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Inter-State and Inter-Regional Disparities in Bank Credit and Other Financial Flows in India in the Post-Reform Period
As a backdrop to the theme of this paper, it is worthwhile to digress a while on the evolution of thinking in economic literature on the role of finance in economic development. It is generally perceived that the classical and neo-classical economic theories neglected the role of finance in the growth process. For them, the growth essentially constituted an inter-play of physical quantities – labour supply, capital or saving and investment processes and technical progress. Those theories blithely ignored the role of finance also because “they ignored altogether the issues of distribution, since markets were efficient regardless of the distribution of income.” (Stiglitz 2000:16). In the same vein, even the most Keynesian of all, Joan Robinson (1952:86), had asserted: “By and large, it seems to be the case that where enterprise leads finance follows,” thus implying that finance is a secondary follow-up of the real sector growth process.

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