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RBI’s experiment with Rs10 polymer notes goes on and on

RBI introduced polymer notes of Rs10 denomination in select cities in India. But most of the counterfeit currency notes in circulation are in higher denominations of Rs500 and Rs1,000

More than 25 countries in the world have successfully introduced polymer currency notes which are at least 2.5 times more durable than cotton-based paper currency. The latter has a shorter shelf life and is easily counterfeited. Some countries which have introduced, including the pioneer Australia, are New Zealand, Singapore, Mexico, Fuji to name a few.


Mark Carney, who introduced the polymer currency notes in Canada, in 2011, is currently the governor of the Bank of England. He is a native Canadian who is now set to introduce polymer currency banknotes in the United Kingdom, with two notes of GP5 and GP10 in 2016. The ten pound note will be introduced in 2017. According to information available, Bank of England plans to issue 350 million GP5 in 2016 and bring out 650 million GP10 notes in 2017. The GP5 notes will carry the portrait of Sir Winston Churchill while the GP10 will have the famous Jane Austen in the background. Dates have not been set for GP20 and GP50 notes but these will follow in due course.


The British plan is to immediately withdraw the old paper currencies of these denominations as soon as the polymer bank notes come into circulation. Such a move is expected to help in stopping the counterfeiting of these lower denominations, estimated at about GP30 million annually.


Moneylife has carried a detailed story  on the counterfeit (or fake) Indian currency in circulation in the country. In the last report, we had given full details of how, beyond reasonable doubt, it has been  established that this fake Indian currencies have been "manufactured" with identical paper used by the Pakistani government, and how these have also been smuggled into the country, via Nepal and Bangladesh land borders.


Though the Indian government has continuously held series of discussions on various issues, no where have we found any record of their raising this issue of counterfeit Indian currency being pushed into the market. It is time that our prime minister introduces it into the agenda for discussions. It should be brought to the notice of his Pakistani counterpart that this “mosquito bite” to the Indian economy must stop.


It may be recalled that, in fact, Reserve Bank of India has been toying with the idea of introducing polymer currency notes for some time. A few months ago, RBI introduced polymer notes of Rs10 denomination in select cities in India, which included Mysore and Cochin in the south. The results of the market testing carried out by RBI have still not been made public.


However, it must be noted, that, by and large, most of the counterfeit currency notes in circulation are in higher denominations of Rs500 and Rs1,000. It would have made sense if RBI had chosen to bring out polymer currency notes, for market testing in these denominations.


It might sound ironic that, recently, the Srirangapatna, Karnataka, subdivision police, based on a tip received, raided and caught a gang of members involved in the money-exchange racket, which included a member of Mandya City Municipal Council and seized Rs25 lakh in cash, which included counterfeit currency notes. Further, investigations are underway to find the root source of supplies and how these came into the market.


With the general elections on the anvil, this smuggling activity is bound to increase and vigilant action is needed to prevent large scale smuggling that may occur or, in fact, is occurring on a regular basis.


Reserve Bank must categorically announce its plans to introduce polymer currency notes of Rs500 and Rs1,000 immediately and demonetize the paper currency as soon as possible.


This must be done on a war footing and without any more delay.


(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)



Dr Anantha K Ramdas

3 years ago

Thank you for your interest and comments on the subject. Hopefully. Dr Rajan will announce the name of the person in charge of this operation to whom our anxiety can be addressed.

My past effort to get information from RBI has been in vain. WE need someone responsible and prompt to answer such matters.

If Australia can successfully lead in polymer currency notes and have so far not had problems, I do not see any reason why India should delay this important move to save the Rupee from external attack by Pakistan?

Reports now indicate that the fake Indian currency notes, printed and pushed by Pakistan are coming via Cambodia! All that the oversea Indian travellers need to do is NOT to take any "balance" in a transaction, anywhere, if offered in crisp Indian rupee notes. For all you know, these could be fakes!!!

Simple Indian

3 years ago

Informative article on RBI's experiment with plastic currency. Since such notes are already in circulation in 25 countries, surely it must be a safe way of using such currency. But, as the writer points out, since most fake currency is in higher denominations like Rs. 500 / 1000 notes, RBI should have field tested plastic currency in these denominations, instead of Rs.10. With LS polls looming large, black money in cash is bound to be in much higher circulation than it is now. Printing plastic currency in higher denominations, and gradually phasing away old paper notes of Rs. 1000 & Rs. 500 could weed out fake notes and perhaps weed out black money to an extent.
Ideally, the RBI should incentivise and encourage cash-less transactions as much as possible. That would greatly reduce dependence on currency notes, and curb black money and fake currency issues as well.
Many critics feel large parts of rural India remain outside our Banking system, hence their dependence on cash / currency will remain high. I feel that if the govt has an ambitious plan to provide Broadband Internet connectivity to over 5 Lakh villages in India, surely they can work on spreading the reach of the Banking system riding on technological solutions. Already many rural areas get weather or crop related information on their mobile phones. Someday, they may be able to use similar gadgets for Banking / financial transactions as well.

Yerram Raju Behara

3 years ago

Yes, for sure polymer notes need introduction sooner than later. Second, the RBI seems to be toying with the idea that if the coins are made in short supply with notes of lower denominations nowhere in sight, even beggars would demand only Rs.10 as minimum alms. This would eventually increase the GDP like the MNREGS wages with no commensurate production. There is an urgent need for ensuring penetration of clean note policy as it is hard to find a note with a figure or word not appearing on the white space. Withdrawing such currency or derecognizing would only add to the difficulties of ordinary mortals.

Cluster Development: A medicine worse than the disease

Simplifying legal and procedural hurdles in completing a housing project and eliminating corruption will do far more to address housing shortage in the city than redeveloping clusters

The Maharashtra government has ‘in principle’ accepted the revised recommendations of a study group on Cluster Development scheme for Mumbai. The scheme envisages redevelopment of old buildings, extending the existing redevelopment policy to all buildings more than 30 years old. The new policy applies to suburbs as well, with a minimum plot size of 10,000 square meters (sq m). Under the new proposal, owner’s consent has also been reduced from 100% to 70%, while the government retains its discretionary power to approve or reject redevelopment projects.

"This is being done to encourage housing societies and developers take up bigger plots for development under the scheme. The policy will help create proper infrastructure, wider roads, more parking slots, gardens and open spaces… it will also improve the people's quality of life," Maharashtra chief minister Prithviraj Chavan has reportedly said.

What has been left unsaid, however, is that the policy will worsen the shortage of available living space in the city and further raise property prices and flat rentals.

Redevelopment of old buildings was first mooted in 1991 and applied only to cessed buildings (pre-1940). Many of these buildings were in dilapidated conditions and the landlords lacked incentives to spend on repairs, thanks to archaic laws that prevented them from earning market-linked rents. Over the period of time, the policy has undergone several changes, and its original objectives have already been lost. The new policy unveiled last week for instance applies to all buildings which are 30 years old or more irrespective of their condition and extends it to suburbs as well. Several large colonies in the suburbs built in the 1970s and 1980s which are in perfectly habitable condition will now be up for grabs en masse by large builders.

Why the policy is flawed

Firstly, life of a building is far more than 30 years. Housing stock that is in perfectly livable condition constitutes a productive national asset. Destroying a scarce productive asset, even if for rebuilding a new one is therefore a loss to the nation. The economic costs of destroying a building that is fit for living are no different from destroying property in a riot or arson. Redevelopment therefore stands to reason only if the building has reached the end of its useful life and is unfit for living. A policy that promotes destruction of livable buildings on a large scale is completely improper.

Secondly, a housing project consumes a large amount of steel, cement and several other natural resources that are scarce and expensive. If these resources are used to construct housing on vacant land, the total availability of living space increases more than it would if an existing living space is redeveloped. Redevelopment of livable apartments is thus a sub-optimal use of precious resources.

The argument that there is no vacant land in the Island City, and therefore redevelopment is the only way out is incorrect and is of no consequence. There is enough land available elsewhere in Maharashtra and bringing about a balanced development of the State will have a much higher multiplier effect on the overall public welfare. Redevelopment by individual landlords may stand to reason on the grounds of personal freedom, but a state policy that actively encourages destruction of assets before the end of their economic life is criminal.  

Thirdly, experience shows that completion of even a mid-sized housing project takes anywhere upto 4 - 5 years from the time the project begins to the time the building is occupied. How much time the proposed redevelopment of these clusters will take is anybody’s guess.

But what happens in the interim – an ‘interim’ that runs into several years?

Existing families who stay in their own homes will have to relocate to rental apartments. This will artificially increase demand for rental accommodation, raise rentals and worsen the demand & supply scenario. The availability of housing stock in the city will fall further; which will have a further upward impact on property prices. In fact, the very possibility of redevelopment causes property prices to rise; as the future value of the property gets discounted in the current flat prices.

Construction at a redevelopment site in Malad started five years after its residents vacated the building. Seven years from the start, the proposed “tower” has still not progressed beyond the second floor. Meanwhile, the residents are going through hell, shifting from one apartment to other every 11 months, each time at higher and higher rentals. Many projects get stuck in litigation, as it is almost impossible to get all the residents agree on redevelopment. Rules such as in the current policy mandating consent of only 70% of landlords may be in violation of citizen’s constitutional rights. Forcible evictions may be justified for projects of national importance, but what view courts will take when the purpose of forcible eviction is to build a residential tower is anybody’s guess.

Even if one assumes that a project proceeds smoothly, how many such large scale projects can be executed in the heart of the city simultaneously? What will it do to the city’s traffic and pollution situation during the construction phase, which itself will run for several years? Simplifying legal and procedural hurdles in completing a housing project; and eliminating corruption will do far more to address housing shortage in the city than redeveloping clusters.

The costs of redevelopment are huge and upfront, but the benefits distant and uncertain

Large scale redevelopment is impossible to execute; and demolishing livable housing stock is a criminal waste; to promote it as state policy is completely thoughtless. Redevelopment can never solve Mumbai’s housing problem, the only sustainable solution for which lies in taking development to underdeveloped areas. In this age of advanced telecommunication and information technology, what stops the Chief Minister from operating from Beed or Parbhani?

(Chandragupta Acharya  holds an MBA in Finance and also a degree in Banking from the Indian Institute of Bankers. He has more than 15 years of experience in working with mutual funds, banks and technology companies.)



sivaraman anant narayan

3 years ago

Excellent write-up.The Govt.'s policy raises a few questions:
1.What right does the Govt have to decide that a minority of 30%(quite significant) of households need not consent even if their dwellings are safe and entirely livable. What happens to their rights of personal choice?
2.In all such redevelopments builders unnecessarily add amenities like swimming pool, clubhouse etc whose maintenance costs are huge and quite unaffordable to several original oocupants. These are added only to make the new(extra ones given to builders) units saleable to builders at a premium burdening all original occupants.Even though some corpus is provided by some builders usually they prove insufficient in the long run given inflationary pressures and inadequate bank interest rates.Most original occupants of 30+ year old buildings are senior citizens, who are propertied but not affluent to be able to afford new lifestyle living of the young. Inevitably many such original occupants are forced to relocate to distant or extended suburbs, a case of forced migration.Can old occupants chose not to avail of these amenities and therefore less maintenance charges?
3.Lastly most new constructions are definitely inferior compared to several older buildings, which can last more than one generation. Is the Govt policy subject to caveats of condition of buildings or independent of it?


3 years ago

Very good article. Another point is the possibility of builders-politicians-bureaucrats nexus that seems to have influenced this policy. This policy puts common citizens through hardship for huge profits to be earned by builders and shared illicitly with politicians and bureaucrats.

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