Which states are the least (most) financially developed in India? To answer this question, I construct a Financial Deprivation Index (FDI); the higher the FDI, the less financially developed a state is. FDI is based on three dimensions: branch coverage, deposit mobilisation and credit disbursal. The first dimension relates to the financial infrastructure, other two are the variables relevant for the long-term saving, consumption smoothing and investment.
To construct the FDI, deprivation scores are calculated by dividing the population of each state by the number of reporting branches, total deposits and credit outstanding as on 31st March, 2017, respectively. A simple average of these scores would be misleading as they carry different units. To get around this problem, the scores are centred about the mean and normalised by dividing by the range. Finally, a simple average of the normalised score is calculated which serves as the Financial Deprivation Index.
So much for the data and methodology. As for the results, they are depicted in the map shown above. The least financially developed states in India are Manipur, Bihar, Assam, Nagaland and Uttar Pradesh.
The most financially developed states/UTs in India are Chandigarh, Goa and NCT of Delhi. Given the level of urbanisation, this is hardly surprising. Among the larger units, Punjab, Kerala, Haryana, Karnataka and Maharashtra are the most developed states. Somewhat surprisingly, hilly states such as Uttarakhand, Sikkim and Himanchal Pradesh have fared well.
One surprising finding of the analysis was the extent of heterogeneity in the North-Eastern states. Assam, Manipur and Nagaland figure among the least financially developed states in the country; Arunanchal Pradesh, Mizoram and Sikkim show decent performance in terms of FDI. Understanding the reasons of uneven development may provide valuable lessons for policy formulation.