With the pace of printing of new currency notes lagging demand by a wide margin, a portion of unaccounted cash apparently being extinguished and withdrawals from bank accounts being only a fraction of the deposits made in a flurry, the government on Thursday unveiled a new set of measures to ease the cash crunch and alleviate the pains of the needy. It allowed withdrawals up to R2.5 lakh for weddings and up to R50,000 per week for farmers, who can now withdraw R25,000 from their crop loan accounts and an equal amount from mandi payments received electronically in their accounts.
However, to thwart misuse of the facility for exchanging scrapped high-value notes, the upper limit per person has been more than halved to R2,000 from R4,500. To ease pressure on banks, a cash advance of R10,000 could be given for government and PSU staff up to Group C category against November salaries. If all such employees exercise the option, close to R5,000 crore will be released in cash. The government also extended the weekly R50,000 cash withdrawal limit, hitherto available to small businesses, to registered traders in mandis/agricultural produce market committee markets to enable them to pay for sundry expenses such as wages.
Farmers in rural India in the middle of the sowing season, small traders who deal primarily in cash and millions of daily-wage workers in employment-intensive industries are the worst hit after the government scrapped effective November 8-9 midnight R500 and R1,000 banknotes that accounted for 86% of the cash in circulation.
Separately, the Central Board of Direct Taxes (CBDT) reiterated the thresholds for bank/cooperative bank cash deposits/pay orders/term deposits/opening of accounts where quoting PAN is mandatory. On Wednesday, the government had said in addition to cash deposits above R50,000 per day, quoting PAN would be a must for cash deposits aggregating R2.5 lakh between November 9 and December 31.
Deutsche Bank estimated that the Reserve Bank of India might add to its asset side around R6.25 lakh crore (as extinguished currency), after it issues new currency to the extent of the cash deposited with banks. This amount, equivalent to the FY gross borrowing by the Centre, could be transferred to the Centre. However, many including former finance minister P Chidambaram doubted whether such increase in RBI surplus could have accounting justification or precedence among other central banks.
“There is enough cash available with the government. This (reduced note exchange limit) is mainly to enable larger number of people to reach the counter… We find that many people are not able to reach the counter and same persons are visiting the counter multiple times and other people are not getting the benefits,” economic affairs secretary Shaktikanta Das said. He said currency printing presses were working in three shifts daily to meet the demand for new notes.
Despite the government being on its toes to improve the contingency plans, several economic activities continued to be impeded by the shortage of cash. If the situation persists for another 10 days or so, at least 30% of cane harvesting could be delayed in key states like Uttar Pradesh and Maharashtra, as there is a shortage of cash to pay daily labourers for harvesting. So there would be a temporary decline in the flow of cane to mills for sugar production.
Also, some jewellers have witnessed an up to 30% drop in the flow of new orders so far this week, compared with the week before demonetisation, while the situation is even worse in the silver and diamond segments. Unorganised players who capture the biggest chunk of the rural market in gold and silver are hit harder than their organised counterparts.
While opposition parties forced adjournment of both Houses of Parliament on demonetisation, the Trinamool Congress and Aam Aadmi Party also staged protests in the capital. Finance minister Arun Jaitley said that as many as 22,500 ATMs will be recalibrated by Thursday of the nearly 2 lakh ATMs in the country.