SBI Ecowrap - Sept witnessed a big jump in labour remittances, pickup in first payroll: PMJDY accounts are also acting as a deterrent to crime

Interestingly, the panel data model we estimated also suggests that fixed effect are more important in our model.

Oct 28, 2020 08:10 IST India Infoline News Service

As per the latest data on 14 October 2020, the total number of PMJDY accounts stood at 41.05 crore with a total balance of Rs 1.31 lakh crore. Since April 1, around 3.0 crore accounts were opened, with total rise in deposits of RS 11,060 crore in the PMJDY accounts. The pandemic has led to a 60% increase in the opening of new Jan Dhan accounts.

The average balance of PMJDY accounts increased to Rs 3400 in April and declined there after to Rs 3168 in September and now marginally increased to Rs 3185 in October 2020. Thus, the initial increase in average balance that was primarily due to the loss of livelihood due to pandemic and shift of migrant labourers from urban areas to home resulting in jump of precautionary savings, may have been reversed. Our activity index indexed at February at 100, which showed increased momentum in September continues to improve in October, with our latest reading slightly above 90, mainly because of higher RTO revenue collections and higher mobility as indicated by Google workplace mobility. This is however the most crucial phase!

Empirical research (Sumit Agarwal, Shaswat Alok, Pulak Ghosh, Soumya Kanti Ghosh etc., 2020 all) suggests that PMJDY accounts work as a primary vehicle for labour remittances, apart from increased lending, smoothing consumption, increased spending on healthcare and most importantly the usage is more frequent in areas that are more crime prone (once the data is juxtaposed with other sources of data).     

Subsequently, we looked at representative SBI sample data on labour remittances beginning September 2019. The actual data was normalized to 100 in September 2019 and thereafter adjusted accordingly. The data indicates that there was a significant reduction in remittances due to lockdown and it touched the lowest level in April. However, it increased in June & July and in September it has just crossed the pre-COVID level as witnessed in February. Thus it seems migrant labourers are coming back in adequate numbers to workplaces for livelihood and that too much before Diwali as was largely expected. Additionally, during Apr-Aug’20, 25 lakh new EPF subscribers have joined of which 12.4 lakh were first time payroll entrants. The point of concern though is that the degree of formalization has dropped significantly to 6% in FY21 from an average of 11% in earlier years. The increase in remittance though are in perfect coordination with increase in payroll. The jump in payroll leads to higher remittances.

As indicated, we also find evidence that the usage of PMJDY accounts increases over time in regions that are more prone to theft. Acknowledging that the genesis of crime can also be traced to interplay of various social, economic, demographic, local and institutional factors apart from putting more money in accounts at the lower strata of society, there is evidence of PMJDY accounts having some impact on crimes. Thus, some of the states like Uttar Pradesh, Maharashtra and Haryana may have witnessed a lagged impact of the usage of PMJDY accounts and thus a positive impact on theft. States like West Bengal, Tamil Nadu and even Kerala have seen a continuous impact since inception. States like Gujarat and Karnataka have also seen a favourable impact.

Interestingly, the panel data model we estimated also suggests that fixed effect are more important in our model. In economic parlance, fixed effects are variables that are constant across individuals; like age, sex, or ethnicity and don't change or change at a constant rate over time. In other words, the usage of PMJDY that is causing the change in individual behavior is the same across all states and uniform across all! We thus recommend that the Government should strive to put more money into such accounts as a sort of third fiscal stimulus, possibly through enlarging the NREGA scheme or through a scheme for urban poor. It is a matter of satisfaction that the usage of such PMJDY accounts in current unprecedented times has surely helped in maintaining social harmony.

The author of this article is Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.

The views and opinions expressed are not of IIFL Securities,

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