What can cause the current cash crunch in the country?


Many parts of India has been undergoing a so called cash crunch. Though the overall impact of crunch is fairly limited in cities like Mumbai, the ATMs in many of the rural and select urban locations are running dry. What can be the possible reasons for this? Is there really any cash crunch in the country or is the RBI regulating the cash flow?

There are many theories doing the round. The RBI claims that there is no shortage of currency. However, some source based information reveal that Reserve Bank is facing a raw material shortage in terms of ink and paper. Reports indicate that there has been distinct rise in cash consumption.

This rise can be due to many reasons. One common concern is the rising need for KYC by a host of the mobile wallets. For many who are not keen about sharing their details, it is back to cash. That means the cash usage has risen.

The cash in hand for banks is also under question. Compared to a high of Rs 71,000 crore in December,2017, it has reduced to Rs 60,000 crore in March, 2018. This is also being considered as one of the triggers for the ATMs dispensing lower cash.

Another key reason that is being seen as a trigger is the upcoming election. Historically, the cash consumption rises to a large extent closer to elections. The cash levels are currently back to pre-demonetisation period. The crop procurement season is also linked to high cash usage.

Does it means that the payment digitization is undergoing a marked slowdown? Or can we connect it to the reports of a potential hoarding of Rs 2000 notes. The official commentary indicates that there is a marked improvement in the trend in the past 24 hours. Some large private sector banks however maintain that they have not faced any such crunch.

Political parties and opponents of the BJP are however looking at gaining certain political mileage from the situation. The concern is whether there is anything material to worry about at the current situation? RBI claims that all is well at their end. The way the situation unfolds over the next few days will help create indicators.


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