It’s election time and fake currency – the worst-kept poll secret – is back in robust circulation. Election officials in Andhra Pradesh are currently investigating the fake currency being reportedly doled out to the public, just weeks before voting day.
The problem of fake currency is not restricted to Andhra Pradesh. During election season, crores of fake Rs. 500 notes are pumped into the system. In August 2013, just before the state elections, currency notes worth Rs. 970 crores, which were not printed in Indian mints, had reportedly landed in the vaults of the Reserve Bank of India (RBI). The RBI underplayed those reports and later ruled out the possibility of the extra notes being fake. But there is no question that counterfeit Indian currency is a clear and present danger, which will flood the Indian market especially during these critical elections.
How many fakes are out there? Despite the severity of the threat posed by counterfeits, security agencies in India don’t have a uniform estimate of the fake currency in circulation. In 2011-12, the RBI detected Rs. 25 crores, and seized an additional Rs. 19 crores of Rs. 1,000 and Rs. 500 fake notes.
The RBI’s numbers are a drop in the ocean of fakes sloshing around in the country. Our intelligence agencies estimate that at any given time 3% or Rs. 35,000 crores of the total currency in circulation in India is counterfeit. Sources say that this amount will more than double as fake currency fuses undetected with the large amounts of cash already swilling around the pre-election distribution of largesse.
How deep is the counterfeiting? Till recently, higher denomination notes dominated the fake market. But counterfeiters are now printing smaller denominations too – Rs. 10 and Rs. 20 – which are harder to detect or seize, and have the potential to cause a loss of confidence in the Indian Rupee.
What’s the source? Legally, the rupee is printed in mints in Maharashtra, Karnataka, Madhya Pradesh and West Bengal, with paper imported from several of the 11 companies in the world which are the global suppliers of currency paper. Ten of these are based in Europe, and one – Crane’s – is in the U.S. Just one company, based in Switzerland, provides the security ink for the world’s currency needs. Our security agencies suspect that anti-India elements may have compromised some employees within these companies to get access to the genuine currency paper.
The increased counterfeiting gets sustained support from Pakistan, where most of the fakes originate, according to our security agencies. Their alleged objective: to destabilise the Indian economy. After being printed in facilities across the border, the consignments are smuggled into India through a well-established distribution network in Nepal, Bangladesh, Sri Lanka, Thailand, Malaysia, and the United Arab Emirates. Last year, the China route was used to send a fake currency consignment into India.
Organised crime syndicates and terrorist groups like the Lashkar-e-Taiba and the Indian Mujahideen (IM) are also part of this well-oiled machine, along with drug traffickers, arms smugglers, and possibly some Indian customs personnel. In fact, the interrogation of arrested terrorist operatives, including Yasin Bhatkal of the IM, has revealed that terrorist groups have explored the possibility of utilising proceeds from the fake currency business to finance their other subversive activities like arms and explosive purchases, recruitment, and infiltration of cadres.
Do other countries also face counterfeiting problem? Many other countries including Canada, Taiwan, Australia, the U.S., South Korea and the European Union’s Euro have also faced problems of counterfeit currency.. An example comparable to the counterfeit Indian currency phenomenon is the high-quality counterfeit U.S. dollar. U.S. officials allege that these notes are printed by counterfeiters in North Korea, China, Russia and Latin America. In the specific case of counterfeits from North Korea – called the Superdollars – U.S. officials have hinted at the involvement of the North Korean government. To counter the problem, Australia and Canada have introduced counterfeit-resistant polymer notes, while other countries have relied on frequent anti-forgery changes in currency note design and on severely cracking down on the counterfeiters.
What has India done to counter fake currency? India has been working on counter measures like design changes in the currency notes, enhancing the capabilities of technical and bank personnel to detect counterfeits, strengthening legal mechanisms by making counterfeiting a terrorist act, introducing measures to withdraw pre-2005 currency notes which lacked security features, and increasing information-sharing with neighbouring countries.
But we must do more. We must implement advanced forensic measures which analyse the intaglio ink, watermarking techniques, security thread, and the paper used in fake currency. This will enable India to maintain a comprehensive database of each fake note recovered, and take action against the support networks. We also need to complement the efforts of the central security agencies, by substantively informing the local law enforcement machinery and judicial authorities about the gravity of the problem.
Sameer Patil is Associate Fellow, National Security, Ethnic Conflict and Terrorism, at Gateway House.
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