Macroeconomic determinants of financial inclusion in India: an econometric perspective

Even though India has achieved significant milestones in improving financial access, there persists a large unbanked population whose financial participation can be leveraged for inclusive development. This paper examines India's tryst with financial inclusion from a macroeconomic perspective by employing a uniquely composed financial inclusion index while also modelling its determinants. Time-series data on diverse macroeconomic forces such as output growth, inflation, financial services cycle, and financial infrastructure are causally juxtaposed with financial inclusion. The study timeframe covers the entire post-reform period. A reduced-form single-equation econometric framework is employed. Findings indicate that the macroeconomic forces have shown prominence in shaping financial inclusion, challenging the predominance of microeconomic factors in the literature. Results are robust on both theoretical and econometric grounds. Novel insights are offered on the macroeconomics of financial inclusion in emerging economies like India along with valuable lessons for future developmental strategies.