Time To Creak Open Those Wallets

Context: Rising non-discretionary spending among the consumers, during the pandemic, explains the gap between inflation statistics and the actual rise in prices.

Gaps in inflation statistics: Re-estimation based on CPI headline (using the Paasche index), the April and May inflation numbers on an average were 120 basis points (bps) lower than National Statistical Office (NSO).

• For the entire fiscal (April-December FY2021), our computed CPI average is at 6% compared with 6.6% as per NSO estimates.

Reasons for such gaps: Behavioural Changes of Economic Agents and Implications -

• Decline in share of discretionary spending: crashed from 35% to 15% after imposition of lockdown and since lockdown fluctuated between 15% and 30%
  • Non-discretionary consumption includes items of health, grocery and utility services such as bill payments.
• Emergence of new areas of consumer spending: like broadcasting services, online education; can be attributed to work from home culture, used by elderly men and women during lockdown.

Way Forward: Logical corollary of change in behavioural patterns is to incentivize usage of digital payment through following innovative ways:

• Prohibit levy of any convenience fee and other charges: on use of any digital mode of payment.
• Enable credit cards as a payment option: on the Unified Payments Interface (UPI) platform.
• Allow Aadhaar-based biometric authentication: to non-bank entities through a gazette notification.
• Make RuPay a default card option: for all public and private banks, operating in India (per-capita credit and debit card transactions have jumped by 1.4 times more than pre-Covid levels).
• Mandatorily offer digital payment options: by all utilities, municipal corporations and urban local bodies especially in Tier-2 and Tier-3 cities.
• Incentivize social security schemes such as the National Pension System (NPS) and medical insurance for unorganized sectors like MSMEs to usher a new beginning for unorganized workers in India.