While the rupee is touching new bottoms every day against the US dollar, the number of fake currency notes in India is increasing. Even the Security Press is printing blank notes. Can the new governor of RBI look at polymer currency notes?
Dr Raghuram G Rajan, Officer on Special Duty (OSD) at the Reserve Bank of India (RBI) Head Quarters in Mumbai, who would take over as the next governor on 5th September, has his plate full of woes.
Since his return to India, some two years ago, after a glorious innings in the US, and being an advisor to the Prime Minister, he is fully aware of what is happening in the country and perhaps has been drawing up plans on what needs to be done.
In the meantime, the current account deficit (CAD) kept growing and the Indian rupee kept declining in its value. No doubt, both speculators and panic mongers have caused this damage, and the rupee, battered and bruised, may touch the danger mark of 70 against the US dollar, before some radical changes are made.
However, the rupee is one of the many in Dr Rajan's full plate that needs to be tackled with care, and nurtured back to a healthy lifestyle. The intrinsic value (of rupee vs US dollar) is certainly in the 55 to 60 range, and not in the 70s.
As though the slide in its value is not enough to hurt its reputation, the rupee has a fake cousin that has been running around loose, harming the Indian economy. Cross-border terrorism from Pakistan, via Nepal and Bangladesh continues unabated, and the porous borders needs to be tightened by a totally independent force, as carriers or infiltrators seem to be able to cross with impunity, or with connivance!
The latest Reserve Bank report, annual at that, admits that a staggering 98,459 counterfeit notes of Rs1,000 denomination were detected, as against 83,280 last year. Since counterfeit notes have been detected in Rs500 denomination also, all banks use note sorting machine to sort out the fakes from the real. The customers, who do come across the fakes, unwittingly, are not penalized, but the banks have been advised to impound these notes so that it does not return to circulation.
We may digress for a moment to recall that, not long ago, just three weeks ago, RBI itself received a total of Rs970 crore of blank currency notes from the secured vaults of its own press. Efforts by media to investigate this lapse further did not yield any result, except to know that these printing presses do not have adequate safes to keep the stock. Apparently, a few million here or there won't make a difference! There has been no further info on this unfortunate lapse.
But what is the urgency in raising this issue of counterfeit currency now?
At Moneylife, we have raised this issue of counterfeit currency notes from time to time. We have detailed how a number of countries have switched over to polymer currency notes, instead of paper. Paper currency notes have a shorter lifespan, are relatively easy enough to fake, cannot be detected by layman, and can cause huge inflation, besides being an instrument to aid terrorism and can, on the whole disrupt the growing economy.
To counter this, RBI, in fact, did a market testing of polymer currency notes in some two-tier cities, but the full details have not yet been made public. There is no further news as to when they, if at all, plan to introduce the same in our country?
In the meantime, after a great amount of opposition, the Food Security Bill has gone through; efforts are now being made to streamline and overcome power generation obstacles; an enormous increase to the price of gas have been accepted. These are all signs to indicate an imminent announcement for general elections. Unless we have a major military problem in the borders, it is likely that such an announcement is likely before the year is out.
We need a clear-cut announcement from the RBI, and that too from the new governor, as a part of his policy statement, as to when polymer currency notes are planned to be introduced in the country?
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also 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.)
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