Developing a Financial Inclusion Index and Inclusive Growth in India

Financial inclusion is one of the systems through which Inclusive Growth can be achieved in developing countries like India where large sections are unable or hopeless to contribute in the financial system. An inclusive financial system mobilizes more resources for productive purposes leading to higher economic growth, better opportunities and reduction of poverty. This study, proposed an Index of financial inclusion – a multidimensional measure. The Financial Inclusion Index can be used to compare the range of financial inclusion across different economies and to monitor the progress of the economies with respect to financial inclusion over time. From the computation of Financial Inclusion Index of India, it is evident that during 2010 to 2012 (Demand side dimensions such as: banking penetration, availability of banking services, usage of the banking system), India is categorised under the full financial inclusion or high financial inclusion and during 1987-1988 and 1989-2009 (Supply side dimensions such as: access to saving, access to insurance, bank risk), India is categorised under the low financial inclusion. Here, the major difference between the demand side and supply side indicators of Financial Inclusion Index during the period 2010 to 2012 is that, the India is categorised under the high financial inclusion in case of demand side dimensions but low financial inclusion in case of supply side dimensions.