CASH CRUNCH

Nearly 18 months after the government’s decision to scrap currency notes of Rs500 and Rs1,000, which accounted for over 86% of the currency in circulation at the time, large parts of India are in the throes of a severe cash crunch again. The government started acting belatedly on Tuesday in response to reports of cash shortages from States including Telangana, Andhra Pradesh, Karnataka and Madhya Pradesh over a fortnight. Terming the shortage a manifestation of an ‘unusual spurt in currency demand’ over three months, the Finance Ministry HAS EMPHASISED that THE irst 13 Days of April RECORDED An INCREASE In Currency supply of Rs45,000 crore. Yet, thousands of automated teller machines are either not functioning or not dispensing adequate cash as banks are reluctant to divert cash to them at the cost of customers visiting branches for withdrawals. The Ministry has asserted that over Rs1.75 lakh crore of cash lies in reserves, which may now be deployed to meet the demand. On its part, the Reserve Bank of India has claimed there is enough cash in its vaults, but it has ramped up the printing of all notes. At the same time, it blamed the shortages on logistical issues of replenishing ATMS and said it is moving more cash to regions that witnessed high cash withdrawals. Theories abound on how upcoming elections, starting with Karnataka and possibly ending with the Lok Sabha polls in 2019, have prompted a large-scale cash management exercise among political parties. Part of the retail love for cash is also being attributed to depositor fears about the impending Financial Resolution and Deposit Insurance Bill that makes it possible to Deploy Investor savings to BAIL out stressed Banks AND inancial Institutions.