What Have Been Driving India’s Economic Growth? An Empirical Analysis

The present study is an attempt to identify the major sources of economic growth in India over the period 1971–2016 by employing the auto-regressive distributed lag (ARDL) bounds testing model. The long-run estimates of the ARDL model indicate that the economic growth in India is predominately driven by per capita capital and financial development while inflation retards economic growth. Contrary to the long run, the short-run results of error correction representation suggest that per capita capital along with human capital development has a significant positive impact on economic growth in India, while inflation curtails economic growth. India has some important policy insights to draw from these findings that the government policies in India need to emphasize the institutional mechanisms that further strengthen the Indian financial system which would increase its depth, scope and stability to foster economic growth. Further, the policymakers in India should strengthen their anti-inflationary measures, through supply-side reforms, to avoid the negative effects of inflation on economic growth. Finally, the government policies in India should also place a considerable emphasis on investment in human capital, which in turn fosters economic growth. JEL Codes: O4, G2, E24, C1