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has occurred a significant rise in the proportions of credit to these indicators.
As percentage of gross value of output, total credit issued in the original series
shot up from 9.0% in 1999-2000 to 19.6% in 2004-05 and to 33.1% in 2010-
11, or as percentage of agriculture GDP, from 10.2% to 22.2% and to 34.7% in
these years.
A better indicator of current demand is the value of agricultural inputs,
which when related to short-term credit issued by all agencies, shows a very
impressive rise in recent years. This ratio had stagnated in the 1990s and
ruled between 19% to 24% between 1997-98 to 2000-01; it suddenly shot up
to 27.5% in 2001-02 and galloped to 43.3% in 2004-05 (Table 8.4). This was
followed by a steep jump in short-term credit to inputs ratio to 78.3% in 2007-
08 and further to 94.7% in 2010-11. This latter period is when the agricultural
sector experienced moderate but highly fluctuating growth scenario. At the
same time, the banks have been pushed to rapidly expand bank credit for the
sector.
The implication of the above result is that very close to the full part of
inputs is now being financed by institutional credit. As we have argued in a
subsequent section, this has serious implications for the economics of farming.
If inputs financed by bank borrowings do not yield commensurate output, the
possibilities of such forced lendings may lead to increased non-performing
assets. This also raises the distributional issues in that in a known unequal
situation, some farmers may be cornering crop loans much more than their
cost of inputs, while many others may be deprived of it.
3. Term Credit Flow to Private Capital Formation Ratio in Agriculture
Yet another important indicator of the role of credit demand is the extent
to which private capital formation in agriculture is financed by term loans of
banks. In this regard, it may be recalled that an important contributory factor
for the crisis in agriculture was the persistent decline in investment. As shown
in Table 2.9 of Section 2, public sector investment in agriculture as percentage
of agricultural GDP steadily fell for two decades from near 4% in 1980-81 to
1.7% in 1998-99, while private sector investment stagnated at around 5 to 6%
during these two decades. But, in recent years after 1999-2000, there appears
a distinct improvement in all components of capital formation in agriculture
– public, private and total, and each one of them as percentage of agriculture
GDP. Amongst them, the most conspicuous improvement has taken place in
private sector investment. As percentage of agriculture GDP, private investment
has averaged 10.4% during the latest four-year period 2001-02 to 2004-05 and
it further improved to near 14% in the latest three years 2008-09 to 2010-11
as against 7.4% in the preceding four-year period (see earlier Table 2.9).
