The Principal Economic Adviser to the Government, Sanjeev Sanyal gave an exclusive interview to Mirror Now and explained the possible reasons for the current cash crunch.
He asserted that there has been a sudden and unusual spurt in demand in some states, starting with Karnataka and Telangana, spreading to other states. While it was a surprise, the government is fully aware and is responding to the situation accordingly. He said the RBI and the Finance Ministry is coordinating and there is no need to worry.
When asked that since the unusual cash demand originated in Karnataka, has it got anything to do with the upcoming elections, Sanyal responded by saying that he would not like to speculate as to why this unusual spurt has happened, but he conceded that there has been speculations about this being coordinated and politically motivated.
He said that usually, there is a circulation of this money, but recently, the money hasn’t been coming back into the system. He reiterated that the system has the notes and the demands will be met. He also mentioned that the government has indeed reduced the printing of the Rs. 2000 denomination notes and the printing of other denomination notes have been increased. He conceded to the possibility of higher denomination notes being hoarded, but the demand isn’t one that cannot be met by the RBI. No real problem will be caused other than short-term inconvenience. The RBI always has enough in reserve, and more can be printed if required.
He also mentioned that this wouldn’t lead to inflationary pressure since inflation happens when extra cash is spent. And if the money is being hoarded, it would mean it is not being spent which would mean it wouldn’t lead to inflation. Hoarding and inflationary pressures cannot happen at the same time.
He reiterated, that the causes for this cash crunch will have to be investigated. Taking a dig at Economists, he said that he wouldn’t like to behave like many of them and make extrapolations based on single data points.
Sanyal also explained that this has got nothing to do with solvency of banks. The banking system in fact, is being cleaned up. Successful auctions are being done and banks are on the mend.
This was possibly a response to the allegations levelled by Rahul Gandhi, where he tweeted and said :
“Understand the deceit of Noteban, your money in Nirav Modi’s pocket. Modiji’s ‘Mallya maya’, the terror or noteban is again spreading. The country’s ATMs are again empty, what has been done to the country’s banks,”
समझो अब नोटबंदी का फरेब
आपका पैसा निरव मोदी की जेब
मोदीजी की क्या ‘माल्या’ माया
नोटबंदी का आतंक दोबारा छाया
देश के ATM सब फिर से खाली
बैंकों की क्या हालत कर डाली#CashCrunch
— Rahul Gandhi (@RahulGandhi) April 17, 2018
Faye D’Souza, the anchor of the show asked Sanyal if there was going to be an investigation to find out how such large amounts were withdrawn and by whom. To this, Sanyal clarified that when he talks about ‘investigation’, he means it as a purely intellectual exercise where the government and RBI analyses the trends, and unless there is evidence, there is no reason to believe that any criminality is involved. There are all kinds of spikes that happen in Economic dynamics and there is no evidence to suggest there is anything criminal going on.
The first aim is to meet the demand, and then the investigation and analysis will ensue.
Interstingly, Sanyal said that this sort of spike is not common considering this is not the festival season which is generally during October.
Towards the quantum of demand, the Principal Economic Adviser said that around Rs. 45,000 crores was withdrawn in recent times.
The Secretary of Department of Economic Affairs had also earlier made the same assertion. “It is being said that there is a cash shortage in the country, but actually that is not the case,” said Subhash Chandra Garg, secretary, department of economic affairs. Garg said that every month, the demand for hard cash in the country is about Rs 19,000 crore-20,000 crore. However, in the past few months, it has been a different story. “Between January to March, demand for cash rose up to Rs 45,000 crore in the country, and that was supplied,” Garg added.
Sanjeev Sanyal also assured that this matter will be “solved within days”.
The full interview can be watched here :