Hyderabad liquor vendors create paper money to beat coin shortage

By Raji Reddy Kesireddy, ET Bureau | 18 Jul, 2014, 06.15AM IST
Source


HYDERABAD: Owners of liquor vends in Hyderabad have solved a problem that has vexed monetary authorities in India for years— chronic shortage of coins. In a textbook example of 'jugaad,' the booze shops have created a paper currency which is as good money in the network of liquor stores dotting the city.

The liquor merchants, like most businesses in the city, procure the allowed quantities of small change from the central bank every day but this is not enough to meet their needs. So they buy some more small change from local vendors by paying a premium of nearly 20% for every Rs 100.

While most shops hand candies or cough lozenges to customers in lieu of the exact change, liquor-store owners are not allowed to stock such items.

"We cannot stock and sell munchies, water packets or cigarettes to make up for the shortfall even though our customers prefer such items," said Telangana Wine Dealers' Association president D Venkateswara Rao.

To solve the problem, some liquor retailers put their heads together and came up with the idea of redeemable promissory vouchers of small denomination. Some liquor shops also incorporated barcodes and holograms on the vouchers to prevent counterfeiting and to make life easier for those manning cash counters.

Some liquor stores also have informal understandings with 'paan' shops, eateries and soft drink vendors in the neighbourhood who accept the promissory notes which they redeem at regular intervals.

The owner of a liquor retail chain said each of his shops is saving at least Rs 1,000 a day now, money which used to be spent earlier to procure coins.

There are over 200 liquor retail outlets in the twin cities of Hyderabad and Secunderabad but only a fourth of them have joined the system of issuing and accepting promissory notes. But it is gaining acceptance quite rapidly and spreading to the neighbouring districts of Ranga Reddy, Nalgonda, Medak and Mahabubnagar.

KR Das, Reserve Bank of India's regional director for Andhra Pradesh and Telangana, claimed that there was no shortage of coins and suggested that the wine stores' workaround is illegal.

The central, he said, is "the sole note issuing authority and therefore no other person is authorised to issue a promissory note which is payable on demand to the bearer."

On the other hand, the RBI's 2012-13 annual report shows a significant gap between indent and supply of certain denomination of coins. For example, as against an indent of 1,586 million pieces of Rs 5 coins, the most soughtafter denomination—the mints supplied only 615 million pieces of Rs 5 coins, the most soughtafter denomination—the mints supplied only 615 million pieces, a shortfall of over 60%.

The banking regulator went on to acknowledge then that "there has been a spate of complaints about non-availability or short supply of coins in recent times." About a decade ago, the Administrative Staff College of India at Hyderabad found that it was too inconvenient to obtain coins from banks and advised heads of banks to "be more proactive in issuing coins."

But many bank branches do not receive adequate quantity of coins to meet demand. "We lost many accounts of local traders since we could not meet their need for coins," said the manager of a private bank in the city.