Boundaries

A Nation... is a group of persons united by a common error about their ancestry and a common dislike of their neighbors. Karl Deutsch.

Cricket sells. Cricket inspires. Cricket corrupts. Cricket reminds colonial past of India. Combine cricket with films, TV and politics you have intoxicating electronic soma ras. There are plenty of ghazals that glorify aankho se peea jo uska khumar kya kahoon. Only occasionally is this khumar of millions of Indians jolted by ‘surgical strikes’ like notebandi. Depending on your disposition on the day any of these statements may resonate with you. Cricket is played within a boundary. A player’s action outside boundary is null action. A ball hit by Virat Kohli crosses boundary. A Four invites cheers from Indian fans, sighs from the fielding team fans and little sweeping palm from an umpire. Date also is a boundary on field of time. Mid-night of 31 December is a boundary between one year and the following. Drawn on maps boundaries create nations, provinces, towns and villages. Earth so divided falls prey to manipulative human mind who divides people living beyond and within boundaries. The imagined communities become nations. True or false, the identity sticks. By adoption, by birth or by imposition.

Tax is also a boundary. After paying tax on income money becomes white. Tax not paid money becomes black. Like a newly born baby, a newly printed currency note is neither legitimate nor illegitimate. Both are free from bondage of boundaries. Depending on tax compliance by its possessor a currency note gains legitimacy. Depending on parents' fidelity wows baby gains legitimacy. Uncertainty over, boundaries established. It is simple and clear like day light. Or is it? Dawn and dusk are boundaries between day and night. Waking from long slumber with hangover of soma, you see outside is neither dark nor bright. Is it dawn before bright-white day or is it is dusk before dark-black night? Politicians and spin doctors love grey. Between black and white is grey. With little mixing white becomes grey or with little mix black becomes grey. Between fact and fiction is opinion. Opinion is expedient because it is bendable. Bend it towards fact or fiction as demanded by goals. Political goals depend on another boundary. In democracy that boundary is drawn by voters. In opposition most political parties see things in black or white. In power most political parties see things in grey.

Boundaries are raised in almost every walk of life. Social, economic, religious, national, linguistic, castes, occupational, biological and political all fields have boundaries making each walk vulnerable minefield of hatred and divide. Willingly with pride or grudgingly or mistakenly we trip on traps of identity. We embrace part of our being to lose wholeness of being. Hug a tree and burn forest. Hide under half coconut shell and lose cover of infinite sky.

Imagined Communities (1983) is a great book by Benedict Anderson (1936-2015). Karl Deutsch's (1912-1992) quote is from his book Nationality and its alternatives (1969).

It will be February 2017 before enough currency is printed to replace the value demontized.

Before you read further note: This is an attempt to estimate time required to replace in value the amount demonetized as result of rendering 500 and 1000 Indian rupee notes as illegal in India on 8 Nov 2016. The actual time estimated here is likely to be more. However, I request readers to look at calculations that are based on Reserve Bank Data and if there are any errors please let me know  for which I will be grateful.

How much time it will take to print and replace 500 and 1000 currency notes India?

A realistic and optimistic answer: Nearly three months going into February 2017.

According to Reserve Bank of India annual report for 2015-16 following is relevant data about INR 500 and 1000 denomination currency notes. There were 15,707 million 500 denomination and 6,326 million 1000 denomination currency notes in circulation as of March 2016.  

	Volume of currency notes (millions) as of March 2016	Value (in billions) As of March 2016
500	15,707	7,854
1000	6,326	6,326
All notes	90,266	16,415
Source: Based on RBI Annual Report 2015-16 published 29 August 2016. 10 million = 1 crore, 1 billion = 100 crores

Together 500 and 1000 denominated notes constitute 86.4% of the total value of all currency notes in circulation (See Table VIII.1 reproduced from RBI Annual report.)

Source:  Reserve Bank of India, Annual Report 2015-16, dated 29 August 2016. Page 89. Accessed online 25 November 2016 Full annual report of RBI is available here https://www.rbi.org.in/SCRIPTS/AnnualReportMainDisplay.aspx Only Currency Management section from which this data is extracted is available here https://rbidocs.rbi.org.in/rdocs/AnnualReport/PDFs/8CURRENCYC8DA67E8EB574B8C84A75AE4D52DEBED.PDF

With effect from 9^th November 2016 total of 22,033 million currency notes (volume) valued at 14,180 billion were made illegal tender. This decision though makes exception for certain type of payments such as paying for electricity, petrol, and water bills etc for few weeks. But eventually a value worth 14,180 billion will need to be printed in new currency notes of different denominations like 50, 100 and new denomination 2000 and new 500 ones. Question now bothering people is how much time it will take to replace currency of this value? To answer this question three further questions need to be answered. 

1. In what denomination the replacement currency will be printed?
2. How many new currency notes are required in chosen denomination? 
3. And finally what is the capacity of printing machines to print?

If it is assumed only 2,000 denomination currency notes will be printed to replace value of 14,180 billion, then number (volume) of new 2000 notes to be printed will be:

14,180,000,000,000 /2,000 = 7,090,000,000 currency notes will need to be printed which is 7,090 million notes (volume) of INR 2000 each.

Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL) is a wholly owned subsidiary of RBI which prints the notes. The process is that every year RBI puts request (indent) for printing of volume of different denomination currency notes which then are printed and supplied by BRBNMPL to RBI which releases it in the economy through banking system. In 2015-16 BRBNMPL printed 21,195 million currency notes of different denomination out of which 500 rupee notes were 4,291 million and 1000 notes were 977 million against RBI’s specified requirement of 5,600 and 1,900 millions respectively (see Table VIII.4 below).

Table VIII.4 shows that total printing capacity of BRBNPML is around 25,000 million units (notes) per year. For benefit of doubt let us take 30,000 million units. Now further assume that RBI decides to print only 2000 denomination currency notes from 9 November 2016 after the announcement, this means to print 7090 million notes it will need 7090/30,000 = 0.24 years or about 86 days non-stop printing without holidays. So the earliest 7,090 million currency notes of 2,000 denomination can be printed is February 2017.

Source:  Reserve Bank of India, Annual Report 2015-16, dated 29 August 2016. Page 90. Accessed online 25 November 2016. Full annual report of RBI is available here  Only Currency Management section from which this data is extracted is available here 

However, most likely it will be much after February 2017 because BRBNMPL may not be able to work 86 days without any break. Also look at the past patterns of printing notes in table VIII.4. It is obvious that in most recent years the RBI’s printer has not been able to meet the demand (compare indent and supply numbers).

The other reason is that RBI is not likely to print only 2,000 as it is printing new 500 denomination notes as well, hence the likely period to replace new currency with same value that has been demonetized will be longer than three months. 

The plans for 2016-17 shown in table VIII.4 show that RBI wanted to print 16,625 million notes of 100,50,20 and 10 denomination. If these planned printing of smaller denomination notes is stopped to print only 2000 and 500 denomination notes, it will create big difficulties for small traders and consumers who need smaller denomination notes for transactions in cash. If the planned printing of smaller denomination notes is continued then clearly replacement of withdrawn value will be much longer than 3 months. Of course, if the capacity for printing is somehow expanded then this claim is contestable.

RBI planned to print 5,725 million new 500 denomination and 2,200 million new 1000 denomination notes in 2016-17(see the last column of above table). This plan seems reasonable considering the volume of currency indented in previous years and also does not imply any demonetization plans. The RBI report explicitly mentions that it had no plans for demonetization until publication of the report. Here is the direct quote form page 93 Box VIII.1, “The legal tender status of all the banknotes of these denominations issued earlier which do not contain these features will remain unchanged.” 

So it seems that the government was planning the demonetization so secretly that RBI itself was unaware of the plan.  Or that Dr. Raghuram Rajan, who was governor  at that time knew about plan in August 2016 but chose not to disclose it in the annual report that he signed. Or the plan to demonetize was prepared after new governor took over on 4 September 2016. 

Fake currency notes

The RBI Annual Report also provides details about counterfeit notes detected in the banking system. It is seen from following table that there are more 500 and 1000 counterfeit notes than other denominations.

Source:  Reserve Bank of India, Annual Report 2015-16, dated 29 August 2016. Page 92. Accessed online 25 November 2016. Full annual report of RBI is available here Only Currency Management section from which this data is extracted is available here