Explaining India’s huge currency problem where 250 out of every 10 lakh notes are fake

Data show Delhi and UP accounted for over 43% of recovered and seized fake currency notes in 2015. FICN with face value of Rs 70 cr enter the economy every year; only a third is intercepted.

Written by Khushboo Narayan | Mumbai | Updated: June 8, 2016 10:45 am
fake currency, fake notes, Directorate of revenue intelligence, fake indian currency notes, fake note racket, Indian currency, Delhi fake currency notes, fake currency notes seized, indian economy Police show the seized fake currency notes. (File Photo)

At a meeting last month, the RBI Central Board recommended designs for a new banknotes series to the government. A key reason for proposing the new series is that India remains a cash-based economy, and fake currency notes continue to be a huge menace.

How big is the fake currency problem?

As many as 250 out of every 10 lakh notes in circulation are fake, according to a study conducted by the Indian Statistical Institute. Typically, at any point in time, banknotes with a face value of Rs 400 crore are in circulation in the country. The study revealed that fake currency notes with a face value of Rs 70 crore are infused into the system every year, and law enforcement agencies are able to intercept only a third of them — a fact that is acknowledged by the agencies themselves.

The detection rates of fake 100- and 500-rupee notes were found to be about the same or 10% higher than the detection rate of 1,000-rupee notes. The study added that fake 1,000-rupee notes constitutes about 50% of the total value of fake notes.

How do these notes find their way to India, and who profits from them?

Pakistan’s military spy agency, the Inter-Services Intelligence (ISI), has been raking in an annual profit of around Rs 500 crore by circulating counterfeit notes in India, according to a report prepared by the IB, R&AW, Directorate of Revenue Intelligence and CBI.

The ISI has been making a profit of 30-40% on the face value of each counterfeit Indian note produced in Pakistan, according to the report. The cost of printing a Rs 1,000 counterfeit note, for instance, is Rs 39 (the RBI spends Rs 29 to print a Rs 1,000 note), but it is sold at Rs 350-400, according to the report. The total fake notes that came into India in 2010 from abroad was pegged at Rs 1,600 crore, and going by this estimate, the report put the ISI’s total profit at Rs 500 crore.

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What has been the government’s track record in intercepting these notes ?

According to data submitted by the Home Ministry to Parliament on May 3, there has been a slight decrease in the circulation of fake Indian currency notes (FICN) in the country in the three years beginning 2013. In calendar year 2015, investigative agencies and RBI seized and recovered 6.32 lakh fake currency notes with a face value of Rs 30.43 crore. While the number of fake Indian currency notes was down 10% from a year ago, in value terms, it was down 15% in the same period.

In 2015, various agencies filed 788 FIRs in cases of smuggling and circulation of FICN, in which at least 816 people were accused. Data show that Delhi and Uttar Pradesh together accounted for over 43% of recovered and seized FICN in 2015.

What has the government done to tackle this problem?

The government has formed a special Fake Notes Co-ordination (FCORD) Group in the Home Ministry to share FICN information with security agencies of states and the Centre. It has also constituted a Terror Funding & Fake Currency Cell (TFFC) in the National Investigation Agency to investigate terror funding and fake currency cases.

Under the Unlawful Activities (Prevention) Act, 1967, effective from February 1, 2013, damage to the monetary stability of India by production, smuggling or circulation of high quality fake Indian paper currency, coin or any other material has been declared an act of terror.

Apart from this, the government in August 2015 signed an MoU with Bangladesh to prevent the counter-smuggling and circulation of fake currency notes. This, after it found that smugglers were increasingly using the India-Bangladesh border to smuggle in FICN. Under the MoU, the two countries will share intelligence on such cases.

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  1. A
    Ashutosh Shukla
    Jun 8, 2016 at 10:00 am
    Economic of a nation is a very complex - and beyond most of the citizens. Add to that the qualities like greed envy the situation becomes very serious. It all starts with taxes- why government imposes taxes and why people do not pay them. This part is simple and we know that government needs money to run hence taxes and when taxes are high - not even across and when perceived as having no benefit to the payer it is then the people try to evade. Taxes should be based 'user pays' and not exceeding 10% but then almost w nation should pay. We make things difficult by taxing income- a thing which is earned by luck- merit - opportunity and when more that 60% of the potion are non workers that itself means that hardly any one pays tax- yet the fear is a big one.lt;br/gt;lt;br/gt;Then comes currency noted- how and why they should be made easy to copy- use plastic ones with impossible to copy features. Try and change the design.These ar expensive solution but one that will work.lt;br/gt; lt;br/gt;On line transaction and lower denomination may help but they are not fool proof and causes people hardships.lt;br/gt;We could also look are coins gold copper silver that stan will find difficult to find and send over.lt;br/gt;lt;br/gt;Also we are very good at mutilating our notes - how many times have you seen love messages and arithmetic problems solved on lower denomination notes.lt;br/gt;lt;br/gt;Time for a rethink lt;br/gt;lt;br/gt;Jai Hind
    Reply
  2. A
    ashok s
    Jun 8, 2016 at 11:29 pm
    Most of the cash transaction take place jewelry and construction business . the government need to established a exchange house similar to stock exchange for such transaction . if you visit a builders office ostwal builders he has a special room for cash which comes in as black money part . government should take strong action against such builders
    Reply
  3. C
    cs rocker
    Nov 10, 2016 at 6:44 am
    Congratulations to all. No counterfeiting.
    Reply
  4. K
    Kumar
    Jun 8, 2016 at 11:39 am
    All banks should have genuine currency counting machines and all transactions, exchange or gifts or donation in cash over Rs15,000 a day should be prohibited and declared seriously punishable by law. All transactions/purchases in excess of Rs 10,000 a day should be conducted through bank checks, cashier checks, money order, wire transfer etc. Then such fake currencies can easily be controlled. No withdrawal should be allowed in excess of Rs 15,000 a day from all bank accounts. All banks accounts of a person should be tied with a specific number unique to the account holder. However, one can deposit any amount provided the notes are counted by good machines that can detect fake notes.
    Reply
  5. R
    Ramachandran
    Oct 30, 2016 at 6:00 pm
    First of all banks should stop fractional reserve banking system... If a bank creates counterfeited value its legal and what if a common man does tat? Think big..
    Reply
  6. A
    Anirban
    Nov 6, 2016 at 5:58 pm
    This is nothing new. It's an epidemic. Go visit navbharat press in bangalore seshadripuram. They are experts in printing and circulating fake currency
    Reply
  7. S
    sajeev
    Jun 8, 2016 at 7:28 am
    Why cant our economy be changed from cash notes to cards. Every person will have a card or a mobile to transact. In this way counterfit or ant scam will be ped on to issuing banks/organizations and not government. Also taxes can be collected from everyone
    Reply
  8. B
    BharatK
    Jun 8, 2016 at 7:10 am
    Improve the currency printing technology (look at the Swiss Frank, Euro notes), and facilitate all major shops, insutions, vendors to have currency scanning equipments.
    Reply
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