Does financial inclusion affect household welfare? A comparative analysis of rural and urban households in India

Using data from the 77th round of the All India Debt and Investment Survey (AIDIS) conducted by National Sample Survey Organisation, the study investigates whether there is an association between financial inclusion and household welfare among rural and urban households in India. It is found that financial inclusion has a positive and significant impact on monthly household consumption expenditure of both rural and urban households. Different channels of financial inclusion: (a) Having a bank account, (b) having taken formal credit, (c) owning a debit or credit card and (d) e‐wallets are found to have positive association with consumption expenditure, albeit with different intensities. Financial inclusion is found to have a differential impact across rural and urban households. For both rural and urban sector, it is found that female‐headed households are likely to have lesser monthly consumption expenditure than male‐headed households. In the light of these results, we recommend (a) supply side factors, such as broadening access and quality of banking and financial services, improving access to credit and digital financial products; and (b) demand side factors, such as advancing financial literacy, enhanced employment opportunities for female‐headed households.