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Demonetisation: Going By The Current Rate Of Note Replacement, It Will Take Nearly Four Months For Cash Normalcy

Not quite the promised 50 days.

15/11/2016 9:01 AM IST | Updated 15/11/2016 3:09 PM IST
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Prime Minister Narendra Modi has promised that the current cash crunch in the wake of the removal of Rs 500 and Rs 1,000 notes will get smooth in 50 days, asking the public to be patient during this time.

However according to an analysis in the Economic Times citing ANI, at least four more months will be needed as opposed to 50, going by the rate at which the new currency is currently being replaced.

Consider these following calculations:

Looking at the data from the Finance Ministry, about 84 per cent or Rs 14,50,000 crores worth of currency was in the old Rs 500 and Rs 1,000 notes. In the four days leading up to Saturday when banks were open and running at full capacity, Rs 50,000 crores were distributed in the new currency of Rs 2,000 and Rs 1,000 via ATMs, bank counters and post offices, according to the government.

That means with an average of Rs 12,500 crores being replaced by the Rs 2,000 denomination on a daily basis, it will take 116 days to replace the old notes, notes the report. About 18 crore bank transactions are said to have taken place in that four-day period that already had banks struggling to keep up with the sudden demand to replace old notes.

Unless banks and post offices expand their services, and all ATMs become fully functional and more are added at a rapid pace, the current rate will prove to be inadequate to serve the replaced value of currency.

Additionally, as Sruthisagar Yamunan writes in Scroll, even in the best of times, India's banking system isn't equipped to handle something as huge as the current currency demonetisation drive.

According to the Reserve Bank of India (RBI) data, India has one branch for every 9,500 citizens, Scroll points out. There are 1,32,587 bank branches in total out of which only 49, 902 branches are in the rural areas, meaning bank branches are unevenly distributed in the parts where the majority – about 62 per cent – of all Indians live, and where cash will reach slowly because of the security procedures involved.

According to the report, even if the entire network of post offices is taken into account, the infrastructure is "grossly inadequate" to take on this massive exercise.

Another factor is the capacity of the printing presses used to print bank notes overseen by the RBI.

According to a Factly report, if the entire printing capacity of the printing presses used by RBI is utilised, it might be possible to print around 23 billion pieces of notes a year inclusive of all denominations. However, with Rs 500 and Rs 1000 alone accounting for 22 billion notes in circulation, it may not be possible to meet the demand for the new Rs 500 and Rs 2000 in the short-term.

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