Is The 'cash Crunch' Real Or Not? Here Are All The Facts, Figures, Clarifications, Actions, Rumours, And Politics

Economy

A massive political storm has broken out over a purported 'cash crunch' which is said to be prevailing in the country. While Opposition leaders have heaped criticism on the Modi government, the concerned authorities, including officials at the Finance Ministry and PSBs, have issued statements, clarifications and figures

Written By Ankit Prasad | Mumbai | Updated On:

A massive political storm has broken out over a purported 'cash crunch' which is said to be prevailing in the country. While Opposition leaders have heaped criticism on the Modi government, the concerned authorities, including officials at the Finance Ministry and PSBs, have issued statements, clarifications and figures
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West Bengal chief minister Mamata Banerjee has issued a tweet where whe says that the 'cash crunch' is a reminder of the demonetisation days, and asks whether there's a Financial Emergency going on.

 

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The Finance Minister, on the other hand, has tweeted dispelling that there's an overall 'cash crunch'. He has, however, spoken about a temporary shortage of currency in some areas attributing it to a 'sudden and unusual increase'. This shortage is being tackled, he says.

 

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Congress president Rahul Gandhi has, however, heavily politicised the matter, turning it into an attack at the Modi government and linking it to the absconding PNB bank scam-accused diamond billionaire Nirav Modi, as well as Vijay Mallya.

The relevant parts of Rahul Gandhi's tweet read:

"Think now about the demonetisation bluff
Your money is in Nirav Modi's pocket

The terror of demonetisation has returned

The country's ATMs are empty
What has been done to the banks?"

 

4

Minister of State in the Finance Ministry, Shiv Pratap Shukla, on the other hand, said:

"We have cash currency of Rs.1,25,000 crores right now. There is one problem that some states have less currency and others have more. The government has formed a state-wise committee and RBI also formed a committee to transfer currency from one state to other. It will be done in three days."

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To further the point about disparity, as per the Finance Ministry:

"There has been an unusual sport in currency demand in the country in the last three months. In the current month, in the first 13 days itself, the currency supply increased by Rs 45,000 crores. This unusual sport in demand is seen more in some parts of the country like Andhra Pradesh, Telangana, Karnataka, Madhya Pradesh and Bihar. The government of India with the Reserve Bank of India have taken all steps to meet this unusual demand. We had adequate reserves of currency notes which have been used to meet fully the extraordinary demand generated so far."

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In relation to the cash crunch, sources have said to Republic TV: hoarding of Rs 2000 notes could be playing a role and that elections, festivals, harvest season, apart from panic regarding a 'cash crunch' may be a cause of the problem. Additionally, 27% of ATMs are yet to be updated to handle the new Rs 200 notes. The Finance Minister has called a meeting with RBI officials and other serious Finance Ministry officials. The government will be pumping more cash into the system and the RBI has been told to prepare for the same in the next 48 hours.

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CPI(M) general secretary Sitaram Yechury has also tweeted about the cash crunch and made an allegation at the BJP:

 

 

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Meanwhile, SC Garg, Secretary of the Department of Economic Affairs, on Tuesday, assured that the government is doing it's utmost to resolve the situation at the earliest.

"The Government is taking all steps to ensure that ATMs are supplied with cash and to get the non-functional ATMs normalised at the earliest," Garg said.

"The Government of India would like to assure that there has been an adequate supply of currency notes which have met the demands so far. It would also like to assure it would be supplying adequate currency notes to meet even higher demand in coming days/months," he added.

"We print about 500 crores of Rs 500 notes per day. We have taken steps to raise this production 5 times. In next couple of days, we'll have a supply of about 2500 cr of Rs 500 notes per day. In a month, supply would be about 70000-75000 crores," informed Garg.

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Rajnish Kumar, the chief of the country's biggest bank, SBI, has said that the 'cash crunch' is only seen in some states.

"In certain states, the demand has gone up and these states are MP, Telangana, Andhra (Pradesh), north Bihar and Punjab," he said, listing that the procurement season having started and the demand for payment to farmers having gone up may be contributory factors.

In terms of resolving the 'crunch', Rajnish Kumar did add that there is some requirement for Rs 500 notes, which they have asked the RBI to supply.
 

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Earlier, a report in the Indian Express had said that rumours that the Financial Resolution and Deposit Insurance (FRDI) Bill, proposed last June, will cause losses to depositors in case a bank goes bankrupt had allegedly led to heavy withdrawals. Bank officials said that people have been withdrawing cash more than they require at the beginning of the month. The report quoted a SBI official who said:

"People are withdrawing money even if they do not need it and keeping it with them. Cash is not coming back into the banking system."

The official, a General Manager at SBI, added: 

"We are unable to refill ATMs because people are not depositing in banks."

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