Affiliation:
1. Centre for Studies in Sopcial Sciences Calcutta
2. University of Calcutta
3. Indian Institute of Foreign Trade
Abstract
Abstract
Using India Human Development Survey (IHDS) data for two rounds the study aims to assess the role of source of finance in the growth process and the outcome on inequality of income and asset. The most important result of the paper is that source of loans – formal (banks) or informal (moneylenders) have no role on the rate of growth of household asset and income. The difference for the respective rates of growth lies only in the level, i.e. intercept term across main sources of borrowing and across poverty groups. Inequality of income increases independent of the source of borrowing, though the poor households are worse off in general. This questions the conventional wisdom regarding the policy aimed at financial inclusion. Indifference of rate of growth across sources of borrowing is due to the fact that informal sector interest rate is the marginal cost of borrowing. This result can be generalised for any number of sources of borrowing.
JEL Codes: C350, E2, E43,,E5, G210, O11.
Publisher
Research Square Platform LLC