Empirical analysis of institutional credit supply and agricultural production with special reference to Jammu and Kashmir

This paper explores the relationship between institutional credit supply and agricultural development in Jammu & Kashmir (J&K). The study employed Multiple Log linear Regression Model to determine the impact of institutional credit supply on the agricultural production (based on the theoretical framework of Cobb-Douglas production function). Besides institutional credit other explanatory variables included in the study are: area under cultivated (CA), irrigation intensity (IR), consumption of fertilizers (FR), agricultural workers (LBR) and number of tractors used (NT). The study is based on the secondary data compiled from diverse sources over the period of 35 years (1975?2010). All the variables were tested for unit root in order to check the stationarity of the data by employing the Augmented Dickey-Fuller (ADF) and Phillip-Perron Unit Root Tests. Correspondingly, Johansen's Maximum Likelihood Estimation method for testing for cointegration applied to examine the long run relationship between the variables. The estimated results show that institutional credit has positive and significant impact on agricultural production. As there is one percent increase in the flow of institutional credit the agricultural production will increase by 0.27 percent. It was also found that after the financial sector reforms (1991) the flow of credit to agriculture has increased continuously as it rose from Rs. 10095 lakhs in 1991 to Rs. 126767 lakhs in 2010. The researcher concludes that, there is a need to enhance and monitor institutional credit supplied for agricultural purpose to efficiently attain the anticipated growth in the sector.