Major Determinants of Financial Inclusion: State-Level Evidences from India

Financial inclusion is one of the essential barometers for all-encompassing growth in any country. Past studies have linked financial inclusion as an economic instrument for inclusive growth. It is therefore imperative to know the determinants of financial inclusion. But to the best of knowledge, studies on the measurement of financial inclusion in a holistic manner are scarce and inconclusive. Adding on, there is still a considerable debate about how socio-economic development impacts financial inclusion. Understanding the link between financial inclusion and socio-economic development at the aggregated level will assist policymakers to devise and employ programmes that will expand financial inclusion, leading to reduction of income equality and poverty. The present article makes a modest attempt to measure financial inclusion in a composite manner through Wroclaw Taxonomic Approach. The paper also seeks to find out if the already apparent major socio-economic predictors of financial inclusion as revealed in the extant literatures are relevant in a panel data framework. The paper finds that the State of Goa tops the list while the State of Nagaland occupies the last position. The econometric analysis utilizing a panel data structure of 28 states of India over four years found that income, infrastructure and employment opportunities are perhaps the most important determinants of financial inclusion. Furthermore, the computed indices can be utilized to track and measure financial inclusion over a period of time and at the micro level. The policymakers should also take into account these facts to improve the financial inclusiveness of any region.