Measurement of Financial Inclusion in India: An Integrated Approach with TOPSIS and EWM

Abstract

The extent of financial inclusion among Indian states for the period has been measured and compared by constructing a composite index using an integrated methodology of TOPSIS (Technique of order preference by similarity to ideal solution) with EWM (Entropy Weighting Method). The proposed index has three broad dimensions of banking penetration, availability, and usage of banking services with an extended variable. Data for the study include: state wide bank data, demographic, geographic, and economic data, and are taken from Reserve Bank of India’s (RBI) publications. There is a general improvement in financial inclusion in India, while UT of Chandigarh and Delhi top the index, and Manipur and Nagaland bottom of the index. The southern region tops India on financial inclusion in terms of average rank. The methodology adopted in this study is not widely adopted in IFI literature. Moreover, the index has been constructed with statically assigned weight by using EWM.