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<p>Despite its position as a global agricultural leader, India faces a persistent productivity paradox: the sector employs 46.1% of the workforce yet contributes only 17.8% to the national economic output. This study argues that addressing this paradox necessitates a paradigm shift from a narrow credit-centric perspective to a multidimensional financial inclusion framework encompassing access, availability, and usage of formal financial services. Employing a balanced panel dataset of 28 Indian states (2001–2022), the present study develops a sector-tailored Financial Inclusion Index (FII) via Principal Component Analysis (PCA), integrating agriculture-specific indicators of credit penetration and usage. The FII reveals stark regional disparities, with high-performing states like Kerala and Goa benefiting from dense banking infrastructure, whereas North-Eastern states lag significantly. Empirically, the study utilizes two-step System Generalized Method of Moments (GMM) estimator as primary identification strategy to address potential endogeneity and dynamic persistence. The long-run robustness of the financial inclusion-agricultural productivity nexus is further validated through Fully Modified Ordinary Least Squares (FMOLS), Dynamic Ordinary Least Squares (DOLS), and Canonical Cointegrating Regression (CCR) models. Results confirm FII exerts a positive, statistically robust, and enduring long-run effect on agricultural productivity across all estimators, confirming it as the dominant structural driver of agricultural output per hectare. The findings establish that financial inclusion transcends a peripheral welfare objective, functioning instead as a fundamental productivity-enhancing input. Therefore, policy must prioritize targeted financial infrastructure in lagging regions and develop bundled agricultural financial products to unlock the sectoral potential and advance Sustainable Development Goal 2 (Zero Hunger).</p>

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Does financial inclusion drive agricultural productivity? panel evidence from Indian states

  • 期刊论文

  • 发表日期：

    2026年7月23日

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  • Abid Ali Mir,
  • Shumila Cheshti

摘要

Despite its position as a global agricultural leader, India faces a persistent productivity paradox: the sector employs 46.1% of the workforce yet contributes only 17.8% to the national economic output. This study argues that addressing this paradox necessitates a paradigm shift from a narrow credit-centric perspective to a multidimensional financial inclusion framework encompassing access, availability, and usage of formal financial services. Employing a balanced panel dataset of 28 Indian states (2001–2022), the present study develops a sector-tailored Financial Inclusion Index (FII) via Principal Component Analysis (PCA), integrating agriculture-specific indicators of credit penetration and usage. The FII reveals stark regional disparities, with high-performing states like Kerala and Goa benefiting from dense banking infrastructure, whereas North-Eastern states lag significantly. Empirically, the study utilizes two-step System Generalized Method of Moments (GMM) estimator as primary identification strategy to address potential endogeneity and dynamic persistence. The long-run robustness of the financial inclusion-agricultural productivity nexus is further validated through Fully Modified Ordinary Least Squares (FMOLS), Dynamic Ordinary Least Squares (DOLS), and Canonical Cointegrating Regression (CCR) models. Results confirm FII exerts a positive, statistically robust, and enduring long-run effect on agricultural productivity across all estimators, confirming it as the dominant structural driver of agricultural output per hectare. The findings establish that financial inclusion transcends a peripheral welfare objective, functioning instead as a fundamental productivity-enhancing input. Therefore, policy must prioritize targeted financial infrastructure in lagging regions and develop bundled agricultural financial products to unlock the sectoral potential and advance Sustainable Development Goal 2 (Zero Hunger).