Don’t Fool Us, Mr FM, India Still Needs Notes Worth Rs 8 Lakh Cr

Unless there is a push to print Rs 2,000 notes, the process of remonetisation may take months, argue the authors.

The printing of new currency notes does not ensure that they reach people’s pockets in a jiffy. It takes at least 20 days from the time of commencement of printing to the actual distribution of cash to banks and ATMs.

This is the reason why it took almost 28 days for the Reserve Bank of India (RBI) to distribute less than 70 percent of the new Rs 2,000 notes. That too after using helicopters and pressing in army jawans for packing and delivery of new notes to the RBI and banks’ currency chests.

Finance Minister Arun Jaitley has, therefore, been less than accurate on the actual cash situation across the country. He said on Monday:

The whole process of remonetisation is not going to take a very long time and I am sure very soon the Reserve Bank, by injecting currency daily into the banking and postal system, will be able to complete that.

Jaitley’s rosy picture aside, according to data released by the RBI, new Rs 2,000 notes worth Rs 4.94 lakh were available with the central bank on 8 November, the day demonetisation was announced.

Reliable sources said that the printing of the Rs 2,000 notes began in the first week of October and 2.5 billion notes have already been printed. But the amount of cash put into the system by 6 December, as per figures made available by the RBI, stood at only Rs 3.61 lakh crore.

Printing of Rs 2K Notes

The printing process for the Rs 500 notes began in the first week of November. The Quint’s sources – in the Salboni, Mysuru, Dewas and Nashik presses managed by the Bharatiya Reserve Bank Note Mudran Pvt Ltd (BRBNMPL) and at the Security Printing and Minting Corporation of India Ltd (SPMCIL) – revealed that it takes a minimum of 20 days to print and transport notes to banks. (While BRBNMPL is a wholly owned subsidiary of the RBI, SPMCIL comes under the Finance Ministry.)

The Narendra Modi government’s undue and inexplicable haste in printing the Rs 2,000 denomination notes first – and this process continued for a month – created a severe imbalance in the cash equilibrium.

The printing of the new Rs 500 notes began on 8 November, and the output of the presses was extremely scanty, causing hardship to the people.

Before demonetisation, four times as many lower-denomination notes used to be printed. The low output of lower-denomination notes therefore went against this established norm.

Non-Functioning ATMs

Secondly, the tried-and-tested distribution channels of ATMs did not take off because there was a huge delay in instructing service providers to recalibrate the cash vending machines. It is believed that less than 25 percent of the 2,00,000-plus ATMs across the country are functional as of today, adding to the chaos and shortage of cash across India.

The situation improved somewhat after 6 December. RBI officials revealed that new notes worth Rs 4.61 lakh crore were made available to the people by 10 December. RBI deputy governors told the media that 21.8 billion new notes were issued between 10 November and 10 December, of which 1.7 billion were Rs 2,000 and Rs 500 bills.

Cash Imbalance

Since the printing of the new Rs 500 notes began late, it may be safely assumed that the bulk of the higher denomination notes released till 10 December would have comprised the new Rs 2,000 notes.

Staggering Deficit

With the current production of nearly 42 million Rs 500 denomination notes daily, a reserve of Rs 2,250 crore a day is being built. This means in value terms, a reserve of nearly Rs 1 lakh crore of the new Rs 500 notes would be built, assuming 50 days of non-stop production of the Rs 500 notes at full capacity at the presses.

Based on The Quint’s calculations, high-denomination notes worth nearly Rs 6 lakh crore have already been printed (not distributed though). Assuming that digital transactions have taken care of 10 percent (itself a talk ask given the current state of digital transactions), the government still needs to print Rs 14 lakh crore to fully remonetise the system. If that is the case, the banking system has a staggering deficit of Rs 8 lakh crore. It may take at least 8 months for full remonetisation.

It is unlikely that all of the newly printed notes would be released smoothly because the proportion that was there till 8 November has already been badly distributed. Unless there is a renewed push to print the Rs 2,000 notes (unlikely because such notes in the absence of low-denomination notes do not get transactions going), the process of full remonetisation may take months.