Demonetisation blues! 5 reasons why cash crunch has made a comeback

 BusinessToday.In        Last Updated: April 17, 2018  | 16:21 IST
Demonetisation blues! 5 reasons why cash crunch has made a comeback

Several states in India are facing acute shortage of currency for the previous two weeks. Some of the states which are badly affected are Assam, Andhra Pradesh, Telangana, Karnataka, Maharashtra, Rajasthan, Uttar Pradesh and Madhya Pradesh. People in these states are angry as most of the ATMs have gone dry. However, the government claims that there is enough cash with the banks.

Finance Minister Arun Jaitley in a tweet said that he has reviewed the currency situation in the country and there was more than adequate currency available with the Banks. "The temporary shortage caused by sudden and unusual increase in (demand) in some areas is being tackled quickly," he said.

According to MoS Finance SP Shukla, the government has cash currency of Rs 1,25,000 crore right now. "There is one problem that some states have less currency and others have more. Govt has formed state-wise committee and RBI also formed committee to transfer currency from one state to other," the Minister said. The government has termed the situation as sudden and temporary which it wants to fix in three days.

A month back, the Reserve Bank disallowed banks from moving excess cash in one circle to deficient circles. Due to this, now many circles have excess cash and others have less or nothing. Banks are saying the RBI is providing more of Rs 200 and Rs 100 notes.

Here are some reasons that may have caused the latest cash crunch in the states.  

Reports suggest that the various festivals like Baisakhi, Bihu and other harvest festivals might have pushed the demand for cash in the states. A Finance Ministry official recently told  India Today that when Assam was celebrating Bihu on Saturday, there were extra withdrawals a few days prior to the festival. "So, the cash supply to some other states was reduced in volume. But normal supply has now resumed and the situation will return to normal soon," he said

There has been a rise in demand for cash in Karnataka, which goes to poll on May 12. It has been a practice to hoard cash before any election to meet huge campaign expenses. It happens across the party and candidates try to get as much cash to lure voters during the poll season. Last week, the Finance Ministry held a meeting with the RBI officials to ensure that there was no large-scale hoarding of cash which might set in panic among people.

The Economic Times today reported that the certain provisions in the proposed Financial Resolution and Deposit Insurance Bill-2017 sparked a rumour that the money would not be safe in banks if the Bill became a law. This rumour drove people to ATMs and bank branches to withdraw their deposits money, it said.

ATM Recalibration
The India Today report said that in most of the states, recalibration of ATM machines for Rs 200 notes have not been completed leading to shortage of cash. India has over 220,000 ATMs and some of the machines are yet to be calibrated. The introduction of new currency notes after demonetisation had faced a similar difficulty with the banks taking time to recalibrate the ATMs for the new Rs 2000 notes.

Payment of wages
It has been reported that the demand for smaller denomination is also higher due to the larger amount needed to pay harvest season wages. Apart from this, the highest denomination Rs 2000 notes is short in supply in some states.



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