Cash shortage and reasons behind the scarcity in many states

Cash shortage has been the talk of the town. There has been an acute shortage of cash in states like Assam, Bihar, Uttar Pradesh, Rajasthan, Madhya Pradesh, Maharashtra, Telangana, Andhra Pradesh and poll-bound Karnataka from last two weeks.

A number of people have protested against the cash shortage in some of the states. But, the centre has said that the situation is under control as there is enough cash supply in the country and the banks are well equipped to face any position.

MoS Finance SP Shukla said that the government has a cash currency of Rs 1,25,000 crore right now. The finance minister Arun Jaitley also posted a tweet saying he had reviewed the currency situation in the country and there was more than adequate currency available with the banks. “The temporary shortage caused by sudden and unusual increase in (demand) in some areas is being tackled quickly”, he said.

The government said that the situation was temporary and will be fixed in three days. Here are some of the reasons that could have led to cash crush:

1. The banks were disallowed by RBI to move the excess cash from one circle to deficient circles. It resulted in some of the cash circles getting cash starved. Separate state-wise committees have been formed by RBI to transfer surplus currency from one circle to other. The government has also formed its own state-wise committees to facilitate cash transfer from one state to other.
2. The cash crunch situation has been complicated by ATM. New Rs 200 notes have been introduced but a large number of ATMs have not been recalibrated for the new currency.
3. The cash crunch has also been caused by the harvest festivals. The demand for cash was pushed by festivals like Baisakhi, Bihu and other festivals. There were extra withdrawals prior to the festival.
4. Officials have also blamed the payment of wages in large amount of cash for the situation. According to them, the harvest season has led to huge cash withdrawals to pay farm labourers in the affected states. Currencies of smaller denomination were targeted by the withdrawals that led to temporary shortage of cash.
5. Karnataka election has also caused the unavailability of cash. As the elections started picking up in the state, there was a sudden rise in the demand for cash.