Towards Sustainable Agricultural Growth in India: The role of banking credit and capital formation

Abstract

The current literature has thoroughly examined the impact of financial development on enhancing agricultural productivity. But empirical studies are deficient in the effect of banking credits and capital formation on agricultural GDP in India. This study addresses this gap by examining the relationship between financial development, capital formation, and agriculture in the Indian economies from 1991 to 2021, focusing on agricultural growth. Our findings indicate that an increase in capital formation, lending interest rate, domestic credit to the private sector, and renewable energy consumption significantly enhances the long-term agricultural GDP by 0.081 %, 0.07%, 0.115%, and 0.35 %, respectively. Broad money has a negative impact on agricultural GDP. Broad money increased by 1% of agricultural GDP, leading to a decrease of 0.23%. This study highlights the importance of financial resources and agricultural inputs in ensuring food security and advocates for the revaluation of credit systems to alleviate potential negative impacts. These findings offer significant insights. Recommendations for policymakers seeking to enhance Agricultural growth in India.