By Elton Gomes
On Tuesday, several Indians took to social media to complain about a shortage of cash in ATMs. Media reports mentioned that ATMs ran dry in New Delhi, Maharashtra, Gujarat, Karnataka, Andhra Pradesh, and Rajasthan.
In the aftermath of demonetisation, which saw millions of people line up for hours outside ATMs in efforts to withdraw money, the current cash shortage appears to have triggered a wave of fear among the public.
However, the government was quick to allay any such fears of a cash crunch. Union Finance Minister Arun Jaitley said that the shortage was only temporary, and was caused by “sudden and unusual increase” in the currency demand.
Have reviewed the currency situation in the country. Over all 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.
Arun Jaitley (@arunjaitley) April 17, 2018
But the opposition has questioned whether the cash shortage indicates the beginning of a potential “financial emergency”.
Seeing reports of ATMs running out of cash in several States. Big notes missing. Reminder of #DeMonetisation days. Is there a Financial Emergency going on in the country? #CashCrunch #CashlessATMs
Mamata Banerjee (@MamataOfficial) April 17, 2018
According to NDTV, the Reserve Bank of India (RBI) said that the shortage is due to logistical issues, and has been felt only in some areas. The apex bank clarified that there is sufficient cash in the RBI’s vaults.
The RBI said in a statement that “printing of the notes has been ramped up in all the 4 note presses.” The bank also added that it was “taking steps to move currency to areas which are witnessing unusually large cash withdrawals.”
Here’s what happened
According to a report by Business Standard, the government has decided to increase the printing of Rs 500 denomination notes by five times. Notes worth Rs 70,000 to 75,000 crore are expected to be printed in one month.
India has witnessed an unusual spurt in currency demand during the last three months, according to a statement from the finance ministry. Rajiv Kumar, financial services secretary, reportedly claimed that the cash shortage in ATMs would take five to seven day to resolve.
Cash crunch reality check
One of the most busiest place Paharganj – ICICI ATM now allowing withdrawal more than 4000, PNB all 2 ATMs have no cash, Bank of Baroda has No cash. Kotak & Bank of India dispensing cash. pic.twitter.com/GXACVDs3UR
ASHUTOSH MISHRA (@ashu3page) April 17, 2018
A report in the Economic Times speculates that the RBI is most likely facing a shortage of raw materials such as paper and inkwhich is why it is unable to fulfill India’s currency demands. A person familiar with currency supply in India told the Economic Times: There have been issues with the raw materials like ink and paper for some time now which has restricted currency supplies to banks.”
Another reason for the cash crunch could be the onset of the elections. A report in Firstpost claimed that large-scale cash hoarding by political parties, and other institutions prior to the elections, could be a cause for the current shortage in cash.
A previous SBI report indicated that the RBI may be hoarding Rs 2,000 denomination notes to gradually kill the bills. As of December 8, 2017, the RBI reportedly printed 16,957 million Rs 500 notes, and 3,654 millionRs 2,000 notes. The figures clearly display the disparity in the government’s note printing.
“If the Rs 2,000 bills disappear from the system even before a mid-denomination (say Rs 1,000 note) is introduced, it can lead to a huge cash shortage in the system even with the availability of Rs 500 and lower denomination notes,” as noted by Firstpost.
Radha Rama Dorai, managing director at FIS, told the Indian Express: “As we understand from various sources, the printing of Rs 2000 denomination notes has been less, with more emphasis on printing of lower-value notes.”
Dorai further stressed that such cash shortage has been witnessed by different states at different times. The cash crunch itself might not be something new.
Why you should care
2014: Jan Dhan (Open a Bank Account)
2016: Demonetization (Put all your money in Bank)
2017: BJP becomes richest political party
2018: Bank scammers like Nirav Modi run away with money
2018: Cash shortage in ATMs
What a series of coincidences!
Dhruv Rathee (@dhruv_rathee) April 17, 2018
A potential positive impact of the current cash shortage could be an increase in digital payments. In the absence of available cash in ATMs, users might be forced to use digital payment apps like Paytm and the government’s BHIM app, especially in emergency situations.
Although some believe that Prime Minister Narendra Modi’s vision of a cashless India might not be far away, to realise that vision, India needs to be safeguarded from such unexpected cash shortages. It is also important to remember that India has always been a cash-focused economy. The current sudden increase in demand for cash is indicative of the public’s dependancy on, and preference for cash-based transactions.