note demonetisation

Why ATMs don't have cash: Because of 'overdrawal', a new word coined by top official

More than 100 days after demonetisation, it is clear there still is not enough currency for everyone.

More than a 100 days after Prime Minister Narendra Modi announced India’s massive demonetisation move, some people are still finding it difficult to get sufficient cash, even though the government has insisted that there is no lack of currency.

On Wednesday, Economic Affairs Secretary Shaktikanta Das tried to explain why this was happening – by blaming what he termed as “overdrawal”.

Presumably by that Das means an “over withdrawal”, or people withdrawing more money than they ought to – although it is unclear what the threshold for a withdrawal to turn into an overdrawal could be.

He could be referring to an overdraft, which is when an account holder withdraws money on credit beyond the balance in their accounts, but even that is a legal service that banks provide (and would not be enough to cause a cash shortage if there was enough currency in the system otherwise).

India has had strict currency withdrawal limits since November 8, when Modi announced that all Rs 500 and Rs 1,000 notes were no longer legal, and would be replaced by new Rs 2,000 and Rs 500 notes.

The move led to a massive currency squeeze, since the government did not have enough notes to replace the ones that had been withdrawn, causing rural distress and an economic shock.

The Reserve Bank of India is only now easing those withdrawal limits but even though the government has insisted it has printed enough currency – Finance Minister Arun Jaitley brazenly said that there was not a single day with inadequate notes – ATMs continue to run dry in some places. This report from an Adivasi village on the Maharashtra-Gujarat border is one example.

Economic Affairs Secretary Das took to Twitter to explain exactly this, insisting that the cause of the currency shortage was an “overdrawal”.

Incidentally, while the current account limits were removed from February 1, the weekly limits for withdrawals were raised for savings accounts from Rs 24,000 to Rs 50,000 on February 20 and the Reserve Bank of India had promised to removed all limits – on savings accounts and ATMs – with effect from March 13.

Das seemed to be saying that even though the government had relaxed withdrawal limits at ATMs – which restricted people from accessing their own money – people should continue to only pull out a limited amount of cash.

The inferences that follow from this are also easy to make:

  • Despite insistence from the government, there clearly is not enough cash relative to demand.
  • Although the government made moral arguments that people would not need cash beyond the withdrawal limits, people are finding it necessary or useful to withdraw beyond that.
  • India’s currency situation is not back to normal.

The Economic Survey in January suggested the “remonetisation” effort will not be complete until at least the end of March, and even then much more will be needed for a return to normalcy.

The Survey was also clear that the government should eliminate withdrawal limits and not penalise people for pulling out cash – in other words, not create the idea of an “overdrawal”.

Naturally people on Twitter had reactions to this attempt to explain away the currency shortage caused by demonetisation.

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