Rural economy hinges on DBT money as remittances come to a complete halt

As the entire country struggles to cope with the economic effects of the novel coronavirus pandemic, rural India is pinning its hopes on financial support from the government for survival. Banks, business correspondents and the government machinery are working on ensuring that cash transfers made by the government actually land up with the poorest section of the country and help them survive this crisis.

While government support can ensure survival, the complete drying up of remittance inflow, stoppage of trade and consumption in rural areas could spiral the rural economy into a major tailspin, fear industry executives who manage banking services in rural India.

“Usually around Rs 10,000 gets sent back to family members in villages every month by migrant workers. This has completely dried up, below poverty line families are now solely dependent on the government’s direct benefit transfer for survival,” said Seema Prem, chief executive officer of FIA. FIA offers last-mile banking services in rural areas.

As per industry estimates, there has been more than 80 percent drop in overall remittance volumes and there are no signs of this coming back. While COVID-19 has ensured that factories and construction sites have stopped functioning, the following lockdown has caused workers to head back to their native places or remain jobless. Drying up of remittance and earning is bad news for their families.

The government has extended its support with an instant Rs 2000 fund transfer into bank accounts of eligible Indians and free public distribution of ration in some areas. Since the fund transfer is happening through the DBT mechanism, banks will need their own branches along with business correspondents to facilitate withdrawal of the cash.

The problem is not all the centres are functional. Many outlets are not opening because of fear of the virus while many do not have staff to manage the outlets. A few of the states have put in very strict restrictions where even BCs are not being able to operate despite being part of the essential services. Areas like Bhilwara, which have been identified as containment zones, everything has been shut, including these services.

“We have around 55,000 outlets in small towns and the outskirts of cities. Of them only 35,000 are operational, we are trying to get more outlets to go online soon so that banking services do not get disrupted,” said Praveen Dhabhai, chief operating officer, Payworld. The firm is part of the Sugal and Damani group and manages a 2 lakh strong retail outlet network offering bill payments, recharges, money remittance and others.

FIA has around 89 percent of its centres active and in some areas, the local administration is even helping agents to manage crowds while practising social distancing but in other areas, they are being asked to close.

Mumbai-based PayPoint, which is also a business correspondent, has only 9,000 of its 42,000 centres operational.

“Our rural centres are opening only for DBT cash withdrawals, all our other banking and allied services are shut,” said Ketan Doshi, managing director, PayPoint India Network.

There will be an overall disruption to the economy and the fear is the rural and urban divide will only get bigger due to the pandemic, pointed out Rishi Gupta, managing director of Fino Payments Bank, which has almost a 2 lakh-strong merchant network providing banking services to its customers.

He said that while the initial stimulus has helped and many people are accessing the funds, there is a need for the support to continue for a longer time to help people tide over the crisis.

“With the DBT money coming in, our AePS volumes have doubled over the past week, it will soon go back to the normal of the pre-COVID-19 days,” said Gupta. “But the problem is local trade, circulation needs to happen for cash to be available.”

AePS is Aadhaar-enabled Payments which allow users who receive benefits from the government to use their biometric credentials to withdraw money. This ensures that rural consumers do not need to crowd at branches which are mostly far away and also helps serve consumers in areas where there are no ATMs for cash withdrawal.

With the country already being in the third week of the lockdown, some level of sanity has emerged in the system. There was a sense of panic withdrawal just after the lockdown was announced which has now eased.

“We had seen average ticket size of transactions jumping to Rs 4000 after the announcement of the lockdown. Now it has come down to Rs 1500, the normal average hovers around Rs 2700,” said Prem.

Cash availability is not a problem, further the government is also releasing older dues under its rural employment guarantee schemes. But like the rest of the country, rural India is eagerly awaiting some relaxation on movement restrictions. Like a banker pointed out, even if the inter-state movement is not allowed after April 14, some bit of business activity could be resumed to get the economy rolling. There is an urgent need for intervention in the financial inclusion side.