Running on empty

Running on empty

ATMs run dry, act quickly to meet spurt in cash demand.

Lines outside ATMs on Tuesday were faintly reminiscent of the first few weeks following demonetisation of high value currency notes in November 2016. Unlike that occasion, in 2018 government and Reserve Bank of India (RBI) had more lead time to deal with a currency shortage. A statement issued by finance minister Arun Jaitley stated that there had been an “unusual spurt” in currency demand in the last three months. It suggests that there is no excuse for allowing currency shortages to build up over time and spread across states. The priority now must be to normalise the situation at the earliest.

A bird’s eye view of the situation indicates there is no reason for panic. RBI data showed that at the end of the first week of April, currency in circulation was Rs 18.42 trillion, a level higher than on the eve of demonetisation. In the first fortnight of the month, currency supply was increased by Rs 45,000 crore. Therefore, at an aggregate level, there is adequate cash to meet its primary functions, that is, to transact and store for an emergency. RBI governor Urjit Patel should reinforce the message that has been put out by Jaitley to quell rumours.

While aggregate levels may be adequate, there seems to be some change in composition of denominations. The high value Rs 2,000 note, according to anecdotal evidence, is not easily available in ATMs. Given that the last few weeks have overlapped with the harvest of winter crops and end of the financial year, finance ministry and RBI ought to have managed the situation better. Cash remains the mainstay of retail and informal sector transactions and it is essential that policy makers avoid situations that undermine an emerging recovery in economic growth.