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Institutional versus non-institutional credit to agricultural households in India: Evidence on impact from a national farmers’ survey

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  • Kumar, Anjani
  • Mishra, Ashok K.
  • Saroj, Sunil
  • Joshi, P.K.

Abstract

A goal of agricultural policy in India has been to reduce farmers’ dependence on informal credit. To that end, recent initiatives are focused explicitly on rural areas and have a positive impact on the flow of agricultural credit. Despite the significance of the above initiatives in enhancing the flow of institutional credit to agriculture, the links between institutional credit and net farm income and consumption expenditures in India are not very well documented. Using large, national farm household level data and IV 2SLS estimation methods, we investigate the role of institutional farm credit on farm income and farm household consumption expenditures. Findings show that, in India, formal credit does indeed play a critical role in increasing both net farm income and per capita monthly household expenditures of Indian farm families. Finally, we find that, in the presence of formal credit, social safety net programs like the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) may have unintended consequences. In particular, MGNREGA reduces both net farm income and per capita monthly household consumption expenditures. On the other hand, in the presence of formal credit, the Public Distribution System may increase both net farm income and per capita monthly household consumption expenditures.

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  • Kumar, Anjani & Mishra, Ashok K. & Saroj, Sunil & Joshi, P.K., 2017. "Institutional versus non-institutional credit to agricultural households in India: Evidence on impact from a national farmers’ survey," Economic Systems, Elsevier, vol. 41(3), pages 420-432.
    • Handle: RePEc:eee:ecosys:v:41:y:2017:i:3:p:420-432
    DOI: 10.1016/j.ecosys.2016.10.005
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    13. Ukpe, Udeme Henrietta & Ewung, Bethel Fidelis, 2023. "Determinants of Demand and Participation by Poultry Farmers in Formal and Informal Credit Market in Cross River State, Nigeria," Problems of World Agriculture / Problemy Rolnictwa Światowego, Warsaw University of Life Sciences, vol. 23(4), December.
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    15. Rajesh Raj S. N. & Subash Sasidharan, 2018. "Does the Caste of the Firm Owner Play a Role in Access to Finance for Small Enterprises? Evidence from India," The Developing Economies, Institute of Developing Economies, vol. 56(4), pages 267-296, December.
    16. Ojo, Temitope & Adetoro, Adetoso A. & Ogundeji, Abiodun A. & Belle, Johannes A., 2021. "Quantifying the Determinants of Climate Change Adaptation Strategies and Farmers’ Access to Credit in South Africa," 2021 Conference, August 17-31, 2021, Virtual 315853, International Association of Agricultural Economists.
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