The Reserve Bank of India's central board, at its meeting held today, approved the transfer of surplus to the government. The surplus amounts to over Rs 30600 crore for the year ended June 30, 2017. CNBC-TV18's Latha Venkatesh caught up with Soumya Kanti Ghosh, Chief Economist at SBI, Tushar Arora Senior Economist at HDFC Bank, Siddhartha Sanyal Chief India economist at Barclays and R Gandhi Former Deputy Governor of RBI for their views.
Below is the verbatim transcript of the R Gandhi's interview.
Latha: The number we have got as transfer of surplus, as they call it, from RBI to government is Rs 30,659 crore. This is half of what it was last year. As you know, it was Rs 65,786 crore. What is your sense? Obviously, there is no gains from unreturned currency?
A: One aspect is during the past year, the returns for RBI had been coming down. That is a no-brainer. In the sense that there are negative interest rates in the west and so far, results do not earn much of their returns in the last year. And secondly, for domestic assets, RBI has been taking money under reverse-repo. That means it has been paying interest, so that would have also eaten into the net surplus. And third of course is let us say specified bank notes (SBN) returns. So when we know the full balance sheet, we will get to know what is the idea about.
Latha: What is the cost of printing one's currency? What is the cost of destroying a currency?
A: Cost of printing currency is also disclosed in the balance sheet.
Latha: What is it, Rs 0.06 per note or Rs 0.10 per note or Rs 0.15 per note?
A: That way it depends upon the denomination. If you look at last year, it would have been Rs 3,600 crore if I remember right, or near about there. You can check out in the balance sheet.
Latha: Yes, but this time, this is should be like 50x, isn’t it? After all we printed a lot more, we have printed 85 percent this time. So that Rs 3,600 crore should be multiplied by a huge number, right?
A: No, because you are talking about 80 percent in terms of value. Printing cost is in terms of volume, quantity.
Latha: But even then, how much more would RBI have printed this year compared to last year, some 10 times more? Compared to last year, how much more would they have printed in FY16-FY17.
A: That would have been more, but not 10 times and all because we are printing, RBI had printed more of Rs 2,000 and Rs 500 this time. So that way the quantity, number would not have been that high.
Latha: But still, what would have been the cost of even destroying shredding of currency is a cost receiving from currency chests would have been a logistics costs. So can you just put a number to it?
A: That also it is disclosed in the balance sheet and the income state, if you go to see typically what is the number. This year, definitely, it would have been much more because the transactions and the large quantity was being removed from chest to chest and all. So the number we have to wait for the balance sheet to come.
Shereen: The experts that we have been speaking to and this is what we would require clarification from and maybe you can throw some light on this on whether this is a provisional number and the possibility of a special dividend payout on account of demonetisation will perhaps be factored in later. What do you make of it given the fact that so far, we have not officially heard from the RBI on what is the currency that has been returned and what the final impact is of the demonetisation exercise?
A: Provisional numbers I can understand because the checking or verification of all the notes have not yet been completed. So it will take several months I suppose. So until that time, RBI will not like to confirm the numbers. So it will be a provisional one.
Latha: The question is since these are provisional numbers, is there still a chance of a dividend arising out of unreturned notes in FY17-FY18, in the next year?
A: There are 2-3 steps before coming to that conclusion and whether special dividend is possible because first what is the gap between the notes returned and the original notes which were put into circulation, then by RBI's own needs for surplus, that also had to be factored in. and afterwards only, if any surplus is available and whether that government would want to have it as special dividend.
Latha: You think there is a scope for that in the next year's numbers?
A: In next year's numbers, yes.
Latha: There is a scope for a special dividend?
A: That is right.
Shereen: I just wanted to pick up on the point that Latha made earlier about the cost of printing and if this is the information that the Minister of State for Finance, Mr Meghwal has given to Parliament to the Rajya Sabha in a written reply. He has revealed that it costs between Rs 2.87 to Rs 3.09 to print the new Rs 500 note and between Rs 3.54 to Rs 3.77 for a Rs 2,000 note. These are the numbers that have been given to Parliament by Mr Meghwal on Wednesday.
A: When the figures are given to the Parliament, it will be correct only. That is with reference to every piece. You can reverse calculate, out of the total expenses, you can make an informed guess about how much would have been printed.
Latha: But we would not know the proportion of Rs 2,000 notes to Rs 500 notes.
A: That is correct. That is why some alternate formulations you can make.
Latha: Would it be fair to say some 10 billion notes would have been printed.
A: That number I would not like to say because obviously it will have to be with a total value that has been counted.
Latha: I am going with the number that when we were calculating from the previous annual report notes, if I remember right, there were about 8 billion of Rs 500 notes that had to be returned and about 6 billion of Rs 1,000 notes that had to be returned.
A: No, that was the value, 8 trillion of Rs 500 notes and 6 trillion of Rs 1,000 notes.
Latha: Would you remember the number of notes?
A: Yes, number was 23-24 billion of Rs 500 and 6 billion of Rs 1,000.
Latha: Then in that case, it is about 30 billion in terms of notes. Even if it is half of it, it will likely be more because I am just taking a rough figure. Even if it is 15 billion we are looking at multiplying it by Rs 3 on an average. And then there is the cost of destruction of notes.
A: That is right.
Latha: Is there any way to estimate that?
A: Once the balance sheet comes, then we can work out.
Latha: So the short point is that it is likely that the RBI would have accounted for the returned notes with a caveating it as provisional and you think that there is still a chance that a special dividend of unreturned notes is possible next year?
A: That is next year. Again, as I said, three caveats were there. Surplus should be there, RBI's need for surplus should be there and net surplus should be there.
Shereen: When can we expect clarity as far as the demonetisation impact is concerned by way of the return of notes? When can we realistically expect that because whether it is the government or the RBI, there is no timeline that has been given? In your assessment when would it be fair to expect that number?
A: I would expect RBI to complete the verification in about 9 months I suppose.
Latha: From now 9 months or overall 9 months?
A: During this current fiscal it should take about 9 months.
Latha: So, that is March of next year?
A: That is right.
Shereen: So, you are saying by March of next year?
A: Yes, March 2018.
Shereen: If you are saying that it will take at least 9 months to be able to still get an accurate verified number as far as the returned currency is concerned, explain to us then as far as the RBI’s annual report is concerned, what should we then expect because the RBI will then again choose not to report any number as part of its annual report?
A: In the account this is value. So that is a different thing from physical work quantity related.
Latha: In place of USD 15.4 billion what will it account for as currency?
A: That is what we have to see in the balance sheet.
Latha: Why would you say it takes that long, if you can explain the process?
A: It is a physical work. So, many quantity of notes are there and the machine capacity even if you assume 24x7x365, even then in my calculation it should take about 7-9 months.
Shereen: For a lay person who is watching this program, who looks at the dividend number as almost half of what was estimated, how would explain that?
A: The net surplus during this year should be coming down only. The foreign exchange reserves most of the part it was earning negative returns or near about 1 percent and net foreign assets are the major portion of the RBI balance sheet. Also, RBI would have been paying interest to the banks. So, the outflow would be more, returns are less so naturally net surplus would be less.
Watch video for entire discussion….
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