Demonetisation has caused net loss to RBI’s seigniorage - the profit accruing from currency issuances and liquidity operations - besides increasing the cost of printing notes, says an SBI Research report. On November 8 last year, the government had banned old ₹500 and ₹1,000 notes in an attempt to weed out black money in the country. The old notes were allowed to be deposited in banks, with unusual deposits coming under income tax scrutiny.
“The demonetisation exercise has resulted in net loss of seigniorage to the RBI,” SBI’s research report Ecowrap said. “In the current case, there is a seigniorage loss, as the face value of ₹15.28 trillion of ₹17.1 trillion has been printed,” it said.
The report further said that “the cost of printing notes and coins has increased during this year“. In its Annual Report for 2016-17, RBI has said that post-demonetisation it has spent ₹7,965 crore on printing new ₹500 and ₹2,000 and other denomination notes, more than double the ₹3,421 crore spent in the previous year.
The banned notes formed 86% of the currency in circulation at that time. Holders of old notes were given a 50-day window to deposit them in banks. The estimated value of Specified Bank Notes (SBNs) received as on June 30, 2017 is ₹15.28 trillion (₹15.28 lakh crore) out of ₹15.44 trillion demonetised currency.
The net transfer of profits to the Union Government as a result have fallen drastically during this year by 53.5%. The report further said that the number of suspicious transaction reports by Banks/FIs/Intermediaries also increased by 345% and this in turn “could possibly lead to increase in future tax revenues“. “This coupled with implementation of GST will help in better fiscal realisation at a future date,” the report added.
