Linkage between Financial Development and Economic Development: Evidences from Six Geographical Regions of India

Abstract

The policy makers have recognized that access of credit is very important for sectoral, regional and overall development of the country. A huge literature is available which explain the association between financial development and development of economic activities (Felix Rioja and Neven Valev (2004), Thorsten Beck (2011). In India there is immense regional inequality in disbursement of credit and access of other financial services. Few states are enjoying major share of credit disbursed by the Indian Schedule Commercial Banks in comparison to their share in total population or geographical area, while the states of central and northern region where most of the population reside have very low share in total credit disbursement of Indian Schedule Commercial Banks (SCBs). Because most of the economic activities, including consumption activities are financed, access and availability of institutional credit plays very important role in economic development of the regions/states. States or regions those have better access of institutional credit may have better development prospects in comparison to states/regions those have less access of institutional credit.