Jan Dhan account holders women have received two installments of Rs 500 from the government under the Covid-19 relief package. But till May 20, only about 46 percent have withdrawn this money. The government is sending Rs 20,000 crore to Jan-Dhan account holders women in April, May and June. The sluggish pace of withdrawal confirms the statement of Reserve Bank of India Governor Shaktikanta Das. Das said in his monetary policy statement on Friday, "There has been a huge decline in private consumption."
The government is taken aback by the low clearance. These figures have been collected after sending two installments to 20.5 crore Jan Dhan accounts. A government official said, “We were expecting the trend to remain weak after the first installment. But the withdrawal was expected to increase after the second installment. NR Bhanumurthy, a professor of economics at the National Institute of Public Finance and Policy, said the figures are "shocking".
Government officials said that this could also mean that other people who would get income support through other schemes like Manerga, their withdrawals could also remain sluggish. Keeping in view the coronavirus epidemic, the allocation for MNREGA has been increased by Rs 40,000 crore in the economic package provided by the government. This amount is in excess of the estimated Rs 70,000 crore in the 2020-21 budget. After the announcement by Finance Minister Nirmala Sitharaman, Confederation of Indian Industry (CII) President Chandrajit Banerjee had said, "The huge increase in allocation for MNREGA will provide relief to workers and demand will remain in the economy". However, the sluggish rate of withdrawal indicates that poor people are preferring to save their marginal income rather than spending it. In other words, it seems that their marginal propensity to consume (MPC) is decreasing, due to which the lockdown is going to shock their source of income.
Under normal circumstances, the lower the level of income, the more it spends rather than saving. This is because they have to spend a large part of their limited income to meet their daily needs. JP Morgan's lead economist in India Sajid Chinoy estimates that the long-term MPC of the Indian population is around 0.7 per cent. In other words, Indians spend 70 percent of what they earn. However, this is not uncommon in India because countries with low per capita income or young population are more likely to have MPC than developed economies like Japan, Italy and Germany. These developed countries have a higher percentage of population over 65 years of age. In India, if the withdrawal of poor people from their bank account remains sluggish further, it means that the MPC is decreasing. This will reduce the cost of families. This is not good for companies, who are pressurizing the government to pay more money in the hands of the people so that demand can increase and a good cycle of spending can be created in the economy. This trend is expected to be seen in the relatively high income groups, so FMCG and other companies producing all types of goods will have to avoid high expectations of improvement. Companies in FMCG, digital and other sectors had speculated that their income would be increased by the government sending money directly to the people, but this is not likely to happen soon.
However Bhanumurthy believes that spending may increase in the near future. He said, 'The lockdown has made it difficult for people, especially women, to get out of the house. They will initially depend on the cash they hold. They will come to the bank for withdrawal after further installments. ' He said that in order to keep their costs down, banks do not send information to these account holders about the deposits in their accounts. He said, "This is also a widespread problem."
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