‘Finance-Growth’ Nexus in India Through the Evolutionary Phases of Banking

To the existing approach of studying how financial intermediation could be linked to the economic growth of a developing country, present study offers an alternative investigative framework by considering the public and private sector investments in case of the emerging Indian economy. Besides, it also investigates how such relationship has actually evolved over-time by considering the years following Nationalisation in 1969 and Liberalisation in 1991. Using the time-series methodology of cointegration and vector error correction, this paper studied data on Indian economy from 1951 to 2017 and utilises impulse response function of the variables for understanding the effect. It finds strong evidence in favour of the Schumpeterian view and observes that ‘nationalisation’ has negative impact on economic growth while ‘liberalisation’ impacted the same positively.