Sectoral Growth and Sectoral Credit: Panel Evidence from Indian States

Samaresh Bardhan () and Rajesh Sharma ()
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Samaresh Bardhan: Indian Institute of Technology
Rajesh Sharma: University School of Management and Entrepreneurship, Delhi Technological University

A chapter in Revisiting the Indian Financial Sector, 2022, pp 121-147 from Springer

Abstract: Abstract The chapter examines the relationship between sectoral growth and sectoral credit across Indian states during last four decades. Findings based on system generalized method of moments estimations reveal that in the decades of 1980 and 1990, different credit components hardly had any effect on Indian states’ sectoral growth. However, in the 2000s, financial intermediation exerts a positive and significant effect on economic growth, given that service sector credit witnessed the most significant spurt. Contrary to expectations, industrial credit did not affect sectoral growth in the 1990s following a significant deceleration in the industrial sector. However, following the revival of industrial sector in the decade of 2000 and the subsequent period under investigation, industrial credit played a significant role in growth process of states. The rapid growth in Indian economy in the 1990s has been primarily supported by service sector rather than industry. However, major policy concern lies in an optimal allocation of resources through efficient credit delivery mechanism and investment in infrastructure for sustained and balanced growth across sectors.

Keywords: Banks; Government policy; Economic growth; Regional growth; GMM estimation (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:isbchp:978-981-16-7668-0_7

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DOI: 10.1007/978-981-16-7668-0_7

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