Deposits In Jan Dhan Accounts Stagnate After Cash Transfer Boost 
An employee serves customers inside a branch of Gramin Bank of Aryavat (GBA), sponsored by Bank of India, in Khurana, Uttar Pradesh, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

Deposits In Jan Dhan Accounts Stagnate After Cash Transfer Boost 

Prime Minister Narendra Modi’s flagship scheme, the Pradhan Mantri Jan Dhan Yojana has seen savings stagnate since August. While deposits surged earlier in the year as the government announced cash transfers as part of its Covid relief program, balances have since diminished, which some attribute to a decline even in rural incomes.

Between August and December so far, deposits in Jan Dhan accounts rose just 0.65%, compared to a growth of nearly 7% in the corresponding period last year. Between March and June, when cash transfers were announced, deposits in these accounts rose 12%, according to the latest bank-wise deposit data available on the PMJDY website.

As of December, there were 41.38 crore Jan Dhan beneficiaries with a total of 1.31 lakh crore balance in their deposit accounts. The average account balance in Jan Dhan accounts rose 9% to Rs 3,164 in December, compared to Rs 2,893 last year. The average account balance at the peak in June was at Rs 3,357.

“Lower incomes in the rural areas have led to lower savings, which is evident in the stagnating deposit growth in Jan Dhan accounts,” said Abhijit Sen, president of the Indian Society Of Agricultural Economics, and former member of the Planning Commission.

India’s rural economy has fared better than urban areas amid the spread of the Covid-19 virus, as farm income improved on a healthy monsoon and the government stepped in to increase budgets for the rural jobs guarantee scheme. Together with cash transfers, these factors helped support rural incomes in the early month of the pandemic when the country saw large reverse migration.

Since then, the supply of work under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) has fallen short of demand while cash transfers have ended. The end of the harvest season, too, may have impacted deposit flows into these accounts, a large proportion of which are from rural areas.

“While the unemployment remained high, a lot of migrant workers who had earlier contributed to their rural household income, are now out of jobs or in lower-paying jobs, and that also depleted savings as the overall spends of families went up,” said Sen.

Data from the CMIE shows that the unemployment rate in rural areas fell to 5.86% in September but has since inched up to 6.9% and 6.26% in October and November respectively.

Higher Consumption?

The other reason, according to Udaya Kumar Hebbar, managing director and chief executive officer of micro-finance institution CreditAccess Grameen, is also because consumption spending has improved in the rural areas.

“A good monsoon has meant more income in the hands of farmers, and as uncertainties due to the pandemic slowly fade away, more people are spending freely on goods and services, which has resulted in higher withdrawals from bank accounts, including the Jan Dhan accounts,” he said.

According to an estimate provided by CARE Ratings in its September note, farmers could use about Rs. 26,600 crore for consumption spending, as the disposable income in their hands was expected to increase by about Rs 40,000 crore in 2020-21, on higher farm output. “A little over 45% of Rs. 26,600 crore could be expended on clothing and footwear (25%) and durable goods (22%) (automobiles, electronics etc.) ahead of the festive season and pent up demand during the lockdown period,” it said.

Further, the trend of stagnating growth in deposits can be seen across the board in recent months after an initial build-up of precautionary savings, said Pallav Mohapatra, managing director and chief executive officer at Central Bank of India.

“As the economy opens up and consumption spending returns to normal levels, the trend of higher account withdrawals will continue, and slowly the gap between credit and deposit growth will also start narrowing down as consumption returns to normal levels,” said Mohapatra.

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