RBI cutting note order may have led to crisis

The shortage in fresh ink and supplies, critical to boosting supply of banknotes amid reports of a cash crunch in parts of the country, is being attributed to a decision by the central bank to cut orders to currency presses in June 2017.

The decision prompted the presses to stop fresh orders for raw materials, two officials at the Reserve Bank of India (RBI) said on condition of anonymity. The contracts to supply ink and security threads ended in March, said the officials, bringing the printing presses to a near-halt at a time supply isn’t keeping pace with the sudden spurt in demand.

Procuring fresh raw materials could take some more time, the people cited above said, extending the current cash shortage, estimated by former RBI deputy governor R. Gandhi at nearly Rs5 trillion.

Based on pre-demonetization trends, currency in circulation should have been close to Rs23 trillion now, compared with Rs18 trillion as on 6 April, Gandhi told Bloomberg Quint on Thursday.

In June last year, RBIreduced the order for printing fresh currency notes to 21 billion pieces, the lowest in five years. A 9 November 2017 Mint report said this decision was made since currency chests were full with demonetized notes.

Separately, said the people mentioned above, RBI did not make any arrangement to stock up additional currency notes. Typically, RBI ensures that an 8-12 month stock of currency notes is available to meet any immediate demand.

A Mint report dated 18 April had cited Subhash Chandra Garg, secretary in the economic affairs department, as saying that the demand for currency notes had doubled in the past two months to around Rs40,000-45,000 crore. In the first fortnight of April alone, demand was close to Rs 45,000 crore, he added.

An RBI spokesperson declined to comment.

On Tuesday, RBI clarified there was no currency shortage and that it was ramping up production at all four presses. However, according to the people cited earlier, the presses are running low on raw materials to meet RBI’s demand for 3 billion pieces of Rs500 notes (equivalent to Rs1.5 trillion) over the next three months.

On Wednesday, PTI reported that the Nashik press had run out of ink, citing the chairman of the press workers’ union.

Currently, RBI unit Bharatiya Reserve Bank Note Mudran Pvt. Ltd runs two presses in Mysuru (Karnataka) and Salboni (West Bengal). The presses will have to place a fresh order to buy intaglio ink from SICPA, a Swiss ink maker.

While paper for printing currency notes is available, the security thread used in currency notes is likely to last only for a few days, the people said. Both RBI and the government have floated tenders for security threads, but these officials said it might take as many as six months for the purchase to be completed.

The Mint, New Delhi, 20th April 2018

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