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This is not DeMo 2.0, there is plenty of money and we will print more: Sanjeev Sanyal


In a conversation with Supriya Shrinate of ET Now, Sanjeev Sanyal, Principal Economic Advisor, says there seems to have been some unusual demand for cash in recent weeks starting out with Karnataka and Telangana and then spreading to other parts of the country. But there is nothing to panic about as there is plenty of cash and more are getting printed.

Edited excerpts:

To begin with, a very simple question. Cash crunch seems to be causing a lot of panic. People are rushing to banks and experts are saying there could be a run in banks, What has caused this cash crunch all of a sudden? We are not just seeing it in pockets of the country, we are seeing it across Andhra Pradesh, Telangana, UP, Madhya Pradesh — where ATMs are running dry. What would you attribute this to?

Let me begin by assuring everyone that there is nothing to panic about. There is plenty of cash and we will quite definitely print a lot more for you. So, there is nothing to panic at all. Now having said that, I think the Finance Minister and DEA Secretary would have already pointed out there has been an unusual demand for cash in recent weeks particularly starting out with Karnataka and Telangana and then spreading to other parts of the country. While I would not like to speculate on who and why this unusual demand suddenly came from, the fact is we have now responded to this and every effort will be made to make sure that ATMs across the country have more than adequate cash for you.

ATMs will have more cash is the assurance that is coming in from Finance Ministry but the reason why I asked you that question and even at the cost of sounding repetitive I do want to dispel the speculation out there that this could be DeMo 2.0?

No, not at all. This is not demonetisation 2.0. Nor is this something to do with the standing of the banks. The banking sector is in absolutely no risk situation and in recent weeks we have seen the insolvency and bankruptcy process go forward and the banking sector beginning to get some money back. In fact, if anything, we are cleaning up the banks and they will be much better in the next few months than they have been. I think there is absolutely nothing to get too worried about.

You are right when you say that there has been some unusual activity and that is why demand has gone up. But if I actually go through the numbers, why are people withdrawing so much money? Why is there so much of cash in circulation? In an interview, SBI chairman Rajnish Kumar very categorically said, it is today at Rs 18.42 lakh crore. About Rs 50,000 crore more have been withdrawn on a per month basis and that is a very high number!

Well I would not like to speculate on this because it will lead to all kinds of finger pointing until we have got to the bottom of the issue. But let me point out that while there are unusual speculations and there may be various reasons for it, we are in a position to meet that demand. It is not something that we will not meet and certainly we are not attempting some sort of a demonetisation second round. There will be enough cash. As I said, when there is sudden rush for it, it takes a little while to respond because we have to print them. But the situation has been identified and every action will be taken to ease it.

If I actually look at the numbers, the currency in hands of public as a percentage increased from 8.8% in 2014 to 39.2% in 2018. What are you going to attribute this accelerated use of cash to?

As I said. I did not want to speculate on this as I said it is certainly very unusual but we are very clear that for a fair length of time after demonetisation it has stabilised at a certain level. Then there was a sudden jump in recent weeks. So I do not want to now go and begin speculating why and how this happened or whether or not there is something coordinated about it at all. Until we have investigated the matter and come to the bottom of it, I would not like to speculate. However, we would like to assure that whatever the demand, we will meet it and we are in a position to do so. In the next few days, we will be able to ship out enough cash to cover it.

The DEA Secretary earlier today and this is an important news point that really came from the briefing. He said very categorically that we have stopped printing of Rs 2000 notes for now. The number of Rs 2000 notes in the system is adequate. Now is that a wise thing to do when you are going to see this kind of cash crunch because the Rs 2000 notes — perhaps being hoarded or out of the system is a lot more. You need four Rs 500 notes to replace one Rs 2000 note. Why is it being done?

Well this was a judgement that was made over the last several months depending on what was understood as the demand. Remember, at the end of the day, there is also demand for small notes and in every day usage, the small notes – Rs 500 and below — is what is really used. Now, of course, there is some demand for Rs 2000 rupee as well but at that time it was thought to be adequate. We will meet whatever requirements there may be going forward. This is something that evolves all the time.

A SBI report very categorically says that the RBI may actually be holding back Rs 2000 notes and that needs to come back into the system. Is it fair to presume here that to tide over this cash crunch or cash crisis, we will be resorting to more high denomination currency in the system?

Well all options will be explored and whatever is practical will be done. We do not have some sort of preconceived notion of exactly what the response should be. Whatever is required will be done.

I am going to ask you a conspiracy theory of sorts. A lot of experts out there suggest that it is also the rise in service tax levels that we have seen over the years which may have attributed to more cash being used. People believe it is easier and perhaps less expensive to pay for cash for most services. Are you somebody who subscribes to that view? Could that be one of the reasons really?

As I said I will believe everything as long as there is evidence for it. I do not think the evidence to make this case has been fully put together. I am open minded but it is even possible but as I said the evidence for this has not yet been put together and the case is not yet something that has been proven. So as I said it is possible but I would not like to speculate on it given the evidence available.

The DEA Secretary very categorically also said that they may have seen some tendencies of hoarding of high value currency of Rs 2000 crore, There is about 6.7 lakh crores in the system, almost one-third of the currency in the system is actually the high value, high denomination Rs 2000 note. One thought after demonetisation in 2016, one was going to see a mindset a behaviour change. Will you accept and concede that India perhaps has not changed its behaviour? India perhaps continues to hoard currency?

Certainly. It is possible that some of the Rs 2000 notes are being hoarded. However, let me also caution about drawing grand conclusions from a few days of shortage because these are long-term behavioural trajectories and there is a danger that we may be unnecessarily reading too much into it. Nonetheless, it is a fair enough issue that we need to look at and obviously if this behaviour persists, that means that a certain kind of behaviour did not change.

If you see the rise in digital payments and digital transactions that has gone up consistently and it is important to tell our viewers here that everything was not in wane. In November 2016, Rs 95 crore digital payments happened, in January 2018 that number went up to a Rs 182 crore now how are you going to then say that is demand for cash is also accelerating at the same pace? How are we going to marry the two seemingly opposite theories that come out of this?

That is precisely the point I am making, that we tend to take a single point and make grand extrapolations on it and therefore we have contradictory trends and data coming through one obviously these denominated cash demand for high denomination but at the same time electronic payments going up and of course one could argue that they are different activities one is transactional one, one is sort of storage of value and so they are somewhat different activities.

When over long periods of time the data accumulates. you will be able to make the case for it but in policy making we cannot wait for that. We have to respond as things go and so as the situation rises this cash crunch situation we will respond by putting more cash into the ATMs and banks so that those who have genuine need for it can go out and take it. So let me end by saying that there is no crisis and as much as, as you need, will be provided and we will make sure in the next few days this ATM cash dispensation problem is sorted out.

A lot of people also out there believe that the high demand for cash could be a sign of high credit offtake. It could be a sign of higher economic activity. Are you someone who is as hopeful and optimistic?

It is possible. The economy was generally picking up towards the beginning of this calendar year so it is possible that people are demanding more cash because there is more economic activity. But I am always sceptical about using one point data to make grand forecast. Unless we have better understanding of what this is causing this, let us not begin to make grand proclamations.

Both the Reserve Bank and the finance ministry are working very closely on this. We can only at this juncture wait for proper investigation to work it out.

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