Causal Links Among Banks' Investments on Government Securities, GDP and Different Heads of Central Plan Expenditures in India

Abstract

Most of the countries from the developing zones used to generate funds through sales of their securities to the commercial banks, among others. The generated fund, a type of public debt, is intended to spend on economic and social infrastructure developments of the countries which further accelerate their GDPs. India is not an exception to this strategy. The present article examines whether there are causal linkages among the banks' investment on government securities, all heads of central plan expenditures and GDP in India for the period 1981-2014. Using the Granger causality tests, the study observes that banks' security investments make a cause to food and fertilizers subsidy, irrigation and flood control, energy and transport sector and, on the other hand, GDP is a cause to total heads of expenditures, total subsidy, food and fertilizers subsidy, irrigation development, rural development, total infrastructure, energy, transport and social services. There are no way causations between either security investment or GDP with agriculture and communication sectors.