Impact of Financial Institution on Agrarian Economy of Pakistan

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ABSTRACT
The Agriculture sector continues to play a major role in Pakistan’s economy. It is the second largest sector of the economy in terms of contribution to GDP. Agriculture also contributes to growth as a supplier of raw materials to industry as well as market for industrial products contributing substantially to Pakistan’s exports. Nearly 21 percent of total output (GDP) and half of total employment is generated by agriculture sector. Therefore, the development of this sector is imperative for economic development of Pakistan. However it is the fact that the productivity of agriculture commodities is very low. In Pakistan, majority of the cultivators belong to the category of small farmers. In order to improve the productivity, developing countries must introduce or increase the use of inputs such as chemical fertilizers, new varieties of seeds facilities and ensure provision of quality inputs at fair prices. The introduction of new technologies tends to increase the demand for credit by farmers. The objective of the study is to explore the current role of financial institution in Agrarian economy of Pakistan. Data used in this paper will be time series data in the period of 2000 to 2012 annually. Secondary data penetrating from 1980-2010 will be collected and analyzed using Statistical Package for Social Scientists (SPSS). To assess contribution of institutional credit in agricultural output VAR Model will be used. This study aims to quantify the relationship between the performance of financial institutions and growth of agriculture sector and tries to link relationship with policy variables thus to capture the picture as a whole.

INTRODUCTION
The Agriculture sector continues to play a major role in Pakistan’s economy. It is the second largest sector, Almost 65.9 percent of country’s population living in rural areas depends wholly or partially, on the earnings from agriculture sector. In the export earnings, direct as well as indirect share of agriculture is very high. Agriculture also contributes to growth as a supplier of raw materials to industry as well as market for industrial products contributing substantially to Pakistan’s exports. on the other, it is a large market for industrial products such as fertilizer, pesticides, tractors and agricultural implements. Nearly 21 percent of total GDP and half of total employment is generated by agriculture sector. Therefore, the development of this sector is imperative for economic development of Pakistan. (GoP, 2012)

However, it is the fact that the productivity of agriculture commodities is very low. In Pakistan, majority of the cultivators belong to the category of small or marginal farmers having land less than 12 acres. Out of total cultivated area 48.56 percent is cultivated by these small landholders. In Pakistan 85.69 percent of the total farms belong to category of small farms (GoP, 2000). In order to improve the productivity, developing countries like Pakistan must introduce or modify the use of inputs such as chemical fertilizers, increased availability and use of improved varieties of seeds ensure provision of quality inputs at fair prices. The introduction of new technologies tends to increase the demand for credit by farmers. Therefore farming households should be provided credit at reduced interest rate so that investment per acre can be increased which is necessary to boost productivity. In addition to this, it is also necessary to bring in transparency and simplify the existing cumbersome process of loan acquisition to make it assessable to a small farmers with lesser influence. Banks should provide sufficient amount of finance to small farmers to enable them withstand the adverse farming environment. It is the dire need of the day to enhance agriculture production to cope with the challenges of ever increasing demand for food and fiber.

Farmers immediately need funds after the harvesting period for the next cropping season...
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