Working paper 210: Role of ICT Dissemination and Digital Finance in Poverty Eradication and Income Inequality Reduction: A Sub-national Level Study from India

Role of ICT Dissemination and Digital Finance in Poverty Eradication and Income Inequality Reduction: A Sub-national Level Study from India

Simontinti Das and Amrita Chatterjee

Abstract

Information and Communication technology (ICT) can boost economic growth and at the same time can create digital divide. The present paper explores both direct impact of ICT dissemination and its indirect impact through the channel of digital finance on poverty eradication and income inequality reduction at the sub-national level in India, considering rural-urban bifurcation. States are classified according to the incidence of poverty and income inequality. Ordered probit estimation confirms that the spread of ICT dissemination directly reduces the persistence of poverty in both urban and rural areas. Moreover, the application of ICT innovation in the financial sector or digital finance also has a positive impact on poverty eradication. However, in case of inequality removal, ICT innovation has no direct impact, though financial inclusion reduces inequality in both rural and urban areas. Interestingly, ICT diffusion in the banking sector dampens the positive role of financial inclusion on urban inequality reduction, whereas it has no impact on rural inequality. An important policy prescription should be strengthening ICT infrastructure along with a wider and uniform spread of digital finance among rural as well as urban populations so that more people can take advantage of ICT diffusion.

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