Centre has assured that while the government has an adequate level of currency reserve to meet present cash demand and restore normalcy, ‘the new normal can be established if the increased demand stays
The government on Tuesday swung into action to assure citizens of “adequate supply” of currency in the country to meet any demand even as it urged people “not to hoard cash”.
“Some ATMs have reported to run out of cash and have become non-functional in some parts of the country,” Subhash Chandra Garg, secretary, department of economic affairs said while addressing the media, adding that last few months have seen an “unusual spurt” in currency demand.
The secretary said that in the last couple of months the demand for currency has more than doubled. The crunch, he said, was a regional issue and could be due to “psychological factors” as citizens could be interested in keeping stockpile of cash at homes.
ATMs in states like Andhra Pradesh, Telangana, Karnataka, Bihar and Madhya Pradesh ran out of cash causing panic among people, bringing back horrors of demonetisation that rendered Rs 500 and Rs 1000 notes illegal from the midnight of November 8th 2016.
“… Usually, the per-month supply was about Rs 20,000 crore. (But) For last couple of months, this has gone sharply up to Rs 40,000 - 45,000 crore… This month alone, in first 13 days, there has been a demand of Rs 45,000 crore,” Garg said.
“We are trying to analyse why there is this unusual demand and have noted that this has come from some part of the country. There might be feeling among people that (what) if the cash runs out... We should keep it as reserve… It might be safe... But I would urge every citizen not to hoard or stock cash... It's not required... You are unnecessarily raising risk”.
Finance Ministry, in its statement, also assured citizens of an “adequate reserve of cash” with the government.
“We had adequate reserves of currency notes which have been used to meet fully the extraordinary demand generated so far. We continue to have in stock adequate currency notes of all denominations, including of Rs 500, 200 and Rs 100 to meet any demand,” the statement read.
Garg said that government had decided to increase printing of Rs 500 note to aid the increased currency demand and that currency worth Rs 2,500 crore would be in supply in the coming days. He, however, ruled out additional printing of Rs 2000 notes stating that the notes were “not coming back from supply” in the circulation.
“There are about Rs 6,70,000 crore worth of Rs 2000 note in economy… They are more than adequate to meet the transaction demand of customers… But we have noted that there has been some lesser inflow of Rs 2000 rupee note coming back from circulation,” he said adding, “We have adequate notes for Rs 2000… Seven trillion is a big amount and so we are not infusing any more notes… Overall stock level has reduced but circulation is still sufficient”.
No untoward connection
Garg ruled out the possibility of any connection between cash crunch and upcoming state elections or panic among citizens on the back of scam-tainted banking system.
He said that the crunch has also been felt in states not bound by the elections and that it was a “localised” phenomenon. On banks, he said, that private banks in the country are world class and the deposits are “safe”.
“Private sector banks in the country are world class... There is no reason to believe that there is some problem with them… Public sector banks, too, carry this implicit guarantee of government, that under no circumstance, any depositor would suffer… We did recapitalisation of Rs 1.35 lakh crore. There is no reason to believe that either the public or private sector banks are in any danger. Please be completely assured,” he said.
The secretary also defended demonetisation by saying that the economy has more cash “in absolute terms” than the pre-demonetisation levels.
“At the time of demonetisation, currency in circulation was about Rs 17.5 trillion. Now, it is Rs 18 trillion. In absolute terms, it is higher than pre-demonetisation levels… However, if we consider the growth trend that was before demonetisation, then we would have had currency level at Rs 20 - 22 trillion… So we are still at a lower level,” he said.
Setting a ‘new normal’
The economic affairs secretary said that the country could see a “new normal” level of currency supply if the spurt in demand persists in the coming months.He said that while the government had an adequate level of currency reserve to meet present cash demand and restore normalcy, “the new normal can be established if the increased demand stays and we (government) keep supplying notes”.