22
of farm hands is prompting mechanization and it appears that credit is aiding
and enabling this transition. The absence of a strong relationship with pump
sets could be on account of the variable representing irrigated land and perhaps
government expenditure, which might include subsidies for pump sets. There
might thus be a conflation of the many explanatory variables.
It is apparent that availability of credit also reduces the labour intensity of
agriculture by 2%. However there is no evidence that could be is consistent
with the idea of labour substituting mechanization. One possible interpretation
is that increasingly some operations such as manual weeding are being replaced
by the use of chemical weedicides and so on. Likewise greater ownership of
tractors reflects this mechanization rather than just the paid out cost for machine
use. Alternatively it could be that mechanization as represented by the
responsiveness of tractors to credit flow substitutes animal power (rather than
labour use).
Usually, this weak relationship especially of capital equipment such as tractor
and pump set is strongly suggestive that mechanization is preserving productivity
or agricultural growth rather than enhancing it (Binswanger and Khandkher,
1992). In these contexts, credit can be interpreted as performing two roles the
preservation of productivity levels by supporting mechanization of certain kinds
and contributing to the growth of agricultural GDP through the purchase of variable
inputs. All these results collectively suggest that credit indeed appears to have
played a role in supporting the changing face of agriculture in India.
Overall, it seems quite clear that input use is sensitive to credit flow, whereas
GDP of agriculture is not. This seems to indicate that the ability of credit to
engineer growth in agricultural GDP is impeded by a problem of productivity
and efficiency where the increase in input use and adjustments in the pattern of
input use are not (yet) translating into higher agricultural GDP. Credit seems
therefore to be an enabling input, but one whose effectiveness is undermined
by low technical efficiency and productivity.
