Abstract
The Kisan Credit Card (KCC) scheme was introduced in India in 1998–1999 and has since become a flagship programme providing access to short-term credit in the agricultural sector. According to the Government of India, over a 100 million cards had been issued cumulatively by March 2011. Using data from 2005–2006 to 2009–2010, the article critically examines the determinants of KCC lending across states in India and districts in Bihar. We also examine the effects of the scheme on agricultural growth and yields. Our results suggest that states with initially better access to agricultural credit show subsequently greater amounts of KCC lending. However, Bihar and other BIMARU states also show faster adoption rates that cannot be explained by their recent growth accelerations. Within Bihar, we see that districts with initially greater lending in KCC continue to pull further away from other districts, while in terms of account holders there is evidence of convergence. Finally, we do not see any evidence of KCC lending on state- or district-level agricultural productivity. JEL: Q14, Q0, O41, O47
Highlights
In the study of economic growth, the role of financial intermediation has been always at centre stage
In the first half of the article, we focus on inter-state effects of the Kisan (farmer) Credit Card (KCC) scheme
We look at three major indicators of development—real state net domestic product (SNDP) per capita, agricultural GDP per worker and foodgrain yield
Summary
In the study of economic growth, the role of financial intermediation has been always at centre stage. Research on Agricultural and Rural Credit in India While the regional effects of the KCC scheme have not been studied, there is an extensive literature on the effects of financial development on agricultural and rural growth. This is not surprising in itself, since most of the major policy developments, the history of bank nationalisation in post-independent India have been structured keeping agricultural and small-scale industry in mind. A second important credit initiative is the Rural Infrastructure Development Fund (RIDF) introduced in 1995 This involves long-term indirect credit to the agricultural sector (i.e., not directly to farmers). This scheme too is of a much smaller magnitude recording a cumulative credit of 1200 bn until 2009–2010.10 clearly both schemes are much smaller in scale compared to the KCC scheme
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