By Niyati Agrawal, Dvara Research
Financial inclusion is a key aspect of sustainable economic growth. It helps households mobilise savings, smooth consumption and manage risks throughout their life cycles. To measure the extent of financial inclusion in a country, it is important to look at the participation of households across various financial instruments. In this research brief, we try to map the spread of assets and liabilities of households across various states of India to compare the differences in their participation across financial instruments.
To do this, we use the Centre for Monitoring Indian Economy’s Consumer Pyramids Household Survey (CMIE-CPHS) May’19 – August’19 data. CMIE-CPHS is a fast-frequency, large longitudinal data that is representative of the Indian economy that gives a comprehensive insight into consumer behaviour in saving, borrowing, and investment. The survey has a sample of 1,47,868 households, and we use weights to make the sample representative of the Indian population. Further, we correlate the percentage of participation with per capita Net Domestic Product (NDP) of states to see if there is an association between the wealth of a state and households’ participation across different financial assets and liabilities. We use per capita NDP (at constant prices) for the year 2018-19 for this analysis.
We find that both financial assets and liabilities are unevenly distributed across different states in India. Some of the worst performing states in terms of participation across financial instruments belong to the North-eastern region, which also has lower per-capita state NDP. While, fewer allocation of resources amongst the poorer states can explain these numbers to an extent, but it can’t explain the low participation across states like Sikkim and Gujarat whose per capita NDP is among the highest. Further, the participation of specific assets such as health insurance is commendable in states like Andhra Pradesh and Telangana with almost 100% of the households having at least one health insured member. Similarly, participation across Life Insurance is noteworthy in Rajasthan, even though the incidence of informal borrowing is much higher. This is suggestive of the role of the State Governments in improving access to different financial services. Finally, since the participation across financial products is also dependent on the demand for the product, the role of demand should be examined further especially for instruments such as Mutual Funds, Insurance, and Formal Credit.
To know more, please read our research brief on “How do the portfolios of Indian households differ across states?” here.
Click here to access the spread of assets and liabilities of households across various states of India.
 The per capita NDP figures used in this analysis are for the year 2018-19 (at constant prices), as data for most states was unavailable for 2019-20 as on March 15, 2020. These figures have been taken from: http://mospi.nic.in/data