Finance Minister Arun Jaitley said that there is more than adequate currency in circulation
The feeling of deja vu that lasts beyond the few seconds that it is expected to remain, well the deja vu today has lasted for over a day and in many cases more than many days. Well it is certainly reminding all of us of the 8th of November 2016 when demonetization happened and we saw the exact same scenes that was seeing today across many parts of the country. Long lines outside ATMs, no cash available in ATM, dry ATMs in Telangana, Andhra Pradesh and now, joined by Bihar Uttar Pradesh, Chhattisgarh, Gujarat, Delhi and Madhya Pradesh. Why are ATMs going dry? Is this a temporary situation? what are the reasons behind it? All of that and more on our story of the day with me Rakesh right here, on Moneycontrol.
Just like that sketch from little Britain where the Computer says no, automated teller machines that is ATMs across many parts of the country are telling you, “no, there is no money”. Let's take stock of the situation first. Well, if it’s a field day for ATMs then the situation certainly makes it a field day for Twitter. Chetan Bhagat social commentator and some people say, “writer”, has already said, there used to be dry days for Alcohol, now there are dry days for cash, #cash crunch. Not to be left Behind, Mamata Banerjee tweeted and I quote, “seeing reports of ATMs running out of cash in several States. Big notes missing. Reminder of #demonetisation days. Is there a financial emergency going on in the country? #cash crunch, #cashless ATMs. So here's a story that is giving the entire country flashbacks of demonetization.
Currency shortage in ATMs was first reported in Andhra Pradesh and Telangana regions and then Madhya Pradesh in the past few weeks. There were also complaints of shortage in parts of Maharashtra, Gujarat and Bihar and now those voices from across different parts of the country have grown into a Crescendo. If there’s already a hashtag attached to it and people and making jokes about it on Twitter, that you know the matter is well and truly serious. ANI has gone on to report that people in states Karnataka, Maharashtra, Andhra Pradesh, Rajasthan, Uttar Pradesh, Madhya Pradesh, Telangana, Chhattisgarh and of course Gujarat have also gone on to report that ATMs are either not working or have run out of cash. ANI has also quoted people from Hyderabad is saying they had been unable to withdraw cash since yesterday and similar reports also not coming in from Delhi and Varanasi.
Listen in to the podcast to know what is causing the shortage...
Bhopal though, is another story were people have been unable to withdraw money for as many as 15 days. While it may just be finding a huge voice in the media now, last month the situation in Andhra Pradesh and Telangana got so deteriorated, the banks and decided to get cash from Maharashtra and Kerala for Telangana and Andhra Pradesh, it got transferred from Odisha and Tamilnadu. So what are the potential reasons for this cash crunch? Well the government has reportedly claimed that the lack of currency notes could well be due to the high demand for cash during Baisakhi, Bihu and other harvest festivals which only concluded during the past week.
Commenting on the current shortage of cash in ATMs across the country, Finance Minister Arun Jaitley went on to say and I quote, “Having reviewed the currency situation in the country, 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.” SP Shukla Minister of State for Finance, told ANI and I quote, “We have cash currency of 125000 crores right now. There is one problem that some States have less currency and others have more. Government is formed State wise committees and RBI has also fromed a committee to transfer currency from within states. It will be done in 3 days”.
The reason for the cash crunch that we are seeing this time could well be the lack of higher denomination currency notes needed to pay harvest season Wages. In some States the recalibration of ATM machines to dispense 2000 rupee currency notes is yet to be finished and that is also being cited as one of the reasons. Reserve Bank of India, The Central Bank on its part, has increased the supply of cash to the affected States. The Finance Ministry held a meeting with the RBI officials last week to ensure that there was no large scale hoarding of cash which might set in panic among people. The Ministry officials also held consultations with state officials and Bank Heads in the wake of the shortage of cash.
A senior RBI official telling India Today I went on to say and I quote, “Prior to note ban on the 8th of November 2016 the total value of rupees 500 and 1000 rupee denomination notes in circulation was rupees 17.74 lakh crores. Compared to that, over 1800000 rupees worth of high denomination notes are in circulation today.” That said it does miss a crucial point. The cash in circulation to GDP ratio before demonetization stood at 11.6% and it has now declined to 10.7%. State governments have already started speaking about it, Gujarat Deputy Chief Minister Nitin Patel already told the media a few days ago that the state is in touch with the RBI to resolve the issue of #cashcrunch. An Executive Director of a public sector bank, went on to say, in Gujarat, the currency chests were not getting adequate supply of cash from the RBI. It was a similar story in Bihar as well. The Manipur government has already written a letter to the Finance Ministry apprising them of acute shortage of cash in the state.
One other reason that is being cited as one of the causes for the cash crunch is the FRDI bill. There have been rumors that the passage of the financial resolution and deposit insurance bill that is FRDI Bill, will lead to heavy monetary losses for savers if a bank goes bankrupt. Though the government on its part has constantly cleared the air on this, people may have qued up to withdraw cash. There has also been a slowdown in deposit growth. During the year that ended March 2018, Bank deposits grew I am measly 6.7% compared compared to 15.3% in 2016-2017. During the same period, bank credit grew 10.3 % compared to 8.2% in the comparable period in the previous year, according to the Economic Times. This may also have led to a cash crunch.
Crisis in the banking system. Well, we’ve been talking about scans in crisis in the banking system in India and that may also have contributed to this. It lead to something called a bank run. People made a run on banks withdrawing more and more money from ATMs in the fear that banks could collapse due to all the scams that have come to light recently and of course the new law that is the FRDI bill. Even though there was no risk to banks to to either of these factors the rush to withdraw money created this shortage of currency. But if more and more people rush to banks and ATMs to withdraw as much money as they possibly could, it could even lead to a bank collapsing. A bank can collapse within days due to a countrywide bank run and this sort of fear among the public about the scams in the banking sector and how it might affect the money that is deposited the banks could also have contributed to this shortage in cash.
How do you solve a problem like Maria? We can leave Maria aside for a bit but how do you solve a problem like the 2000 rupee note. The reason for reports of currency shortage in many different states could be very different since amount of currency put out by the Reserve Bank of India and government printing presses is adequate for normal transactions bankers believe that is a hoarding of the 2000 rupee notes. According to RBI data currency in circulation as on 6th of April was 18.17 lakh crore rupees like I said earlier, which is close to the number at the time of demonetization. While growth in currency has been almost flat, the need for currency has shrunk considerably because of the high level of digitization, goes on to say the Economic Times.
The reasons of tyndall effect you and me as the public. Whos is the eventual suffer whatever the reason might be? Us, the people. There have been many reports of the general public being terribly hit. Businessmen and farmers as usual are the worst hit as the trading cycle has been affected adversely. Poonja in North Gujarat which is the largest hub for trading of cumin, isabgol and fennel has also been severely hit. Farmers are told to transact cashlessly but not willing, said office bearers of the local agriculture producing marketing committee. Farmers who sell crops want payments in cash, they don't want to get money deposited in their account as there are no ATMs for miles around them. In villages, they still transact in cash. Shortage of cash with traders means, farmers are forced to sell crops at lower prices. As usual, it's very much people at the bottom of the pyramid that get affected and that has remained the case even this time. It's farmers who being affected and well, the general public across the country.
Well, in a season leading up to elections across many states in the country, politics can't be far behind. Criticizing the government for the recent cash crunch, Congress President Rahul Gandhi went on to say, and I quote “Modi ji has destroyed the banking system. Nirav Modi fled with 30000 crore rupees and the Prime Minister didn’t after a word. We were forced to stand in queues as he snatched 500 2000 rupee notes from our pockets and put it in Nirav Modi’s pocket.”, he went on to say. The “Acche Din” that the Prime Minister had promised for the nation have ushered only for 15 persons including Nirav Modi and Mehul Choksi. For the port of this country including farmers, laborers and daily wagers, it’s all “Boore Din”, he also added. In a separate tweet, the Congress party went on to ask people if this was gross mismanagement by the Modi government or is this is it deliberate move.
The Congress party also went on to tweet that the people of the country forced to suffer even after one and a half years of demonetization show the acute failure of the BJP government. With accusations from left and right how could conspiracy theories be far behind? Madhya Pradesh Chief Minister Shivraj Singh Chauhan has alleged conspiracy behind the disappearance of the 2000 rupees currency notes. At a Farmers Convention on Monday the Chief Minister went on to say that the 2000 rupee currency notes are missing from the market even as the notes in circulation are more than pre demonetization. But notes of of 2000 are still missing from the market. He was quoted as saying by the Press Trust of India. Where are these notes of 2000 denomination going? Who are keeping them out of circulation? Who are the persons creating shortfall of cash? This is a conspiracy to create problems and the government will act tough on this, he want to say.Whatever may be the reasons behind the cash crunch way currently facing, the end result is of course that the inevitable sufferer of all these machinations across the country, remains the common man. In the world that is becoming increasingly digital and transactions are getting to be more and more computerized we have all dreamt of a cashless society, but not quite this way. Until the next time we see you this is me Rakesh on behalf of everyone here at Moneycontrol saying thank you for joining us and stay with us, on Moneycontrol.