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This research examines financial inclusion across eight states in Northeast India.

May 6, 2026

Financial Inclusion in Northeast India: A Multidimensional State-Level Analysis Using Sarma’s Distance Method

Key Points

This research examines financial inclusion across eight states in Northeast India.
Utilizes Sarma’s Distance Method to measure financial inclusion.
Data sourced from RBI, NABARD State Focus Papers, and Census data.
Adopts a multidimensional approach including banking penetration, availability, and usage.
Sikkim and Mizoram show medium financial inclusion with FII scores of 0.58 and 0.523 respectively.
Nagaland, Arunachal Pradesh, and Meghalaya display low financial inclusion with FII scores below 0.3.
Findings indicate significant disparities and highlight a need for targeted policies in lagging states.

Abstract

Financial inclusion particularly in regions with socio-economic challenges such as Northeast India, is a critical primary driver of social development and economic growth. This study seeks to analyses the financial inclusion across eight North-Eastern states of India- Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Tripura, Sikkim- by using a multidimensional approach which comprises three key dimensions of financial inclusion: Banking penetration, availability, and usage. Data were collected from secondary sources, including Database on Indian Economy (RBI), NABARD State Focus Papers and Census data. As the sample size is small and low correlation among variables, Principal Component Analysis (PCA) was not suited. Therefore, the study uses Sarma’s distance method (2008) to construct Financial Inclusion Index (FII) for eight states. The result of the study reveals significant disparities across states: Sikkim (FII= 0.58) and Mizoram (FII= 0.523) show high financial inclusion among the eight states and fall in medium inclusion category, because of robust banking access and penetration, while Nagaland (FII= 0.16), and Arunachal Pradesh (FII= 0.273), and Meghalaya (FII=0.192) display low financial inclusion, which reflects limited banking infrastructure and usage. Assam, Manipur, and Tripura fall in medium financial inclusion. The findings of the study underline the need of effective policy in lagging states to improve access and usage of financial services. The study contributes to the existing knowledge by providing a comparative state-level analysis of financial inclusion in North-East India, which helps policymakers, financial institutions and researchers in designing financial inclusion strategies.

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