Recent decades Indian industries have registered
a quantum jump, which has contributed to high
economic growth. A large number of recent
empirical studies have relied on measures of size
or structure to provide evidence of a link between
financial system development and economic
growth. These studies used macro or sector level
data such as the size of financial intermediation or
of external finance relative to GDPand found that
financial development has a significant positive
impact on economic growth. Alternative
explanation has also been empirically given for
the relationship that exists between financial
intermediation and growth based on the direction
of causation. Financial intermediation can be a
causal factor for economic growth. A 2½ percent
reduction in overall credit causes a reduction in
the level of GDPby around 1½ percent (Bayoumi
and Melander 2008). Similarly, studies reveal
that economic growth can also be a causal factor
for financial development. This study use the
secondary data published by Reserve Bank of
India (RBI) and Ministry of Statistical and
Programmes Implementation (MOSPI) of
Government of India. This study concludes that
there is high degree of association between bank
credit and industrial production in India.