Economic Highlights
New
Delhi, 7 May 2012
Small Coin Shortage
RBI’s BIG PROBLEM IN HAND
By Shivaji Sarkar
Small change can play havoc with the economy! The Government
and the Reserve Bank of India
policy is adding to at least three to five per cent inflation. The decision to
scrap small coins makes products dearer for the consumers as the sellers, big
or small do not return small change.
On an average every individual loses at least Rs 3 a day in such transactions.
Sometimes the loss may be even Rs 10 or more if one enters into a multiple
transaction. This apart it has led to rounding of most products to Rs 5 or 10.
Recently, the Railway Ministry even took this specious argument to raise the
train fares (calling it rounding off local train fares). Now even Rs 5 coins
are vanishing so should such departments round it off to the next Rs 10 and
when Rs 10 coins and currency notes become scarce it would be raised to the
next higher amount.
It is a vicious method of depriving the common man,
of their precious earnings. Lower availability of small coins leads to a rising
price level. Let us assume that of a population of 121 crore only 25 per cent –
30 crore people – are losing Rs 3
a day. It comes to Rs 90 crore a day. It they are losing
it for 300 of the 365 days, the loss to the common man, eventually becomes a
whopping Rs 27000 crore a year, larger than the budgetary allocations to many
ministries.
In cities such as Delhi, the customer demanding small change
back is looked down upon by the shopkeepers, the taxi drivers etc. In fact, in
many cases, they pocket even Rs 10 or Rs 50. The people who are being cheated
grumble but can do little and get no relief.
It is also interesting to note that more affluent a
region is, the larger is the loss to the consumers. In some of the remote areas
of Orissa, Bihar and Jharkhand, the
shopkeepers, it is learnt, take it as insult if someone does not take back
small change like ten or 20 paisa. Yes, despite the RBI having stopped minting
of coins of 5 and 10 paisa, these still remain in circulation in these areas.
Undoubtedly, this calls for a review of the RBI
policy to do away with such small denomination coins. In fact, it has a wider
social ramification as well. It causes bad blood among the people. In many
cases, people avoid shops which gobble up their small change. The shopkeepers
are also known to be gruff with people who insist on having their coins back.
Some even force on their customers sweets,
toffees or lozenges even when they don’t want these instead of the small
change.
Acrimony in retail or vegetable markets is a common
phenomenon. In reality, consumers have a grudge that it is adding to the
inflation. Businesses crib that people are so small-minded that they demand
such small amounts back. The coin shortage is also posing problems for the
businesses. In some cases, as in Kolkata, shopkeepers have been purchasing
coins from beggars at a premium!
On the national front, India claims to have developed. It,
however, still suffers from the psyche of poor developing nations. In the US, a consumer
is returned 96 cents in coins if his bill is for say $1 and 4 cents. This in India is simply
unthinkable.
If businesses have to grow smoothly, the RBI has to
make arrangements for easy supply of small coins. It needs to innovate. Coins
worth crores get locked in donation boxes of large temples like Tirupati or
Vaishno Devi. The RBI needs to formulate a policy to bring these back into
circulation. Some of the temples send these coins into their chambers where
with time the value gets appreciated.
The practice of the banks and credit card issuers to
round off the change mostly to the nearest higher rupee also makes people lose loads
of money. Banks are becoming richer with many unethical practices and
surreptitious increase in bank charges. It is affecting the core of the
economy.
Many other service industries such as telephone, gas,
or petrol pumps also do the similar rounding off – gobbling up consumers’
money. Shortage of coins is having a ruinous effect on the economy.
Thomas J Sargent and Francois R Velde in their recently
published book Big Problem of Small
Change say that for the last many centuries shortage of small coins has
been a phenomenon and governments have been finding it difficult to face the
challenge. In a way it has been afflicting nations in different times. But the
governments have to innovate to look for new ways to overcome such shortage.
The RBI certainly has a case for deciding the
intrinsic value of such coins. It is stated that the razor blade industry melts
one-rupee coins to manufacture six blades. In other words, they are earning
huge profits as the quality of metal is unmatchable and selling the blades at
premium.
Some artificial jewellers also melt the coins as the
intrinsic value is more than the face value of the coins. The RBI is not
supposed to provide raw material to this kind of industry. But it needs to
evolve a system to mint coins with metals which should have a junk value. It
calls for RBI to carry out research for minting coins or printing small value
currency notes.
Sometime back there was a proposal to print small
value plastic tokens with due security marks. Any metallic coin is certain to
have the value appreciated. Of late, RBI has decided to change the raw
material used for manufacturing of coins from Copper-Nickel to FSS (Ferritic
Stainless Steel). But FSS is also a coveted metal for some industries, which
would like to melt it to make fancy items and earn larger profits.
The challenge is perennial. The answer is not in
giving up small denomination coins or currency notes. It is true that small
coins and small denomination currency notes get soiled soon. Their intrinsic
value also has to be kept lower than their face value. These call for looking
for new methods.
It can be done in two ways. One is to mint plastic
tokens with security marks perhaps with a small metal foil type cover and also
issue small currency notes with plastic lamination. The other is also to print
currency notes of odd denominations like Rs 6, 7, 9, 11, 15, 19 and so forth.
The problem is often with odd figures. This may solve the problem to a large
extent. However, giving up small coins is no solution. The RBI should think how to
handle the small change problem which has a severe economic and social cost.
Any remedies? ---INFA
(Copyright, India News
and Feature Alliance)
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