Role Of Institutional Credit In Economic Growth
Abstract
Institutional credit plays an important role in enhancing the agricultural productivity in
developing countries like India. The study discusses about the need for institutional credit
followed by a brief about the birth of Institutional credit in India. The paper also discusses
the Bank Reforms of India and the impact on the farmers. The study talks about the aversion
of the private banks from providing credits to agriculture and the consequences due to it.
It then speaks about the benefits of providing institutional credit for the agricultural sector,
but discusses the issues faced by the financial institutions for providing healthy credit.
During the study it was found that the Institutional credit has been increasing over the years
and there is a direct relation of credit with food grains production.
An IMF study over 50 countries ranging from 1980 to 2003 has found evidence of a direct
relation between increase in institutional credit and agricultural productivity.
The future lies in an alliance between financial institutions and Self-Help groups to provide
accessible credit to farmers and provide a win-win situation for the commercial banks.
Introduction
India: An Agrarian Economy
In India, 70% of the total workforce is employed in agricultural and related sectors. The
contribution of agricultural sector towards GDP is 19.9%. Growths of industry and service
sectors are also directly linked to agricultural growth. Therefore, in order to achieve a GDP
growth of more than 8%, agricultural sector should exhibit a commensurate growth.
However, growth of agriculture over the last 10 years has been less than 1.5% per annum.
Such a low rate of growth can be attributed to different factors such as low/high monsoon,
unavailability of farming equipments and fertilizers, irrigation problems,...
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