Allahabad: A man stand next to an out-of-service Automated Teller Machine (ATM) in Allahabad on Wednesday. PTI Photo
(PTI4_18_2018_000120B) Mumbai: The cash crunch is expected to linger for ten days or so before blowing over. ATMs in some parts continued to remain out of cash on Wednesday as the government scrambled to rush currency to meet the “unusual spurt in demand.”
But there was on Wednesday still no clarity from the RBI or the government about what had led to the acute cash crunch. However, experts are saying that one reason for the ATMs running dry was the slowdown in making deposits. In Andhra, for instance, people withdrew Rs. 483 crore from their bank accounts on April 6. But only Rs. 219 crore was deposited in the banks by customers. In adjoining Telangana the same day, cash withdrawals were 130 per cent more than deposits.
This created a mismatch between the availability of cash and demand in these states. Former Union Finance Minister P Chidambaram on Wednesday accused the government and the RBI of not allowing money supply to grow parallel to the Gross Domestic Product growth. In a series of tweets on the cash crunch in banks and ATMs, he said: “I suspect ordinary people are withdrawing cash but not putting back into banks their surplus cash. Is it possible that there is some loss of confidence in the banking system, thanks to the bank scams?”
“Is it correct that currency in circulation has increased by only 2.75% since demonetisation? If so, I maintain that the Government and the RBI are not allowing money supply to grow at the same rate as the nominal GDP,” he said in another tweet. In his view, “as a rule, cash supply must grow at the same rate as the economy is growing. The cash shortage may be because cash supply has been arbitrarily reduced….A government is obliged to provide as much cash as the people need at any given time. The Government or the RBI cannot arbitrarily control the supply of cash.”
According to banking sources, a part of the problem is that the RBI stopped printing Rs 2,000 notes. As invariably happens, hoarders got the wind of it and in no time they had begun stacking the notes. That sent the Rs 2,000 notes fast out of circulation. As per the RBI data, out of the total currency in circulation — Rs 18.43 lakh crore — close to 90 per cent is in Rs 2,000 and Rs 500 notes. In this context, Chidambaram says: “After demonetising 500 and 1000 rupee notes, the government printed Rs 2000 notes! Now, the government is complaining that Rs 2000 notes are being hoarded! We always knew that Rs 2000 notes were printed only to help hoarders!”
Smaller notes of Rs 100, Rs 50 and other denominations constitute a very small proportion of the money in circulation, yet they remain in high demand. But, here the problem is that ATMs are not able to dispense small denomination notes for want of re-calibration. Chidambaram finds a lacunae, here, too. He said: “The ghost of demonetisation has come back to haunt the government and the RBI,’’ and demanded, ‘‘Why are ATMs still being re-calibrated even 17 months after demonetisation?” The inequitable distribution of cash has further aggravated the shortage in some states; Bihar, Gujarat are not poll bound but are facing cash crunch. This is as a result of poor management of cash by the central bank. At least, there was a serious miscalculation of the demand for cash in the post-harvest season.