Was cash supply arbitrarily reduced?

As reports of non-availability of cash at ATMs across the country swamped newsrooms, the Reserve Bank of India, in a statement, clarified that there is no shortage of currency. The central bank noted logistical issues and non-replenishment of ATMs as the reason behind the cash crunch. However, former Finance Minister P. Chidambaram lashed out at RBI saying the shortage was caused due to arbitrary control on cash supply.“It has been reported in a section of the media that there is shortage of currency in certain parts of the country. It is clarified at the outset that there is sufficient cash in the RBI vaults and currency chests,” said RBI in its statement issued on Tuesday. Chidamabaram asked for the reason behind the shortage in a tweet: “If RBI has injected sufficient cash, it is obliged to tell the people why there is a cash shortage.” The central bank explained, “The shortage may be felt in some pockets largely due to logistical issues of replenishing ATMs frequently and the recalibration of ATMs that is still underway.”

However, Chidambaram was not convinced. He said

that cash supply must grow at the same rate as the economy. “The cash shortage may be because cash supply has been arbitrarily reduced. A government is obliged to provide as much cash as the people need at any given time. The Government or RBI cannot arbitrarily control the supply of cash,” said the former finance minister.