India’s ATMs Are Running Out of Cash. Again.

NEW DELHI — For the second time in 18 months, India has a shortage of cash. And like last time, economists say, it’s primarily the government’s fault.

Empty ATMs and bank restrictions on withdrawals have been reported in eight states this week, and some bank managers said the cash crunch has been building for months.

The government says the cash problem was caused by an unusual spurt in demand and will be eased within days. But if it persists, the shortage poses a political threat to Prime Minister Narendra Modi, whose administration has been hit in recent weeks from a series of stumbles. Most recently, he was criticized for his long silence over the horrific gang rape and murder of an 8-year-old Muslim girl that police say was committed by a group of Hindu men to terrorize the Muslim population.

On Monday, Sampath Kumar Lohati drove his scooter around Warangal, a city in the south Indian state of Telangana, for more than four hours trying to withdraw money.

“I tried at least 50 to 60 ATMs,” he said in a telephone interview. “But I could not find any cash.” Mr. Lohati, an insurance agent, finally got money on Tuesday after an ATM near his home was refilled.

India’s last cash crisis was caused in November 2016, when Mr. Modi decided to suddenly void most of India’s paper currency. The current shortage is also rooted in government policy decisions, as well as growing public mistrust of banks after several costly scandals.

Most Indians work at informal jobs that operate almost entirely in cash, from roadside food stands to day laborers. People in such jobs had already seen some work dry up because of the shock 2016 demonetization, as well as the imposition of a cumbersome national tax on goods and services in 2017 that has sought to formalize transactions that had previously been off the books.

Depending on how long it lasts, the current cash crunch will further dent the incomes of those workers, who are a critical part of the voter base of Mr. Modi’s governing Bharatiya Janata Party.

“If this kind of shortage is there and the unorganized sector gets hit again, which it will, if the cash shortage persists, then there has got to be fallout from that,” said Arun Kumar, a professor at the Institute of Social Sciences in New Delhi who studies public finance and the illicit economy. “That will be very damaging to the ruling party.”

Opposition leaders are already trying to gain political mileage from the situation. Mamata Banerjee, the chief minister of the state of West Bengal and a frequent critic of Mr. Modi’s policies, said on Twitter Tuesday, “Seeing reports of ATMs running out of cash in several States. Big notes missing. Reminder of #DeMonetisation days. Is there a Financial Emergency going on in the country? #CashCrunch #CashlessATMs.”

Economists say that the cash shortage has no single cause, but rather is the result of a combination of factors.

Following the 2016 currency cancellation, the government did not print enough new bank notes to keep up with India’s growing economy, betting that cash-loving Indians would embrace digital transactions. (They did not.)

Meanwhile, hoarders and black market operators started stockpiling 2,000-rupee notes, worth about $30 each. Rather than expanding the supply to compensate, the government decided to stop printing the high-value bills, forcing banks to fill ATMs with lower denomination notes, which run out more quickly.

Public faith in the safety of India’s banks has also faltered over the past year, prompting people to keep more cash at home.

The Modi government, warning of a growing problem with bad bank loans, last fall pledged $32 billion in taxpayer funds to bail out weak lenders. It also proposed legislation that could force depositors with more than $1,500 in an account to take a loss if their bank failed.

Jitters rose further in February after Punjab National Bank, a major state-owned lender, and government investigators accused the jeweler Nirav Modi of stealing $1.8 billion in a scheme that went undetected for years because of poor controls at the bank.

“Many people got scared,” said Radha Rani, a senior manager at Indian Bank, another state-owned bank, in Warangal. “They are keeping money in their houses or investing in real estate. They have fear of losing money if deposited in the bank. So many people directly told us that.”

G. Ravinder, 55, an architect and consultant in Warangal, said that he has issued paychecks to the laborers working on his projects, but they have been unable to cash them.

His bank, the State Bank of India, the country’s largest bank, will not allow him to withdraw enough cash from the branch either. “I went to the bank to withdraw 40,000 rupees, but they said, ‘Sorry, we can give you only 20,000 rupees,’” he said. “So how do I do my work?”

The harvest and marriage seasons are looming, increasing demand for cash. If the shortage is not quickly eased, more customers will demand their money, potentially causing a much bigger problem: a bank run.

“We have deposited our own money in the bank with the assumption that whenever we need money, we can get it from the bank. When banks are not giving money, then people are scared that bank deposits are not safe,” Mr. Ravinder said. “That is why people are withdrawing their money from the banks.”

Content originally published on https://www.nytimes.com/2018/04/20/business/india-bank-cash-atm.html by HARI KUMAR and VINDU GOEL