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Several parts of Andhra Pradesh, Telangana, Madhya Pradesh, Bihar and poll-bound Karnataka have reported shortage of currency and ATMs running dry, which the government attributed to unusual spurt in demand in the last three months.
Finance Minister Arun Jaitley blamed the "temporary shortage" in certain states on “unusual” demands for cash, assuring that the situation is being "tackled quickly" and that there is "more than adequate" currency in circulation.
But why is there a cash crunch more than a year after demonetisation? Here are a few theories floated by the government, Opposition and experts.
1. Delay in Recalibration of ATMs
The delay in recalibration of cash vending machines to dispense Rs 200 notes is understood to be one of the reasons for the currency shortage in some parts of the country.
Since the new currencies of Rs 2,000 and Rs 200 come in different shapes, the ATMs need to be recalibrated. The drive was started soon after the new notes got out, but got delayed in some parts of the country.
2. Inadequate Supply of Cash from RBI
The government is checking with banks and the Reserve Bank of India to ensure adequate supply of currency.
Minister of State for Finance Shiv Pratap Shukla said the government has formed a committee to address the problem of currency shortage in certain states, and the issue would be resolved in next 2-3 days.
"The government has set up state-wise committee and the RBI has also formed a committee to transfer currency from one state to another because for money transfer you need the permission of the RBI. It (the shortage) will be solved in 2-3 days," he said.
3. Inequality Between Cash Supply and Economic Growth
Former finance minister P Chidambaram said an inequality between cash supply and economic growth led to the shortage of cash. He said, “As a rule, cash supply must grow at the same rate as the economy is growing. The cash shortage may be because cash supply has been arbitrarily reduced. ”
An RBI report shows that the currency in circulation in the country has reached the pre-demonetisation level of about Rs 17 lakh crore.
“According to the pre-demonetisation trend, the currency in circulation should have been close to Rs 23 lakh crore if we assume that cash is coming back at the same pace,” R Gandhi, a former RBI deputy governor, told Quartz.
4. More Withdrawals, Less Deposits
Quoting an analysis put forth by the RBI, a report on Business Standard said that the rate of cash withdrawal was much higher than the rate of cash deposits in the states that are currently facing cash crunch.
Former finance minister P Chidambaram reiterated the same, and said, “I suspect ordinary people are withdrawing cash but not putting back into the banks their surplus cash,” adding that “it is possible that there is some loss of confidence in the banking system, thanks to the bank scams.”
5. Procurement Season for Farmers
According to SBI Chairman Rajnish Kumar, the payment of cash to farmers in this agricultural season has raised the demand for cash generally. “One possible reason is that the procurement season has started and the demand for cash payment to farmers has gone up,” Kumar told ANI.
However, if that is one of the reason behind the cash crunch then such shortage would be a common sight in every agricultural season.
6. Govt Suspects People are Hoarding Rs 2,000 Notes
Economic Affairs Secretary Subhash Chandra Garg said that the government suspects that the hoarding of Rs 2,000 notes led to the crunch. "Rs 2,000 notes are circulating but of late we have noticed there has been lesser inflow coming back in the circulation. We have not got this investigated, but you can assume this is the one note which most suitable to hoard as this is a high value note. But this does not affect the overall supply of Rs 2,000 notes," Garg told Business Today.
7. Politicians Possibly Holding Illicit Cash Before Election in State Like Karnataka
Quoting a research paper, Scroll.in reported that with the elections coming up in some states, it could be possible that politicians were hoarding Rs 2,000 notes to use them in campaigns. According to the research paper, although real estate is the ideal way to hoarding money for politicians, that gets liquidated during election season for campaign expenditure.
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