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Demonetisation has sucked out massive amounts of liquidity from the system in terms of old currency notes of Rs 500 and Rs 1,000 denomination. While people have been able to get their hands on the new pink Rs 2,000 note, the coveted new dollar-lookalike Rs 500 notes is still to reach the hands of most of the people. RBI data reveals that before demonetisation a little over 9000 crore pieces of currency notes were in circulation. Around 86 per cent of that value of currency was sucked out in the form of Rs 500 and Rs 1,000 notes.
The dearth of Rs 100 notes and short supply of the new currency notes has made it tough for people to manage day to day payments where digital options are useless at the moment.
The government insists that adequate amount of notes were printed in advance to ensure the liquidity sucked out of the system is restored with the new currency quickly. However, it is tough to accept this when it comes to the new Rs 500 notes. The RBI and the government have said that printing Rs 2,000 notes started much in advance. It seems the calculation was that injecting Rs 2,000 notes in huge quantities would help kickstart the liquidity restoration process faster. The infusion of Rs 500 has now started, but the preference still seems to for Rs 2,000 notes both in ATMs and banks.
The trouble with the Rs 2,000 notes is that citizens are not easily able to find shopkeepers, vegetable sellers and other vendors willing to part with precious change of smaller denominations as balance for payments made with the high-value notes. Some shopkeepers keep the Rs 2,000 note and ask the customer to consider the remainder as advance payment for future purchases.
A lot of the trouble here seems to be the fact that the Finance Ministry is calling the shots and not RBI as is the norm. Former Finance Minister P Chidambaram has come on record to say the printing presses in India have a capacity to print maximum of 300 crore pieces of currency notes a year, that too if they work round-the-clock. He said it would take seven months to restore the amount of liquidity taken out of the system.
If Chidambaram’s assessment –the veracity of which hasn’t been refuted by the government– is right, it would be fair to conclude that the problem of cash crunch is here to stay for a while, not just 50 days. Incidentally, the RBI prints notes at four locations–Mysuru, Nashik, Devas (Madhya Pradesh) and Salboni (West Bengal). The Rs 2,000 notes are printed at the Mysuru press, while the Rs 500 notes are being pushed out from the Nashik and Devas press. Salboni press prints primarily the lower denomination notes like Rs 100.
The currency after printing has to travel from the press to currency chests maintained by the RBI across several locations in the country. The money then travels from these chests to banks and ATMs. Manpower is an issue and logistics is another hurdle given the secrecy and high security needed.
The question now is whether the government is transporting “adequate amounts of currency” to restore liquidity. Maybe there just aren’t enough of these Rs 500 notes printed.