Financial Inclusion and Poverty Alleviation in India: An Empirical Analysis Using State-wise Data

Abstract

Financial development is considered to be an integral factor in a country’s economic growth. Indeed, cross-country studies such as King and Levine (1993), Demirgüç-Kunt and Maksimovic (1996) and Levine and Zervos (1998), among others, find that higher levels of financial development are significantly and robustly associated with faster rates of economic growth (Bhattacharya and Sivasubramanian, 2003: 905). Moreover, there is much evidence for a strong and causal relationship between the depth of the financial system on the one hand and the investment, growth and total factor productivity on the other hand (Claessens, 2005: 2). Much of this evidence has focused on the importance of overall financial development. In many developing countries, however, the financial system at large does not cater to the needs of all customers, which tends to be skewed towards those already better off (ibid.: 2). Accordingly, in addition to financial development, ‘financial inclusion’ has received a great deal of attention as of late.