Remonetisation: Solving the Currency Conundrum

There could hardly be anyone in the country today who is not aware about the demonetization of the old Rs.1000 and Rs.500 notes. Its effect could perhaps have been easily managed by a smaller set of the Indian population who could quickly switch over to alternate means of paying for their transactions but those who were used to transacting only with cash were severely affected. Either way the lingering question in everybody’s mind is how long more it will take to overcome the currency crisis and will the government be able to successfully remonetize without having to wait too long after the 50 day deadline is over on 30th December 2016. Well, read on to get the answer to this most intriguing question!

As per an RTI query, RBI had 247 crores of Rs.2000 notes in stock as on 8th November 2016 which were printed exclusively in the 2 RBI presses at Salboni in West Bengal and Mysuru in Karnataka under Bharatiya Reserve Bank Note Mudran (BRBNMPL). Given the stated combined capacity of 4 crore notes per day, it would have taken around 62 days to print this quantity. This helps us conclude that the printing of the Rs.2000 notes which has Dr. Urjit Patel’s signature should have been started within a day or two of him assuming charge on 4th September.

Out of the 247 crore Rs. 2000 notes that were available before the announcement of demonetization, only 170 crore have been issued to the public till 10th December as per RBI’s notification on 13th December. It is safe to assume that BRBNMPL would have continued to print these notes till the end of November. Hence till the month end, they would have printed another 96 crore notes over 24 days taking the total to 343 crore notes, the exact number to replace the 685.8 crore Rs.1000 notes issued to public. If the RBI was not keen to replace full value of Rs.1000 notes, printing of Rs.2000 notes would have ended much earlier. It appears that they worked under normal shifts during November.

In the meanwhile, the 2 presses in Nashik and Dewas under Security Printing and Minting Corporation of India Ltd (SPMCIL), which were earlier printing Rs.100 and smaller denominations were switched over to printing new Rs.500 notes exclusively, in view of the emergency situation caused by the non-availability of these notes vital for handing the currency shortage. As per claims, they started with a combined capacity of just 90 lakhs notes per day and in that also some quality issues surfaced. It means that in 17-18 days starting 9th November till 27th November, about 15-16 crore Rs.500 notes would have been printed. This could indirectly be confirmed, the figure of 15.6 notes issued till 29th November as stated in Rajya Sabha by the Minister of State for Finance Mr.Arjun Ram Meghwal. Here it is important to note that Mr.Jagdis Godse, the Secretary of CNP-ISP Workers’ Union has claimed that their employees have been working non-stop, including holidays, since the announcement of demonetization.

Further, around the end of November the quality issues seem to have been addressed and they have managed to increase the daily printing of Rs.500 notes to at least 1.5 crore notes and at the same time have been printing smaller denomination notes also. This should have been possible by employing 3 shifts per days and technical tweaks. This means an addition of around 32-35 crore notes over 21 days starting from 28th November till 18th December.

Going forward, as per SPMCIL, they manage to increase the output of Rs.500 notes to 2.2 crore notes per day by 23rd December and further to 2.65 cores by 27th December. Making some assumptions, this leads us to a figure of 32 core additional Rs.500 notes till the last day of December 2016 taking the total of these notes to 82 crores or 4.7% of the cancelled notes of the same denomination. No detail of issue of notes of higher denomination has been made available by RBI for the days after 19th December.

There are three other interesting possibilities to be considered:

  1. One can assume that the 2 units in Salboni and Mysuru were also pressed into printing Rs.500 notes exclusively from 1st December onwards. Also they were learnt to have extended the shift to 12 hours for 2 weeks between 14-27th in Salboni. A conservative estimate would give us about 120 crore additional notes.
  2. As per RBI’s notification on 21st December, they had issued 2,040 crore notes of Rs.100, Rs.50, Rs.20 and Rs.10 till 19th December. The stated capacity for the Nasik and Dewas units were around 1.1 notes per day for these denominations. It implies that RBI had most of these in stock on the day of announcing the demonetization. Alternatively, they could have released the soiled notes that they had kept aside for destruction. Also extrapolating the information available their total value would not exceed Rs.1,16,000 crores in all.
  3. The same notification states that till 19th December, 220 crore notes of higher denominations were issued. Assuming that no more Rs.500 note was issued after 29th November (total issued 15.6 crores), RBI should have issued 204.4 crore notes of Rs.2000 till 19th December taking the total value of the higher denomination notes to a maximum of Rs.4,16,600 crores. Hence there would be an unexplained shortfall of Rs.60,000 crores in the total value Rs.5,92,613 cores of all denominations issued, as mentioned in this notification.

Putting all these things together, we get these conservative figures (in crores):

Denomination of Bank notesPrinted till 31st December 2016Issued till 19 December 2016Available for distribution from 20-Dec till 31-Dec
Number CrValue Rs. CrNumber CrValue Rs. CrNumber CrValue Rs. Cr
Rs.2000   343.00  6,86,000    204.40 4,08,800   138.60 2,77,200
Rs.500  200.00  1,00,000       15.60       7,800   184.40    92,200
Rs.100 & below2,040.00  1,16,000

The above figures make us conclude that RBI would be in a position to replace the banned notes to the tune of around 9,00,000 crores by the end of December 2016, which would make 58.4% of Rs.15,44,050 crores which is the total value of banned notes issued to the public. Clearly, the replacement of banned Rs500 is not happening by an equivalent replacement but by adding a substantial quantity of notes of smaller denominations.

It will look like RBI has a huge gap of 41.5% to bridge. But what if the RBI never wanted to close this gap fully? Interesting isn’t it? Well, chances are RBI will reach its target not very long from now, belying the expectation of a failure of the demonetization exercise by those who are opposing it!

The opinions expressed within articles on "My Voice" are the personal opinions of respective authors. OpIndia.com is not responsible for the accuracy, completeness, suitability, or validity of any information or argument put forward in the articles. All information is provided on an as-is basis. OpIndia.com does not assume any responsibility or liability for the same.