India: Battle Against Counterfeit Currency Is Complex – Analysis

By Gaurav Dixit* 
NOVEMBER 21, 2016

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Weeks before the Indian government announced the demonetisation of 1,000 and 500-rupee notes in order to curb the twin-menace of counterfeit currency and black money, Chinese officials in China’s Guangzhou province arrested a Pakistani currency smuggler, Faiz Muhammad, along with counterfeit notes bearing a face value of 2.5 million Indian rupees.

The whole operation to arrest the Pakistani currency smuggler was new in the history of intelligence co-operation between three nations — India, China and Sri Lanka. His arrest as reported was the result of intelligence-sharing by Indian intelligence agencies with their counterparts in Colombo and Beijing.

A day after the announcement of the demonetisation, Indian officials announced an agreement with China to set up two joint working groups (JWG) to deal with the counterfeit Indian currency menace and a round-the-clock hotline to exchange information related to terror and organised crimes. In India, counterfeit currency is being used for financing terror as well as other subversive activities.

The new development is also important because of the fact that Indian agencies were under severe pressure to curtail increasing flow of counterfeit currency from the China route, while it had little network in China to keep an eye on them.

The problem of counterfeit currency in India is not as massive as hawala or black money — nevertheless, it is a major security issue. There are three aspects to the counterfeit currency problem in India, viz., (a) domestic printing (b) smuggling and (c) circulation.

India has long suspected that the well-established drug cartels in China and the Pakistani intelligence agency ISI’s influence in Xinjiang province are being used to push counterfeit currency into India.

China is turning out to be one of the busiest trafficking points for counterfeit Indian currency — however, Pakistan remains the kingpin, associated with the activities of ISI, which is involved in both printing and trafficking of the fake currency. According to the Indian Ministry of Finance, the racket is run as an organised crime with international networks that smuggle counterfeit currency through West Asia and South East Asia into India.

Large consignments are being sourced into India mainly from Pakistan, through the United Arab Emirates (UAE), Nepal and Bangladesh. Thailand, Sri Lanka and Malaysia as used as transit countries for routing these consignments to India. International airports, along with land customs stations on the India-Pakistan, India-Bangladesh and India-Nepal borders are used to smuggle counterfeit currency.

A recent study by the Indian Statistical Institute, Kolkata, found that counterfeit Indian currency notes with a face value of around $10 million (approx INR 66 crore) are introduced every year into the Indian market which has $70 million (approx INR 462 crore) worth of counterfeit money in circulation at any given point of time. One in every 4,000 notes in circulation in India is counterfeit and only one-third of the counterfeit notes are interceptable by Indian intelligence agencies.

There is constant rise in the number of counterfeit currency in circulation every year, but the seizure and removal of currency is nowhere near the actual amount. Merely 0.63 million counterfeit notes were removed from circulation in the financial year 2015-16, up from 0.59 million in 2014-15.

The data for 2012-13 suggests that much of the seizure in volume and value comes from urban centres. In 2012-13, Delhi topped the seizure list followed by Maharashtra, Uttar Pradesh, Tamil Nadu, Karnataka, Gujarat and Andhra Pradesh. In the last couple of years, West Bengal has emerged as a major transit point for inflow of counterfeit currency via Bangladesh.

The demonetisation of Rs 500 and Rs 1,000 is mainly targeted at curbing the menace of black money but it is also expected to put the brakes on the circulation of counterfeit currency.

The Standing Committee on Finance (2008-09) has highlighted the dangers of forgery of high value currency. The position of counterfeit notes detected during the years 2005-06 to 2007-08 stands at 118,672 notes (both Rs 500 and Rs 1,000 denominations) valued at around Rs 67 crore. In terms of volume, the detection of counterfeited 100-rupee notes surpasses 500-rupee and 1000-rupee separately — but in value terms, the combined value of the two higher denominations overwhelmingly surpasses the combined value of all other denominations.

The erstwhile United Progressive Alliance (UPA) government, at that point of time, came up with a withdrawal plan for various denominations, excluding Rs 1,000. Additional/new security features were incorporated in Indian banknotes in all denominations. The Finance Ministry claimed that no counterfeit banknote, with the new/additional security features, were detected. In fact, the additional features introduced in the 2005 series were not breached for as long as 2008.

The incumbent National Democratic Alliance (NDA) government has taken a tough yet necessary step to tackle the counterfeit currency problem along with black money. It will not only help in securing citizens from counterfeit currency but also check financing of terrorism and other subversive activities.

However, the fight against counterfeit currency is far more complex, requiring stronger institutional intervention of the state. It needs a stronger national and international legal framework, legal empowerment of India’s intelligence and enforcement agencies, commensurate administrative measures and a very strong resolve to fight the menace.

*Gaurav Dixit is an independent analyst. Comments and suggestions on this article can be sent on:editor@spsindia.in

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