Does PMJDY Scheme Augment Financial Inclusion in India? Evidence from Indian States

The study attempts to examine the impact of financial inclusion, promoted through Pradhaan Mantri Jan Dhan Yojna (PMJDY) scheme, on the economic performance across the Indian states. Using the index of financial inclusion developed in Sarma (2008), the current study develops a 3-dimensional FII for 25 major Indian states for the year 2011 and 2016 to assess the status of financial inclusion. Cross-sectional and pooled Ordinary Least Square regression techniques are applied to examine the impact of financial inclusion on the economic performance of the Indian states. The slope and interaction dummies are used to incorporate the effect of PMJDY scheme, which takes value 1 for structural change and 0 for the control period. The major findings of the study suggest the PMJDY scheme failed to augment financial inclusion in India in the short-run. Lack of physical infrastructure, human development and effective governance are the major reasons behind the failure of the PMJDY scheme. Hence, structural reforms are warranted in the regulatory framework for better economic outcomes.