Here lies the crux of the matter. If use of new seeds, fertiliser use, irrigated land, cropping intensity, and private capital stock growth are not rising fast enough, then where is this credit going? To put it another way, what is the Indian farmer doing with the extra credit if he is not using it in seeds, fertiliser, water, capital or land?

One could take this argument into the leakages and corruption domain, but let’s take the best-case scenario that the farmer is actually getting all this money. In this case, the farmers are in all likelihood using the credit to smoothen their liquidity position and as a consequence are better able to spread out their consumption. This, no doubt, would be an important contribution in making the farmers’ lives easier.

But the point is, greater credit by itself does not lead to improved production or productivity. It can and does improve accessibility to better inputs, but it cannot ensure their use. Take seeds as an example. The economic survey says 80 per cent of the farmers continue to rely on farm-saved seeds. But improved seeds would require changing farming practices, timely access to irrigation, adequate and appropriate use of fertilisers and pesticides, etc. Using those seeds would require a well-functioning extension system in the public domain, or advisory services in the private domain. Merely building canals would not be enough, the farmer would need to be convinced that water flows through them when it is required. Fertilisers are now more or less available across the country, using them inappropriately causes harm. On top of that, marketing and trade hurdles further limit him. Credit may enable a farmer to purchase new technology inputs, but he needs the knowledge, skills, and selling mechanisms to utilise them.

... contd.