More 100- and 500-rupee banknotes are set to be pumped into the economy after the government shelved plans to reintroduce Rs 1,000 bills, which were scrapped during last November’s demonetisation drive.
The shock recall of 500- and 1,000-rupee notes sucked out 86% of the money in circulation in a cash-driven economy. The cash crunch forced millions to queue at banks and ATMs for hours to draw money, reducing the public support the exercise enjoyed initially.
The shortage stabilised to an extent after the government introduced redesigned Rs 500 notes as well a whole new 2,000-rupee bill. But another worry cropped up as the Rs 2,000 note received a tepid response in the absence of enough small change in the market.
Instances abound of customers being turned away for giving a Rs 2,000 bill to purchase goods worth, say, Rs 650 since shopkeepers didn’t have enough lower-value notes to return the change.
The problem prompted a government rethink, and chief economic adviser Arvind Subramanian underlined the need to introduce more lower-value notes.
Sources said mostly 100- and 500-rupee notes — as well as the Rs 50 — will be fed into the system as part of the strategy to remonetize the economy.
“The focus will be on lower-denomination notes, though people are now no more reluctant to accept Rs 2,000 notes. Right now there is no plan to introduce Rs 1,000 notes,” economic affairs secretary Shaktikanta Das said and underscored that pro-active measures should be taken to reduce the demand for cash.
The Reserve Bank of India (RBI) is unlikely to replenish the entire sum that has been scrapped.
Until now, the RBI has reloaded about Rs 10 lakh crore into the system after sucking out Rs 15.44 lakh crore — which accounts for 17.16 billion notes — since November 8, 2016.
Das informed that new 50- and 100-rupee notes will be unveiled with a design change.
But this will not disrupt ATM operations, as it did after new Rs 500 and Rs 2,000 bills were introduced. The ATMs had to be recalibrated to recognize the new notes.
The Rs 50 and Rs 100 notes will undergo only design changes, without tinkering with their basic shape and size template.
Sources said there has been “some cash shortage” with the RBI relaxing the withdrawal limits from ATMs.
“The demand for cash is always high during the beginning of the month and about 30% of the ATMs are running dry,” said a senior executive with a private bank. But the shortage is temporary and will ease in the next few days.
According to the sources, about Rs 12,000 crore were given to the country’s 220,000 ATMs, compared to around Rs 13,000 crore before November 8 when the demonetisation drive was announced.
The government scrapped the two high-value notes as part of its fight against illegal cash or black money, tax dodgers and counterfeiting.
But protests over the exercise washed out Parliament’s winter session with the Opposition calling the government anti-people. The drive became a talking point of assembly elections in five states this February and March.