND ALLIED ACTIVITIES IN THE PRE REFORM PERIOD (Rupees in crore) Year Loan issued Loan Outstanding Cooperatives SCBs RRBs Total Cooperatives SCBs RRBs Total 1980-81 1386 517 2047 1908 1162 325