Insurance Consumption and Economic Growth in the Post-Liberalized India: An Empirical Analysis

The present study is aimed at exploring the relationship between insurance consumption and economic growth in India during 1990–2016. Annual insurance penetration, insurance density, and per capita GDP have been used to study the relationship between insurance consumption and economic growth by employing the Johansen cointegration technique. A vector error correction model is applied to study the short-term and long-term relationship between the variables. A one-way causality originating from insurance penetration to economic growth is revealed in the long run. Similarly, insurance density also causes long-term economic growth. Insurance penetration leads to short-term economic growth in India. However, economic growth does not cause insurance penetration or density in the short run as well as in the long run. The results empirically establish the relationship between the insurance industry and economic growth in India post-liberalization. The results could help policymakers to focus on enhancing the insurance industry’s performance in India to achieve higher economic growth. The existing literature on how insurance consumption and economic growth are related is focused on developed economies. It ignores the non-life insurance segment of the industry and has not taken a long time period to get a complete picture of the interrelationship. This is a novel attempt to investigate the causal relation between economic growth and the insurance industry’s growth in post-liberalized India.