Finance Minister Arun Jaitley said the cash crunch that some parts of the country were facing was temporary and will be resolved soon.
“Have reviewed the currency situation in the country. Overall, there is more than adequate currency in circulation and also available with the banks,” Jaitley tweeted. “The temporary shortage caused by ‘sudden and unusual’ increase in some areas is being tackled quickly.”
In response, the government today stepped up printing of currency notes in the system by five times. There is a spurt in currency demand, Economic Affairs Secretary Subhash Garg told reporters today. Additional cash is being supplied to meet the demand and Rs 500 currency notes worth Rs 2,500 crore are being printed every day, he added. The government plans to print Rs 70,000-75,000 crore worth of notes in a month.
There have been reports from Delhi; Bhopal, Madhya Pradesh; Hyderabad, Telangana; Varanasi, Uttar Pradesh; Vadodara, Gujarat and Patna, Bihar of ATMs running dry, according to ANI. Media reports said similar crunch was also found in parts of Maharashtra, Karnataka and Rajasthan, with queues seen outside ATMs.
That’s reminiscent of the period after Prime Minister Narendra Modi withdrew old high-value notes worth 86 percent of the currency in circulation to tackle unaccounted wealth in November 2016. The level of cash, according to the central bank, is now close to the pre-demonetisation level at Rs 18.4 lakh crore as of April 6. But in terms cash-to-GDP ratio, it’s still lower at 10.9 percent compared to 12 percent before the note ban.
What Could Have Led To The Crunch
The current shortage is related to local demand and supply, R Gandhi, former deputy government of the Reserve Bank of India, told BloombergQuint, while clarifying that he is not aware of the specific reasons that led to the current situation. “Currency demand depends on occasions such as elections, festivals where we see a spike. Also, when state and central governments pay out their social welfare schemes in currency, there’s a spike,” he said.
Gandhi said the pockets of surplus and deficit are managed through transferring currency. The government would be monitoring it.
That’s what SP Shukla, minister of state for finance, reiterated. “The government has formed state-wise committee and the Reserve Bank of India also formed a committee to transfer currency from one state to another.”
This unusual spurt in demand is seen more in some parts of the country like Andhra Pradesh, Telangana, Karnataka, Madhya Pradesh and Bihar, the Finance Ministry acknowledged in a statement. “In the current month, in the first 13 days itself, the currency supply increased by Rs 45,000 crore.”
Another reason for the cash shortage is that payments to farmers have gone up during the ongoing procurement season, Rajnish Kumar, Chairman of the State Bank of India, the country’s largest lender, told ANI. “In the next week, things will start coming back to normalcy. This is not new. The RBI has been given an indent to increase the flow of Rs 500 notes.”
Banking Secretary Rajiv Kumar said the shortage of Rs 500 notes will remain for five to seven days. “The government has stepped up supply.” More than 85 percent of ATMs are operational and only 10-12 percent have faced the crunch, he said.