India’s growth plunged in the first quarter of the year, with GDP contracting by 23.9% YOY. However dramatic the number, remember these are exceptional times and growth estimates must be read with caution – in fact, we should expect estimates for this year and the next to be extremely volatile, with heavy revisions over time. Current GDP and inflation estimates are fragile - the county was in a full lockdown for 68 days and continues to unlock slowly and unevenly across the country; we have disrupted labour flows, broken supply chains, deep credit stress, tremendous uncertainty in demand and difficulties in sourcing data as field surveys remain incomplete.

With the economy opening since July, signs of recovery are still tentative. Even with record acreage under Kharif cultivation, incessant rains across the country will buffer the potential increase in actual output and rural incomes. Auto sales have sprung back in August, especially tractor sales, and national highway tolls are up, close to pre-COVID levels . The brightest light comes from the PMI Manufacturing Index at 52, breaking the five month contraction streak, while business activity still lags, the Services Index jumped to 41.8, its highest level since March.

The bottom line, as we move through these uncertain times, is that, from households to enterprises to governments, the strain of managing finances is showing on all. We believe the buck stops at the central government (Also read V. Anantha Nageswaran on GST compensation and shortfall in GDP growth, Uday Kotak on reviving demand.)

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On the backdrop of a highly stressed economy, usage of digital payments, particularly through UPI, has stepped up and we finally see long overdue policy initiatives come through from the RBI – one, the Reserve Bank of India released the ‘framework for authorisation of pan-India Umbrella Entity for Retail Payments’, breaking the monopoly of NPCI; and two, a draft framework for grant of recognition to an industry association as a Self-Regulatory Organisation for Payment System Operators is open for public feedback by September 15th. In another long overdue move, the RBI is working on facilitating offline modes of digital payments to bring rural users into the fold; a pilot scheme is in the offing that will allow storing transaction data on the terminal for small value payments, to be sent for processing once connectivity is restored.  

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Last month marked six years since the launch of the government’s financial inclusion flagship programme, Pradhan Mantri Jan Dhan Yojana, that has had phenomenal success in taking financial services to the last mile. In August 2020, 86.3% of the 40.35 crore PMJDY accounts were operative, with the average balance per account rising to Rs. 3,239, from Rs. 1,279 in August 2015. Our assessment of the way forward remains the same as last year – the new benchmark should not be improvements relative to the past, it lies in improvements that can help the Indian masses meet their full potential. We categorized these improvement into four buckets – prices, connectivity, monitoring, and collaboration (Read Indicus Policy Brief February 2019.)