Economic Highlights

New Delhi, 20 September 2013

Coin Crisis

NOT A SMALL CHANGE MATTER

By Shivaji Sarkar

Small coins are vanishing and so is the pride in the currency. People are not returned equivalents of 50 paise, a rupee or two. Often the loss for an individual is even Rs 5 in a transaction, because 5-rupee coins are also not easy to be found. This can be said to be a Government-induced inflation that is not measured by any consumer price index.

India's inflation rate has been rising steadily. “Compared to India, inflation in the UK and US is much less — between 1.5-3 per cent. This means that there is relative stability in prices. Therefore, coinage in the same set of denominations can continue in these countries for a long time,’ states Kaushik Bhattacharya, Associate Professor at IIM, Lucknow.

The moot question then is how much would the nation be losing? There is no firm figure but it is certainly an enormous amount. If only a third of the population, 40 crore people, is subjected to such losses--which account for a loss of Rs 5 a day-- it comes to a loss of Rs 200 crore a day, Rs 6000 crore a month and Rs 72,000 crore a year! (In many cases, one individual would be subjected to the loss Rs 5 in more than one transaction per day). A year ago it could have been estimated at around Rs 27,000 crore because the losses were on an average estimated at Rs 3 a day and the losers’ number was restricted to around 25 per cent.

A glaring example of the individual’s loss can be seen in his experience with the Railways, which has revised its minimum fares this year from Rs 2 to Rs 5 taking the specious argument of shortage of small coins. This has increased the profit of Railways to manifold though it prefers not to acknowledge it.

About 62 per cent of 20 million rail travelers a day are daily commuters. Of these, at least 15 per cent purchase ticket for each of their journey. It means over 20 lakh passengers are contributing over Rs 60 lakh more a day  – Rs 18 crore a month and Rs 216 crore a year. This is a modest estimate. In reality, the earning of the Railways is likely to be more. This does not take into account the 5-rupee coins that are not paid back by its staff.

This scenario is not restricted to the Railways alone. The BSNL, MTNL, electricity companies, all big private shopping outlets, malls and restaurants do it in the name of rounding up the figures. Even the bus tickets are rounded up on a higher side. If all this is added up, then the common man category is losing over another Rs 30,000 crore a year. This is all in the name of simplifying transactions, but ultimately adds to the profit of business houses of all kinds.

So how much is the common man losing every day is anybody’s guess. Conservative estimates would put it at Rs 1 lakh crore a year – almost equal to the amount claimed would be spent on Food Security Bill and almost three times the budget of MNREGA.

Unfortunately, the Government remains oblivious to this critical aspect. It is reneging on the trust the people have bestowed on it. In its 2011-2012 annual report, the Reserve Bank of India indicated a significant decline in both the volume and value of small denomination coins in circulation following the demonetization of the 10, 20, and 25 paise.

Indeed, the people are developing contempt for the currency. During the 1930s great depression, Europeans were lighting their cigarettes with currency notes. India has almost reached that stage. It is just not plummeting international value of the rupee; the domestic value is falling at a faster pace. Therefore, it is not just an economic crisis but a social and political one.

It is a social crisis because anybody demanding back his 50 paise, one–rupee or 5-rupee coins is considered a miser and looked down upon. Arguments on this count are common at shops, vegetable and other outlets. In some cases, there are reports of brawls on these “insignificant” issues. Thus, the cost of maintaining law and order is increasing. With a tear in the social fibre, the commotion in society is growing. People are no more willing to be civil on being robbed of what legitimately is theirs.

Sadly, the Government can’t even think of a solution? It has to revolve round restoring the people’s confidence in the currency, but in the past many years it has done precious little. So the rupee rolls against the dollar even when the Indian economy was at almost 9 per cent growth and the Government expresses its helplessness.

 
The poor man on the street still cannot fathom why he should lose his money for the Government’s international faux pas. He wants to know why the Government cannot protect his money from falling against other currencies. He now asks if this is the result of globalization. Were the Indians not better without such global linkage? It has only exposed them to the vagaries of extravagant nations such as the US, UK, France, Germany, Portugal, Greece, Ireland and other EU countries.

For him, India is importing the western tragedy to create a more difficult situation at home. It does not console him when the Government says that $1.65 billion (Rs 9903 crore) foreign direct investment came in July 2013 and is stated to be 12 per cent more than the previous year. It has not helped the currency. Rather it plummeted to Rs 68 in the subsequent weeks. Obviously, FDI is not helping boost the national pride – the rupee.

So the small coin shortage has links with total economic policy. The common man is keen on knowing why the Government is not changing the failed 1991 model. He also wants to know why India does not revert to a firmer exchange rate mechanism at least at par with what China does. The floating rupee has gone to the advantage of the western currencies. The country needs a change in approach to stabilise conditions.

The people also want to know why the Government is succumbing to buy oil from Iraq in hard currency to subisidise the losing US firms when Iran is prepared to sell it in rupee terms and at a far cheaper rate. International relations should be based on what is beneficial to the country and not global sharks.

If these two changes in approach are made – buying oil in rupee terms and deciding the exchange rate – Indian markets can have some succor. The small coins need to get back its worth and respect. That is the key to revival of the economy. –INFA

(Copyright, India News and Feature Alliance)