Even as government and Reserve Bank have asserted that there is no currency shortage, SBI Research today pegged the cash shortfall in the system at a whopping Rs 70,000 crore, which is a third of the monthly withdrawals at ATMs. In a note that comes a day after reports of currency shortages made national headlines, it depended on nominal economic growth, currency with the public and the rise in digital transactions to arrive at the shortfall estimate.
A 9.8 per cent nominal GDP growth would have taken the currency available with the public to Rs 19.4 trillion by March 2018, as against the actual availability of Rs 17.5 trillion, it said, stressing that the gap of Rs 1.9 trillion is not the shortfall. The proportion of digital transactions stands at a low Rs 1.2 trillion only, much down the immediate months following the November 2016 note-ban.
An unexpected spurt in currency demand in various parts of India which include Madhya Pradesh, Uttar Pradesh and poll-bound Karnataka have led to dry ATMs in several parts of the country leaving people enraged. The situation has sent the government scrambling to make contingency plans to cover the deficit. The government said it suspects that Rs 2,000 notes were being hoarded and plans to increase 5-fold the printing of Rs 500 notes.
The cash crunch has drawn severe criticism from the opposition which has targetted PM Narendra Modi-led government and has termed the whole situation as the return of ‘Demonetisation’. Various leaders from Congress, including party president Rahul Gandhi and senior leader P Chidambaram have attacked the ruling party and slammed the Centre for the situation.
Here are the top developments:
1) The PMO on Tuesday took stock of the ATM cash shortage and held a meeting with Economic Affairs Secretary Subhash Chandra Garg and Financial Services Secretary Rajiv Kumar over the matter.
2) Rajiv Kumar said that the ATM cash shortage in various parts of the country would be normalised in five to seven days.
3) Meanwhile, UP CM Akhilesh Yadav said, “This govt printed max amount of currency, but where is cash if its not there in ATMs? Is it being held back on govt direction? There is cash crunch even when paper, ink & machines were brought from abroad. I think there is an international conspiracy to hit Indian economy.”
4) RBI clarified in a press release that there is no cash crunch. It said, “It has been reported in a section of the media that there is shortage of currency in certain parts of the country. It is clarified at the outset that there is sufficient cash in the RBI vaults and currency chests. Nevertheless, printing of the notes has been ramped up in all the 4 note presses. The shortage may be felt in some pockets largely due to logistical issues of replenishing ATMs frequently and the recalibration of ATMs being still underway. RBI is closely monitoring both these aspects.”
5) Rahul Gandhi took to Twitter and attacked PM Modi alleging that he ‘snatched’ the Rs 500 and Rs 1000 currency notes from people’s pocket and ‘gave’ it to Nirac Modi. “Modi ji has destroyed the banking system of the country,” he said.
He alleged that Narendra Modi did not speak a word “after Nirav Modi fled the country with Rs 1,000 crore.” “The prime minister has not uttered a single word after he made the entire country stand in a queue, snatched Rs 500 and Rs 1000 currency notes from your pocket and put it in Nirav Modi’s pocket. He fears standing in Parliament too,” he said.
6) Finance Minister Arun Jaitley took to Twitter to defend the unusual spurt in currency demand. Jaitley said, “Have reviewed the currency situation in the country. Over all 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.”
7) Former Finance and Home Minister P Chidambaram also in a series of tweets criticised the government and said, “A government is obliged to provide as much cash as the people need at any given time. Government or RBI cannot arbitrarily control the supply of cash. If RBI has injected sufficient cash, it is obliged to tell the people why there is a cash shortage.”
8) The states affected by this cash crunch situation are Andhra Pradesh, Uttar Pradesh, Bihar, Karnataka among others.
9) The earlier reports of the cash crunch came from Telangana and Andhra Pradesh back in January earlier this year.
10) Peculiar rumours have led to the cash crunch in Andhra Pradesh and Telangana with people opting for heavy withdrawals. According to The Indian Express, there have been rumours that the passage of Financial Resolution and Deposit Insurance (FRDI) Bill will lead to heavy monetary losses if a bank goes bankrupt. These rumours are believed to have sparked heavy withdrawals, reports claimed.