Digital Financial Inclusion and Economic Growth in India: An Empirical Analysis Using ARDL and Dynamic Causality Approach

Abstract

Purpose: This study investigates the impact of digital financial inclusion on economic growth in India. It aims to analyse how digital and financial development indicators influence economic performance in both the short run and long run.

Design/Methodology/Approach: The study is based on annual time-series data from 1990 to 2023 obtained from the World Bank World Development Indicators database. Digital financial inclusion is measured using internet users and mobile subscriptions, while financial development is captured through domestic credit and broad money. The study employs the Auto-Regressive Distributed Lag (ARDL) model, along with bounds testing, error correction modelling, and causality analysis to examine relationships among variables.

Findings: The empirical results reveal that digital financial inclusion and financial development have a positive and statistically significant impact on economic growth in India. Internet usage shows a strong contribution, indicating the importance of digital access in enhancing economic efficiency. The bounds test confirms the existence of a long-run relationship among the variables, while the error correction model indicates a stable adjustment process. The error correction term (ECM = –0.621) indicates a 62.1% speed of adjustment towards long-run equilibrium. Inflation negatively affects growth, whereas trade openness supports economic performance. The findings confirm both short-run dynamics and long-run equilibrium relationships.

Implications: The study contributes to the literature by integrating digital and financial indicators within a unified econometric framework using advanced time-series techniques. Policymakers should strengthen digital infrastructure, promote financial inclusion, and ensure macroeconomic stability to sustain growth.