No, the government does not incur a loss of Rs. 2600 crores due to scribbled notes. - FACTLY
Sai Krishna Muthyanolla
September 18, 2020
A post claiming that the government incurs a loss of Rs. 2600 crores in the form scribbled notes as they have to be replaced with new notes is doing rounds on social media. Through this article lets fact-check the claim made in the post.
Government incurs a loss of Rs. 2600 crores because of scribbled notes as they have to be replaced with new notes.
Fact: Even assuming the RBI replaces the entire quantum of soiled notes, except for the years following the demonetization, the cost of printing these overall soiled notes was hovering around Rs. 2700 crores. Even in that case, the cost of printing scribbled notes would be much less as scribbled notes would just form a fraction of soiled notes.  Hence the claim made in the post is FALSE.
How many notes are printed every year?
Government of India in consultation with the Reserve Bank of India (RBI) prints currency notes taking into cognizance factors like inflation, GDP growth and reserve stock requirements. Every year government spends thousands of crores for the printing of currency notes. As per a written reply to the Rajya Sabha in 2018, Rs. 7965 crores were spent on printing of currency notes in the year 2016-17 whereas the cost for printing the currency notes stood at Rs. 4912 crores for the year 2017-2018. Demonetization of 500 and 1000 rupee notes, the introduction of new denomination notes and a new design with additional security features for the other denominations led to the huge cost for the printing of notes in the year 2016-17.
What are soiled notes?
Despite the huge expenditure on printing of notes, the government incurs some loss as it has to replace damaged notes (mutilated, soiled, scribbled, etc.) which reach the central bank, so as to pump the currency of this value back into the economy. Every year, crores of mutilated and soiled notes reach the RBI for disposal. The official definition of mutilated & soiled notes is given below.
Mutilated: A note of which a portion is missing, or which is composed of more than two pieces.
Soiled: A note which, has become dirty due to usage and also includes a two piece note pasted together wherein both the pieces presented belong to the same note, and form the entire note
Following the demonetization of 500 and 1000 rupee notes in November 2016, a total of 2767.4 crore pieces of notes were disposed of in 2017-18 which include the old demonetized notes as well.
Cost of Printing Currency Notes
According to the data provided by the Ministry of Finance in reply to a query, the denomination wise selling price and cost of printing of a currency note for the years 2017-2018 and 2018-2019 is as below.
Total Cost of replacing Soiled notes:
Neither the RBI nor the government provides specific data related to the value/volume of scribbled notes. The RBI only provides data related to the quantum of soiled notes. Assuming Scribbled notes form a subset of soiled notes and RBI reprints the entire volume of soiled notes to replace them, the total cost to replace these soiled notes is as given below.
Total cost of printing the entire quantum of soiled notes = SUM[ (number of soiled notes of each denomination)*(cost price of printing single note of each denomination)]
Example (2017-2018):
The cost of priting the entire quantum Soiled notes = sumproduct (49.7,11.4,8.3,10.5,2002)*(0.837,1.226,1.430,1.784,3.375) = Rs. 6844.28 Crores.
Assuming the cost price of printing each note of different denomination for all the years is same as the price in 2017-18 and 2018-19, the total cost of printing the entire quantum of soiled notes for the years 2014-15,2015-16 would amount to Rs. 2739 & Rs. 2827 crores respectively. Further, the cost of printing the entire quantum of soiled notes for the years 2016-17, 2017-18 and 2018-19 would amount to Rs. 2600, Rs. 6844 and Rs. 1490 crores respectively.
Anomalies in total cost for the years 2017-18 & 2018-19:
The stark rise in the cost of printing of the entire quantum of soiled notes in the year 2017-18 is due to the huge influx of demonetized notes to RBI which had to be replaced whereas the comparatively low cost in the year 2018-19 is due to the lower quantum of soiled notes, as the Rs. 200 and Rs. 2000 denomination notes were newly introduced and the quantum of soiled notes of these denomination would be less or comparatively negligible.
Cost of Printing Scribbled notes:
From the above calculations, we can infer that except for the years 2017-18 and 2018-19 which witnessed the spillover effect of demonetization, the cost of printing the entire quantum of soiled notes is hovering around Rs. 2700 crores. However, the cost of printing the scribbled notes would be much less than this, as scribbled notes would only form a fraction of the total soiled notes. Also, the depreciation factor comes into play i.e. When a note is soiled, it doesn’t mean that the amount invested on the production of the note is wasted. The note would have served its purpose at least to some extent from the time it is introduced into the system until it has reached the central bank for destruction. More information regarding the durability of currency notes can be read here. As per a committee report constituted by RBI, highest median lifespan is for a Rs. 1000  note ranges between 4.6-9.9 years, whereas the lowest median lifespan is for a Rs. 50 note ranges  between 2.5-2.6 years.
Also, not every soiled note is reprinted, in order to maintain desired denomination mix for facilitating transactional demand for public. The government in consultation with RBI prints the notes as per the requirement. From all this information, we can infer that the loss incurred due to scribbling on notes would not amount as much as Rs. 2600 crores as being claimed in the post. The loss would be much less compared to this amount.
In a nutshell, except for the years following the demonetization, the cost of printing the overall quantum of soiled notes was hovering around R. 2700 crores. Since scribbled notes form just a fraction of the soiled notes, the cost of printing the entire quantum of scribbled notes that become unusable would be much less making this claim false.
This does not mean you should scribble on the currency notes. The RBI has on multiple occasions urged the public not to write on the currency notes and deface them as per the clean note policy.