Convergence in Bank Credit

The Indian economy witnessed a major structural break in the name of economic liberalization in the early nineties to free the economy from its long-standing controlled structure to achieve high growth rate of the overall economy and solve the persistent low growth and development problem. The existing literature reveals the phenomenal rise in income growth as well as rising divergence across states and regions under several grounds. The present study explores how divergences in allocation of commercial bank credit over time may result in the growing disparities in growth of incomes in the states of India. The study observes that there are diverging tendencies among the states during the post-reform period with respect to per-capita credit and aggregate credit. The study also reveals that the agriculture and industrial sectors are converging during the pre-reform phase, but there are insignificant signs of divergences in the industrial and service sectors during the post-reform period.