145
2009-10. The correlation coefficient has further improved to 0.9120 for the
period 2001-02 to 2009-10.
Overall for the entire period from 1971-72 to 2009-10, the coefficient
of correlation works out to 0.8942 suggesting that bank credit and income
have been positively correlated. As shown in Chart 10, the credit intensity
of agriculture has shown a dramatic increase. As explained earlier, the data
for the period after 1999-2000 are not comparable with those for the past.
Ignoring these differences, the increase from around 10% in the early 1970s to
over 40% in the latest period is truly a remarkable achievement.
Going a step further, we have made a rough attempt to work out the
output elasticity of agricultural credit for the period 1990-91 to 2009-10
depending upon the availability of consistent data series. Giving a statistically
significant elasticity on the
ceteris paribus
assumption, the results suggest
that every 1% increase in agricultural credit in real terms has produced 0.23%
increase in real agricultural GDP with a year’s lag
18
. The specified model has
given us the following results:
Ln (Agl.GDP) = 10.339 + 0.2335 Ln (Agl. Credit ) - 1
(36.04)* (9.77)*
Adjusted R
2
= 0.84007 DW = 0.7759 P.Value = 0.000375
* At 1% level of significance
Phenomenal Increases in Indirect Lendings After the 1990s
Even as banks exhibited a lukewarm attitude towards direct agricultural
lendings due to slackness in their branch network and the farm sector’s own
slackness in growth and limits in credit absorptive capacity, they intensified
their indirect lendings on a sizeable scale in the 1990s and thereafter. This has
also been in consonance with the diversification taking place in agriculture,
with value chain and supply chain activities making a significant headway
during the past two decades and banks finding such activities easier to finance.
As repeatedly emphasized earlier, data on indirect lendings are varied
and appear non-comparable, there being serious gaps in official sources.
Broadly, as shown in Annexure N, it can be said that cooperatives have a much
larger size of indirect lendings than commercial banks, though in recent years
commercial banks also have expanded their involvement in indirect lendings.
18
We owe this to the model adopted in RBI Governor’s address on “Agricultural Credit –
Accomplishments and Challenges” (Subbarao Auguest 2012, p.1413). We have applied the same
model for another set of data on grond level credit in a subsequent paragraph.
