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Financial inclusion means that “individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way” (World Bank, 2019). A major chunk of people are still outside the purview of global financial system. Approximately 70 percent of the population do not have any access to banking services across the world (Stein, Randhawa & Bilandzic, 2011). There is a similar tale for India. According to Financial Inclusion Insights (FII 2017), only 53 percent of Indian adults have a formal account (bank, credit union, cooperative, post office or microfinance institution) in 2014. About 30 percent of adults have access to digital accounts and less than one percent of them use mobile banking. As Former Reserve Bank of India (RBI) Governor, Raghuram Rajan opined that financial inclusion is an essential basis to ensure impartial growth, improved conditions for micro, small and medium enterprises (MSME) and better reach to poor and neglected parts of India. Several policy measures have been undertaken to create inclusive financial sector including nationalization of banks (1969), priority sector lending, introduction of regional rural banks (1975), Self Help Group – Bank linkage program (1989), service area approach (1989). To strengthen the poor and neglected, banks were asked to offer no frills account with zero balance in 2005. In 2006 came the concept of ‘Business Correspondent Model’ which helped the banks to undertake branchless banking in remote areas on the recommendation of Khan Committee (Khan, 2011). In 2009, Unique Identification Authority of India (UIDAI) came out with their ambitious project called Aadhaar to resolve the issue of identity requirements and bring neglected sections under purview of formal system. Started in 2010, Financial Inclusion Plan (FIP) was one of its kind initiative wherein banks were required to set inclusion targets for every three years and incorporate in their operations. Post Andhra Pradesh crisis 2010, regulations were stated for Non-Banking Finance Companies at par with Microfinance institutions. In 2011, RBI introduced strict regulations to cater prominent issues in microfinance industry i.e. exorbitant interest rates, ghost borrowers, excessive borrowings, and exploitative practices etc. and provide them with level playing field (Malegam, 2011). Attempts were made to inculcate education about financial system, available products and services through financial literacy programs and customer protection was ensured through banking ombudsman system. In 2014, a flagship programme called Pradhan Mantri Jan Dhan Yojna (PMJDY) was introduced to provide no-frill accounts and set the groundwork for transfer of social security benefits like cooking gas subsidy, pension, insurance etc. The account holder would receive additional benefits like RuPay debit card, accident insurance, overdraft facility and life insurance cover (GoI, 2016). About 0.3389 billion beneficiaries have been covered and Rs 879.34 billion have been collected as on 16 January 2019 (MoF. nd). In a nutshell, India is leaving no stone unturned to create an inclusive environment for almost half of the population who is still excluded. Different policies and programmes to reach the remotest location are introduced by the regulators and government from time to time.
In this current framework, our study makes an attempt to judge the level of financial inclusion, comparative position and rate of growth in index of financial inclusion (IFI) scores of 32 Indian states/ union territories (UT) during 2000-01 to 2016-17. The index of financial inclusion is calculated using three dimensions as per Sarma (2012) methodology. Log linear regression model is used to determine the growth rate in the measure of inclusion. It is observed that the value of financial inclusion index has enhanced in twenty eight states/union territories and declined in four states/union territories. There is significant positive growth in as many as 23 states/union territories while significant deterioration is seen in Chandigarh only.