indirect credit to agriculture were recognised as priority sector, albeit with some ceiling on indirect credit. what is included under direct and indirect agricultural credit has been revised from time to time in keeping with the changing requirement. starting 1995, banks that fell short of their target of priority sector / agriculture / weaker sections lending were required to deposit the shortfall amount in the rural infrastructure development fund ( ridf ) set up by nabard. funds in the ridf are lent to state governments for financing rural infrastructure. since 1994 / 95, commercial banks have been required to prepare special agricultural credit plans with prescribed annual growth rates. in 1989, nabard introduced the kisan credit card ( kcc ) which a farmer could use to draw credit for all production needs, almost as if on tap, through the production the study takes data from 1990 / 91 onwards. the model has been specified as follows : ln ( agdp ) = 10. 52 + 0. 22ln ( acredit ( – 1 ) ) ( 22. 89 ) * ( 5. 61 ) * adj r2 = 0. 91 dw = 1. 52 where, agdp = gdp from agriculture and allied activities at constant prices acredit = credit for agriculture and allied activities deflated by gdp deflator with one year lag * significance at 1 per cent level of significance though the unit root test revealed that both series were integrated of order 1, we did not adopt the conventional box - jenkins methodology of differencing the series in order to present the elasticity estimates. instead, we have presented “ t ” statistics that are robust to autocorrelation by using the newey west methodology. bis central bankers ’ speeches cycle. the kcc has, thus, been a powerful mechanism for cutting down transaction costs both for the farmer and the bank. in 2004, a “ comprehensive credit policy ” was announced with a mandate to step up institutional credit to agriculture by 30 per cent every year. also banks were enjoined to ensure that every branch finances at least 100 farmers ( 5 million farmers at the aggregate level ) and at least two or three agriculture projects every year. the policy also included a host of debt relief measures such as debt restructuring, one - time settlement and loans to pay off borrowing from money lenders. an interest subvention scheme was introduced in 2006 / 07 on the short - term credit extended to farmers. the budget for 2011 / 12 announced an additional subvention of 3 per cent for prompt repay

improvement. but in recent years, there has been growing concern about the erosion at the margins of food self - sufficiency. a big challenge for sustaining food self - sufficiency is raising production which, given that available land is fixed if not diminishing, has to come from improved productivity. a host of cash and non - cash inputs is necessary to improve productivity, and an important one is agricultural credit. development experience shows that credit is an important determinant of value added in agriculture. a quick assessment by the reserve bank of the relationship between institutional credit to agriculture ( from commercial banks, cooperatives and rrbs ) evidences positive and statistically significant elasticity – every 1 per cent increase in real agricultural credit bis central bankers ’ speeches results in an increase in real agricultural gdp by 0. 22 per cent with a one - year lag. 1 further, the granger causality test ( based on lag length of 1 ) also indicates that the causality was unidirectional from agricultural credit to agricultural gdp. iii. looking back – major policies for promoting agricultural credit in order to look ahead, it will be instructive to look back on the policies that shaped the flow of agricultural credit over the last 60 years. in the first two decades after independence, the conduit for institutional credit to agriculture was the cooperative sector. although sound in concept, the cooperative sector failed to live up to expectations. with the nationalisation of commercial banks, the decade of 1970s marked the entry of commercial banks into agricultural credit. this period saw the introduction of the lead bank scheme and regulatory prescription of priority sector lending – two landmark development policies that survive even today. the 1970s also witnessed pilot experiments in specialised agency approach for directing credit to small and marginal farmers. the small farmers development agency ( sfda ) and marginal farmers and agricultural labourers development agency ( mfalda ) that were started in select districts of the country on a pilot basis had later been extended to the whole country as district rural development agencies, which now play a central role in coordinating and managing the several poverty alleviation initiatives at the district level. the economic reforms of the 1990s, starting with the first narasimham committee of 1991, emphasised financial soundness and operational efficiency of the financial sector – including rural financial institutions. the reserve bank gradually deregulated the interest rate regime to aid improvement in the operational efficiency of banks. the next two decades witnessed several important innovations in agricultural credit. both direct and