Credit expansion and economic growth in India: empirical evidence

Hemanta Barman and Priyanka Dutta

Studies in Economics and Econometrics, 2025, vol. 49, issue 2, 127-140

Abstract: Expansion in credit is often considered as catalyst to economic growth. However, several studies dispute such relationship and argue that the expansion of credit may not always accelerates economic growth. Using national and state level data, we examine the association between expansion of bank credit and economic growth in India. We apply time series and panel data econometric techniques to examine the linkage between credit expansion and economic growth in India. Our findings suggest that at national level, increase in credit-GDP ratio decelerates economic growth. While using state level data, we observe a positive association between credit-NSDP ratio and the NSDP growth rate among the states with lower growth rate. Whereas the relation is found to be negative among the states with comparatively higher growth rate. Our study conclude that generalised policy of credit expansion may not be suitable to accelerate growth across states with different levels of economic growth.

Date: 2025
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DOI: 10.1080/03796205.2024.2441829

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