False notes threaten India's economy
By Raja Murthy
MUMBAI - "Economic terrorism" threatens India with a staggering US$51 billion
worth of counterfeit currency circulating in the country, according to India's
Intelligence Bureau. The government, though, has expressed no serious hurry to
tackle this menace, even as police say fake currency notes are also funding
terrorist groups in India.
The Reserve Bank of India (RBI), the regulator, estimates a lower figure of
counterfeit money than $51 billion, but given a flurry of publicized recent
police arrests across the country of suspects nabbed with huge amounts of fake
currency, estimates could be on the higher rather than the lower side.
"The problem is very serious," S K Panda, special director of the
Enforcement Directorate, told Asia Times Online. His investigators in the New
Delhi-based Directorate of Enforcement, under the Department of Revenue,
Ministry of Finance, have hard work ahead. Panda has reasons for anxiety. Over
25% of currency in public hands could be counterfeit, given RBI statistics that
$140.95 billion worth of currency notes are in circulation as of August 15,
Worryingly, police seizures of fake notes sensationally included a branch of
the country's leading banker, the State Bank of India. An August 8 seizure of
over $369,000 worth of fake notes from the State Bank of India branch in
Domariaganj, a small town in the north Indian state of Uttar Pradesh, led to
arrests of a bank cashier, Sudhakar Tripathi, alleged to be involved in mixing
fake notes in the bank's currency chests. Tripathi was caught only after he
began conspicuously splurging the money with which he allegedly had been bribed
Investigators revealed the depth of collusion between corrupt bank officials
and counterfeiters. Counterfeit currency money in the Dumariaganj State Bank of
India chest sported the same serial numbers as genuine currency notes in the
bank, indicating that the counterfeit currency printers were informed of serial
numbers of genuine notes.
Such incidents have increased public worries about bank ATM machines
potentially infected with dud currency notes, not a happy prospect for a banana
republic leave alone an emerging economic powerhouse such as India.
The case of 25-year-old Rakesh Singh in New Delhi is instructive. After
withdrawing cash from a bank ATM this month, Rakesh was found paying four fake
500 rupee notes for clothes in a south Delhi shopping mall. The shopkeeper
called the police, who released Singh only after he produced his ATM
cash-withdrawal receipt, which he had kept rather than dump in the ATM waste
basket, which are usually filled with discarded receipts. That did not rescue
him from losing 2,000 rupees ($46) through no fault of his.
The RBI has sent instructions and warnings in a 22-page master circular dated
July 1, 2008, to all banks and state governments' directors of treasuries on
"Detection and Impounding of Counterfeit Notes", yet the circular does not
specify protection to bank customers who are given fake money.
The RBI website gives detailed instructions on how to spot fake currency, but
in practice metropolitan ATMs could have queues miles long and daily riots if
every user spent time to carefully examine each bank note spewed out by the
machine. The impracticality of the RBI guidelines for ATM customers is easily
evident when it comes to detecting fake 500 rupee notes: "Machine-readable
windowed demetalized clear text magnetic security thread with inscriptions
Bharat [in Hindi] and RBI on notes of Rs 500 with exclusive color shift. Color
of the thread shall shift from green to blue when viewed from different angles.
It will fluoresce in yellow on the reverse and the text will fluoresce on the
obverse under UV [ultra violet] light - width 3 mm. The Intaglio Printing, ie
raised prints, is more prominent in the name of the Bank in Hindi and English,
the Reserve Bank Seal, guarantee and promise clause, Ashoka Pillar Emblem on
the left, RBI Governor's signature ... "
While the public at large casually takes pot luck with 500 rupee notes without
peering suspiciously at each one they receive, enforcement officials are
regularly reporting seizures, particularly in India's border areas. A Border
Security Force (BSF)patrol this month seized fake Indian currency notes worth
$23,000 from three smugglers near the border with Pakistan in Punjab state. BSF
officials said fake 500 rupee notes were smuggled from Pakistan wrapped in a
plastic envelope embossed with "AFD departmental store, Liberty Market
(Lahore)" printed on it, and hidden in a bag of pears.
Enforcement officials said the bi-weekly Thar Express train that shuttles
between Munabao in Barmer, Rajasthan, to Khokhrapar in Sindh, Pakistan, is a
major conduit for counterfeit money couriers. The states of Uttar Pradesh,
Gujarat, Maharashtra, Andhra Pradesh and Karnataka lead the way in fake
Indian intelligence and police officials have long accused Pakistan's
Inter-Services Intelligence (ISI) as the criminal "mastermind" behind smuggling
high-quality fake notes into India via routes such as Nepal, Bangladesh and
Dubai in the United Arab Emirates, with the intention of destabilizing the
The claim echoes one made against the North Korean government, accused of
printing fake $100 bills to destabilize the American economy and possibly
reflects one more instance of elements in the Pakistani establishment acting
contrary to the growing warmth and goodwill seen between Pakistan and India.
Interrogators of arrested counterfeit currency couriers say that at least one
printing press operates in Pakistan solely to print fake Indian currency. Some
incidents support such a possibility - for instance, a Pakistan Embassy
official in New Delhi was caught paying his child's school fees with fake
Indian 500 rupee notes.
Daily News and Analysis, a leading English daily from Mumbai, has reported
Indian sources in Europe revealing that individuals and firms linked to
Pakistan have been purchasing large volumes of special currency paper much
beyond the known currency needs of Pakistan.
Police officials say established criminal gangs are also involved. "The 'D'
Company [the mafia gang of Dawood Ibrahim, one of India's most wanted criminals
currently alleged to be harbored by Pakistan's ISI] is transporting fake Indian
currency notes mostly of the highest 500 rupee and 1,000 rupee denominations
directly from Dubai to Hyderabad," according to B Srinivasulu, a senior police
official in Andhra Pradesh state. "This counterfeit currency is printed on
security paper either in Pakistan or its friendly countries and transported to
India via United Arab Emirates. It is very difficult to distinguish it from
genuine Indian currency."
Given the dimensions of the counterfeit currency problem, economists are
questioning whether the fake currency is a factor behind India's record
inflation of 12%, particularly given the role in the economy of black markets.
Fake currency could be used in large black-money transactions, such as real
estate deals and financing Bollywood films, where about 50% of each deal is
said to be transacted with unaccounted funds.
Suggested remedial measures range from promoting increased use of credit and
debit cards to the possibility of the Indian government joining a growing club
of countries and territories, including Australia, China, Hong Kong, Sri Lanka,
Thailand and Israel, that use polymer bank notes. These plastic-based notes are
harder to counterfeit and more durable. Until that day, India continues the
risk of toy money being used as real money in one of the world's dozen
countries with trillion-dollar economies.