The Role of Institutional Credit in the Agricultural Developmentof Pakistan

There has been a consensus among Pakistani policy-makers sincethe early 1970s that the shift from a resource-based to a science-basedagriculture can be facilitated through the availability of agriculturalcredit. The official statistics on the disbursement of agriculturalcredit bear testimony to this behalf. A perusal of Thble 1 shows clearlythat while other inputs such as fertilizer offtake, the availability ofimproved seed, water and tractors grew at rates ranging from 3 percentto 15 percent per annum over the period from 1971-72 to 1986-87, thedisbursement Of institutional credit to the rural sector of Pakistangrew at an impressive 28 percent. It is interesting to note that whileagricultural production, measured as an index with base year 1960, grewat only 3 percent, the ratio of institutional credit to agricultural GNPgrew from 0.7 percent in 1971-72 to over 12 percent in 1986-87. 1’0studies have recently appeared in The Pakistan Development Review thathighlight important yet diverse aspects of the role of institutionalcredit in the agriculture development of Pakistan. The first study[Zuberi (1989)] stated that “the strategy for agricultural developmentin the country has been based on greater utilization of ‘high pay-off’low-cost technology. The government advanced loans through fmancialinstitutions to make it possible for the farmers to acquire thistechnology”. This study, however, using a Cobb-Douglas type productionfunction and time-series data found that specifications which includedinstitutional credit as an independent variable offered meaninglessresults. Based on the fact that 70 percent of total institutional creditdisbursed was for the purchase of seed and fertilizer, the author choseexpenditure on these categories as a proxy not only for credit but alsofor capital and using this and labour obtained significantestimates.