Financial inclusion, Its determinants and impact on economic growth: an empirical study of India with Reference to BRICS economies

Abstract

Desire for a financially inclusive economy has been the foremost priority; however, the road to achieve financial inclusion is not so easy. This research is an attempt to identify the determinants of financial inclusion. Indian economy has been treading on the path of financial inclusiveness. This study tries to analyse financial inclusion by collecting data through a questionnaire to examine the status and relation of determinants of financial inclusion with Economic growth. In the later part an effort is made to examine financial inclusion in BRICs economies, using secondary data. This will help in presenting a true and holistic picture of financial inclusion in India in relation to other BRICS economies and also help to create a model associating determinants of financial inclusion with economic growth. The first step to increase financial inclusion is to increase the access to financial services. Hence, the first determinant of financial inclusion considered in this study is access to financial services. A five-point Likert scale has been employed for assessing the relation among determinants of financial inclusion and economic growth. Usage, Digitalisation and FinTech are included as important dimensions of access to financial services. Any effort towards financial inclusion will be incomplete without considering financial initiatives. Hence, another important determinant of financial inclusion considered is financial initiatives. Financial initiatives cover two important dimensions, viz. financial Policy and financial schemes. The third important determinant of financial inclusion considered in the study is financial literacy. Financial literacy covers two dimensions, Financial Inclusion Awareness and Financial Inclusion competency. Financial Inclusion awareness focuses on primary knowledge and deeper understanding and knowledge is covered through competency. The study examines the relation among determinants of financial inclusion and economic growth. The research also examines the mediation of financial literacy among Access to financial services and economic growth. For financial initiatives a direct relation is observed with economic growth. Moreover, adequate research has not been done for examining relation among determinants of financial inclusion in BRICS economies. Initially for comparing financial inclusion of India with Brazil, Russia, China and South African’ economies, the variables included are: i) the number of depositors and ii) ATM/user iii) Broad Money;iv) Bank Branches; v) Domestic Credit to Private Sector; vi) Internet Users; vii) Inflation; viii) Exchange Rate. Results depict that cross section random model is good fit when using GDP as the dependent variable and also in case of GDP/Capita too. The results support that determinants of financial inclusion assist in enhancing economic growth. The study thus, presents a holistic view of financial inclusion status in India and financial inclusion in BRICS economies. The results will help focus on certain determinants like institutional credit, increasing depositors and increasing awareness through certain macro-indicators like inflation rate and exchange rate. These results are important for policy makers and practitioners.