Impact of Agricultural Credit on Agriculture Production: An Empirical Analysis in India Abhiman Das, Manjusha Senapati, Joice John* Available data suggest that agricultural credit has been rising in recent years as a share of both the value of inputs and the value of output. There are wide regional disparities in the disbursement of agricultural credit by scheduled commercial banks. At the same time the share of agricultural GDP in total GDP is falling. In this context, this paper examines the role of direct and indirect agriculture credit in the agriculture production taking care of the regional disparities in agriculture, credit disbursement and agriculture production in an econometric framework using Dynamic Panel Data Analysis with Instrumental Variables using Arellano-Bond Regression. The analysis suggests that the direct agriculture credit amount has a positive and statistically significant impact on agriculture output and its effect is immediate. The number of accounts of the indirect agriculture credit also has a positive significant impact on agriculture output, but with a year lag. These results reveal that even though there are several gaps in the present institutional credit delivery system like inadequate provision of credit to small and marginal farmers, paucity of medium and long-term lending and limited deposit mobilisation and heavy dependence on borrowed funds by major agricultural credit purveyors, agriculture credit is still playing a critical role in supporting agriculture production in India. JEL Classification : Q14, C23 Keywords : Agriculture Credit, Panel Data, Generalised Method of Moments Reserve Bank of India Occasional Papers Vol. 30, No.2, Monsoon 2009 * Abhiman Das and Manjusha Senapati are Assistant Advisers and Joice John is Research Officer in Department of Statistics and Information Management of the Reserve Bank of India. Views expressed in the paper are strictly personal. Introduction A large proportion of the population in India is rural based and depends on agriculture for a living. Enhanced and stable growth of the agriculture sector is important as it plays a vital role not only in generating purchasing power among the rural population by creating