On the six factors which cumulatively added up to India’s unprecedented cash squeeze

India’s current cash crunch is a real enigma.

To begin with, there is its sheer unprecedented nature. In all the years since Independence, India has never seen something like it. “We have heard of coin shortages but never a cash shortage,” said MS Sriram, visiting faculty at the Indian Institute of Management-Bangalore’s Centre for Public Policy. “I certainly have not in my life. This is new.”

How the shortage played out is odd too. It is acute in some states but not in others. For instance, in Tura, the largest town in Meghalaya’s Garo Hills, an official at the main State Bank of India office, which disburses cash to the bank’s other branches in the region, told Scroll.in that cash reserves had dwindled to almost a fifth of the required amount. “There is pressure from other branches to release money, but we have not been able to give even half of what they have been demanding,” the official said.

A clutch of other states – including Bihar, Assam, Maharashtra, Telangana and Karnataka – are facing shortages too. But states like Delhi are less affected.

The discrepancy is visible within states too. In Maharashtra, Mumbai is fine but Nashik is not. In Tamil Nadu, big banks in Hosur say they are getting all the money they need but their counterparts in surrounding villages say the situation is bad. “We contact our sister branches to see if any of them has surplus cash,” said the manager of a public-sector bank in Belathur, a village about 20 km west of Hosur.

There are other puzzles. The cash squeeze showed up not gradually but suddenly. Reports began coming in from several states from February. If the cash squeeze was only due to a growing mismatch between cash supply and the demands of the growing economy, it should have shown up gradually, experts say.

As a report in Scroll.in noted earlier this month, several theories emerged to explain the shortage, covering the gamut from obvious to plausible to off-the-wall. Shortly afterwards, several Scroll.in reporters fanned out across the country, speaking to people in both cities and villages, to try to identify the genesis of this shortage.

Here is what we found.

Out today, with my colleagues Abhishek Dey, Mridula Chari, Vinita Govindrajan and Arunabh Saikia, a more deeply reported piece (than the previous one) which seeks to trace this cash squeeze back to its (idiotic) origins. Do read.

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15 theories about why India is facing a cash crunch a year and a half after demonetisation

atms are again running dry in india. and theories claiming to explain why are doubling every day. out today, a quick report with my colleague rohan which seeks to separate plausible theories from the disingenuous (or just plain stupid) ones.

‘Is the pain worth it?’: 50 days after demonetisation, rural South India has a few questions

On November 9, life suddenly came to a standstill in Chikka Tirupathi, Bagalur and Hosur. As in the rest of India, the first day of demonetisation in these towns abutting the Karnataka-Tamil Nadu border was marked by problems in conducting day-to-day trading for small businesses and a frenzied hunt for Rs 100 notes for families.

The response to the government action was mixed on that first day. As the cash crunch sank in, small traders figured out that their businesses would take a hit until they replaced their Rs 500 and Rs 1,000 notes. Slightly larger enterprises, such as Jivita who runs a tailoring shop in Bagalur in Karnataka, were more optimistic. “We have enough money for rotation [working capital] for a week,” she said.

On the whole, it was a day of uncertainty. Notebandi was a sweeping decision. People weren’t sure how long it would take to exchange their old cash and for the situation to return to normal. At a branch of the Indian Bank in Bagalur, a bank official was calm. “We will open tomorrow morning,” he said. “People can come with their passbooks and exchange their notes.”

On December 28, Scroll.in travelled the 30 km stretch between Chikka Tirupathi and Hosur one more time. How were people we spoke to on Day One doing on Day 50?

That is it. The last story of 2016. It has been a good year. Intense and packed with learning. Now to see what 2017 is like.

Happy new year, too. 🙂

An update from Patna’s Maroofganj mandi

ten days into #notebandi, patna’s Maroofganj mandi had frozen.

As demonetisation enters its second week, traders in Patna’s Maroofganj mandi are seeing something unprecedented.

In the last seven days, the supply of new stocks in this wholesale market, which supplies cooking oil, spices, rice, wheat and pulses to shopkeepers across Patna, has plummeted. The supply of cooking oil, for instance, is down by 80%.

Talk to traders selling spices, grains or pulses and you hear similar numbers. “Do you see how quiet this market is?” said an accountant at a rice shop. “Till 10 days ago, you would not have been able to walk down this street.”

In the same period, orders from shopkeepers have fallen steeply as well. Most of them cannot buy as much stock as before, said Abhijit Kumar, who runs a wholesale shop for spices, because they have only Rs 500 and Rs 1,000 notes – both derecognised as legal tender by the government.

The strange thing is: despite the contraction in both supply and demand, commodity prices are stable.

30 days later, around the 10th of December, i went back to the mandi seeking an update on how it is doing. Here is what we found.

Dilip Kumar Singh said the situation at the mandi was the result of some traders travelling to Gaya, Muzaffarpur and beyond to take advantage of low prices in parts of the hinterland. However, the traders this reporter met denied this. Instead, they flagged other concerns.

Sanjib Kesari, a wholesaler, said business had improved and more customers were now coming to the mandi. Prices, too, were moving – cooking oil, for instance, had risen Rs 3-Rs 4 in the last 20 or so days. But, the situation was nowhere near normal.

Wholesalers’ volumes remain modest. According to them, two factors are at work…

The lid on illegal sand mining in TN might finally be lifted (but perhaps for the wrong reasons)

Ground report: In Bihar, murmurs of protest break the sullen silence against demonetisation

Banka was the last stop before returning to Patna in this reporter’s travels from North Bihar to South Bihar, to get a sense of how notebandi was impacting the structures of everyday life.

The journey had started with Raxaul, on the India-Nepal border, on November 18, exactly 10 days after notebandi was announced. Heading south, stopping at Bettiah, Gopalganj and Darbhanga and Gaya before reaching Bhagalpur, the common finding along the road was predictable.

As in other parts of the country, economic activity had fallen steeply in every town – be it Raxaul, Bettiah, Patna or elsewhere. In each of them, cash was in short supply, people were struggling to find work. Farm prices had collapsed in parts of the state. In other places, vegetables were being rerouted to bigger markets where there was still some purchasing power. Migrants had returned from the towns where they had been working.

Given this litany of hurt, what was less easy to understand was the popular reaction. As in the rest of India, despite grave difficulties, people had stayed calm. In the weeks gone by, several hypotheses had been advanced to explain this. Did people support notebandi despite difficulties? Did they think, as some people in a village near Gaya said, that notebandi would result in lower inflation and reduce inequality?

In that village, support for notebandi had stemmed from anger about greater inequity over land ownership. One zamindar owned 1,200 acres – which he had stopped giving out to his fellow villagers for sharecropping. The result? Every household in the village eked out a living by either working as labour in Gaya or migrating outside Bihar to work in brick kilns even as the land in their village lay fallow.

That explanation, interesting as it was, did not explain the calm in Bihar’s towns and cities.

And so, when we asked the people of Banka why they were silent, we got some fascinating answers — each far more convincing than the condescending bilge trotted out by pundits sitting far, far away.

Money is trickling into the banks of Bihar – but is not being distributed evenly

A month after Prime Minister Narendra Modi announced the scrapping of Rs 500 and Rs 1,000 notes on November 8, cash availability is starkly uneven across Bihar.

In relatively affluent parts of the capital city of Patna, the long queues outside ATMs seen in the first week of notebandi, when the government invalidated 86% of the currency in circulation, creating a massive cash crunch, are history. In poorer parts of the city, however, one can still see 50-odd people lined up outside ATMs at most times. Travel outside the capital and this pattern repeats itself.

In bigger towns, residents and bank managers said the cash flow has improved. In North Bihar’s Darbhanga, Ramakant Mishra, manager of a Punjab National Bank branch in Qila Ghat, brings out cheques encashed by his customers on November 30, the day this reporter visited his branch. Most cheques ranged between Rs 10,000 to Rs 24,000…

…However, venture deeper into the Gaya district and you will find that cash is just as hard to come by as it was in the days immediately after the demonetisation was announced.