New Delhi: The ghost of demonetisation returned to haunt people yet again as a massive cash crunch gripped large parts of the country since late Monday night.
ATMs ran out of cash and a few which were dispensing money saw long queues outside them. Thousands of ATMs across states downed shutters with “no cash” and “out of service” signs, prompting the government to move currency from surplus regions. Some ATMs in Delhi too went dry.
The biggest cash crunch owing to demonetisation had hit the country in November 2016, just months before the Uttar Pradesh Assembly elections, and now a similar situation has emerged ahead of Karnataka polls scheduled for May 12.
Cities and towns across Andhra Pradesh, Telangana, Karnataka, Madhya Pradesh, Gujarat, Maharashtra, Bihar, Rajasthan and Uttar Pradesh were impacted by the cash crunch. The situation in Gujarat, Prime Minister Narendra Modi’s home state, worsened on Tuesday with several ATMs and banks running dry, especially in villages and the tribal belt.
The Reserve Bank of India (RBI) tried to assuage the fears by claiming that there is sufficient cash in the RBI vaults and currency chests, but the Confederation of ATM Industry (CATMi) countered RBI’s claims by saying that the cash supply to banks has reduced drastically since the first week of April and fallen sharply in the past seven days.
Meetings began in the finance ministry to deal with this unprecedented situation even as the government promised to increase daily printing of Rs 500 notes by five times, saying that the imbalance in cash supply and demand is due to hoarding of Rs 2,000 notes and higher demand for cash in crop procurement season. It assured that the situation will be resolved in two-three days.
Finance minister Arun Jaitley responding quickly, maintaining that it was a “temporary shortage” in certain states and was being “tackled quickly”.
“Overall there is more than adequate currency in circulation and also available with the banks. The temporary shortage caused by sudden and unusual increase in some areas is being tackled quickly,” said Mr Jaitley.
Economic affairs secretary Subhash Chandra Garg said that the government suspects that Rs 2,000 notes are being hoarded as they are not coming back into the circulation fast enough.
Sources in the finance ministry, however, revealed that there was shortage of Rs 500 notes and it would take at least a week for the supply to reach normal levels.
V. Balasubramanian, spokesperson for the ATM industry, said, “ATM service provider do a daily calculation of the cash required which is sent to banks in the night for the next day. Till March end, the daily demand was being met by 90 per cent, irrespective of public or private banks. However, it has reduced since the first week of April. It has fallen drastically in the past week, now the requirement is only being met at 30 per cent by PSBs.”
Attacking the government over the cash crunch, Congress president Rahul Gandhi said on Tuesday that the “terror of note-ban” has again gripped the country and accused PM Modi of destroying the country’s banking system with his demonetisation decision.
“Modiji has destroyed the banking system. Nirav Modi fled with Rs 30,000 cr and the PM didn’t utter a word. We were forced to stand in queues as he snatched 500-1000 rupee notes from our pockets and put in Nirav Modi’s pocket,” he said.
Mr Garg, however, said that “currently the currency in stock is about Rs 2 lakh crore and the reserves are adequate to meet any unusual spurt in the demand”.
According to him, “Currency printing will increase from Rs 500 crore to Rs 2,500 crore per day of Rs 500 note.”
“In a month, we will be printing about Rs 70,000-Rs 75,000 crore. This should give you assurance that we are geared up to meet the rising demand,” said Mr Garg.Shiv Pratap Shukla, minister of state for finance, said, “The government has formed a committee to address the problem of currency shortage in certain states and the issue would be resolved in next two-three days.” The RBI, which formed a panel to probe the cash crunch, said, “There is no shortage. Currency in circulation on November 4, 2016, was Rs 17.74 lakh crore, now it stands at Rs 18.04 lakh crore.” The finance ministry said, “There has been an unusual spurt in currency demand in the country in the last three months. In the first 13 days of the current month, currency supply increased by Rs 45,000 crore.” Earlier, on an average, the government used to supply Rs 20,000 crore per month, it said.
SBI chairman Rajnish Kumar said it would not be correct to state that there is currency shortage in the country. There has been an “imbalance” due to the crop procurement season, when demand for currency goes up. He said Punjab, Madhya Pradesh and Uttar Pradesh are seeing heightened demand for cash due to procurement season.
Experts blamed a series of recent developments for suspected cash hoarding, resulting in a shortage of notes.
They said people might be afraid of the Financial Resolution and Deposit Insurance Bill (FRDI), 2017, which raised fear that depositers’ money in banks will be used up to bail out banks in case of its failure.
People are also apprehensive after the finance ministry’s directive that bank accounts not linked with Aadhaar will become inoperative, said experts.