Financial Inclusion: A Reality or Myth for India

Abstract

Financial inclusion means that ‘individuals and businesses have access to useful and affordable financial products and services that meet their needs i.e., transactions, payments, savings, credit and insurance delivered in a responsible and sustainable way.’ Researchers have suggested different variables and indices to capture the extent of inclusion with the passage of time. Using these indices, the inclusiveness of developed countries for a year or so have been measured in a large number of studies. The purpose of our study is to judge the performance of a developing country, i.e. India for a long period of time. The idea is to analyse the relative position of States/Union Territories, identify the emerging trends and determine the pace of growth in terms of inclusiveness. Data have been gathered on 35 Indian States/Union Territories for a period of 2000-01 to 2016-17 from Reserve Bank of India. The index of financial inclusion is computed using Sarma methodology and rate of growth is identified through log linear regression. The analysis indicate that the country has not achieved impressive growth in a long period of time. At the regional level, approximately forty per cent of States have made some progress in developing inclusive financial system and thirty per cent of them have failed to deal with last mile connectivity issues over the period. It is surprising that there is no robust change in a major chunk of States i.e., thirty per cent. These results necessitate the understanding of different geographical requirements and introduction of region-specific policies to tackle the issue by government and policymakers.