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lending operations. In this period, when commercial banks thus narrowed
their agricultural credit base after the introduction of the banking reforms
in the 1990s, cooperatives came to the rescue of the agricultural sector to an
extent, as is evident from a slight improvement in their share, particularly in
term loans in which they were loosing ground for two decades in the 1970s
and 1980s to the commercial banks (Table 5.3); the share of cooperatives in
agricultural term loans issued, which had steeply declined to about 35% by the
mid-1980s, improved to 43% in 1992-93 and further to 57% in 2001-02 (Table
5.3 and Chart 12).
Trends in Farm Credit and Agriculture GDP
As shown in Annexure K and depicted in Chart 13, the ratios of direct
farm loans issued and outstanding to agricultural GDP, suggest that the banking
system had achieved a steady and brisk improvement in delivering direct credit
in proportion to the growth in agricultural GDP. The ratio had improved steadily
from less than 10% in the early 1970s to over 20% in the early 1990s. As
described in Chapter 2, this period covered the Green Revolution phase of the
second half of the 1960s and 1970s and wider technology dissemination period
of the 1980s when agricultural growth rate got accelerated; with increasing use
of modern inputs, the demand for borrowed funds by cultivators would have
gone up and the rising credit to GDP ratio suggests that the system of credit
delivery sought to satisfy it. An indication of this is to be found in the coefficient
of correlation (R) rising from 0.8066 in the 1970s to 0.8200 in the 1980s, thus
suggesting that the two variables -credit and agricultural GDP – are highly
positively correlated and this correlation has further improved from the 1970s
to the 1980s.
The 1990s, on the other hand, experienced a slippage in the correlation
coefficient to 0.7595. This is also reflected in the decline of credit intensity
(credit to GDP ratio) from near 21% in 1990-91 to 13.3% in 1998-99 and
17.9% in 1999-2000
17
.
Interestingly, the experiences of the 1990s and thereafter has been a
peculiar one. The agricultural output had slipped until 2004-05 at any rate,
but the growth of bank credit has been very rapid and this credit growth has
been much faster than the growth in agricultural GDP, so much so that credit
intensity ratio has more than doubled from 17.9% in 1999-2000 to 40.6 in
17
This improvement in 1999-2000 is primarily statistical due to kinks in data, but thereafter
the increases have been steady and sharp based on consistent series. Hence, despite there being
limited numbers of observations, we have worked out these crude coefficients of correlation.
