It is not even a year since the NDA government announced its controversial decision to suck out 86 per cent of India’s currency from circulation, to purportedly pull the plug on black money menace and crack down on terror funding in the country.
The highfalutin exercise had evoked nationwide protests although in some quarters the government’s move found some support. However, the note recall decision has begun to unravel now. The government November 8 last had junked high value Rs500 and Rs1,000 notes. While it reintroduced new series Rs500 notes, the popular Rs1,000 notes were completely taken out. In its place, the government introduced Rs2,000 notes.
From day one, people have not taken kindly to Rs2,000 notes. Common people and traders alike are shying away from accepting these high-value currency notes that have become anathema for people in rural areas.
These high value notes fail to meet their daily needs. Their value was found too big and unwieldy to be used for small, daily economic needs. People did not find it easy to get change. Given people’s general aversion to these notes, banks stopped stocking up on them.
At its end also, the Reserve Bank of India reduced printing Rs2,000 notes as the demand for these has dissipated with time. A senior official of the State Bank of India recently confirmed that the bank was receiving only Rs500 currency notes from the RBI, while notes of Rs2,000 were coming over the counters only by way of recirculation.
This means the central bank continues to pump in banknotes for Rs500 to ensure that there is no overall cash crunch in the system, as had happened during demonetisation last year. Several bankers and ATM operators also concur with it.
Bankers now reckon this could be part of the RBI’s strategy to control the total amount of high value currency in circulation. But is this the beginning of the end of the pink notes? A dead giveaway is the report that the country’s biggest bank is recalibrating its currency cassettes at some of ATMs to Rs500 notes so that more notes can be stuffed in the machines.
So it is the end of the Rs2,000 notes on these machines. The SBI accounts for more than 25 per cent of the country’s total 2.2 lakh ATMs. Insofar as one of the stated objectives of the government behind phasing out of high value notes was cracking down on black money, the introduction of Rs2,000 notes was self-defeating.
The larger the denomination, the easier it is for money laundering, fake currency rackets, drug traffickers, gun dealers, and smugglers. It was a stop gap arrangement and its introduction was meant to quickly remonetise the economy.
Now that there is enough money in circulation, the government has decided to give marching orders to Rs2,000 notes. RSS ideologues and campaigners such as Baba Ramdev were dead against introduction of Rs2,000 notes.
Now there are reports that the central bank is considering the introduction of Rs200 notes. Photos of coins of different denominations ranging from Rs50 to Rs1,000 are also doing the rounds on social media even as the RBI is yet to confirm on this. If introduced, Rs200 notes will be a hit with common people and small-time businesses alike.
In the likely scenario that Rs1,000 notes, are reintroduced, there will be a good mix of notes in the system. In hindsight, it is clear that the decision to hurriedly introduce Rs2,000 notes was not the right move. As this column has argued in the past, the government should have done more homework before announcing demonetisation.
The RBI has already printed 3.7 billion Rs2,000 notes amounting to Rs7.4 trillion. This more than compensates for the 6.3 billion Rs1,000 notes that were withdrawn post November 8. The RBI spends Rs3.75 to print each Rs2,000 note.
Printing of 375 crore Rs2,000 notes has cost the exchequer nearly Rs1,500 crore. However, this is an inconsequential price for an economy of India’s size. The bigger problem will be the possible misuse of these notes by rogue and anti-national elements. We may not rule out a situation when the government would have to recall all Rs2,000 notes printed so far to preclude their misuse.
