Credit and Efficiency in Indian Agriculture: Evidence from Household-Level Data

The paper estimates technical efficiency in agriculture for cultivator households applying the Data Envelopment technique to the Rural Economic and Demographic Survey (REDS) database covering 17 major States in India, and analyses its association with agricultural credit along with other household-level economic and demographic variables through a Tobit framework. Agricultural efficiency was observed to have a positive and significant relation with agricultural credit. The impact was positive for all cultivator households including marginal and small cultivator households. Agricultural credit influenced efficiency when directly factored into the model but also in an indirect manner when replaced by various variable and fixed inputs generally purchased by a cultivator using crop and investment credit. Most of these inputs showed positive elasticity with respect to agricultural credit. The paper underlines the need to continue with the policy of providing directed credit support to agriculture with a distinct thrust on marginal and small cultivators.