The government has managed to cut down the transportation time of cash from printing to the main distribution centres from 21 days to six and is using all modes of transport, including helicopters and Indian Air Force planes, to move the cash quickly.
The government is hopeful that the situation will improve over the next week. With availability of cash improving in urban areas, the government is concentrating on rural areas.
Senior government sources said the level of economic activity should climb back to normal levels by January 15. Referring to any “windfall” from the decision to demonetise 500- and 1,000-rupee notes, sources said any gains could be used for recapitalisation of banks, building infrastructure and purchasing advanced weapons systems for the armed forces.
“RBI may transfer higher dividend or there could be a special dividend,” the sources said. There is a probability of the government getting a “windfall” as a significant portion of the notes may not come back. This will reduce the liability of RBI and increase its ability to pay higher dividend. “Even in 1978 when the government resorted to demonetisation, 20% of the notes did not come back,” the sources said.
They said they would not like to speculate about the number of notes that may not come back into the system.
Reacting to the talk that the government may use a part of the funds to put in Jan Dhan accounts, the mood in government is uncertain about such options. The tentativeness is due to Prime Minister Narendra Modi’s known aversion to giveaways. He is of the view that giveaways achieve little for the economy and carries the risk of breeding dependence.
The sources said Rs 2,000 notes could not be put in the tray meant for Rs 1,000 notes as the recalibration required both hardware and software changes.
They said that the swelling of deposits with banks would translate into better lending capacity for banks.
“The SME sector will benefit as the banks will lend more,” the sources said adding that earlier the SMEs were borrowing from the informal agents paying 18-20% interest rate and now the banks would be able to lend at significantly lower rates. They said that the move to scrap the high value notes will lead to a cleaner and transparent economy.