Tracking Financial Inclusion in India: A Study of SHG Initiatives

Abstract

The objective of this study is to scrutinize the status, impact and constraints associated with the process of “inclusion” in rural financial sector in India and to identify key bottlenecks that constrain the effectiveness of the policy. This study attempts to construct a comprehensive measure of financial inclusion with special focus on SHGs for 20 major states in India from year 2008 to 2012 using principal component analysis. It also aims to examine causal relationship between financial inclusion and other development processes such as agricultural and industrial growth and access to elementary and secondary education across states. A previous study on panel data claims that financial inclusion improves agricultural growth and improvement in elementary education. This article through an empirical analysis, however, contests such a two-way causality.