On the evening of 8 November, when the Prime Minister announced the currency swap, many thought this was a very bold decision that in one strike (nowadays “strike" is the favourite word) would eliminate counterfeit notes and the black money with smugglers, extremists and the corrupt. But, after a couple of days, as people began waiting in lines at bank branches and ATMs, they realized this was not going to be an easy job. It appeared uncertain as to how long it was going to take, how often one would have to stand in long queues, and when one would be able to withdraw the cash in full from his or her account. Doing routine purchases with one or two Rs2,000 notes in hand was proving difficult. Still, people were willing to tolerate the inconvenience for the good of the country.

But now, more than seven weeks since the announcement, there is still no sign of restoration of normalcy. The government first announced that one could withdraw Rs4,000 at the ATM. Then the amount was reduced to Rs2,000. People were also told they could withdraw up to Rs20,000 from their bank account in a week; this amount was later raised to Rs24,000.

But most bank branches are unable to permit the withdrawal of more than Rs5,000 a week per customer, for the simple reason that they do not have enough cash every day to serve all the people queueing up. If they give the full permitted amount to people at the start of the line, the rest will have to return empty-handed.

The main difficulty is the inability of the central bank to provide the cash. Hence, the rationing of cash. Why is this the case around seven weeks after the currency swap came into effect?

Printing notes is the responsibility of the Reserve Bank of India (RBI) and the central government, mainly the former. There are four printing presses in the country: two owned by the Union finance ministry in Nashik (Maharashtra) and Dewas (Madhya Pradesh), and two more owned by the RBI in Mysuru (Karnataka) and Salboni (West Bengal). The first two are relatively old presses and comparatively slow. The two presses owned by the RBI are new and about four times faster.

Soon after the Prime Minister’s speech, reports appeared in some newspapers that the government had been planning the printing of new currency since April. But one is now told (by newspapers, since there has never been any official statement in this matter) that the actual printing of the new Rs2,000 notes started only in the two presses owned by the RBI two months before the speech, in early September.

How many notes have to be printed? Now, for the first time, we have some official data. According to the statement of the minister of state for finance in the Lok Sabha, on 8 November, there were 17.17 billion pieces of Rs500 notes and 6.86 billion pieces of Rs1,000 notes in circulation in the country. The total value of these notes was Rs15.44 trillion. This constitutes approximately 87% of the value of all currency notes in circulation. These high-value notes had to be replaced by the new Rs500 and Rs2,000 notes. About 17.17 billion pieces of Rs500 notes and 3.43 billion pieces of Rs2,000 notes had to be printed.

At what speed can these notes be printed? There is no official data. Some newspapers reported that the government’s two printing presses could print five million notes a day, and the two presses owned by the RBI about 20 million pieces each a day. But subsequent reports in some newspapers said that by increasing the working hours and compensating the workers in the two government presses, the output was being increased by about 50%.

My latest informal information about the capacity of the four presses is: The two government presses together can print 18 million pieces a day and the two RBI presses can print 43-45 million pieces a day. Let us assume their capacity at 44 million pieces a day. This is significantly smaller than the 100 million pieces per day capacity assumed by former Union finance minister P. Chidambaram. I stick to my estimate.

Let us assume that the printing of the new Rs2,000 notes started in the two RBI presses in Mysuru and Salboni in early September. These two presses together can print 44 million pieces a day. So, if they were to print these every day, except Sundays, then a total of 3.43 billion Rs2,000 notes can be printed in 78 working days, which is 13 working weeks, or three months, from the beginning of September—that is, early December.

According to some reports, the design of the new Rs500 note arrived at the Nashik printing press in the beginning of November and printing started soon after. However, within three weeks, RBI found defects in the new note. So, the printing of the new Rs500 notes was shifted to the RBI press in Mysuru. Therefore, there was only one RBI press printing the Rs2,000 note, in Salboni, from around 21 November.

From this day, only one press would have been printing the total of 800 million notes. That would require 10 more days. So, by around 10 December all new Rs2,000 notes, valued at Rs6.86 trillion, should have been printed. And before the end of December they should be available in the market.

But as of today, the total value of new notes put into circulation is said to be just above Rs5 trillion. This implies that, apart from the lag involved in putting out the newly printed notes in the market, printing has been slower than assumed above.

Now let us turn to the new Rs500 notes. Exactly 17.17 billion pieces of these new notes have to be printed. Assuming that the printing of these notes started in the two government presses and the one RBI press from 21 November, the amount printed by 10 December (when the fourth press would also take up this work) should have been 680 million notes (at 40 million per day x 17 working days). From 11 December, printing of the new Rs500 notes could start in all the four presses. The work of printing the remaining 16.49 billion notes should take 266 working days, that is, 45 weeks, which is seven weeks short of a year. So this work will only be over by the first week of December 2017.

There was hope that a significant part of the old notes would not come back to RBI through banks. But the latest data on the return of old notes to banks appears to belie that expectation.

In light of the slower-than-expected flow of the Rs2,000 notes, which should all have been in the market by now or in a few more days, there is reason to doubt the speed of printing assumed in this calculation. We have not taken into account the possibility of breakdown of the old presses in Nashik and Dewas, holidays other than Sundays, and other delay-causing circumstances. There is also the need to print Rs100 notes and even notes of lower denomination.

Even by the end of May 2017, only about half the number of Rs500 notes will have been printed. This means, only a little over Rs9 trillion worth of new notes, in place of the more than Rs15.44 trillion in old notes, will be available in the market. This is about 59% of the total value of high denomination notes taken out of circulation. That surely does not imply any great easing in the cash availability situation by the end of May 2017.

The shortage of currency has caused a loss of income, employment and the ability to spend from one’s income/savings for a wide section of the population. In Mathura and Surat, the country’s two major textile centres, nearly half the powerlooms are closed and many workers have reportedly gone back to their villages. The same is reportedly the case with leather units. Indeed, this is so for a wide range of small industrial units across the country.

There is a shortage of cash with farmers at the beginning of the rabi, or winter crop season. The end of the kharif (summer crop) season has found traders unable to buy different farm products from farmers due to a shortage of cash. And the farmers, with little income in hand, are unable to repay loans. The banks are unable to help. Small traders are struggling to find ways of meeting customer needs without cash. It is difficult to assess the all-round distress in employment and income as well as consumption.

Can digital transactions help? According to the RBI, there were 26.3 million credit cards and 712.4 million debit cards in the country by the end of August this year. This is a sizeable number. But, apart from cards held by offices and shops, there are people with multiple bank accounts who have more than one such card each. Many members of one family would also be having such cards.

But the most important thing is that many cardholders use the cards to withdraw cash from their bank accounts. Think of the long queues at ATMs after 1 December and one will realize the main purpose for which most people use their cards. For the bulk of the non-cardholder population and even for those with cards, cash is very important.

All this will get reflected in a lower gross domestic product (GDP) at the end of this financial year. That situation is not likely to become normal before the middle of the next financial year. The hope of a substantial part of the old currency not returning to banks has been belied. So, no new currency can be borrowed from the RBI by the government in its place. The indirect taxes of the states and the centre are already showing signs of decline. The total budgetary situation does not appear rosy at all.

A cool consideration of the above facts will show us clearly why former prime minister Manmohan Singh called this “strike" “monumental mismanagement". Whom shall we blame but ourselves!

Nilakantha Rath is honorary fellow, indian school of political economy.

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