Drying up of ATMs

Telangana’s agony for the past few months has now spread to at least four more states — Madhya Pradesh, Bihar, Karnataka and Andhra Pradesh. Speculation is rife about the causes — elections, festivals, social welfare scheme payments, tightness in overall money supply or the cascading effect of demonetisation. Festivals and elections do not really account for this rare run on ATMs as they are integrally interwoven in India’s socio-political calendar and never culpable for this type of a cash crunch. A former RBI official has already pointed out that the currency in circulation should have been much more had demonetisation not taken place. The government has partially acknowledged this reasoning by promising to supply adequate currency notes in the coming days and months.

With an ailing Finance Minister at the helm, the government has much to explain. If, as the Union Finance Ministry admits, it detected an unusual spurt in currency demand in the last three months and ATMs have run dry in several states of rural India, why were corrective measures not taken till now after, of course, carefully identifying variations and anomalies in withdrawals? If the government’s prognosis is indeed on the ball, the cash shortage should subside very soon. But figures showing that the growth in bank deposits is below the pre-demonetisation levels suggests that people are hoarding money instead of depositing it with the banks. This means the public is  nervous, tends to believe intermittent rumours about the security of their money and feels it is safer to keep its money under the mattress. 

The situation may calm down soon if it is just a case of under preparedness and poor logistics on the part of  the RBI. But the government should not rest on its oars till it completely eliminates the possibility of loss of public confidence in the banking system. If fears of distrust are even partially true, a slow-motion run on the banks cannot be ruled out. In such cases, mere printing of massive amounts of currency will be inadequate. To avoid paying a political cost for this mismanagement, the government may need to overhaul the management of its monetary policy institutions.