Cash crunch: 'Unusual' demand for Rs 45,000 crore the cause?

ATM in Bhopal People wait outside an ATM in Bhopal, which is suffering from citywide cash shortage | PTI

Even as India was in a festive mood celebrating Vishu and Baisakhi, ATMs across the country went offline. Rumours have long been running that banks like PNB and ICICI—that have been scam hit—may run out of cash. This, in turn, had prompted people to show unusual cash demand in the past two to three months, the finance ministry said on Tuesday.

"It is being said that there is a cash shortage in the country, but actually that is not the case," said Subhash Chandra Garg, secretary, department of economic affairs. Garg said that every month, the demand for hard cash in the country is about Rs 19,000 crore-20,000 crore. However, in the past few months, it has been a different story. "Between January to March, demand for cash rose up to Rs 45,000 crore in the country, and that was supplied," Garg added.

Suddenly, with polls due in Karnataka within a month, the RBI has noticed a spurt in cash demand to surpass even these levels. "The demand for cash in the country reached an unusual high in last 12-13 days, when it crossed Rs 45,000 crore," said Garg. The government said that demand for cash, too, was met, but it depleted some of government's reserve cash stock.

The RBI at any time holds surplus cash of Rs 2.5 lakh crore to Rs 3 lakh crore in the country, over and above than meeting the monthly demand for cash. At this time, that reserve seems to have depleted to Rs 1.75 lakh crore.

This has triggered the government into placing orders for printing of additional number of currency notes. "We will be printing Rs 2,500 crore (in value) every day of Rs 500 denomination alone in a few days," said Garg. Presently, RBI and the government print Rs 500 crore worth of Rs 500-denomination notes daily. The incremental supply of currency, going ahead, is also likely to be in the denomination of Rs 500, whose printing will begin soon.

Printing of notes of other denominations would also be reviewed by the government in the next few days. "We are ready to meet any demand for cash, whether now or in the future. We just want people to control this abnormal rush to withdraw cash," said Garg.

The department of economic affairs has noticed that the tendency for incremental cash demand in recent days was localised to some parts of the country. Garg also said that people may have been driven to believe that bank notes would suddenly become unavailable. The demonetisation drive two years back had stoked such rumours.

Presently, cash circulation in the country is seen as being around Rs 19 lakh crore, marginally higher than the figure of of Rs 17.4 lakh crore in November 2016, just before the demonetisation decision. The economic affairs secretary also assured, on behalf of the finance ministry, that ATMs in the country will not run dry and that they will be supplied adequate cash by RBI.

Earlier in the day, Finance Minister Arun Jaitley called the current situation a 'temporary shortage'. He tweeted, "Have reviewed the currency situation in the country. Overall there is more than adequate currency in circulation and also available with banks. The temporary shortage caused by 'sudden and unusual increase' in some areas is being tackled quickly."