Do political connections or elite capture matter in access to financial services? Evidence from Indian households

The extant literature has witnessed that local political executives tend to misallocate and limit information and public goods sources for their private gains rather than the overall public interest in developing economies. This results in the development of political connections by the households to access more benefits. Using nationwide household survey data in India, we examine whether households with political connections, also termed elite households, have preferential treatment when they access borrowings and investments from different sources. Using linear and non-linear models, we find that elite capture or political connections significantly influences access to financial services. Elite capture is significantly present when individuals borrow from financial institutions. Political connections play an important role when the borrowing amount is large. Our results provide important policy-level implications to decide whether decentralization in the policies will be more appropriate when designing any plan for financial inclusion.