Do Insurance Sector Growth and Reforms Affect Economic Development? Empirical Evidence from India

A well-developed insurance sector is necessary for the economic development of an emerging economy like India, as it provides long-term funds for physical and social infrastructure, while simultaneously strengthening risk-taking abilities. The investment requirements for India in the coming years are well-known and the rapid growth of the insurance sector in the post-liberalisation period is seen as a good sign as it can, to some extent, facilitate investment in infrastructure development to help sustain the economic growth of the country. Against this backdrop, this paper raises an important question: what has been the contribution of insurance sector growth to economic development in India? The paper further examines the economic growth effects of insurance sector reforms and the rate of growth of insurance reforms. The claims brought forward by this study are mixed. The contribution of the insurance sector to economic development is positive and exhibits a long-run equilibrium relationship. We find that reforms exert no strong relationship, but the rate of growth of reforms has a positive influence on economic development. The study therefore suggests that in order to make the insurance sector a more important component of the financial intermediation process, complete deregulation and an increase in the pace of reforms are the need of the hour.