Modi’s Clueless Aides Are the Villains, Not the New Currency Notes

The lack of enough lower denomination notes in circulation is a reflection of official incompetence.

On 8 November, Prime Minister Narendra Modi demonetised Rs 1,000 and Rs 500 notes – and, in the process, created a massive shortage of currency notes in the country.

For the most part, the cash crunch was caused by the scrapping of the two notes and the subsequent botched-up printing and disseminating of the Rs 2,000 and the Rs 500 bills.

We now know that driving away “bad money” (counterfeits) or black money was not the real objective of this gargantuan task in which the government has failed.

Whatever may have been the objective, demonetisation and the issuance of the new Rs 500 and Rs 2,000 banknotes resulted in Indians hoarding the new notes, with all their flaws and impairments.

Official Incompetence

They feared using the two currency notes freely since there weren’t enough lower denomination notes in circulation, something that’s a reflection of official incompetence. The fear has, by no means or measure, subsided.

Since the 8 November announcement, The Quint relentlessly pursued – and published – a series of exclusive stories focused on the botch-ups involving the new Rs 2,000 and Rs 500 notes. The following facts have emerged from these stories:

• There was no real plan behind demonetisation and the subsequent remonetisation, which will take many more months to complete. The needless secrecy and the reckless speed with which printing took off manifested themselves in a design flaw involving the Rs 500 note. This resulted in errors in the plates used during the printing process. As many as nine errors were spotted on the new note when it reached our hands. The flawed notes, in millions, went into circulation and were declared legal tender.
• The second reason why remonetisation has turned out to be a bigger problem – and pain – was the decision to reduce the dimensions of the two notes, which are narrower than their demonetised predecessors. It never occurred to the small cabal of senior officers that all the 200,000-plus ATMs would need to be recalibrated so that they could dispense the new currency notes. Even today, most ATMs remain dry.
• Third, security threads that were to be used for the Rs 1,000 notes were used in some batches of the new Rs 2,000 notes which, like the flawed Rs 500 notes, too went into circulation. Since the patent on the security threads supplied by a British firm, De La Rue, had expired, the RBI purchased millions of generic security strips from two other foreign firms.

The Rs 2,000 Note Fiasco

Once the cabal of senior bureaucrats were given the go-ahead by Modi, they were clueless about how to implement the plan. The bureaucrats instructed the RBI’s presses in Salboni and Mysuru to start printing the Rs 2,000 note first. This was against all conventional wisdom – a lower denomination note (for instance, Rs 500) should be printed four times as much as its closest higher denomination bill (Rs 2,000).

Now, consider the loss in terms of printing costs that went into producing the old Rs 1,000 and Rs 500 notes: Rs 16,580 crore and 11,635 crore, respectively, and totalling Rs 28,215 crore.

Faulty Rs 500 Note

What, however, defied all logic was the commencement of printing of the new Rs 500 notes at least a month after printing of the Rs 2,000 notes got underway. The two Finance Ministry presses in Dewas and Nashik were simply not technologically equipped to churn out the Rs 500 notes in abundance.

A well-placed RBI source revealed that “the proverbial gun was held to to the head” of printing press officials at Dewas and Nashik. They were not given sufficient time to examine the 'proof' version of the Rs 500 notes.

The powers that be ordered that the two-shift operations at Dewas and Nashik be expanded to three shifts. All stops were pulled out to print the Rs 500 note at a manic pace. And yet, even as the workers at the Dewas and Nashik presses printed notes, the shortfall continued because ATMs couldn’t be replenished.

The result: You still don’t have enough of the Rs 500 notes in your pockets. It is no secret now that it will take a minimum of eight months for things to normalise. By which time, incalculable damage would have been done to the economy.

Dark Side of Note Printing

Paper money is so ubiquitous in its use that modern life in India would be unthinkable without them. And yet, Indians at large have been kept in the dark about how currency notes are made, who makes them and what components go into producing them. Admittedly, a degree of secrecy is important because of the menace surrounding the fake high-value notes that were pushed into circulation over the last two decades or so.

And now, for all the noise surrounding Modi’s ‘Make in India’ campaign, the government is reportedly going out of its way to place a mammoth order for 20,000 tonnes of currency printing paper from seven foreign firms, including a few which had come under a cloud for various malpractices.

There are even suggestions that the Modi government is mulling getting a new series of Rs 10, Rs 20, Rs 50 and Rs 100 notes printed abroad – a step, if taken, will violate the recommendations of a parliamentary standing committee.

The secrecy surrounding the printing of banknotes and the behind-the-scenes purchase of printing paper, security thread, the ‘M’ feature and special inks establish that only the “issuance of banknotes is a sovereign function”.

India’s dependence on foreign suppliers will continue and the “exclusivity of the product(s) on offer” would continue to be “compensated with a price premium”. This is something not even Modi can put a stop to.