With ATMs suddenly going dry over the past couple of weeks, Assam is in the same boat with several States in the throes of a burgeoning cash crunch. As bank employees face the brunt of rising public frustration, the All India Bank Employees Association (AIBEA) has threatened to launch an agitation. The Reserve Bank has much to answer for this mess — even as it claims there is “adequate” printing and supply of cash in the system, it has reportedly ramped up printing of various notes, particularly those of Rs 500 denomination. As on April 6 last, the volume of currency in circulation was Rs 18.17 lakh crore, which is close to the figure at the time of demonetisation, the RBI has pointed out. Union Finance Minister Arun Jaitley has noted the “sudden and unusual increase” in cash demand in parts of the country over past 3 months, while assuring that the “temporary” shortage will be tackled soon. The increase in demand was of the order of Rs 45,000 crore per month in the first 13 days of April, as per Finance Ministry data (the normal cash demand is Rs 19-20 thousand crore per month). Surely, the nature and cause of this cash shortage needs to be investigated fast, else panic hoarding could assume serious dimensions. There is much speculation about what has triggered the crisis, with the government ascribing it to ongoing crop procurement and payment of harvest season wages, while the RBI has flagged ‘logistical issues’ in replenishing ATMs in certain regions. Rumour mills are meanwhile working overtime. One has it that bank depositors have been scrambling to withdraw money because of their fears over the upcoming Financial Resolution and Deposit Insurance (FRDI) Bill which could provide for using their savings to bail out failing banks. Others are talking about mega bank scams as a possible cause; Congress president Rahul Gandhi has taken the opportunity to lambast the Prime Minister for “remaining silent while Nirav Modi fled with Rs 30,000 crore” from the banks. Another rumour has it that the cash crunch could stretch up to general elections next year because political parties are busy building up their coffers.
The problem is primarily said to be with the large-scale hoarding of Rs 2000 note. “Rs 2000 notes are circulating but of late we have noticed there has been lesser inflow coming back in circulation. We have not got this investigated, but you can assume this is the one note most suitable to hoard as this is a high value note,” stated Economic Affairs Secretary Subhash Chandra Garg recently. But was a warning not sounded about precisely such possible misuse of the Rs 2000 note when it supplanted the Rs 1000 note banned on November 8 in 2016? Now comes the news that with Rs 6.7 lakh crore worth of Rs 2000 notes estimated to be in circulation, the RBI has stopped its printing on government directive. It had been speculated since the days of demonetisation that this note could well be phased out once it had served its purpose of swiftly ‘remonetising’ the economy. Since that big bang currency flushout, smaller denomination currencies like Rs 200, Rs 50 and Rs 10 in colourful avatars have been coming in dibs and dabs, but we don’t get to see these in ATMs. It now turns out that the difference in sizes of the new notes remains a problem; the ATMs are still to be recalibrated for the Rs 200 note. Other reports have mentioned a recent RBI order forbidding banks from moving excess cash in one circle to cash deficient circles, thereby leaving some circles with no cash at all. Assuring that the government has currency reserves of Rs 1,75,000 crore presently to deal with any cash exigencies, Minister of State for Finance SP Shukla has said the government has formed State committees and the RBI too has formed a committee to transfer cash from one State to another. It remains to be seen what more steps the government will take if currency demand stays high in the coming months. Meanwhile, small businesses are hurting; large numbers of workers are awaiting salaries; farmers are resisting payment into their bank accounts because they have to trek for miles to the nearest ATM and still return empty handed. What is clear is that currency issues are yet to be sorted out 16 months after demonetisation. Cash management has to improve soon, else the government’s claims of good economic governance could go for a six.