Jan Dhan accounts keep villagers sober, slow rural inflation: Study

NEW DELHI: Village residents who opened bank accounts under the Prime Minister’s Jan Dhan Yojana (PMJDY) may be saving more and cutting back on their consumption of alcohol and tobacco, a study by the economic research wing of the State Bank of India (SBI) suggests.

This may have also slowed inflation in rural areas. When the PMJDY programme was launched there were fears that higher circulation of money would stoke inflation. The study using retail inflation data showed that states with more than 50% share of Jan Dhan accounts in villages had a “meaningful drop in inflation”.
Of the 30 crore-plus Jan Dhan accounts, many were opened after demonetisation last November.


Just 10 states have 23 crore or 75% of the accounts, with Uttar Pradesh (4.7 crore) topping the list, followed by Bihar (3.2 crore) and West Bengal (2.9 crore). The SBI study analysed state-wise impact of PMJDY accounts on rural and urban consumer price index (CPI). It is part of a research paper which is expected to be released later this year. “The analysis confirms that besides formalisation of the economy, financial inclusion has had tangible benefits which is visible in the inflation data,” the study said.

Besides inducing villagers to save, the Jan Dhan bank accounts also seem to have steered them away from intoxicants. “We observed that there is both statistically significant and economically meaningful drop in consumption of intoxicants such as alcohol and tobacco products in states where more PMJDY accounts were opened,” the study conducted by Soumya Kanti Ghosh, group chief economic adviser at SBI, and his team showed. “This could be because of behavioural changes like less spending after demonetisation,” the study said. It also found an increase in household medical expenditure in states of Bihar, West Bengal, Maharashtra and Rajasthan since October 2016.

Experts said availability of banking channels can trigger change in behaviour. “It is well known that your spending behaviour changes when you have cash with you compared to money in the bank. It’s the same when you have a credit card,” said former chief statistician Pronab Sen. “There could be behavioural changes happening. But the most important thing is that Jan Dhan accounts are promoting a culture of saving and helping to curb spending on alcohol and other such items,” said N R Bhanumurthy, professor at the National Institute of Public Finance and Policy (NIPFP).

However, Ashok Gulati, Infosys chair professor of agriculture at the thinktank Indian Council for Research on International Economic Relations (ICRIER) said further analysis is needed to prove the correlation between Jan Dhan accounts and behavioural changes. “We need more robust analysis before we can say for sure that because people now have bank accounts they are spending less on intoxicants,” he said. The professor added that other factors, such as developed infrastructure and links with markets in some states may have had a far greater impact on the price situation.