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Measuring Financial Inclusion in India : An Approach


Affiliations
1 TSDPS, Planning Department, Government of Telangana State, Hyderabad, Telangana - 500 004, India
2 Department of Economics, CHRIST (Deemed to be University), Yeshwanthpur Campus, Bengaluru - 560 073, Karnataka, India

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In light of the COVID-19-induced financial crisis, the need for robust financial services and networks has become more apparent than ever, which necessitated the accurate measurement of the breadth of financial inclusion in India. First, the study conducted a detailed critical review of the current indices and their construction methodology. Then, we created a financial inclusion index for India by accounting for the flaws existing in the current indices. The primary contribution of this study to the existing literature is the new approach it proposed for the assignment of weights in the financial inclusion index. Based on this new financial inclusion index, the study concluded that India’s Southern states and union territories showed better financial inclusion. In contrast, the traditionally backward BIMARU states of Bihar, Madhya Pradesh, Rajasthan, and Uttar Pradesh, and a few of the North Eastern states of India, lagged. The study also provided a refined and inclusive definition of financial inclusion based on its new approach to index creation.

Keywords

Financial Inclusion, Financial Inclusion Index, Financial Literacy, Financial Institutions, Financial Development.

JEL Classification Codes : C43, G2, O1

Paper Submission Date : May 10, 2021 ; Paper sent back for Revision : January 25, 2022 ; Paper Acceptance Date : July 30, 2022 ; Paper Published Online : January 15, 2023

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  • Measuring Financial Inclusion in India : An Approach

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Authors

Sanjiti Kapoor
TSDPS, Planning Department, Government of Telangana State, Hyderabad, Telangana - 500 004, India
Vineeth Mohandas
Department of Economics, CHRIST (Deemed to be University), Yeshwanthpur Campus, Bengaluru - 560 073, Karnataka, India

Abstract


In light of the COVID-19-induced financial crisis, the need for robust financial services and networks has become more apparent than ever, which necessitated the accurate measurement of the breadth of financial inclusion in India. First, the study conducted a detailed critical review of the current indices and their construction methodology. Then, we created a financial inclusion index for India by accounting for the flaws existing in the current indices. The primary contribution of this study to the existing literature is the new approach it proposed for the assignment of weights in the financial inclusion index. Based on this new financial inclusion index, the study concluded that India’s Southern states and union territories showed better financial inclusion. In contrast, the traditionally backward BIMARU states of Bihar, Madhya Pradesh, Rajasthan, and Uttar Pradesh, and a few of the North Eastern states of India, lagged. The study also provided a refined and inclusive definition of financial inclusion based on its new approach to index creation.

Keywords


Financial Inclusion, Financial Inclusion Index, Financial Literacy, Financial Institutions, Financial Development.

JEL Classification Codes : C43, G2, O1

Paper Submission Date : May 10, 2021 ; Paper sent back for Revision : January 25, 2022 ; Paper Acceptance Date : July 30, 2022 ; Paper Published Online : January 15, 2023


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DOI: https://doi.org/10.17010/ijf%2F2023%2Fv17i1%2F172601