Does the Variability of Financial Arrangement and Climate Change Influence the Efficiency of Agricultural Production in India: A Two-stage Approach

In the modern era, efficiency and productivity are crucial for sustainable agricultural development, although they are highly sensitive to financial and climate changes. Thus, this study explores the impact of financial variability and climate change on agricultural production efficiency at the sub-national level in India from 2005 to 2019, focusing on 21 major agricultural-producing states. A two-stage approach is used: in the first stage, efficiency scores are calculated using stochastic frontier analysis with total agricultural production as the output and land, labour and fertiliser as inputs. In the second stage, regression analysis employs the feasible generalised least squares model to assess the impact of climate and financial variability. Results show that agricultural credit, electricity use for agriculture, water levels, soil wetness and social development expenditure of the state positively influence efficiency. At the same time, the effect of agricultural credit differs between low- and high-climate-vulnerability states; climate variables like temperature, droughts and floods negatively affect it.