Measuring Financial Inclusion of Indian States

This paper develops a Comprehensive Financial Inclusion Index (CFII) for 21 states in India and ranks them. The index is based on three dimensions: demand, supply, and infrastructure. It also takes into account the impact of negative factors or drag factors on financial inclusion. Based on correlation analysis, the paper presents a comparison of the results of the CFII with other similar studies such as the financial inclusion index developed by CRISIL and backwardness of states calculated by the Government of India. It covers the following sections in detail:

• Review of relevant literature covering both definitional aspects and measurement issues;
• Methodology of the study with a discussion on the index used;
• Computation of financial inclusion index and comprehensive financial inclusion index for 21 states;
• Analysis of the results and ranking and classification of states according to CFII;
• Contributions of the study with a focus on use for policy makers, regulators, and banks.