RBI may have a shortage of ink and currency paper: Report

Nobody seems to know as to why the country is witnessing a cash crunch. The demonestisation is behind us. And the currency in circulation is at Rs 18.4 lakh crore, which is well over Rs 17.9 lakh crore at the time of note ban. But even this may not be enough to meet the rising demand of cash.

According to a report in The Economic Times, the Reserve Bank of India (RBI) is most likely grappling with shortage of raw materials like paper and ink due to which the central bank may not have been able to meet the currency demand from banks.

"There have been issues with the raw materials like ink and paper for some time now which has restricted currency supplies to banks," a person familiar with currency supply dynamics told the daily.

According to a PwC study on India's currency chests, the RBI estimates the demand for currency using an econometric model which factors in, among other things, the expected real GDP growth, rate of inflation and denomination-wise disposal rate of soiled notes.  

The newspaper stated that the cash released by banks to replenish ATMs dipped to around Rs 60,000 crore as of March 30 2016 from a high of Rs 71,000 crore in December 2017.

The government had blamed the 'unusual spurt in currency demand' in the country in last three months for the cash shortage. "In the first 13 days of the current month, the currency supply increased by Rs 45,000 crores," the Ministry of Finance had said in a circular.

The cash crunch, which has reared its head again after the note ban, could well be due to a consistent jump in cash transactions in recent months. Despite a rise in digital payments, the currency in circulation may have failed to keep pace with the rising use of cash.

On Tuesday, the Economic Affairs Secretary Subhash Chandra Garg said that the government suspects that Rs 2,000 notes are being hoarded as they are not coming back into the circulation fast enough.

"Rs 2,000 notes are circulating but of late we have noticed there has been lesser inflow coming back in the circulation. We have not got this investigated, but you can assume this is the one note which most suitable to hoard as this is a high value note. But this does not affect the overall supply of Rs 2,000 notes," Garg had said.

To meet the unprecedented demand, the government is pulling out all the stops to increase the supply of cash in the banking system. The RBI, which used to print Rs 500 crore to Rs 2,500 crore worth of 500 rupee notes everyday, will now be printing Rs 70,000 to Rs 75,000 crore to meet the rising demand, the banking regulator said.