Cover IMF Working Papers
Financial Sector and Economic Growth in India
Author:
Ms. Margaux MacDonald
Search for other papers by Ms. Margaux MacDonald in
Current site
Google Scholar
PubMedClose
and
Ms. TengTeng Xu
Search for other papers by Ms. TengTeng Xu in
Current site
Google Scholar
PubMedClose
https://orcid.org/0000-0002-2853-283X
Series:
IMF Working Papers
Volume/Issue:
Volume 2022: Issue 137
Language:
English
Publication Date:
08 Jul 2022
DOI:
https://doi.org/10.5089/9798400216404.001
ISBN:
9798400216404
ISSN:
1018-5941
Pages:
30
Keywords:
India; Credit and Leverage; Macro-financial Linkages; Growth-at-Risk; Panel Regressions.; credit growth; cyclical financial conditions; economic growth in India; GDP gap; bank capitalization; Credit; Bank credit; State-owned banks; Debt financing; Financial statements; Global; NPL ratio; bank equity; bank assets; growth from bank
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Download PDF (3.4 MB) Download Epub
India’s financial sector has faced many challenges in recent decades, with a large, negative, and persistent credit to GDP gap since 2012. We examine how cyclical financial conditions affect GDP growth using a growth-at-risk (GaR) approach and analyze the link between bank balance sheets, credit growth, and long-term growth using bank-level panel regressions for both public and private banks. We find that on a cyclical basis, a negative shock to credit or a rise in macro vulnerability all shift the distribution of growth to the left, with lower expected growth and higher negative tail risks; over the long term, the results indicate that higher credit growth, arising from better capitalized banks with lower NPLs, is associated with higher GDP growth.
  • Collapse
  • Expand
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2022: Issue 137