why crunch?

Source: The Hitavada      Date: 19 Apr 2018 11:45:22

THERE may be umpteen explanations of why the country is facing a severe cash crunch all of a sudden, but there can be no justification for this situation that is pushing people into a great inconvenience. It is obvious that some powerful elements have hoarded mind-boggling amounts of money in high denomination currency notes for purposes the common man can never understand. It is also obvious that the banks have not stopped such a hoarding even if they have got an inkling of the stealthy move. For, it is impossible even to fathom that the banks would not know any such action when money is being siphoned away in such quantities.

Though on one hand Union Finance Minister Mr. Arun Jaitley has assured that there is no cash crunch, on the other hand the Government has ordered an emergency printing of currency notes of Rs. 500/- denomination. This contradiction only adds to the overall confusion in the situation. There is no doubt that in a couple of days, the situation would ease as the Government pumps into the system more currency. Yet, the very fact that such a situation has arrived, does not go well with the country’s monetary management. For, sometime earlier, too, a similar condition had loomed large on the horizon. That necessitates some stern action on the part of the Government as well as the Reserve Bank of India so that there is no repeat experience in this regard.

The current cash crunch also indicates how vulnerable our overall banking management has become in the past 15 years. When the Government made that daring move of demonetisation, it was hoped that it would be able to check the uncouth tendency of some elements to hoard a lot of money unofficially. To a large extent, the movement of black money was checked through demonetisation at that time. Yet, the current cash crunch which we are facing almost out of the blue indicates that some elements still are in a position to hoard money in such a mind-boggling measure.

This means that the Government will have to start monitoring the movement of money through banks more strictly. For, when such huge amounts of money are moved in stealth, the Automatic Teller Machines (ATMs) cannot be the only outgoing channel. Obviously, the elements that took the money out of the banks must have used their influence with the banks whose managers did not mind allowing huge withdrawals. Obviously, this must have happened at several places, which the banks failed to notice and realise the impending danger the move could pose before the nation.

There are reasons to believe that this money is being hoarded by political elements who would need the huge sums to run their election machinery when some State would go to polls in a short while. A year later, the whole country would elect the next Lok Sabha as well, necessitating the political parties to have yet larger amounts of money in ready and usable cash. If the electoral politics is going to deprive the country’s common people of cash in such a manner, then there is something terribly wrong with the economic system. This condition needs to be corrected on an urgent basis.

True, the Government has taken necessary steps to rectify the fault that has cropped up. Still, its effort should be to ensure that nothing of this sort happens again. For, when such a cash crunch hits the country suddenly, it only shows how vulnerable our system is and how the RBI has failed to maintain discipline in the banking machinery. All this looseness will have to stop immediately. And to achieve that kind of surgical efficiency, the Government will have to adopt an absolute no-nonsense approach to management of the banking system and also exercise good control of political stealth that hurts larger interests.