Insta

PM Wanted 50 Days; The Currency Math Shows Cash Crisis Can Abate by 15 January

Swarajya Staff

Nov 24, 2016, 02:28 PM | Updated 02:28 PM IST


The new Rs 2,000 note (NARINDER NANU/AFP/Getty Images)
The new Rs 2,000 note (NARINDER NANU/AFP/Getty Images)

One of the stories going around about the replacement of old Rs 500 and Rs 1,000 notes is that it may take more than six months to do so. This timeline is based on the physical limits set by printing capacities in the four government-owned printing presses. Prime Minister Narendra Modi has promised to get the problems under control in 50 days.

The printing press math actually tells us that effective replacement of the demonetised currency in value terms can happen as early as mid-January, and latest by mid-March.

Here’s why.

Demonetisation destroyed Rs 14 lakh crore of currency at the high value end.

As at the end of March 2016, there were 22 billion pieces of currency notes of Rs 500 and Rs 1,000. This is what needs replacement in value terms, and not necessarily in volume terms.

As on date, 3.5 billion pieces of Rs 2,000 are expected to have been printed, which means Rs 7 lakh crore of currency is already with banks and ATMs ready for replenishment. Once all ATMs are recalibrated, these notes will be dished out easily to meet immediate requirements.

That leaves notes of the value of another Rs 7 lakh crore due for replacement.

But if we assume that at least Rs 2 lakh crore of these notes may not come back, and/or were used only for storage of illegal wealth, the real value that needs replacing is Rs 5 lakh crore in Rs 500 and Rs 100 notes. It would be closer to Rs 3-4 lakh crore if more transactions move to the digital side.

The four printing presses can print two billion notes a month, or three billion on a triple-shift basis, which is what Economic Affairs Secretary Shakti Kanta Das told us was the current run rate.

If the entire triple shift capacity is used to print Rs 500 notes, it would take two months to print Rs 3 lakh crore. This means the economy could be flush with Rs 500 notes by mid-January, since a good chunk of the Rs 500s has already been printed.

If half the capacity was used to print Rs 500 and the remaining half for Rs 100s, it would take till mid-March to print Rs 3 lakh crore of Rs 500 notes, and around Rs 60,000 crore of 100s.

What this implies is that the cash crunch will be over anywhere between mid-January and mid-March, depending on the printing mix between Rs 500 and Rs 100 notes.

The deflation induced by demonetisation should be reversing itself by the last quarter of this year.

The PM wanted 50 days (30 December) to end the cash crisis. He is not too far off the mark. He can end it latest by 15 January with the right printing mix between Rs 500 and Rs 100 notes, with some help from a big shift to digital cash.


Get Swarajya in your inbox.


Magazine


image
States