How soon before your bank has enough cash to give?

At the start of every calendar year, the RBI calculates the country’s annual currency notes requirement. This activity is a very closely guarded secret between the Ministry of Finance and the Reserve Bank of India. The techniques to assess the demand factor take into consideration the following:

1. Projected GDP Growth rate of the Country
2. Number of notes already in circulation
3. Number of notes to be destroyed or expected to be destroyed/replaced
4. Current and projected Inflation rate
5. The volume and projected growth rate of electronic transactions etc.

  More can be read about the “Econometric modelling methods” of Currency demand here. Post demonitisation the Reserve Bank of India fairly must have had an idea about the demand as the number of notes of 500 and 1000 rupees was already known. Currency Printing Infrastructure in India Paper used for printing of the notes is supplied by Bank Note Paper Mills Private Limited, Mysuru which is under the Control of the RBI. As per Company’s website the mill “commenced its production with effect from 9th November, 2015-having installed 2 production lines with an installed capacity of 12000 MT per year. Currently, the production is stabilised and has commenced its commercial production from April, 2016 on line-1 and July,2016 on line-II”. This means they produce papers for printing of about 16 billion note pieces annually. The other paper mill located at Hoshangabad in Madhya Pradesh produces about 6,000 metric tonnes of paper annually. The Hoshangabad mill is under the Control of the government of India. Once the Paper is ready it is transported to the printing presses located at different locations. There are 4 printing press which cater to our total demand for notes. The Two presses located at Nashik and Dewas are under the control of the Government of India. The other two located at Mysuru and Salboni are managed by Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL) which is a subsidiary of the RBI.  Total Capacity of Printing Press A quick study of the Annual Reports of Security Printing & Minting Corporation of India Limited (SPMCIL) throws some audited numbers for notes production. Their presses have a combined capacity of printing eight billion pieces per annum. On the other hand BRBNMPL can produce 16 billion notes per annum. So the total installed production capacity is upto 24 billion pieces per annum or about 2 billion pieces per month. The annual report for Financial Year 2015 can be accessed here. Before we analyse further one must note that the printing presses generally work in 2 shifts but as per news reports they are currently running in 3 shifts thereby increasing the production capacity by 50%. It is safe to assume that the current installed capacity is suitable to cater to the demand. The only limiting factor is time. In comparison, the number of Rs1,000 notes and Rs500 notes that have to be replaced is around 22 billion notes. Fear Mongering by Opposition Politicians and Media From “new notes losing colour, printing errors on notes to RBI cant replace new notes for atleast 3 years are some of the messages/comments/opinion pieces written. In my personal opinion we are doing a great disservice to those thousands of employees who are currently working in three shifts to cater to the demand. As explained earlier the printing will start only after an indent is raised by the RBI. Take for example this piece written in The Quint. It assumes that there will be a one to one replacement of 500 denomination note and then correlates current production to create a picture of gloom. However thats not entirely true. This demonetisation activity for sure is not a piece by piece replacement of old notes. The Printing Press as per news reports have already supplied 1.5 billion pieces of Rs2,000 bank notes which amounts to INR 3 trillion. The total amount of INR 1000 bank notes withdrawn amounts to INR 6.3 trillion. The demand indent for INR 2000 notes was for 3.5 Billion notes. Coming to the issue of printing of INR 500 notes we must note that as on March 2016 total notes in circulation were 15.707 Billions. To replace the total value if the printing press had decided to go ahead with printing INR 500 notes first then they would be required to print 4 notes for every one 2000 rupee note. Time being a constraint the focus was to replace the “Value” first and not the numbers. This is as simple as it gets. No doubt that high denomination notes has led to a situation where people are finding it difficult to get change but a sheer thought of printing lower denomination notes first explains that current situation is far better than that. Conclusion: RBI officials have gone on record to say that the supply will be normal by December end. This is because two new printing machines are being installed which are stated to commence production by first week of December. In last few years the Security printing press Companies have taken many steps to modernise their processes. They have indigenised critical inputs for manufacturing which earlier used to be imported. The Ink Factory at Dewas was upgraded producing indigenously developed Intaglio Ink, Offset Numbering Inks at very economical prices. Backed by 11784 employees, modern machinery, technical tie-ups with IIT-Delhi, CSIR-National Chemical Laboratory and decades of expertise in this field, these entities are marching ahead and playing their best part in an activity which has never been attempted anywhere in the world at this scale. Its time to support them. Disclaimer: The opinions, beliefs and views expressed by the various authors and forum participants on this website are personal and do not reflect the opinions, beliefs and views of ABP News Network Pvt Ltd.