Industrial Credit and Economic Inequality: A Descriptive Study of the Major Indian States before and after Economic Reforms

Indian economy has experienced major policy break in the name of economic liberalization in 1991–92 the motive of which was to ensure sound economic growth as well as to reach all sections of the economy the fruits of such policy shift. The related studies in this regard have shown that there is rising income inequality during the reform period. The present study has tried to see whether the prevalence of income inequality can be explained by means of credit allocation to the industrial sector in aggregate and the sub sectors of it. At the same time the study has tried to examine the direction of causality of sub sectors’ credit to the inequality in aggregate industrial sector credit. It is observed that there is rising inequality among the states so far as industrial credit allocation is concerned. At the same time the mining and electricity sectors are causing the inequality in the aggregate industrial sector and on the other hand the industrial sector is causing the inequality in the manufacturing sector.