Financial Inclusion in India: An Inter-State Analysis

Abstract

Inclusive growth has been a major focus of the Government of India in the recent days towards achieving harmonious development of the country. A major initiative in this direction has been taken by the government of India in collaboration with the country’s Reserve Bank emphasising on financial inclusion so that the access of financial services reaches to the mass. The promotion of financial inclusion has been considered as a policy priority in India since 2005. However, the moot questions that need to be answered yet related to financial inclusion as a policy are: How is financial inclusion measured? What are the factors considered in its measurement? What is the magnitude of effect of a factor influencing financial incision? Is there any difference in such magnitude found across states or regions? Has there been any exclusion of any state or region from the financial inclusion policy so far? If yes, what could be the possible reasons? The present paper makes a modest attempt towards examining the above issues. The paper, entirely based on secondary data, has been organised in the following manner. Section-1 of the paper deals with a review of the policy related to financial inclusion. Section-2 examines the factors influencing financial inclusion followed by section-3 that evaluates the method of its measurement. Section-4 examines the extent of effect of the factors considered on the index of financial inclusion (IFI) along with evaluating the magnitude of difference across factors and states/regions. On the basis of the ranks earned by the states/regions on extent of financial inclusion, the paper attempts to find out those states or regions which are yet to come in the ambit of financial inclusion. Such states/regions may therefore be considered as part of “financial exclusion”. In the last section the paper brings out the summary conclusion along with policy suggestions on the basis of the analysis carried in the entire study.