An economic analysis of the determinants of pattern of institutional borrowing in India

Institutional borrowing encourages the production and investment capacities if these loans directly contribute to the physical production. On the contrary, institutional borrowing for non-production purposes may lead to the sub-optimal utilization of resources. Present study explores the patterns of different purposes of institutional borrowing in India by identifying the effect of the different socio-economic-demographic factors on the probability (as well as extent) of institutional borrowing for non-production purposes in India. For this purpose, the study uses the data of All India Debt and Investment Survey, 59th (2003) and 70th (2013) rounds of National Sample Survey Organization. While choosing the suitable econometric model, the study has considered the issue of sample selection bias. To avoid this bias, the study uses a two-stage decision process using Heckman sample selection model. The econometric findings show that the probability (as well as the extent) of institutional borrowing for non-production purposes is higher among urban, literate and formally employed households. In addition, the probability of institutional borrowing for non-production purposes is lower among the households in the states with higher levels of consumption inequality but higher among the households in the states with higher infrastructural development in India.