Cash shortage would be resolved by March

As India struggles in an acute cash shortage after more than a month, and as Reserve Bank of India is putting extra efforts it is assumed that the crisis would get completely resolved by March.

Bankers and former RBI officials believe that just over 50% of the withdrawn notes would have come back into circulation by mid-January thanks to presses working round the clock. Now that most mint presses are working 7 days a week in three shifts, there is a 50% increase in printing capacity.

"As per this calculation, the issue should be largely addressed by January and be taken care of by February,” a retired central bank official, who did not want to come on record told The Economic Times.

RBI officials did not reply to an official query on the issue. The RBI Annual Report for 2015-16 showed that there were around 15.7 billion Rs 500 denomination notes and 6.3 billion of Rs 1,000 currency notes in circulation.

If RBI wanted to reintroduce the entire amount back into the system, the printing requirement would be 22 billion pieces. But only half of the 6.3 billion Rs 1,000 notes need to be printed since the denomination has been increased to Rs 2,000. This brings down the total printing requirement to about 18 billion pieces.

RBI usually prints around 20-23 billion pieces per year, and a 50% increase in capacity could mean that all the four presses have a capacity to print 30-35 billion pieces. The central bank started printing these new notes in October.

So more than six billion pieces would have been printed so far assuming a monthly run of about 2.5-3 billion.

Total replacement of all the withdrawn notes would happen by March but the cash shortage could start easing by January as nearly 10 billion pieces would have come back into the system. But RBI officials have been signalling that they don't intend to replace all the withdrawn notes. Bankers who have been discussing the issue with the central bank report that there is a very high chance of all the notes not coming back into the system as cash.