RBI Boosts Pre-Festival Cheer, But Incomes Hit By Job Losses

Time to give Payments Banks a simpler, stable regulatory regime

October 2020

Monthly Financial Inclusion News and Analysis by Sumita Kale

India is limping back to pre-COVID normal as activity resumes in all sectors across the country. All data that comes through these days should be read with caution, impacted by an unusually high base effect, with the economy moving out of unprecedented lockdown. So, even with seemingly bright spots, we should keep in mind that there is no growth spurt as such, India is only returning to its pre-COVID levels of economic activity faster than expected.

We find encouraging trends towards a quicker recovery - the Markit PMI Manufacturing Index rose to 56.8 in September; the Services Index went up for the fifth straight month, but at 49.8, remained a tad short of expansion. A number of high frequency indicators moved upwards in September - GST collection, auto sales, freight loading, e-way bills, power consumption. The reason we can expect a faster turnaround now is that the states that underpin India’s growth have eased almost all restrictions; Google data shows that workplace mobility in six main states recorded its highest since March. Though we expect the upcoming festive season to be muted compared to previous years, with a bumper kharif crop and higher MSPs there should be more cheer than was anticipated earlier .

On the other hand, delayed payments and job losses will weigh heavily on Indian household spends. CMIE data shows that employment increased in September, but the increase was skewed in favour of low-quality jobs, mainly in rural areas and there was a sharp fall in urban workforce. We are clearly a very long way from equitable employment and growth.

The government has taken arguably limited steps to combat the hit on incomes (See statements by the Ministry of Finance on growth and DBT, and on the Atma Nirbhar Bharat package). Admittedly the bulk of the efforts in the past was related to liquidity enhancement, but recent statements indicate an additional package of Rs 10 trillion in the offing.

However, a macroeconomic package may not immediately impact those at the bottom of the pyramid. Also, poor enforcement of existing laws, and inefficient processes have created significant delivery gaps in both rural and urban India. While the pandemic will be behind us someday, these systemic challenges have to be addressed for the full impact of government schemes. Read more in these two pieces - Covid19 and the Urban Poor: India’s nowhere people and Covid layoff: Workers unable to get unemployment allowance under ESIC’s ‘Atal Bimit Vyakti Kalyan Yojana’.


The RBI Monetary Policy Review on 9th October has come through with some excellent moves encouraging liquidity to put growth back on track (Read Renu Kohli, Soumya Kanti Ghosh). One announcement of particular interest to us removes business uncertainty for Payment Systems Operators – authorisation will now be valid on a perpetual basis, subject to certain conditions – no fixed period validity for licenses anymore. Currently, on-tap licenses for up to five-year terms are being issued to non-banks issuing Prepaid Payment Instruments, operating White Label ATMs or the Trade Receivables Discounting Systems, or participating as Bharat Bill Payment Operating Units. This move acknowledges the changing dynamics of regulatory capacity and market and will boost investment and innovation in digital payments.

We measure financial inclusion by provision of bank accounts and credit on priority. But, for meaningful inclusion, we must work towards improving the earning potential of low-income households. Last month, the Parliament passed three bills related to agriculture trade and contract farming and three labour codes on social security, industrial relations, and occupational safety. Liberalisation of agricultural marketing and rationalisation of labour laws are long overdue. However, as pointed out by Ashok Gulati for the farm bills and Gautam Chikermane and Rishi Agrawal on the new labour laws, the real impact on jobs and incomes will depend on the actual implementation and regulation by the central and state governments.

The usage of UPI surged ahead with more than 1800 million transactions in September, and FIS Global reports that India leads the world, processing 41 million real-time transactions a day. Yet, the potential for financial inclusion stays restricted as India is still to get a clear data protection and privacy policy in place. The framework proposed by Niti Aagyog may help improve India’s data protection standards, which are quite low currently by global benchmarks. A recent survey by CGAP and Eko Financial Services shows that low-income consumers do value privacy; an explicit recognition of these concerns by policy makers and service providers will help spur adoption of digital financial services. The growing popularity of UPI shows that India has given the world a powerful innovation in digital payments – read Rouhin Deb in the Mint on bridging the financial divide digitally.

Some Other Highlights

•  Banks lend 5% more to MSMEs in July from year-ago period even as credit growth contracts in FY21 so far.
• A report by Anurodh Giri and Ritesh Rautela from MicroSave puts together the challenges in fertiliser subsidy reform, and outlines the necessary steps forward.
• Faced with a growing clamour for an urban jobs scheme, the Central government has indicated such a programme is not feasible at this point in time.
• A MicroSave blog post, “Gender: The Blind Spot of the COVID-19 Response in Low- and Middle-Income Countries” brings out the unequal impact of the pandemic on women, calling for more gender-sensitivity in policy and measures.
• A comprehensive national assessment conducted by National Campaign on Dalit Human Rights finds that inadequate awareness and coverage of the scheme significantly limited the capacity of the marginalised to take advantage of government schemes during the pandemic.
• The Capgemeni World Payments Report 2020 predicts a CAGR of 12% for global non-cash transactions for the period 2019-2023, with Asia-Pacific leading the charge away from cash.
• The RBI is bringing in a Positive Pay System for Cheque Truncation System from January 1, 2021.
• CGAP has brought out a practical guide for policy makers on how to build a regulatory sandbox.

Editor: sumita@indicus.org 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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