Covid-19 crisis: Only 46% women with Jan Dhan accounts withdrew money

The low level of withdrawals has surprised the government
Though women holding Jan Dhan accounts have already received two instalments of Rs 500 from the government as part of the Covid-19 relief package, only about 46 per cent have withdrawn the money, as of May 20. The government is transferring the money, amounting to Rs 20,000 crore, to women who hold the no-frills bank account over the months of April, May, and June. 

The slow pace of withdrawals confirms what Reserve Bank of India Governor Shaktikanta Das stated in his monetary policy statement on Friday: “Private consumption has suffered a precipitous decline.” 

The low level of withdrawals has surprised the government. The data has been gleaned from 20.05 crore Jan Dhan accounts after two instalments of the grant had been released. “We had expected the trend to be muted after the first instalment, but the withdrawal was expected to rise after the next one,” said a government official. 

NR Bhanumurthy, professor of economics at the National Institute of Public Finance and Policy, says that the data is “surprising” 

Government officials said this could mean that there would be a similar trend of slow withdrawals by those who receive income support through other schemes such as MGNREGA. The budget for MGNREGA has been hiked by an additional Rs 40,000 crore to the Rs 70,000 crore projected in Budget 2020-21 as part of the government’s economic package in response to the coronavirus pandemic. 

“The quantum jump in MNREGA will add to the relief for workers and also sustain demand for the economy,” said CII President Chandrajit Banerjee after finance minister Nirmala Sitharaman’s announcements. 

However, the sluggish withdrawal rate indicate that those at the lowest end of the income groups are opting to save more of their meagre income than spend it. In other words, their marginal propensity to consume (MPC) seems to be declining owing to the income shock they suffered in the wake of the lockdown. 

Under normal circumstances, as one goes down the income ladder, people are more prone to spending more rather than saving, simply because they need to spend a greater part of their limited resources to finance their daily needs. Sajjid Chinoy, chief India economist at JP Morgan, estimates that the long-term MPC of the Indian population is about 0.7 per cent. In other words, Indians spend 70 per cent of what their earn. 

This is not unusual, since countries with a low per capita income or those with a younger population, are expected to have a higher MPC than that in developed economies like, say, Japan, Italy, and Germany, which also have a high percentage of people above 65 years of age.   

In India, if the poorest continue to withdraw money from their bank accounts at a tepid rate, thereby suggesting a falling MPC, household spending will remain anaemic. This does not bode well for the corporate sector which has been pushing the government to put more money into the hands of the people to spur demand and create a virtuous cycle of spending in the economy.

Again, since the trend is also likely to be reflected amongst the relatively higher income groups, FMCG and other companies which produce all sorts of goods will have to curtail their hopes of recovery. Companies in the FMCG, digital and related sectors had expected their top line to expand as the government sent out these cheques. But that may not happen anytime soon. 

However, Bhanumurthy feels that spending may pick up in the near future. “The lockdown has made it difficult for people, especially women, to come out of their homes. They will depend on their immediate cash holdings initially, and then come to the banks to withdraw money when more tranches arrive.” He also said that banks often don’t want to spend on sending out SMSes to the account holders, intimating them about deposits into their accounts. “This, too, is a pervasive problem,” he said.  

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