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  1. What explains the cash crunch?

What explains the cash crunch?

The government has stepped up printing of currency notes to meet the temporary shortage of currency notes at ATMs in half a dozen states.

By: | Published: April 21, 2018 3:43 AM
cash crunch, why cash crunch occur, shortage of currency notes, reason for crash crunch, gdp growth, sbi, denomination notes  A report by SBI shows that based on the nominal GDP growth of 10.8% and 9.8% in FY17 and FY18, respectively, currency with public would have been around Rs 19.4 lakh crore by March 2018, a gap of Rs 1.9 lakh crore.

The government has stepped up printing of currency notes to meet the temporary shortage of currency notes at ATMs in half a dozen states. While currency in circulation in the economy has surpassed its pre-demonetisation level of Rs 17.98 lakh crore to reach Rs 18.43 lakh crore as on April 6, the velocity of money, or the currency with public, has been declining since the second half of FY18. This suggests that higher denomination notes are not getting adequately circulated and are hoarded, and it could also be possible that Rs 2,000 notes are not being printed anymore. Moreover, growth in bank deposits has been on a steady decline since March 2017.

A report by SBI shows that based on the nominal GDP growth of 10.8% and 9.8% in FY17 and FY18, respectively, currency with public would have been around Rs 19.4 lakh crore by March 2018, a gap of Rs 1.9 lakh crore. While the shift to digital modes could be to the tune of Rs 1.2 lakh crore, the shortfall should be around Rs 70,000 crore.

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