In wake of demonetisation, glut of coins disrupts several trades in West Bengal
Kolkata: At Dalhousie Square in downtown Kolkata, dealers who sell small change—coins of various small denominations—for a living have had to adapt to a huge change in trade dynamics in the past six months. Whereas previously their business thrived on shortage, they are now making money out of glut.
Data released by the Reserve Bank of India (RBI) shows coins in circulation had gone up from 107 billion pieces to 116 billion pieces in the year till 31 March. The jump is in line with the previous year’s increase—from 98.9 billion to 107 billion pieces, but this spurt in supply in the wake of demonetisation has disrupted several trades in West Bengal.
With their vaults overflowing with coins, banks in Kolkata are refusing deposits in coins.
“Every time I ring the bank managers, they request me to wait for a bit longer,” said the owner of a leading dairy farm, who asked not to be named.
With coins worth millions stacked up in his office, he has had to turn to small change dealers in order to liquidate the stockpile and inject the money back into his dairy farm’s working capital. Still, his daily sales of milk in Kolkata and its suburbs have contracted by about a third because he, in turn, is now refusing to receive payment from his distributors in coins.
Mint reached out to several bank officials in Kolkata, and all of them said privately that they were immediately unable to receive deposits in coins because they didn’t have storage space or the manpower to count them.
A spokesperson for RBI declined to comment.
The sales of a leading fruit beverage company in Kolkata is similarly disrupted, said its owner, who, too, asked not to be identified. Though the firm itself receives payment from its distributors only through bank transfers, its distributors are unable to liquidate stockpiles of coins worth millions, he said.
But it appears to be a regional imbalance, according to the owner of the fruit beverage company. For years, he has been trying to raise the price of packaged beverages from Rs10 to Rs12 in the north-eastern states, but is unable to do so even now because the supply of coins there hasn’t eased.
“Retailers in the North-East still do not agree to any price that would require them to give change in coins, whereas in West Bengal my sales are down because my distributors have substantial amounts locked up in coins,” he said.
On the streets of Dalhousie Square in Kolkata, the likes of Ratan Dutta, a coins dealer, are making a killing. They are buying Re1 coins at a discount of at least 25% on face value, and Rs2 and Rs5 coins at a discount of 20%. Previously, they used to sell coins mostly to public transport operators and retailers at a small premium of around 10-12%.
“It may appear that we are making a lot of profit, but it isn’t so,” said Dutta. “It is becoming increasingly difficult for us to find people who would give us the money to ply this trade.”
Amid uncertainty over how long they can carry on, some have stopped buying Re1 coins. “There are no takers,” said Jyotsna Roy, another coins dealer.
Coins of Re1 are the highest in circulation—48.3 billion pieces or 41.6% by volume at the end of March, according to the central bank. This disruption in trade is one of the many side-effects of demonetisation, said Prasenjit Bose, an economist and social activist. It is common practice to hoard coins at homes because people don’t want to carry them around. In the wake of the liquidity crisis, people broke their piggy banks and a huge supply suddenly came into circulation, he said.