Dinesh Kamath's Editorial 'Why this cash crunch?' that was published in Newsband

Why this cash crunch?

The sudden cash crunch is become a big issue. The remonetisation process remains incomplete. The government had made the decision to scrap currency notes of ₹500 and ₹1,000, 18 months back. Today, large parts of India are in the throes of a severe cash crunch again. There are reports of cash shortages from States including Telangana, Andhra Pradesh, Karnataka and Madhya Pradesh

The shortage is a manifestation of an ‘unusual spurt in currency demand’. Thousands of automated teller machines are either not functioning or not dispensing adequate cash. The Reserve Bank of India has claimed there is enough cash in its vaults, but it has ramped up the printing of all notes. It is moving more cash to regions that witnessed high cash withdrawals.

Depositor fears about the impending Financial Resolution and Deposit Insurance Bill and hence a sudden love for cash. The government went for ₹2,000 notes post-demonetisation to remonetise the economy faster. The lower denomination notes taking longer to flow freely. Big note has become a preferred mode for hoarding capital.

Eighteen months ago government panged the hearts of the nation with demonetisation of the 500 & 1000 denominations. The aftermath of that has seen protracted queues and shortage of cash eventually agonizing demos of the nation. Though the demonetisation was perpetuated to curb the menace of black money and tax evasion and though the demonetisation 2.0 had pros and cons, nonetheless ATM`s going cashless still is a debatable event inked with irregularity and management of cash in the fiscal system. Is it that government is planning to shun 2000 notes, recalibration of ATM for 200 notes or did the upcoming elections which accentuated to make this happen?

Vigilance must be there and probe should be launched to find root cause of cash crunch. Than take some step to tackle down this problem. Demonetisation could be successful in the long run only when a constant and sharp vigilance is kept over transactions and deposition of money.

ATMs running out of cash in most parts of India reminds us of long queues after demonetisation of 2016 when 86 percent of cash in circulation was taken out of system. The situation may not be as bad now but cash crunch faced in many parts of the country is a matter of grave concern and explanation given by the Finance Ministry that there has been unusual spurt in cash demand for last three months may be partly true. The RBI’s assertion that shortage is due to logistic support, if true, also shows the cash management in very poor light. The malaise might be much deeper and result of recent banking scams and apprehensions of depositers regarding Financial Resolution and Insurance Bill, is eroding their faith in banking system. The government must bring banking system back on track immediately and re-assure the depositors that their money in banks is safe.