Agricultural Credit- Flow, Constraint and Linkage with Distress Sale

Abstract

In India the literature on rural credit market reveals the poor accessibility of peasant farm households to institutional credit, which may be attributed to many factors. The farmers are suffering from the interlocked market linking informal credit to the sale of paddy which results in distress sale (i.e. the difference between price offered by informal lender and the price prevailing in the open / regulated market). The distress sale is mainly attributed to the bargaining strength of the farmers borrowing from informal credit market, the extent of their involvement in the interlocked credit arrangement to meet the requirements of additional liquidity for production and consumption needs and the nature of market paddy market i.e. monopsony for Paddy sale in the state. The data collected from the sample farms across various agro-climatic zones (by canal irrigation status) of Bargarh district in Odisha suggest that the access to formal credit is limited in rural areas although there exists high demand for it and significantly influenced by land owned. Further, poor implementation of minimum support price policy gives rise to the need for informal credit and interlocked credit market in rural agrarian economy of the state.