The process of economic growth is complex and depends on various factors. Macroeconomics places an important
role on capital formation, i.e. physical investments. The process also involves progress in human capital, technology
and knowledge. It also requires a stable regulatory and financial system in the country. The financial system acts as
the main catalyst in the process of channelling of funds from surplus to deficit units. The fact that there is a
relationship between financial development and growth is very highly debated. The broad consensus is that finance
acts as a crucial channel in the process. An area of inquiry lies in the question of whether the structure of the
financial system has any effect on the overall economic growth process. This involves the mix of banks and stock
markets in the economy. Therefore, the basic question that this paper will attempt to answer is: does having a bankbased
or market-based financial system matter for economic growth? The approach will involve basic causality
tests using time-series data for the Indian economy.

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