Financial Sector and Economic Growth in India

IMF Working Papers, July 8, 2022

Source details

India’s financial sector has faced many challenges in recent decades, with a large, negative, and persistent credit to GDP gap since 2012.
Cyclical analysis (Growth-at-Risk, GaR):
- A negative shock to credit shifts the distribution of GDP growth to the left, with lower expected growth and higher negative tail risks.
- A rise in macro vulnerability shifts the distribution of GDP growth to the left, with lower expected growth and higher negative tail risks.
Long-term analysis (bank-level panel regressions for public and private banks):
- Higher credit growth, arising from better capitalized banks with lower NPLs, is associated with higher GDP growth.

Growth-at-Risk (GaR) approach to examine how cyclical financial conditions affect GDP growth.
Bank-level panel regressions to analyze the link between bank balance sheets, credit growth, and long-term GDP growth, covering both public and private banks.

Subjects: Bank credit, Credit, Debt financing, External debt, Financial institutions, Financial statements, Money, Public financial management (PFM), State-owned banks
Keywords: bank assets, bank capitalization, Bank credit, bank equity, Credit, Credit and Leverage, credit growth, cyclical financial conditions, Debt financing, economic growth in India, Financial statements, GDP gap, Global, growth from bank, Growth-at-Risk, India, Macro-financial Linkages, NPL ratio, Panel Regressions., State-owned banks

Source: IMF Working Paper "Financial Sector and Economic Growth in India" by Margaux MacDonald and TengTeng Xu, July 8, 2022.