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Why the sudden cash crunch that many Indian states are currently facing?

Why the sudden cash crunch that many Indian states are currently facing?

Is the ghost of demonetisation back? Why were the government and RBI caught off guard? What do you think could be the possible reasons for this happening?

2 Answers
Sachin Mandot, IMT Ghaziabad answered 1 year ago

Higher demand of cash, lesser digital transactions and lack of cash supply. It isn’t the ghost, mismanagement would be more apt for this situation. 

Satyajith Jammu, answered 1 year ago

As I see it there could be more than one reasons for the cash crunch in some states of India –

1. Less number of currency notes printed: There could be a shortage in the currency notes printed/ rate of them being printed which might again be due to the unavailability of the paper, ink or simply the machinery to do so.

2. Lack of account holder’s trust: I have been a witness to numerous situations where customers of many PSU banks have gone to a bank branch(not an ATM) and returned with little or no cash after standing in the queues for long hours and negotiating with the officers for withdrawing at least half of what they needed. This might be due to the first reason but it’s all a chain reaction which I believe led to people not depositing their money in the banks.

3. Bank Scams: The recent Nirav Modi scam at Punjab National Bank, SBI and private banks like ICICI coming under scrutiny coupled with the confusion around FRDI bill that has been proposed by the government recently could have also contributed to the cause.

4. Political Ploys: This is a speculative reason and has no evidence to back it but there has been growing tension after the budget allotment for the year 2018-19 and few states have expressed their displeasure over unjust allotment of funds for development of their respective states. Shortage of cash as proven in the past is a definite way to agitate people against the Central Government which could be leveraged successfully by the State Politics to rebel against the Centre.

I think the cash crunch was because the banks were not able to cater to the needs of the public on a long weekend. Therefore, ATMs had more demand than supply, hence the cash crunch.

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