Strain of Managing Finances Hits All - Government, Firms & Families

Time to give Payments Banks a simpler, stable regulatory regime

September 2020

India’s growth plunged in the first quarter of the year, with GDP contracting by 23.9% YOY. However dramatic the number, remember these are exceptional times and growth estimates must be read with caution – in fact, we should expect estimates for this year and the next to be extremely volatile, with heavy revisions over time. Current GDP and inflation estimates are fragile - the county was in a full lockdown for 68 days and continues to unlock slowly and unevenly across the country; we have disrupted labour flows, broken supply chains, deep credit stress, tremendous uncertainty in demand and difficulties in sourcing data as field surveys remain incomplete.

With the economy opening since July, signs of recovery are still tentative. Even with record acreage under Kharif cultivation, incessant rains across the country will buffer the potential increase in actual output and rural incomes. Auto sales have sprung back in August, especially tractor sales, and national highway tolls are up, close to pre-COVID levels . The brightest light comes from the PMI Manufacturing Index at 52, breaking the five month contraction streak, while business activity still lags, the Services Index jumped to 41.8, its highest level since March.

The bottom line, as we move through these uncertain times, is that, from households to enterprises to governments, the strain of managing finances is showing on all. We believe the buck stops at the central government (Also read V. Anantha Nageswaran on GST compensation and shortfall in GDP growth, Uday Kotak on reviving demand.)


On the backdrop of a highly stressed economy, usage of digital payments, particularly through UPI, has stepped up and we finally see long overdue policy initiatives come through from the RBI – one, the Reserve Bank of India released the  ‘framework for authorisation of pan-India Umbrella Entity for Retail Payments’, breaking the monopoly of NPCI; and two, a  draft framework for grant of recognition to an industry association as a Self-Regulatory Organisation for Payment System Operators is open for public feedback by September 15th. In another long overdue move, the RBI is working on facilitating offline modes of digital payments to bring rural users into the fold; a pilot scheme is in the offing that will allow storing transaction data on the terminal for small value payments, to be sent for processing once connectivity is restored.


Last month marked six years since the launch of the government’s financial inclusion flagship programme, Pradhan Mantri Jan Dhan Yojana, that has had phenomenal success in taking financial services to the last mile. In August 2020, 86.3% of the 40.35 crore PMJDY accounts were operative, with the average balance per account rising to Rs. 3,239, from Rs. 1,279 in August 2015. Our assessment of the way forward remains the same as last year – the new benchmark should not be improvements relative to the past, it lies in improvements that can help the Indian masses meet their full potential. We categorized these improvement into four buckets – prices, connectivity, monitoring, and collaboration (Read Indicus Policy Brief February 2019.)

Some Other Highlights

• With the growing adoption of digital payments, it is even more important to fix the frictions that mar smooth transactions. The current status has been put together in an ORF Special Report by Shivani Mittal and Aman Grover.
• A CGAP Working Paper, “(Un)stacking Financial Market Infrastructure” by William Cook, Dylan Lennox, and Anand Raman looks at questions of ownership, governance, economics, regulation, and political economy that are crucial to scaling effective financial infrastructures that work for poor people.
• Yamini Aiyar makes the case for reimagining India’s welfare toolkit to overcome the lapses that have come out starkly over the past few months.
• Without the fiscal resources, the central and state governments cannot come through on inclusive measures to support low income households. Read Niranjan Rajadhyaksha: The way out of the GST impasse, Vijay Kelkar and Ajit Ranade: GST reform needs a new grand bargain

Editor: The Indicus Centre for Financial Inclusion was launched in 2011 to distil and disseminate information on accelerating the poor’s access to high-quality financial services. ©Indicus Centre for Financial Inclusion. All rights reserved. 4thJanuary 2019

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