Vepa Kamesam, Reserve Bank of India deputy governor, stepped down from office on Mint Road on Tuesday with a lot of dirt on his hands. We're talking metaphorically of course, and not in the conventional sense either.
When Kamesam took over in July 2001, about 70 per cent of the 45 billion notes that are in circulation were dirty. Now, dirty or soiled notes account for only 10 to 15 per cent of circulated notes.
Kamesam attacked the problem with missionary zeal. He handled the central bank's most unglamorous department -- currency management -- with speed, precision and some unconventional ways.
RBI insiders say that Kamesam even played Haroun Al Rasheed, visiting bank countres, ATMs and mandis in different parts of the country incognito at odd hours of day and night, microscope in hand to check the dirt on currency notes.
Theoretically, currency management relates to design, issue and distribution of fresh notes and coins, inventory management and accounting, withdrawal of soiled notes from circulation and their destruction, note exchange facilities and anti-counterfeit measures.
These activities are performed by the central bank through its 18 regional issue offices and a wide network of currency chests, repositories and small coin depots across the country.
Not so long ago, India was unable to meet the demand for notes and coins. Shiploads of currency notes were imported even as recently as 1997.
Not only were notes in short supply, the distribution system was skewed because of a shortage of railway wagons.
Added to this were problems with trade unions, which did not allow currency distribution outside a zone.
For instance, if Kolkata did not have a stock of currency to supply the north-east, it was not easy for Chennai to supplement it in the face of stiff resistance from the unions.
The RBI addressed the supply issue by setting up two currency printing presses at Shalboni in West Bengal and in Mysore. They were set up by Bharatiya Reserve Bank Note Mudran Private Ltd, a wholly-owned subsidiary of the RBI.
These two were in addition to the two existing presses at Nashik and Devas (Madhya Pradesh). Now, the four currency printing centres are geographically well spread out, covering the east, west, north and south. The two new centres became operational in 1999, increasing the capacity to print notes to 18 billion pieces a year.
If the units work in two shifts, the printing capacity can go up to 28 billion. This is more than what the country needs annually. The net annual need is for 12 billion notes.
This is also true for the coin-minting capacity. The annual demand is for 4 billion coins while the mints' capacity is to produce 4.7 billion coins.
Having tackled the supply side, the RBI focused on distribution. This was done by following unconventional modes of transport -- chartered aircraft and even regular flights.
The central bank is now in discussions with the government for even more unconventional ways of air-lifting currency notes (though, for security reasons, it is unwilling to reveal these details).
Once the two crucial issues -- supply and distribution of notes -- were taken care of, the RBI stopped re-issuing dirty notes and started withdrawing all soiled notes from the market.
This was the most difficult stage of action in the entire Operation Clean Drive that Kamesam led from the front.
As a starting point, the RBI installed 48 currency verification and processing systems and 27 shredding and briquetting systems in 18 currency note issue offices. This has increased the annual disposal capacity by a staggering 3.24 billion notes.
Each of the CVPSs can process 50,000 to 60,000 notes per hour, compared with the RBI's manual note counting capacity of 3,000 pieces per person per day.
The installation of these machines has transformed the stocks of the 4,300 currency chests run by banks that were choc-a-block with dirty notes till recently. The capital investment for the project has been Rs 150 crore.
CVPS is an electro-mechanical device to examine, authenticate, count, sort and destroy notes that are unfit for further circulation.
The system is capable of sorting notes on the basis of denomination, design and level of soilage. The system sorts the notes into fit, unfit, reject and suspect categories. Unfit notes are shredded on-line.
SBSs have replaced the environmentally unfriendly incineration of notes. The system first cuts the notes into small pieces and then converts them into fine shreds, which are then automatically channelled into a briquetting system where they are compressed under high pressure.
Globally, these briquettes have commercial use -- they are used to fill in reclaimed land and create various artefacts.
Another aspect of the clean note policy was disallowing banks from stapling notes. Banks can only issue clean and unstapled notes to the public now and no currency vault holds stapled notes in its stock any longer.
With improvements in supply, the central bank also made a special effort to improve the availability of coins, especially in rural areas. Pilot schemes for coin distribution through the post office network were launched in Chandigarh, Kerala, Bihar, Maharashtra, Goa and the north-eastern states.
The RBI even roped in the State Road Transport Corporation, co-operative banks and some non-government organisations to distribute coins, paying them a service charge of Rs 250 a bag to meet holding and distribution costs.
The net results of all these efforts? There is a problem of plenty now and many centres are facing a reverse flow of coins.
The RBI is now trying to persuade banks to install coin-sorting machines where the public can pour in coins and receive currency notes in exchange.
In the next stage, we may see polymer notes, which are clear, durable and moisture-, sweat-, oil- and water-proof.
The RBI experimented with these two years ago by running a pilot project on Rs 10 notes in simulated conditions. A similar experiment in 1995 came to nothing because the notes were found unsuitable for the Indian climate.
In a cash-dominated society -- the use of credit card is still not widespread in India -- a normal note does not survive beyond six months while the lifespan of a coin is over a few decades.
In fact, a coin remains in circulation unless the intrinsic value of the metal becomes higher than the denomination of the coin, triggered by inflation.
This longevity has encouraged the increasing "coinisation" of currency notes. Since 1995, coins have replaced notes for denominations of Re 1, Rs 2 and Rs 5.
While polymer notes may take a while to appear in India, one direct fallout of the large-scale mechanisation of the currency management system is the discovery of excess flab and the introduction of a voluntary retirement scheme in the RBI -- the world's most over-manned central bank with a 28,000-strong work force.
A big chunk of the currency management department has been rendered surplus and in August the central bank introduced an optional early retirement scheme for these employees.
Over 4,000 employees have reportedly responded to the scheme. The number can only swell in the future. Hopefully, a trimmer and fitter RBI will be in a better position to tackle the excesses in various segments -- foreign exchange, liquidity and even coins.Powered by 
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