A Nexus Between Government Spending, Credit To Private Sector And Economic Growth Of India: A Time-series Analysis

The role of financial development for the growth of an economy is vital to analyze. There is a lengthy debate going on in identifying the nexus between financial development and economic growth. The study focuses on examining the relationship between Government expenditure, Credit to Private Sectors and economic growth and also to identify causality between them. The study considers two major indicators of financial development namely, Domestic credit to private sector, Government spending. This Paper employs Unit-root test, Co-integration and Granger causality test to identify the relationship between economic growth and financial development of India. The annual time-series data ranging from 1964-2020 considered for study. The result of co-integration test suggests that there is long-run relationship between GDP and, domestic credit to private sector, government spending. Granger Causality result was suggesting unidirectional causality between, Domestic credit to private sector to GDP. It also found unidirectional relationship from Economic growth to government spending.