Mumbai: A week after the government withdrew high-denomination notes, it is struggling to meet replacement demand with smaller-denomination currency bills.
While the new Rs2,000 note has started circulating in the banking system, far fewer new Rs500 currency pieces are ready.
The Security Printing and Minting Corp. of India Ltd (SPMCIL), the government agency that produces notes and coins, has printed only 15 million pieces of the new Rs500 note, said two people aware of the matter.
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The order for the new Rs500 note was 400 million pieces by November, but the presses at Dewas (Madhya Pradesh) and Nashik (Maharashtra) are running below capacity, leading to a delay in the release of this note.
According to the plan drawn up by the government and the Reserve Bank of India (RBI), the central bank-operated presses were to produce the Rs2,000 note and government-owned printers the new Rs500 note.
Bharatiya Reserve Bank Note Mudran Pvt. Ltd (BRBNMPL), a subsidiary of RBI, with two presses in Mysuru (Karnataka) and Salboni (West Bengal), has printed nearly 1.5 billion pieces of Rs2,000 notes so far. These presses together had an order to print 3.5 billion pieces, said the two people, requesting anonymity.
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These RBI-owned presses will soon start printing the new Rs500 notes to bridge the gap in supply, said one of the two.
An email sent to SPMCIL did not elicit any response. An RBI spokesperson declined to comment.
Government officials said there was no delay in printing and transporting Rs500 notes.
“We planned to first bring the 2,000 rupee notes as the focus was to create high-value notes to ensure the smooth replacement of the old 500 and 1,000 rupee notes. We would have to print four 500 rupee notes for every one 2,000 rupee note. If we would have focused on printing the 500 rupee notes, the entire printing exercise would have taken much longer," said an official who didn’t want to be named.
As an Indian Express report on Sunday pointed out, SPMCIL may have been caught unawares as its officials had been expecting a New Year launch of the new notes.
All the printing presses started production in September after they received the signature of the new RBI governor, Urjit Patel, said the people cited above.
A look at the capacity of these presses shows why replacing the banned bank notes isn’t easy. According to the two people, the SPMCIL presses have a combined capacity of printing eight billion pieces a year; BRBNMPL can produce 16 billion notes.
That makes up a total of 24 billion pieces a year, or roughly 2 billion pieces a month (of all denominations). In comparison, the number of Rs1,000 notes and Rs500 notes that have to be replaced is 22 billion (March 2016 data). In the last three fiscals, the average volume of notes supplied by the presses was 22 billion annually.
There are a couple of caveats.
One, this 24 billion capacity is on a two-shift basis, while the presses are right now operating three, effectively increasing capacity by 50%.
Second, it is not a piece-to-piece replacement. The 3.5 billion pieces of Rs2,000 bank notes amount to Rs7 trillion. That more than compensates for the withdrawal of the Rs1,000 bank notes amounting to Rs6.3 trillion. The number of Rs500 notes that are being withdrawn and have to be replaced was 15.7 billion at the end of March.
To be sure, RBI may have placed orders for notes of other denominations. But the heavy lifting in meeting replacement demand will have to be done by the new Rs500 notes, of which there is a shortage.
Remya Nair contributed to this story