Cash crunch halts goods after India pulls bills

Bloomberg

The crisis sparked by the shortage of cash in India following Prime Minister Narendra Modi’s anti-graft measure to ban high-value currency bills has hit the movement of goods in Asia’s third-largest economy.
More than half of an estimated 9.3 million trucks under the All India Motor Transport Congress have been affected as drivers abandon vehicles mid-way into their trip after running out of cash, according to Naveen Gupta, secretary general of the group. India’s roads carry about 65 percent of the country’s freight.
That adds to the worries of a government battling to keep cash dispensing machines running after efforts to ease withdrawals failed to keep pace for the fifth straight day. After a teary-eyed emotional appeal to citizens to bear some pain and back the fight against corruption, Modi on Monday defended his move to withdraw 500-rupee and 1,000-rupee notes, which accounted for 86 percent of money in circulation.
“The situation is still grim and now we are getting information from various parts that drivers have started abandoning vehicles,” said Gupta of AIMTC, the country’s largest association of truckers. “Their basic needs like food are not being met because they can’t use the cash to buy food and there is not enough cash with them anyway.”
Just under a week after the government’s shock announcement, the Reserve Bank of India on Monday constituted a task force to provide guidance for the re-calibration and reactivation of the cash dispensing machines. Earlier the government said it’s stepping up efforts to ensure banknotes of all denominations are available as banks come under pressure with millions of people lining up for transactions. The nation’s lenders have received 3 trillion rupees ($44.4 billion) in deposits and disbursed or exchanged about 500 billion rupees in the first four days,
“Supply of cash through various networks and channels will be improved,” said Economic Affairs Secretary Shaktikanta Das at a press briefing in New Delhi on Monday. “The situation will ease out in the coming days.”
The State Bank of India’s ATM at the Ministry of Finance’s main office in the heart of the nation’s capital wasn’t dispensing cash as of noon on Monday, while in Mumbai’s Byculla area customers started lining up at a State Bank branch hours before its scheduled opening time on Tuesday. The cash machines across the nation are being reconfigured to dispense the new banknotes as currently they are able to provide only 100-rupee bills from one of the four trays. “The banks are trying their best to replenish those trays,” said Das.
The government on Sunday raised the daily limit on withdrawals
from cash dispensing machines to 2,500 rupees, while weekly cap has been increased to 24,000 rupees. The limit of withdrawals from a
current account held at banks has been increased to 50,000 rupees per week in a move to help small businesses pay wages, Das said. Old high-denomination bills will be accepted at places such as government hospitals, utilities and fuel stations until Nov. 24, he said.
It has also extended the suspension of tolls on national highways through Nov. 18, the Ministry of Road Transport and Highways said in a statement on Monday. This is the second time that an extension has been granted — it first ran to Nov. 11, then until Nov. 14.
Modi is seeking to fulfill his election promise of recovering illegal income, locally known as black money. The government will take more steps to curb tax evasion, including action against benami property, he said at an event in Goa on Sunday. Benami is property owned by one person but held in the name of a third party.
“My decision is a bit harsh,” Modi said Monday addressing a rally at Ghazipur in Uttar Pradesh state. “Today, those people are worried because what will they do with those garlands of notes.”
Ministry of Finance’s Das said the government will increase cash supply to post offices and asked people not to panic. “If this continues for another week, movement of goods will come to a standstill,” said Ramesh Kumar Gulati, national secretary of All India Transporters’ Welfare Association. “We have to provide drivers with cash and we are facing severe shortage now.”