New Delhi: The ghost of demonetisation returned to haunt people yet again as a massive cash crunch gripped the country since late Monday night.
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 on 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.
Cash crunch 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 belts.
Some ATMs downed shutters with “No cash” and “Out of service” signs, prompting the government to move currency from surplus regions. Some ATMs in national capital Delhi too went dry.
As 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, the Confederation of ATM Industry 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.
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 due to reported shortage of cash in several states and accused Prime Minister Narendra Modi of destroying the country’s banking system with his demonetisation decision.
“Modiji has destroyed the banking system. Nirav Modi fled with Rs 30,000cr and the PM didn’t utter a word. We were forced to stand in queues as he snatched
Rs 500- Rs 1000 notes from our pockets and put in Nirav Modi’s pocket,” he said.
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.
The government also said that the RBI will increase five-fold the printing of Rs 500 notes to deal with cash shortages in certain parts of the country, fuelled partly by hoarding of high denomination currency.
Sources in the finance ministry, however, revealed that that there was greater shortage of '500 denomination of notes and it would take at least a week for the supply to reach normal levels.
Mr Garg 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 2-3 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 '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 crores.”
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 a 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 UP 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, 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. This despite the Supreme Court postponing the deadline to link bank accounts with Aadhaar.
