In a statement, the finance ministry said the sudden demand has come from the states of Andhra Pradesh, Telangana, Karnataka, MP and Bihar.
Out of these, Karnataka, Andhra Pradesh, Telangana and Madhya Pradesh are in line to see state elections over the next few months, though the government did not connect the demand for cash and the impending elections.
“There has been unusual spurt in currency demand in the country in last three months. In the current month, in the first 13 days itself, the currency supply increased by Rs.45000 crores. This unusual spurt in demand is seen more in some parts of the country like Andhra Pradesh, Telangana, Karnataka, MP and Bihar,” it said.
An extra demand of Rs 45,000 of currency in the economy implies an increase of around 2.75% in the total cash in circulation. The total cash in circulation today is about Rs 18.3 lakh cr, which is higher than pre-monetization levels of around Rs 17.8 lakh cr.
The ministry said the government and the RBI have taken “all steps” to meet this unusual demand.
“We had adequate reserves of currency notes which have been used to meet fully the extraordinary demand generated so far. We continue to have in stock adequate currency notes of all denominations, including of Rs.500, 200 and Rs.100 to meet any demand,” it said.
It said there have been adequate supply of currency notes “which have met entire demand so far.”
“The government would also like to assure that it would be supplying adequate currency notes to meet even higher levels of demand if such demand were to continue in the coming days/months,” it added..
It said it is taking steps to get non-functional ATMs normalised at the earliest.
The scarcity of currency notes has puzzled both the government and banking officials.
Though some people are linking the phenomenon to the demonetization move that was conducted two years ago, banking officials dismissed the suggestion.
They point out that a total of Rs 18.3 lakh cr worth of currency notes are in circulation in India at present, which is more than the Rs 17.8 lakh cr worth of notes that was there just before demonetization.
Some, meanwhile, are trying to link the curious phenomenon to the procurement of agricultural crop in certain states like Madhya Pradesh, while others see a link between the scarcity and the festival of Akshaya Tritiya that will be held tomorrow.
During Akshaya Tritiya, it is customary for Indians to buy gold as a good omen, and most of the gold purchases in India are done via cash.
There are also others who link the scarcity to upcoming elections in states like Karnataka, Andhra Pradesh, Madhya Pradesh etc..
Elections in India involve a lot of expenditure, most of which is carried out using untaxed or illicit income, and can therefore only be done via cash.
The government, meanwhile, has been trying to encourage people to adopt cashless payment methods like debit cards, UPI and Aadhaar-Enabled Payments, but has had limited success so far.
It is now considering giving a discount on the final price to anyone who pays using electronic means.