The government will step up printing of Rs 500 notes by five times in order to meet an “unusual spurt” in demand for cash, which has more than doubled in the past couple of months, Economic Affairs Secretary Subhash Chandra Garg said on Tuesday. He said the government has enough currency in stock to meet this sudden spurt and assured that the Indian banks are sound and safe.
“There has been an unusual spurt in currency demand in the country in last three months,” Garg said, adding that the demand has gone up from monthly average of Rs 19,000-20,000 crore to about Rs 40,000-45,000 crore per month. This unusual spurt in demand is seen in states including Andhra Pradesh, Telangana, Karnataka, MP and Bihar, where many of the ATMs are running dry and bank branches are short on cash.
“Our stock preparation is enough to tackle any kind of cash crunch arising at any point in time,” he said during a press briefing. In the last few days, the government has stepped up currency printing. As against Rs 500 crore worth of notes being printed per day, it is being increased to Rs 2,500 crore per day now in the denomination of Rs 500 note. “Very soon in next couple of days we would have a supply of Rs 2,500 crore per day,” he said.
Even as currency printing is being ramped up, the government currently has Rs 1.75 lakh crore of currency in reserves, which is sufficient to take care of the increased demand, he said. Garg said it was difficult to point out the specific reasons for the increase in demand but it could be due to “shortage mentality” wherein people think that there is going to be a shortage of currency and start withdrawing more than their actual requirements.
He said the government is closely monitoring the currency stock with around 4,000 currency chests in the economy, as a shortage in pockets of the country seem localised and could be partly due to currency management issues. The government is now monitoring the chest wise currency position, to replenish chests which have a shortage of funds.
The government has halted printing of Rs 2,000 notes recently as about Rs 6.7 lakh crore worth of Rs 2,000 notes have already been pumped into the market, he said. Of late, somewhat lesser amount of Rs 2,000 notes are coming back into the system, as some people may be hoarding, he said. The government has no plans immediately to restart production of Rs 2,000 notes.
The secretary said that there are two ways in which the situation can become normal, first if the demand becomes normal, then the government doesn’t need to increase supply. In the second scenario, the government should meet as much demand as is there, but that could create a new normal for currency usage. “We are prepared for the new normal. We are prepared for both scenarios,” he said.
The Government is taking all steps to ensure that ATMs are supplied with cash and to get non-functional ATMs normalised at the earliest, he said. Asked if the election in some states is the reason for the cash shortage, he said the election is only happening in Karnataka and but cash shortage is being reported from elsewhere. When asked whether people are losing trust in the banking system, Garg said the private banks in India are world class and the public sector banks are fully backed by the government. Therefore, the banking system is fully safe, he said.
“Have reviewed the currency situation in the country. Overall there is more than the adequate currency in circulation and also available with the Banks. The temporary shortage caused by ‘sudden and unusual increase’ in some areas is being tackled quickly,” Finance Minister Arun Jaitley tweeted.