A Study on Insurance and Banking as Catalysts of Economic Growth in India

Abstract

This study investigates the role of the banking and insurance sectors as catalysts of economic growth in India over the period FY2019-20 to FY2023-24, using exclusively verified secondary data drawn from the Reserve Bank of India (RBI) Financial Stability Reports, Insurance Regulatory and Development Authority of India (IRDAI) Annual Reports, the World Bank World Development Indicators (WDI), the Government of India Economic Survey, and the Swiss Re Institute Sigma Reports. The study integrates descriptive trend analysis with Pearson product-moment correlation analysis to examine bivariate associations between key financial sector indicators and real GDP growth.
The analysis documents that India's insurance density rose consistently from USD 78 per capita in FY2019-20 to USD 95 in FY2023-24, while insurance penetration (as a percentage of GDP) peaked at 4.20 per cent during the pandemic years FY2020-21 and FY2021-22 before moderating to 3.70 per cent in FY2023-24 — a pattern driven partly by mechanical GDP-ratio effects. Gross bank credit expanded from ₹103.71 lakh crore in FY2019-20 to ₹164.35 lakh crore in FY2023-24, while the gross non-performing asset (GNPA) ratio of scheduled commercial banks fell from 8.2 per cent in March 2020 to a twelve-year low of 2.8 per cent in March 2024. Pearson correlation analysis reveals a moderate-to-strong positive association between insurance density and GDP growth (r = 0.825, n = 5), and a strong negative association between insurance density and the GNPA ratio (r = −0.925, p = 0.024), indicating that improvements in banking sector asset quality and expansions in absolute insurance coverage move together with economic output growth. The study explicitly acknowledges the severe limitation of five annual observations, cautions against causal inference, and recommends future research employing longer time series and advanced econometric methods.