Computation of Financial Inclusion Index for India

Abstract

Financial inclusion has become the buzzword and has caught the attention of research scholars, policy makers and economists. While finance has always been recognized to be the life blood of any economic unit, financial inclusion, as a ‘quasi-public good’ is seen to be the harbinger that would facilitate fuller participation by vulnerable groups such as weaker sections and low income groups in the financial system. This paper aims to study the determinants that measure the extent of financial inclusion and focuses on the computation of an index that would comprehensively capture the impact of multi-dimensional variables with specific reference to India, using the latest available data. Past studies have omitted one or the other dimensions impacting financial inclusion, for various reasons. However, since each of the dimensions is critical, incorporating as many dimensions as possible will result in a more holistic of financial inclusion. The Reserve Bank of India (RBI) has initiated several measures to enhance the financial inclusion in India. The impetus came from schemes like relaxed KYC norms, rsquo;no-frills’ accounts and “General Credit Cards” for small deposits and credit since 2005-06.

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