A cash crunch refers to the lack of money in a firm. It includes both government and private sectors. The Government of India unveiled a 5.5 lakh crore package as the first instalment of the campaign called ‘Atma Nirbhar’, focusing on MSMEs for the welfare of skilled, semi-skilled and unskilled labourers. Finance minister Nirmala Sitharaman and the RBI have planned to provide liquidity to medium and small enterprises. The Government of India took a few measures to eradicate the cash crunch in this pandemic.

Measures taken by the government

In November 2016, the Government of India announced Demonetisation via Prime Minister Narendra Modi. Some measures taken by the Central Government of India along with the Reserve Bank of India (RBI) to resolve this cash crunch are as follows:

  1. Additional 60 days on loan repayment:
  • To minimise the problems the borrowers were facing due to the cash crunch, the Reserve Bank of India decided to increase the repayment of loans by 60 days. 
  • As per RBI, one could pay the amount between 1 November and 31 December 2016.
  • This was also applicable for Micro Finance Institutions (MFIs), Non-Banking Financial Companies (NBFCs) and Housing Finance Withdraw.
  1. Withdrawal limit
  • During the demonetisation period, the Central Government, along with RBI, announced a higher cash withdrawal limit. People who had deposit accounts could withdraw ₹2,50,000 for wedding purposes.
  • The withdrawal limit was applicable for all the weddings on or between 30 December 2016.
  • All the accounts were to have met the Know Your Customer (KYC) rules.
  • The applications were to be submitted by the bride and groom only.
  • The person’s name was to be mentioned in the passbook.
  • The withdrawal application was to have the names of the bride and the groom, the date of the wedding and their identity and address proofs.
  1. Advance pay for Group C grade government employees
  • Government employees of Grade C were given a sum of ₹10,000 as an advance payment to counter the cash crunch.
  • The government paid an advance of ₹ 10,000 to Group C employees in denominations of 100 and 2000 of the new currency.
  1. Extensions on cash withdrawals
  • The government also stated that the demonetisation of 500 and 1000 notes would continue.
  • Authorities imposed some limits on the withdrawal amount till 30 December 2016.
  • After the cash crunch, one could only withdraw 2000 notes.
  • Earlier, the Reserve Bank of India had announced these criteria applied only to the current accounts holders active for at least three months.
  • This criterion was modified to help the people and is not applicable for personal overdraft accounts.
  1. Limits for farmers and traders
  • Farmers could withdraw a sum of ₹ 25,000 from their deposit accounts and Kisan Credit Limit per week.
  • The RBI extended the withdrawal rate to ₹ 50,000 per depot for the traders registered under the Agricultural Produce Market Committee.
  1. Micro ATMs for weavers and artisans
  • Aadhar-enabled payment on the bank via micro ATMs was introduced for the ease of weavers to buy the raw materials for the handloom and handicrafts.
  • Smriti Irani, the then Union textile minister, requested this feature from bank officials and implemented this scheme.
  1. Cash crunch measures on Covid-19
  • The cash reserve ratio reduced from 3% to 4%.
  • Repayment of loans for the three-week lockdown period was frozen by the Governor of the Reserve Bank of India.
  • The default interest on the loans was allowed to be imposed after three EMIs.
  • The market-wise positions were reduced to ease stock volatility, so the trading margin in stocks increased.

Conclusion

A cash crunch is a lack of liquid money in a particular field, leading to loss. This includes losses borne by both the government and the private sector. The measures taken by the government to take care of the cash crunch are listed. The measures include additional days for loan repayment, withdrawal limits and extensions on the withdrawal.