Financial inclusion across major Indian states: some spatial panel econometric evidence
International Journal of Social Economics
ISSN: 0306-8293
Article publication date: 8 January 2021
Issue publication date: 8 February 2021
Abstract
Purpose
This paper aims to test for spatial convergence in financial inclusion across major Indian states and union territories.
Design/methodology/approach
After initially building an Index of Financial Inclusion (IFI) for major Indian states between 2003 and 2016, exploratory spatial data analysis (ESDA) is employed to draw inferences about mean and variance of IFI. The paper then seeks to confirm the ESDA results through spatial panel regression techniques. Finally, spatial results are correlated with results from aspatial convergence measures.
Findings
The study finds that there is no evidence of spatial convergence in financial inclusion over the study period, suggesting that those states that were relatively less financially included remained so through the study period. The study also asserts the relevance of certain important determinants, namely, per capita income, infrastructure, industrialization and gender.
Research limitations/implications
This study has two limitations. First, only banking institutions are considered in measuring financial inclusion. Second, due to lack of a consistent indicator of gender participation across states, we had to employ sex ratio as a proxy.
Practical implications
The study suggests that policies to expand financial inclusion in Indian states, especially those with low inclusion levels are likely to benefit neighbouring states also, thereby accelerating the financial inclusion drive across states.
Originality/value
The study is a first in the Indian context to estimate the spatial dependence of financial inclusion and provides relevant implications for policymakers and bankers to target financial inclusion schemes in backward states.
Keywords
Acknowledgements
The authors are grateful to the two anonymous referees for their constructive comments that have helped reshape the paper. The authors would also like to thank Mr. K. Prabhoji, Superintendent, GIS & RS, Survey of India, Hyderabad, Mr. Swapan Chowhan and Mr. Kaushik Dey, Office Surveyors, GIS & RS, Survey of India, Hyderabad, India for their material help with India maps.Funding: The first author would like to thank the University Grants Commission, India for extending the UGC – Senior Research Fellowship during his PhD. This paper stands part of his PhD thesis at University of Hyderabad.
Citation
Erra, K.S.S. and Acharya, D. (2021), "Financial inclusion across major Indian states: some spatial panel econometric evidence", International Journal of Social Economics, Vol. 48 No. 3, pp. 419-436. https://doi.org/10.1108/IJSE-06-2020-0392
Publisher
:Emerald Publishing Limited
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