India’s Small-Change Problem; Ever been given a candy instead of a rupee for change? Here’s why.

June 12, 2013, 11:02 AM

India’s Small-Change Problem

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By Anant Vijay Kala

If you’ve shopped in India you likely know the problem. You go to a store to buy a few things and when it’s time to pay, you hand over the cash. But the cashier’s run out of change. Instead of the few rupees you’re owed, the cashier gives you one or two candies, or a stick of chewing gum, to make up the shortfall. You want those coins, the exchange doesn’t feel quite fair – and it’s bad for your teeth – but you’re reluctant to make a fuss. And so you walk out, feeling a little short-changed. If this chimes with you, then you’re not alone. A survey conducted in 2012 by the Reserve Bank of India, in response to complaints from the public, found that 44% of people in 12 Indian cities had the same experience; candies instead of coins for change.The government thought the shortage of coins so serious that it formed a high-level committee to investigate the gaps in demand and supply.  More on their findings later.

Over half (56%) of shopkeepers questioned in the survey said they found it hard to give correct change as coins weren’t easily available. Another 27% said they did not want to keep coins in stock.

But 11% were even more candid. For them it was too much hassle to select, count and give customers their exact change, the survey said.

Lethargic shopkeepers aside, what are the economic factors contributing to the shortage of small change in India?

Data from the RBI’s latest annual report in 2012 show the total supply of small coins, those of less than one rupee denomination, fell sharply to under 15 billion pieces by the end of March 2012 from about 55 billion in 2011.

The reason for the drastic decrease was a decision to withdraw the 25 paise piece (worth a quarter of a rupee) from circulation.

However, there wasn’t a corresponding increase in coins of one rupee denomination.

There were about 34.4 billion one rupee pieces in circulation at the end of March 2012 compared with 32.7 billion at the same point in 2011, according to RBI data.

Two rupees coins also didn’t increase significantly: there were about 18.2 billion of them in 2012 compared to 15.3 billion the year before.

At the same time the public’s need for coins grew because of new toll roads, metro stations and malls, which require small non-round figure payments, according to the RBI’s annual report.

Alpana Killawala, a spokeswoman for the RBI says that the bank is meeting this new demand by linking these centers with local banks.

The RBI’s annual Monetary Policy Statement   for 2012-13 (a review of credit supply in the economy) called on local banks to strengthen their distribution systems and procedures to cater better to the needs of citizens.

Overall supply also doesn’t seem to be keeping pace with demand.

In 2011-12, the RBI ordered 1.6 billion one rupee pieces but 1.48 billion were supplied. It also ordered 1 billion 10 rupee pieces but only received 403 million.


The government mints the coins on the basis of orders it receives from the RBI.

A government spokesperson was not immediately available for comment on why there was a shortfall in supply of certain denominations of coin in 2011-12, as the RBI data suggests.

A spokesman for Security Printing and Minting Corporation of India Ltd., the company which manages the mints and is administered by the department of economic affairs in the Ministry of Finance, declined to comment other than to say that order and supply of money was a private matter between them and the RBI.

The capacity of India’s four mints in Mumbai, Hyderabad, Kolkata and Noida to produce enough money for circulation in the economy, has proved a problem in the past.

Between 2000 and 2003 India imported rupee coins to supplement the supply from its mints. The mints have now been modernized, according to the RBI.

The bank bases the amount of coins it orders on economic growth, inflation levels and the results of statistical modeling, according  to Ms. Killawala.

The RBI issues notes and manages currency through its 18 offices across the country and 4,221 currency chests (bank storehouses where notes and coins are stocked on behalf of the RBI) and 4,018 small coin depots at some bank branches which distribute them to other banks.

Despite the introduction of card payments, the demand for notes and coins continues to rise, the RBI says.

The RBI says it is ready to distribute as many coins as needed.

Local banks are required by banking regulations to swap notes for coins. But according to some traders, this doesn’t happen.

Shiv Kumar, the manager at the Religare pharmacy in Hauz Khas market in South Delhi, says he often returns empty handed from banks because of short supply.

“There is a continuous shortage of one, two and even five and 10 rupee coins,” Mr. Kumar said.

“We have to wait for supplies from our head office,” he added.

In most cases the shop foregoes the one or two rupees extra on a customer’s bill, he says, but also issues IOU receipts to customers. It also gives cough lozenges in place of coins with customers’ change.

Mr. Kumar denied the store did so and would not say why the cash register is often filled with candies.

Anuj Sharma, a manager at Café Coffee Day in central Delhi, said that he doesn’t go to the bank for change. “We would have to stand in line for coins and lose business,” Mr. Sharma said on a recent afternoon.

Instead he uses a local “change vendor,” a freelancer who comes to the coffee shop every day with stacks of small change and takes a commission on the money exchanged.

On a recent day, the vendor was late. “We’ve been giving customers pieces of chewing gum worth five rupees or cookies worth 12 rupees because we don’t have the right change,” Mr. Sharma said. Or customers can come back later for the full balance, he added.

The high-level committee investigating the coin shortage is chaired by K.C. Chakrabarty, deputy governor of the RBI. It has recommended that in order to improve the system for delivering small coins directly to stores, banks should consider outsourcing the distribution of coins to outside agencies to improve so-called last mile delivery.

Additional storage points or underground silos should be created in mints where coins can be stored in surplus years and released during shortages, the committee added in its report published in August 2012.

For those in need of smaller quantities, say for instance taxi drivers, Ms. Killawala says they can place bulk requests for coins through their unions or associations.

Rupesh Jain, the manager of Megha Dry Fruit Mart general store in Central Market, Lajpat Nagar, in Delhi, says he too has faced some shortage of five rupee coins lately, but on the whole there hasn’t been any significant shortage.

“It’s become very easy now. There are machines installed at RBI offices which dispense bags of cash as much as you need,” he says.

Mr. Jain says he doesn’t offer sweets as change and nor would he accept them as payment.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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