Currency time-bomb: Counterfeit notes galore with election in the corner!

It is a well known fact that substantial sums of money are used in elections, with cash being used on a much larger scale than ever before. And, unless immediate steps are taken, we may find that huge amounts of fake money in circulation that will create chaotic economic conditions

Only a couple of months ago, we at Moneylife had carried stories on the urgent and imperative need to introduce polymer rupee currency notes. (Polymer rupee notes: Slow or no progress?, What about polymer rupee notes?)
Namo Narayan Meena, minister of state of finance, in a written reply to Parliament, had stated that over Rs15 crore worth of fake currency in Rs500 denominations had been detected. Apart from the Reserve Bank of India (RBI), various banks had also found counterfeit currency, many of which even fooled banking officials, who were given the choice to select the genuine from the fakes, as reported in the press.
Subsequently, in an announcement, the RBI had confirmed that, in fact, they had chosen a few selected centres in the country to introduce, on trial, polymer currency notes of Rs10 denomination to see public reaction. However, how much or how many such notes have been introduced in these markets were not stated, nor, the RBI published any assessment of reaction or acceptability from the public.
Among the test centres were Kochi and Mysore in the South. Now report is on hand that fake currency worth Rs40 lakh have been seized by the Bangalore Police, which were mostly in Rs500 and Rs1,000 notes, and these were in the possession of six West Bengal natives from Malda and their three local accomplices. When immediate tests were carried out on these fake notes, it was revealed that as against the standard 14 security features, the counterfeiters had succeeded in 10-12 counts. Obviously, any lay person would not be able to detect the difference between the genuine and fake, and thus this currency will be in circulation until it reaches a bank!
According to the Economic Offences Wing of the CID, the counterfeiters have been able to get the same ink, printing machinery and paper, most likely to have been secured from the same supply source! For further tests, these notes have been sent to Bharatiya Reserve Bank Mudran in Mysore to ascertain the make of the machine and the paper used.
Prima facie, indications are that the ISI is behind this whole operation, printing the fakes in Pakistan and routing through land routes, though some supplies have come in containers from Dubai, landing in Mumbai, and heading towards Kasargode in Kerala, where they were seized.  Customs and excise inspectors lament as to how many such may have expected into various parts of the country. No reports have appeared about fake currency notes being seized from other centres.
The epicentre of this counterfeit currency appears to be Malda, in West Bengal, according to the Police sources, and with easy infiltration from Bangladesh refugees and other forms of carriers, such fakes can easily move into India.
So, what is the big worry about counterfeit currency in the country? This sort of thing has been going on for decades? A lot, considering the prospects for early Lok Sabha elections scheduled in 2014, unless the political situation precipitates sudden changes.
It would appear the very purpose of having test runs with Rs10 polymer currency notes by the RBI was to see and assess the market reaction and, perhaps, introduce the polymer notes on a gradual basis, if and when a final decision is taken by the government. We need to take care of higher denominations rather than small notes!
It is a well known fact that substantial sums of money are used in elections, with cash being used on a much larger scale than ever before. And, unless immediate steps are taken, we may find that huge amounts of fake money will be in circulation that will create chaotic economic conditions, adding to inflation.
Whether anyone is willing to admit it or not, the fact remains, that Pakistan, through its ISI is bent upon bringing about economic earthquake in India with devastating effect. Political talks may continue but India needs to be realistic and practical in its approach on such matters as economic stability in the country.
As an immediate step, the RBI must place huge orders to print polymer rupee currency notes with Australia (and others) for Rs500 and Rs1,000 denominations and start putting them into circulation immediately.
We are late in combating this menace, but it is never too late to start building brides before the flood washes out our economic system. It is grim.
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US. He can be contacted at



Dr Anantha K Ramdas

5 years ago

Cashless economy is a distant dream as far as India is concerned. With a very large illiterate population, we have somehow managed to deal with the existing system.

Even the debit and credit cards are recent addition to the family use, and that too by the
educated few.

In villages people still hoard currency notes and coins which they are more familiar with and this one reason why we need to bring in polymer notes which are not edible for white ants! Once the bulk of the Rs 500/1000 paper notes are replaced by polymers, it will be a great leap to overcome the fakes in circulation and most definitely reduce it. Total replacement can only happen by demonitising and that would take more than 10 years to achieve!

The poor in India today know how to use the cell phone but use of credit cards, banking etc will need some more time and a good amount of effort.

Amol Phalke

5 years ago

As I understand - yes we are trying to replace current paper currency
with polymer currency which is possibly difficult to counterfeit
because of technological sophestications but are we trying to solve this
problem superficially by doing so...

The amount of currency money in India is huge as compared to bank money and
that too most of the currency money is held in higher denomination notes Rs. 100, 500, 1000.
In such scenario counterfeiting creates huge economic nuisance.

RBI at one hand is having vision of cashless economy.

Isn't it wise to demonetize high denomination notes and promote bank money rather than
recurringly spend money on printing new sophesticated currency which is bound to be counterfeited if
not immediately then after some time when equivalent technology is made available?

Monsoon still active, withdrawal delayed for 7th year

This will be the seventh straight year when the withdrawal of monsoon, which normally begins in the first week of September, has been delayed to third week of the month

After steering the country away from a drought, the late rally of south-west monsoon is likely to continue for at least another week thus delaying its withdrawal, reports PTI.


"Southwest monsoon will continue to bring rains for a little more time, for a maximum of one week. Withdrawal of monsoon is delayed," Swati Basu, officiating Director General, India Meteorological Department (IMD), told PTI.


She said monsoon was still active in the northwest region which spans across Jammu & Kashmir, Punjab, Haryana, Himachal Pradesh, Uttarakhand, Rajasthan and Uttar Pradesh.


However, she said this would be the last phase of seasonal rains as monsoon would begin withdrawing from West Rajasthan sometime next week.


This will be the seventh straight year when the withdrawal of monsoon, which normally begins in the first week of September, has been delayed to third week of the month.


Even in 2005, when the withdrawal had started on 2nd September, the progress had stalled after the initial phase with the next push taking place towards month end.


Usually monsoon withdraws from the entire country by September end, but in the past eight years this has been delayed till as long as 11th October.


Copious rains in August and the first half of September has helped dispel fears of a widespread drought, which seemed imminent after deficient rains in June and July.


The remarkable August rally saw 22 of the 36 meteorological sub-divisions get excess or normal monsoon.


However, monsoon was still 8% short of the average rains for the country which are pegged at 89 cm.


The country as a whole has received 739.5 mm rainfall between 1st June and 13th September as against the normal of 801.3 mm for the period.


The month of August saw the country receive 264.7 mm rainfall as against the normal of 261 mm, showing an excess of about 1%.


In June, the country received 31% deficient rains than normal while July saw a monsoon deficiency of 13% which had prompted the government to roll out a slew of measures to tackle the then impending drought-like situation.


Till yesterday as much as 64% of the country has received normal or excess rain this season, while the rest have had deficient rainfall, IMD data showed.


Saurashtra and Kutch, Punjab, Gujarat region, Haryana, West Uttar Pradesh, Marathwada and Bihar are the regions worst hit by deficient rains. Rainfall deficiency in these regions range from 54% to 20%.


Nagaland, Manipur, Mizoram and Tripura have also received 33% deficient rainfall since the delayed onset of monsoon this season.


QE3 could be negative for India

The benefits of QE3 for India could be an increase in flows into India, thereby boosting the equities market, says a Kotak research note. But QE3 is also likely to boost commodity prices, including global crude oil prices

India is unlikely to benefit much from QE3 (third round of quantitative easing), says a Kotak Research note. Further liquidity is likely to boost commodity prices, including global crude oil prices—a negative for the import bill. Export growth is unlikely to be boosted significantly as Kotak does not expect major economic benefits out of QE3. Thus, there is every chance that the CAD (current account deficit) will stay at an elevated level while the fiscal correction tends to be a moving goal-post even after the hikes in the administered fuel prices, says the Kotak Research note.


Kotak predicts that in the near term enhanced global risk appetite could lead to an increase in flows into India, thereby boosting the equities market and tending to appreciate the currency. However, given continued risks of policy implementation on the European side and with the ‘Fiscal Cliff’ in the US, sustained risk appetite is unlikely. Consequently Kotak expects the Euro-US dollar conversion rate to ultimately correct.


Kotak sticks to its range on the dollar of about Rs54-Rs57, given lasting weakness in domestic fundamentals in India.


Kotak sums up the developments in US, in the context of QE3, as Fed delivers market’s “wish list”. The FOMC (Federal Open Market Committee, which is the policy-making arm of the US Federal Reserve) is committed to expanding the Fed’s balance sheet, basing its arguments on poor labour-market conditions and inflation being below the 2% target.


The Fed will buy MBS (mortgage-based securities) securities worth $40 billion a month, continue with its Operation Twist until the end of the year and maintain near zero rates until mid-2015. Even as economic returns of the QEs are likely to have diminished at the margin, the hope is to attempt to re-flate the economy.


According to the Kotak Research note, the Fed action suggests open-ended monetary easing. Fed’s QE3 is focused mainly on buying $40 billion of agency mortgage-backed securities a month rather than the conventionally close-ended QE1 and QE2. However, the nature of QE3 differs from past QEs, as for the first time the Fed tied the scale, timing and quantum of its asset purchase policy to the progress of the economy on a monthly basis, especially the unemployment rate. It is not clear as to what unemployment rate the Fed is targeting but its own forecasts suggest the unemployment rate might not fall to 7% even by the end of 2014.


Kotak says that as a consequence, the Fed’s purchases of $40 billion of MBS a month could continue for long, given that the long-term comfort level of unemployment rate for the Fed is about 6%. The Fed would also continue to reinvest principal payments from its holdings of agency debt and agency MBS in agency MBS. Effectively, the Fed would be purchasing about $85 billion a month.


Kotak predicts diminishing economic returns of the QE. The Fed has done all that the market had been expecting. However, the fear is that, like the earlier QE, this round might also not translate into much benefit in kick-starting economic activity. The clogged monetary transmission, owing to the liquidity trap, has resulted more in market outcomes than economic ones.


Going ahead, with global growth remaining low and with European debt problems looming, the Euro-US dollar conversion rate could correct to 1.18-1.24 over the next three months, especially as the implications of the “Fiscal Cliff” looms large in the US.


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