India’s cash machines are running dry again, prompting accusations that the central bank is not doing enough to make money available five months after Narendra Modi summarily cancelled most of the country’s banknotes.
Government officials have repeatedly claimed cash supply is back to normal after demonetisation caused a severe liquidity crunch in a country where more than half of transactions by value are still carried out using notes.
But after ATMs in cities including Mumbai, Bangalore, Chennai and Pune ran out of money this month, analysts say the central bank has slowed its currency printing too soon, with notes in circulation only two-thirds what they were before demonetisation.
“The government wants to slow down the cash money in the economy. They want the new equilibrium level in the economy to be lower,” said Ashish Gupta, research analyst at Credit Suisse. “But you don’t want the scarcity value of notes to go down, [because] the propensity to hoard increases.”
Demonetisation was billed not only as a strike against corruption and “black money”, but also as an effort to push the population — only half of which have bank accounts — towards digital payments. But economists fear it is undermining that goal.
“By making cash not easily available you won’t necessarily boost digital transactions, you’ll suffocate economic activity because in India most economic activity is informal,” said Ritika Mankar, senior economist at Ambit Capital.
Ms Mankar added that India’s informal economy, where most transactions are in cash, accounted for 70 per cent of employment and 40 per cent of its gross domestic product.
One official at the Reserve Bank of India, who declined to be named, insisted that staff at the country’s four note-printing presses have been working around the clock to pump new Rs2,000 and Rs500 notes into circulation.
Data from the central bank show currency in circulation has increased steadily since January, from Rs8.9tn at its lowest point to Rs11.3tn ($175bn) on February 17, the most recent date for which data are available.
However, this is still less than two-thirds of the currency in circulation before Mr Modi’s November 8 move.
The RBI data also show that the rate at which money supply is increasing has slowed since the start of the year, from 5.9 per cent in the week to January 13 to 2.8 per cent in the week to February 24. The RBI declined to comment on the figures.
Ms Mankar said that data on currency in circulation did not reflect the reality on the ground, as cash has been unevenly distributed.
“The RBI is not doing itself any good by showing itself to be a central bank that does not believe in publishing basic information . . . They should tell us the pathway for remonetisation in the whole country.”
ATM operators, which collect money from banks to refill cash machines, say bank branches are hoarding notes to serve their own customers, instead of distributing them more widely across the country.
“Our supply has not increased enough,” said V Balasubramanian, president of retail services at FSS, which manages more than 40,000 ATMs in India. “We had restrictions on withdrawals but as soon as we removed the limit in March, people started withdrawing more cash and my supply has not gone up.”
According to NSG Rao, secretary of India’s Cash Logistics Association, a trade body for cash managers, ATMs are running at 65 per cent of their capacity.
Mr Balasubramanian said that since the central bank removed its final restrictions on cash withdrawals a month ago, ATM transactions had neared the same levels as before demonetisation.
“A lot more people are shifting back to cash and we’re finding the shortage all over again,” said Sandhya Menon, spokesperson for India’s largest ATM operator, CMS.