COMMENTARY
carry out banking in the village through
Class–Caste Differences
in Access to Agricultural Credit
in India
CHIRALA Shankar Rao
Looking at the class and
caste differences in access to
agricultural credit in India, it
is seen that large proportions
of farmers are still outside the
fold of formal credit. Farmers
from smaller farm-size class
and socially marginalised castes
face difficulty in accessing
credit due to lower asset
valuations, compounded by
social discrimination. There is
a need for asset creation and
reorientation of the present
agricultural credit policy for
greater inclusiveness.
The author is thankful to an anonymous
referee of this journal for the valuable
comments on an earlier draft of this article.
Chirala Shankar Rao (shankarrao786@
gmail.com) is with the Council for Social
Development, Hyderabad.
Economic & Political Weekly EPW january 6, 2018
C
redit is an important mediating
input for agriculture to improve
productivity. Strengthening for-
mal credit is one of the important tools
in the target set by the Government of
India (GoI) in 2016 to double farmers’ in-
comes by 2022. The Union Budget 2017–18
announced a credit target of `10 lakh
crore and 60 days of interest waiver on
farmers’ loans from the cooperative
credit structure (GoI 2017). The ratio of
agricultural credit to agricultural gross
domestic product (GDP) has increased
from 10% in 1999–2000 to around 38%
by 2012–13 (GoI 2016). The provision of
credit is of vital importance in achieving
social mobility for the population engaged
in agriculture (Dantwala 1952). In India,
around 86.4% of farmers are in the
smaller farm-size category ( 2 hectare)
and majority of them are from socially
marginalised castes (NSSO 2014). While
access to formal credit for the agricultural
sector is crucial for its growth, the issue
of inclusiveness in terms of class and
caste in access to credit is also important.
Many studies clearly established the
positive relation between easy access to
credit by farmers and agricultural produc-
tivity in India (Binswanger and Khandker
1992; Das et al 2009; Bhalla and Singh
2010). Credit could enable a farmer to
move on to a superior production fron-
tier, so that at given level of inputs the
farmer is able to produce more output
(Narayanan 2015). Formal credit can be
used to maximise the yield at a given
level of capital stock. It can be used for
building up capital stock—irrigation
facilities, machines, and so on—and to
replace informal credit associated with
high interest burden.
The land size-based class, by virtue of
the size of the land, tends to influence
the access to credit from both formal
and informal agencies. The bank officers
vol lIiI no 1
the rich farmers. Hence, it is not just the
collateral that made the difference, but
the access to the bank bureaucracy by
large farmers (Kumar 2013).
The flow of agriculture credit has not
been inclusive as the share of marginal
and small farmers in agricultural credit
disbursed has declined, and there has
been a “non-inclusive” stance of commer-
cial banks in disbursing credit towards
marginal farmers (Mehrotra 2011). This
has been happening despite the increasing
capacity of marginal farmers to absorb
credit compared to large farmers (Chand
et al 2011). Farmers’ access to formal
agricultural loans depends also on their
caste. Few studies have indicated that
higher castes are given more credit than
the lower castes in India (Drèze et al 1997;
Sarap 1990). While commercial banks do
not discriminate against lower caste farm-
ers in lending, cooperative banks do, as
they are prone to interest group capture at
the local level (Jodhka 1995; Kumar 2013).
However, there is a dearth of empirical
studies that examine the present class
and caste differences in access to agricul-
tural credit in India. This article examines
the class and caste differences in access
to agricultural credit from both formal
and informal credit agencies in India.
Data Sources and Methodology
This article uses unit-level data from
the Debt and Investment Survey of the
National Sample Survey Office (NSSO),
70th round. Data on “cash loans” by house-
holds belonging to the self-employed in
agriculture (does not include casual labour
in agriculture) from rural areas whose land
is above 0.1 hectare (27,768 sample house-
holds) is used for this analysis. We call
these agricultural households (AHH) here-
after. Though AHHs obtain cash credit from
various agencies, this analysis considers
three most important credit agencies based
on the proportion of loans: cooperatives,
and scheduled commercial banks (SCBs),
including regional rural banks as the
formal credit agencies, and professional
moneylenders (PMLs) as informal.
The class analysis is based on farm-size
classification on the basis of “operated
land” in hectares (marginal: 0.1 to 1.0,
small: 1.1 to 2.0, semi-medium: 2.1 to 4.0,
15
COMMENTARY

medium: 4.1 to 10.0, and large: above 10). (ST, SC and OBC) caste groups to privi- such as land development, irrigation,
The caste analysis is made between leged caste group (Other). So in terms of buildings, new machines, and so on.
major caste groups in India—Scheduled cash loan per hectare, credit agencies
Caste (SC), Scheduled Tribe (ST), and are seen to lend less to the AHHs from Interest Rates
Other Backward Classes (OBCs) who are marginalised castes that indicates that Apart from the access and amount of
socially marginalised castes, compared caste based discrimination is prevalent credit, it is also important to look at the
to “Others” who are socially privileged. in agricultural credit access in India. rate of interest on agricultural loans by
Only around 18% of AHH loans across the credit agencies across class and caste
Access to Agricultural Credit all the class and caste groups from in India. Table 3 (p 17) shows that inter-
The outreach of formal credit agencies in formal agencies are long-term loans that est rate differences are minute in case of
agriculture is still limited in India as only can be used for capital asset creation loan borrowed from formal agencies
20% of AHHs got loans from cooperatives Table 1: Credit to Agricultural Households by Class, Caste, and Source of Borrowing (%)
and about 18% got loans from SCBs. The Class/Caste Proportion of AHHs Who Borrowed Proportion of Loans
informal credit agencies dominate the ST SC OBC Others All ST SC OBC Others All
Cooperatives
agricultural credit market as majority of Marginal 6.7 11.7 14.9 18.4 14.1 13.4 13.9 17.1 21.8 17.5
AHHs still depend on PMLs (22%), relatives Small 13.1 32.2 27.3 33.2 27.2 20.4 24.7 21.4 35.8 25.7
and friends (17%), and others. Similar Semi-medium 20.8 30.0 34.2 41.4 33.8 27.8 24.9 24.0 35.6 27.8
pattern continues in “proportion of total Medium 21.6 27.5 51.0 41.4 43.7 25.4 27.6 34.8 32.5 33.1
loans” where only 41% of total loans by Large 71.6 19.3 50.8 40.8 44.8 44.8 23.5 34.1 33.2 33.7
AHHs are from formal agencies. All 10.1 16.9 20.9 26.0 20.1 17.8 17.6 20.2 28.2 21.9
It is disturbing to note that both in terms SCBs
Marginal 4.8 12.2 15.1 15.2 13.2 9.6 13.9 16.6 18.6 16.1
of “proportion of AHHs who got loans”
Small 9.1 17.2 27.0 25.5 22.5 15.1 11.7 22.0 24.0 20.6
and “proportion of total loans received,”
Semi-medium 18.3 23.1 35.3 31.6 30.4 24.5 16.3 26.6 27.3 25.8
the AHHs from smaller farm size (up to Medium 29.7 13.2 37.7 35.1 34.7 35.7 11.3 25.1 29.0 26.7
semi-medium) and socially marginalised Large 16.1 63.4 37.7 43.5 41.3 12.1 48.5 30.0 32.5 31.2
castes are relatively lagging behind in All 7.7 13.9 20.5 21.0 17.9 13.9 13.6 19.8 22.3 19.2
access to credit from the formal agencies PMLs
(Table 1). The picture is slightly different Marginal 12.3 24.8 22.3 17.6 20.1 27.5 32.7 31.5 23.6 29.3
in case of informal agencies, where the Small 16.2 32.0 29.3 16.6 24.2 27.5 27.4 26.0 15.7 23.5
smaller farm-size class has relatively Semi-medium 16.0 39.2 31.0 17.4 25.1 24.9 32.8 26.1 13.7 22.9
Medium 19.8 26.5 26.2 22.5 24.2 21.8 28.7 24.3 19.8 22.2
higher access; this is not seen for the the
Large 30.7 12.3 13.6 22.9 18.7 16.8 23.4 7.8 18.0 13.6
marginalised castes. Higher dependence
All 13.7 27.0 24.7 17.8 21.6 26.9 31.3 28.9 19.9 26.5
on PMLs for credit by the smaller farm- Source: Author’s calculation based on Debt and Investment Survey, NSSO, 70th Round.
size class results in higher exploitation
Table 2: Average Amount of Cash Loan from Different Credit Agencies (` ‘000s)
since they charge higher interest rate. Class/Caste Proportion of AHHs Who Borrowed (per household) Proportion of Loans (per hectare)
However, the average amount of cash ST SC OBC Others All ST SC OBC Others All

loan from credit agencies—per house- Cooperatives

Marginal 71.5 68.6 105.0 114.2 100.9 109.5 120.8 184.3 217.8 180.2
hold and per hectare—depicts a different
Small 63.4 99.6 139.4 225.8 155.7 45.1 68.8 96.6 152.7 107.0
picture (Table 2). It needs to be men- Semi-medium 118.2 159.8 190.3 215.9 190.2 45.3 66.4 70.2 79.3 70.8
tioned that the average amount of cash Medium 195.5 199.9 199.1 287.5 237.3 34.8 40.0 35.9 50.9 42.5
loan per household seems to be high Large 84.9 784.4 374.8 630.0 487.2 6.6 62.9 24.9 34.0 29.3
because it includes both previously All 84.4 94.5 140.5 191.4 148.4 52.1 77.6 76.8 88.4 79.3
unpaid and currently received loans. SCBs
Governments have rescheduled crop Marginal 101.8 98.2 115.1 185.1 131.3 170.9 191.7 200.9 333.6 234.3
Small 153.9 90.0 170.2 307.4 202.8 110.5 63.8 120.1 221.5 144.2
loans because of prevailing agrarian
Semi-medium 152.5 128.8 234.6 324.0 247.6 61.8 50.7 90.3 120.6 94.9
distress and hence given the fresh loans
Medium 214.1 279.2 309.0 533.9 407.7 42.6 48.0 53.2 88.7 69.5
irrespective of repayment of previous
Large 523.0 114.8 575.3 926.5 726.2 32.0 7.7 39.6 72.9 53.4
loans. The data illustrates that com- All 137.1 102.4 168.8 299.8 200.0 84.6 89.4 101.5 143.7 115.2
pared to informal agencies, the formal PMLs
credit agencies lend higher cash loan Marginal 61.5 75.0 93.6 90.8 86.7 107.2 153.3 181.5 182.8 169.3
amounts to all AHHs across farm-size Small 69.0 79.5 137.0 147.5 122.2 48.9 54.6 97.3 103.9 86.2
class and caste groups. Semi-medium 73.3 113.3 178.7 251.4 174.5 28.3 47.2 69.0 93.8 67.5
The cash loan per hectare land from all Medium 57.8 250.7 257.7 386.8 303.2 10.8 49.2 44.1 66.3 52.5
Large 43.7 178.3 336.8 311.6 301.9 4.1 11.4 22.4 18.0 18.6
the credit agencies (formal and informal)
All 64.9 82.3 122.2 150.1 116.2 54.3 86.0 97.4 90.6 90.3
decreases as farm size increases, but in- The amount of cash loan includes both previously unpaid and currently received loans.
creases as we go from socially marginalised Source: Same as in Table 1.

16 january 6, 2018 vol lIiI no 1 EPW Economic & Political Weekly

 COMMENTARY

across farm-size class and caste groups loans from SCBs. However, there ap- highly deprived in terms of access to
except for AHHs from the SC group pears substantial differences in interest credit from both formal and informal
who pay slightly high interest (9%) on rate on loans from informal agencies agencies. While the marginalised castes
across both farm-size class and caste suffer from less amount of credit per
Table 3: Average Annual Rate of Interest on Loan
from Different Credit Agencies (%) groups. The PMLs charge heavy interest hectare, smaller farm-size classes suffer
Class/Caste ST SC OBC Others All rates (above 30% per annum) from both more from high interest rates by infor-
Cooperatives the smaller class and socially marginal- mal agencies. A small proportion (18%)
Marginal 7.5 9.3 9.5 8.2 8.9 ised caste groups that leads to either un- of the loans by AHHs from formal agencies
Small 7.0 6.9 7.6 9.4 8.1 bearable burden on their uncertain and are long-term based that are required
Semi-medium 7.3 7.6 7.4 7.7 7.5 hard-earned income from agriculture. for capital investment. The lower asset
Medium 7.6 7.0 7.5 6.8 7.1 value compounded by the social dis-
Large 3.1 7.6 7.0 8.1 7.4 Value of Land and Other Assets crimination could be the reason for the
All 7.3 8.2 8.5 8.3 8.3
The credit worthiness of a household lower access of credit by farmers from
SCBs
Marginal 8.5 9.1 8.5 8.2 8.5
inter alia depends on the value of owned smaller farm size and socially marginal-
Small 7.8 8.9 8.5 7.4 8.1 land and other assets. The average owned ised castes. This article advocates for
Semi-medium 7.7 8.5 8.0 8.2 8.0 agricultural land in hectares increases asset creation and inclusiveness in
Medium 8.7 7.2 8.2 8.6 8.4 from socially marginalised castes (SC: 0.8, formal agricultural credit policy.
Large 11.4 7.8 7.5 8.3 8.0 ST: 1.0, and OBC: 1.1) to the privileged
All 8.1 8.9 8.4 8.1 8.3 caste (Others: 1.4). Surprisingly, the caste- References
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Semi-medium 70.3 70.3 95.5 102.8 91.6 ity, and for achieving inclusive growth. Truth behind the Aggregate Numbers,” Eco-
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Economic & Political Weekly EPW january 6, 2018 vol lIiI no 1 17