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Does Credit Market Intervention enhance Economic Outcome? Evidence from India’s ‘Priority Sector Lending’ Policy

Author

Listed:
  • Vinay Kumar Yadav
  • Mandira Sarma

    (Ram Lal Anand College, Delhi University, India
    Jawaharlal Nehru University, India)

Abstract

Credit market intervention has been a matter of intense debate, resulting in a substantial literature on the issue of whether credit market interventions are economically useful. While the proponents argue that such interventions are necessary, given that credit markets are laden with information asymmetry, the opponents argue that such interventions are not without costs and may lead to distortion in the economy. In this paper, we empirically address the question on whether India’s longstanding credit market intervention policy, viz., priority sector lending policy has had any impact on the overall economic outcome of Indian States. Our results seem to provide some evidence that this particular credit market intervention policy has been beneficial to the Indian economy.

Suggested Citation

  • Vinay Kumar Yadav & Mandira Sarma, 2021. "Does Credit Market Intervention enhance Economic Outcome? Evidence from India’s ‘Priority Sector Lending’ Policy," Review of Development Finance Journal, Chartered Institute of Development Finance, vol. 11(1), pages 46-65.
    • Handle: RePEc:afj:journ3:v:11:y:2021:i:1:p:46-65
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    File URL: https://journals.co.za/doi/abs/10.10520/ejc-rdfin-v11-n1-a4
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    More about this item

    Keywords

    Priority sector lending; Economic growth; Directed credit; Credit market intervention; Development; Finance;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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