Does Digital Financial Inclusion Enhance The Economic Growth in Indian States?
DOI:
https://doi.org/10.69980/amq4f213Keywords:
DFI Index, Digital banking, Digital Penetration, Economic Growth, Inclusive EconomyAbstract
Economic growth is a strength for the country with prosperity and develops the public welfare. Growth empowered with digital financial inclusion enhance the living standard of people by converting the unbanked population into digital banking activities, expand the economic activities and a crucial pathway towards achieving the sustainable development. Among the growing nations, India now taking the limelight in world-wide due to its expansion of economy with innovative strategy. This study empirically examines the effect of Digital Financial Inclusion (DFI) on the economic growth of 20 major Indian states, using panel data over the period 2014-2024. A multidimensional index of DFI is constructed based on the dimensions like financial accessibility, financial depth, digital penetration and government initiatives by using PCA (Principal Component Analysis) method. The econometric estimation procedures, such as FE (Fixed Effect), RE (Random Effect), PCSEs (Panel Corrected Standard Errors) and GMM (Generalized Method of Moment) estimates have been followed to find the result. The empirical findings of these panel regression models indicate that DFI exerts a positive and statistically significant impact on state-level GDP even after considering regional variations and possible endogeneity. Digital penetration enhances the inclusivity in access and usage to financial services through multiple channels, which brings the economic prosperity for the country. Regulatory, in turn, Capital formation, fiscal discipline and urbanization help the economic performance, whereas inflation, inadequate R&D expenditure, and low literacy levels are detrimental to growth. Overall, the results indicate that DFI is a powerful engine of economic growth in India; thus, to have a better, more inclusive, and robust economy, the policy needs to be directed towards the enhancement of digital infrastructure, better financial and digital literacy, and innovation.
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