Measuring Financial Inclusion of Indian States

Abstract

Measurement of financial inclusion is necessary to study the impact of various initiatives by stakeholders and to decide on the future course of action. The various indices developed take into account only banking-related initiatives. Recent focus on financial inclusion has also included other financial services like insurance, pension, financial literacy and remittances in its fold. We have taken these into consideration, in addition to banking services, and have developed measures based on the indicators of three dimensions namely demand, supply and infrastructure, as suggested by Ambarkhane, Singh and Venkataramani (2014). This index also takes into account the impact of negative factors, termed as drag factors, on financial inclusion. The index is developed for 21 major Indian states and ranking is done. The robustness of the index is tested. Comparison with other studies shows that index computed corroborates with them and focuses on poor.