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Cash crunch still a problem for people, cashless ATMs see long queues

April 20, 2018 16:49·
TELLING MESSAGE A resident greeted with

TELLING MESSAGE A resident greeted with"no-cash message at an SBI ATM kiosk on Ashok Rajpath in Patna on Tuesday

Thus the present cash crunch which has been seen can be perceived as the direct effect of demonitisation with mismanagement at government level.

Seventeen months after India's leaders removed most paper currency from circulation, the government and monetary authority are seeking to quell fears of a cash shortage by printing more currency. "We always knew that Rs 2000 notes were printed only to help hoarders", he said in a series of tweets.

So what caused the demand-supply mismatch? Demonetisation was announced in November 2016. Currency with the public can either be hoarded, or used for informal sector transactions.

However, SBI Research's data hints that the shortage is partly due to shortfall in annual cash supply. Let us consider some of the elements at play.

Some bankers, however, said that there is a requirement of smaller value currency notes as it has been observed that the circulation of the Rs 2,000 note is not that high. Earlier, it was as high as 100% in some states. On demonetisation, the survey estimates the impact would be about Rs 2.8 trillion less cash (1.8% of GDP) in 2018. It assured the public that it has enough money in its vaults, though it will print more notes to meet increased demand.

Images of shuttered ATMs and helpless citizens have been making the rounds on Indian media, reminiscent of the aftermath of Prime Minister Narendra Modi's shock announcement in 2016 banning 500- and 1,000-rupee notes. This indicates the possibility of currency of higher denomination not getting adequately circulated in the economy.

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So why is there a sudden cash squeeze in at least five states, home to more than 300 million people?

The Reserve Bank on Tuesday said that there was no shortage of currency even as it has ramped up printing of notes at all its four presses. Demand for cash usually rises ahead of the crop harvest season in March-April. Many ATMs have still not been re-calibrated for the new banknotes, he said. That means, with the lack of Rs2,000 notes, such ATMs will have lower cash at any given amount of time.

Chidambaram said he suspected ordinary people were withdrawing cash but not putting back into the banks their surplus cash.

In conclusion, the current cash crunch does seem to be temporary and should be resolved once the demand-supply mismatch is addressed.

Nalini Gulati is managing editor, Ideas For India.

Published with permission from Ideas For India, an economics and policy portal. She gratefully acknowledges valuable inputs by Pronab Sen.

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