Household stress deepens as pandemic lengthens

Time to give Payments Banks a simpler, stable regulatory regime


• Latest data shows economic growth hit across the globe
• In India, both manufacturing and services continue in contraction mode
• Some like Deepak Parekh expect sharp recovery; GST collections at 95% of the pre-COVID average
• Monsoons somewhat below normal in July, expected to be normal in August
• A quarter of returned migrants looking for job opportunities in rural areas
• Average bank balances in PMJDY accounts have increased, expected to fall till harvest season
• Government focused on eliminating DBT transaction failures;

August 2020

Each country is choosing its own strategy to combat the virus, but lockdown or no lockdown, economies worldwide are spiralling downwards, as the pandemic refuses to show signs of an end. In July, India’s IHS Markit Manufacturing PMI contracted for the fourth straight month, while the Services PMI continued its contraction streak since March. Despite the negative growth estimated this year, some are optimistic of a sharp recovery – Deepak Parekh points to factors such as lower unemployment rates compared to May peak, higher e-toll and e-way bill collections, GST collections back to Rs. 90,000 crore levels etc. Hope is pinned on rural India for bailing the economy out, as indicated by good monsoon, higher tractor and seed sales, highest ever MGNREGA wages, higher MSPs and procurement, government stimulus etc.

However, even as positive datapoints are coming through from the rural economy, the pandemic is leaving a deep and long-lasting impact on the incomes of vulnerable segments. A collaborative study by Aga Khan Rural Support Programme India and others showed that more than one-fourth migrants were still looking for work in their villages, and rural households are facing severe financial distress although the grain availability from the Public Distribution system had improved. Schemes announced by the government do take time to reach the beneficiaries, for example, while banks have sanctioned loans under the ECGLS to 39.67 lakh MSME accounts, just around 55% were disbursed as of August 3rd. A study by Dalberg of government entitlements to low-income households, covering the period till early-June, shows up some of the challenges in delivery. PMJDY accounts have now crossed 40 crore and Anand Raman has an excellent graph on the average balance over time, clearly the Pradhan Mantri Garib Kalyan Yojana has brought more into the banking system. However, while the initial rise in account balances was surprising, it is likely that average account balances will fall till the harvesting season begins.

The DBT Mission has been working diligently over the years to clean out the glitches in implementation of government pay-out schemes and Arun Sharma, Director, DBT Mission, Cabinet Secretariat, has written an honest appraisal of the reasons behind transaction failures. What stands out is that the move towards perfection is driven by concern for the end-user, as he notes,

Although transaction returns/ failures have reduced significantly over the years due to improvement in payments systems and monitoring, every payment failure is a concern as these payments are meant for the most vulnerable population.”

We can only hope that this concern drives each and every player in the transaction chain to remove their clogs asap and money released by the government reaches the intended beneficiary.

On July 23rd, in an Inclusive Finance India Webinar on “ Sustaining the Informal Sector: Building their Financial and Economic Resilience”, the following recommendations were made: the pandemic has shown the urgent need to focus on basic healthcare and education and our growth model has to be restructured to include these aspects, policy decisions should focus on rural areas to boost the economy, social security programmes should cover the urban poor too, the private sector should be allowed to deliver without regulatory capture, there are massive challenges that call for a proactive, light touch role for the state. (Moderator: Laveesh Bhandari, Indicus Foundation. Panelists: Ajit Pai, Niti Aayog; Shamika Ravi, Brookings India; D. Narendranath, Pradan; Anand Shrivastava, Intercorp Group).


A new credit platform for small businesses is on the anvil from ISPRIT. Announced by Nandan Nilekani at the Global Fintech Festival 2020, the ‘Open Credit Enablement Network (OCEN) protocol aims at democratising access to credit using the Account Aggregator model. Just as UPI has changed the game for digital payments, the OCEN protocol is expected to revolutionise credit for MSMEs. At this point, the recent report, India’s New Approach to Personal Data-Sharing, by Leena Datwani and Anand Raman is a good read.

Some Other Highlights

•  Bornali Bhandari, Santanu Pramanik and Sonalde Desai from NCAER report findings from their evaluation of Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) in the pandemic
• RBI released the Financial Stability Report, July 2020, highlighting the need to focus on financial inclusion: “ Going forward, the major challenges include pandemic-proofing large sections of society, especially those that tend to get excluded in formal financial intermediation.
• Azim Premji University’s Centre for Sustainable Employment has made available a compilation of studies analysing the impact of Covid-19 and relief measures, including their work
• Digital payments have taken off in India as UPI transactions hit a new high in July
•  Whatsapp is all set to launch payments services too

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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