Does Credit Market Intervention enhance Economic Outcome? Evidence from India’s ‘Priority Sector Lending’ Policy

Vinay Kumar Yadav and Mandira Sarma

Review of Development Finance Journal, 2021, vol. 11, issue 1, 46-65

Abstract: Credit market intervention has been a matter of intense debate, resulting in a substantial literature on the issue of whether credit market interventions are economically useful. While the proponents argue that such interventions are necessary, given that credit markets are laden with information asymmetry, the opponents argue that such interventions are not without costs and may lead to distortion in the economy. In this paper, we empirically address the question on whether India’s longstanding credit market intervention policy, viz., priority sector lending policy has had any impact on the overall economic outcome of Indian States. Our results seem to provide some evidence that this particular credit market intervention policy has been beneficial to the Indian economy.

Keywords: Priority sector lending; Economic growth; Directed credit; Credit market intervention; Development; Finance (search for similar items in EconPapers)
JEL-codes: G21 G28 O10 O47 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:afj:journ3:v:11:y:2021:i:1:p:46-65

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