Ease of Doing Business in Selected Major Indian States: Does Bank Credit Lead to Productivity?

TLDR: In this paper, an attempt is made to study the causality between "ease of doing business" and productivity by using the credit to deposits ratio of banks as a proxy to measure availability of finance and lending practices.

Abstract: It has been comprehensively debated by economists, that availability of finance is a very important determinant of output in an economy. In the literature, there are strong arguments for and against this idea. It is generally agreed that finance, up to a certain extent, can act as a facilitator to the process of economic growth. Beyond a point, it may begin to destabilize the economy. Scholars normally measure the performance of an economy in terms of its productivity. This leads to the fact that if business has been made easier, productivity should have increased. Thus, there should be some link between “ease of doing business” and productivity. In recent rankings of ease of doing business, one of the important pillars was that of “getting credit”. If it is an important pillar, it should be related to productivity, as measured by change in real GDP. Availability of credit can be measured by the credit to deposits ratio of banks as a proxy to measure availability of finance and lending practices. In this paper, this variable will be used to study the patterns across major states of India, to judge the ease of doing business in these states. An attempt is made to study the causality between “ease of doing business” and productivity.