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And the Notebandi Lies Continue

Feb 14, 2017


One week back, the finance minister Arun Jaitley said in the Rajya Sabha: "At no point of time, not for a single day, was the currency inadequate."

Every government needs to defend decisions it has taken. In that context Jaitley's statement is hardly surprising. Nevertheless, it not only mocks the common man of this country but also tells us how disconnected our ruling politicians are with the realities of the day.

Jaitley was essentially talking about the situation that prevailed in the aftermath of demonetisation or notebandi, as it is more commonly referred to as.

If there was no currency shortage for even a single day, why did ATMs have such long lines for close to a month? Is Mr Jaitley saying that people just gathered there because they had nothing else to do?

If there was no currency shortage even for a day, why did the government place limits on ATM withdrawals? It was churlish of Jaitley to have said what he did, given that 86 per cent of the currency in circulation was demonetised, the midnight of November 8, 2016, onwards.

The advantage with making speeches is that nobody asks questions at the end of the it. Nevertheless, the lack of empathy among the politicians does get registered.

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That apart, let's look at the currency in circulation data published by the Reserve Bank of India every week. Take a look at Figure 1.

Figure 1:

Figure 1 essentially shows the currency in circulation in the Indian economy in 2017. December 30, 2016, was the last date for depositing the Rs 500 and Rs 1,000 notes which had been demonetised. Hence, I have taken the currency in circulation numbers from January 6, 2017, onwards, which is a week later.

The currency under circulation has been going up since 2017. On November 4, 2016, four days before prime minister Narendra Modi, made the announcement to demonetise Rs 500 and Rs 1,000 notes, the total currency in circulation had stood at Rs 17.97 lakh crore. In comparison, on February 3, 2017, the total currency in circulation, the latest data available, stood at Rs 10.49 lakh crore.

Hence, the total currency in circulation as on February 3, 2017, was at 58.4 per cent of the level before monetisation was announced. Given this, it is not surprising that the currency shortage, even though it has eased, continues to persist. This goes against what the Economic Affairs Secretary Shaktikanta Das recently said about the remonetisation process being complete.

Take a look at Figure 2. It basically plots the total increase in currency in circulation every week since January 6, 2017.

Figure 2:

For the week ending January 13, 2017, the total currency in circulation grew by Rs 52,780 crore. Thereafter, the increase in circulation has fallen quite dramatically. One explanation for this may lie in the fact that initially more Rs 2,000 notes were being printed and that has now been replaced with more Rs 500 notes being printed, which is what the financial system needs, given the shortage of change. But at the same time, it takes four Rs 500 notes to replace money worth Rs 2,000.

The larger point being that the financial system is still away from having an adequate amount of currency. This, as I have explained in the past, is primarily because of the limited currency printing capacity of the government of India and the Reserve Bank of India.

The average increase in currency between January 6 and February 3, 2017, comes to around Rs 37,778 crore. At this speed, it will take many more weeks, before the financial system gets to a level, where it has adequate currency.

The total currency in circulation had stood at Rs 17.97 lakh crore before demonetisation. As of February 3, 2017, the total currency under circulation stood at Rs 10.49 lakh crore. The difference between this and the total amount of currency under circulation before demonetisation stands at Rs 7.48 lakh crore (Rs 17.97 lakh crore minus Rs 10.49 lakh crore).

At the speed of introducing currency worth Rs 37,778 crore per week, it will take close to 20 weeks for the currency under circulation to reach the pre-demonetisation level. One logic that has been offered is that the government may choose not to replace the entire currency.

Even if the government chooses not to replace the entire currency, at Rs 37,778 crore per week, it will take many more weeks before the currency in circulation stabilises at an adequate level.

While, the economics of it, can get tricky, even if the government chooses to go up to Rs 16 lakh crore and not Rs 17.97 lakh crore, it will still take close to 15 weeks to get to the pre-demonetisation level. Of course, the time taken can come down if the speed of money printing can be increased.

Long story short-both Jaitley and Das are essentially lying to the country in saying what they are. And that is something worth remembering and talking about, dear reader.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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30 Responses to "And the Notebandi Lies Continue"


Feb 26, 2017

Dear Mr.Vivek Kaul,
I appreciate the straightforward and to the point views published in your letters.Regarding the Notebandi lies.. the letter clearly addresses the issue based on facts and reality. One need not look at the issue from the political point of view and rightly, you, as an economist, is looking at the economic issues related to the notebandi initiated by the government. I have seen, for months since the implementation of demonetization, people have left everything else and joined the serpentine lines to get back a pittance of what they had saved in the banks. The ATM's were totally dry most of the time and after a prolonged time, when some life was instilled in them, they offered only Rs.2000.00 notes which had no takers! Shops and establishments would openly declare to do business if you had necessary currency in exchange. Government stating that there was no hardship to the people is not a reality specially when 87% of currency in circulation is made defunct overnight.
My first reaction to demonetisation was of appreciation as the intent was good, to curb black money which was a parallel economy in our country. A little bit of ground reality check should have been done by the people behind this move, including RBI, and planned the move. To cite an example, instead of permitting exchange of old notes to the tune of Rs.4500.00 across the bank counters, the govt. should have directed all to deposit the same in their bank accounts and withdraw whenever they wanted. Millions of Jan Dhan accounts were opened by people across the country and depositing the money in the bank could have reduced the serpentine lines before the banks for encashing money and giving a backlash to the good intent. Steps could have been taken to bring more people in the banking fold. When the Govt. realised that the move was backfiring, as it did not affect the rich and the likely possessors of black money, the idea of digitalisation came in giving incentives to those who opt for digital payments. This move could have been done before implementing demonetisation. Similarly, why should the govt. permit the political parties to deposit any amount into their accounts without raising any questions if the amount shown is as gifts below Rs.20,000.00. The government should accept that it faultered in this move but try to showcase some of the side affects like, the money that was lying idle as black money and was laundered, came back to the banking channels lifting the banks resource base manifold. The govt could also state how much of this would be taken to the exchequer by way of taxes and penalties,resource mobilisation in banks for further lending, etc.
As an economist, whatever you are writing is appropriate and continue do so irrespective of any adverse comments. No one appreciates reality checks, specially the impact of demonetisation on the small businesses and self employed in the country who had no clue about continuing their business in the absence of any buyers/takers.


Joginder Singh Kular

Feb 20, 2017

The Bank ATMs continue to run dry every day most of the day time except for as few as one hour. All the ruling politicians are continuing to tell lies including the P M begging votes.


Daljeet Singh

Feb 19, 2017

Dear Vivek,

I have recently started reading your blog and would like to compliment you for the simplicity and factual contents of your diary. Thank you for stating facts that we so desperately need.

I also read some of the negative comments and am surprised that people don't want to hear the truth!




Feb 17, 2017

excellent . your analysis is perfect and mind blogging. thanks for giving such a correct information with figures and graphs. along with commin people, it shpuld be read by Mr Jaitley himself.



Feb 15, 2017

The article is well analyzed and figures quoted are all facts. People often form their opinions based on perceptions and not by facts. Although the intention behind the demonetization was good, it was done without any plan to quickly replace the invalidated notes. It ought to have been obvious to those who were in full know of the role of currency in the economy that, when 87 percent of the currency in circulation was invalidated overnight, the economy could not function as before. The infusion of new notes by the RBI has been a slow process. One is in agreement with the author that the people will not have full freedom to withdraw their won money from their accounts before May 2017. It was a misadventure on the part of the govt to have gone for Notebandi without preparations. By throttling the economy without cash, millions of man-days of employment were lost to the workmen, small businesses have been shut down and even sales of Hero Nonda, Bajaj Auto, Tata Motors, Tractors, FMCG companies were affected in Q3. The only benefit from the exercise is that the govt may be able to collect some additional revenue from the tax-evaded stock of the notes returned. However, the process of collection of tax from some 18 lakhs of short-listed depositors would be a prolonged affair, leading to harassment to honest tax payers and increased corruption due to the discretion given to the tax collectors.



Feb 15, 2017

Why you are taking political sides? Is this website for investment or propagating a political agenda? Vivek Kaul - you always write negative about government policies and very clearly are an anti-BJP/government person.
Please do not use this forum and channel to justify your political beliefs. Who lies and who doesnt - we do need you to tell us. you should just focus on economics.

Else many readers are now getting turned away from Equitymaster. We are here for just economic analysis and not biased articles!!

Like (1)

J K Mathur

Feb 15, 2017

Our PM miserably failed to visualize the consequences of such a drastic step which seriously affected the entire population of the country in every nook and corner.One cannot close his eyes to the fact that majority of the transactions in the country are in cash and will continue to be in cash, no matter what measures are taken to ensure cashlessness. in fact, the idea of cashless economy or less cash came into the mid of the govt. much later when there was a hue and cry and the queues before the banks and ATMs became unending. The entire operation was woefully ill-prepared.

Like (1)

R Tayal

Feb 15, 2017

Dear Vivek, For once(& regrettably so) I find your obsession with demonizing demonetization at any cost unbecoming of an intelligent economist I had come to respect. Of course politicians are wont to making the kind of statement for which you have wasted a whole article trying to grill Jaitly. I am sure you can better use your immense talent. Whether remonetization is 58% or 74% of the original cash is irrelevant. The fact is today one doesn't find any queues or shortage of cash, period.
And invoking the common man every time & shedding tears for him is best left to unscrupulous media & politicians, for the common man is not entirely so innocent & helpless. Of course an exercise of this scale & introduced with the necessary secrecy, will have shortcomings but instead of lamenting those, it is the duty of every responsible Indian to offer advice & support in overcoming those. To my mind maximum opposition to demonetization is from those :
a) either whose hatred for Modi doesn't let them evaluate any of his actions on merit
b) or those whose focus is just quarterly performance
c) or those who had become used to evading taxes with impunity
Let's face it, Demonetization has now already happened, so to borrow one of your favorite terms, please come out of the sunk cost fallacy. I would you rather used your immense talent to come out with ideas how to supplement this exercise with additional ideas, to derive social, more than economic, cleansing of India.

Like (1)

Sudhir Choudhary

Feb 15, 2017

I feel that Viveks Kauls's articles have just lost relavance and he is sadly out of sync with the mood of the nation. I am surprised that Equitymaster, has allowed this tirade against DeMon to continue...Surely you will loose readers and future subcribers as what Equitymaster is doing and preaching is just the opposite of what they should be doing. Instead of helping the nation in remonetisation you are allowing polititical views to prevail over economic issues... Sad...very sad...Move on Equitymaster!!!

Like (3)


Feb 15, 2017

After reading a couple of articles by Vivek Kaul, it is clear to me that he is not just writing these in good faith. The tone and tenor of the articles convince me that he has some anti-demonetization anti-government agenda. I have also travelled extensively in the last few months and since around 10th of January, the situation is nearly normal in most states I travelled. There is just some slight inconvenience of getting change for 2000 notes but if you couple of places, definitely at least one of them gives change for purchases even of around 300 rupees. Business activity has returned to near normal. Vivek Kaul, stop the presstitudion.

Like (3)
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