Informal Credits in India’s Agriculture Sector: Debt Incidence, Size and Distribution across Major Farm-size Groups

Abstract

Until recently, studies on agricultural finance in India mostly focus on farmers’ access to formal credits, thereby largely sidelining their informal borrowings. This study makes an effort to present an analysis of farmers’ informal debts and their distribution across the major farm-size groups in India. The study uses unit-level data from the 77th round ‘Situation Assessment Survey (SAS)’ of agricultural households conducted by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MOSPI), Government of India (GOI), during January–December, 2019. Data were collected for the reference period of July 2018–June 2019. We use descriptive statistics and multivariate regression procedures for analysis. Results show that about one-half of the borrowers continue to depend on informal credit sources—partially or fully. Informal sources also account for about one-third of the total debt of the agricultural households. Informal debt incidence (IDI) and informal debt share (IDS) are found to be higher among the smallholders. Our findings are imperative of policy measures to improve the current state of the antecedents of formal credit access to benefit the otherwise high default risk and credit-rationed smallholders. Future studies may focus on formal credit rationing, informal credit terms and repayment burden of the agricultural households in India.