Credit and Capital Formation in Agriculture : A Growing Disconnect

Like all other sectors, agricultural credit supports agricultural production through two channels: meeting short-term working capital needs and longterm investment needs in the sector. It is estimated that about 95 per cent of the agricultural machinery in India is procured with the help of loans from formal credit institutions (Sarkar, 2013). Yet, the recent decades have seen a growing disconnect between credit and investment in Indian agriculture. This essay analyses the trends in credit to agriculture from all formal institutions and of capital formation in agriculture, and discusses the possible reasons behind that disconnect.