It took everyone by surprise when the Nayak Committee, appointed to assess the menace of fake currency, estimated the total amount of fake currency in circulation in India at about Rs 1,69,000 crore as of 2000 (in other words, eight per million were fake).¹ But, the latest figures could be about Rs 12, 00,000 crores, more than seven times in a decade.² Statistics on denominations is revealing. According to figures disclosed in Parliament by the Government of India, during the 2006-09, 7.34 lakh of Rs 100 notes, 5.76 lakh of Rs 500 notes and 1.09 lakh of Rs 1000 notes, all fakes, have been seized (a total of Rs. 47.04 crores).³ This clearly establishes that 100 rupee note is a popular denomination for counterfeiters. The above set of figures is considered only as a “tip of the iceberg” when compared to the total unseizured notes that are floating in India. Also, the number of reports (a single report is an instance of counterfeit currency detected) filed by banks and other financial entities on detection of counterfeit currency has increased manifold in the recent years. Overall, the magnitude of the problem is immense.

Fake Indian currency notes principally originate from Pakistan, but smuggled through various routes, using different modalities. Directly, smugglers make best use of train services and commercial trucks that run between Pakistan and India to push counterfeits into India. The most popular indirect routes are via UAE, Nepal and Bangladesh. Fake notes from Dubai are transported through air with the help of bonafide passengers or couriers appointed for the purpose. ⁴ Thailand, Malaysia, Myanmar and Sri Lanka are also used as transit points. International airports in Bangalore, Chennai, Calicut, Cochin, Hyderabad, Mangalore, Mumbai and New Delhi are identified as main landing points of counterfeits from abroad. Porous and weak land borders respectively with Nepal and Bangladesh are utilised by organised gangs to smuggle fake currency into India. It is also carried by infiltrators from Pakistan. Making use of weak maritime security, counterfeits have also been routed through sea. Once smuggled, the fake money is exchanged for original notes at roughly 2:1 ratio or even higher. ⁵ Interestingly, there has been a spurt in fake currency circulation especially since 2006, roughly when Pakistan intensified its proxy war against India.

To distinguish between fake and real currency notes has become increasingly difficult mainly due to the fact that counterfeits are now printed with state of the art technology using security paper that is made available only to state actors. This clearly indicates involvement of government agencies in the neighbourhood. Pumping fake currencies is one of the sub-conventional warfare strategies pursued by Pakistan against India. The objectives behind are to subvert Indian economy and to fund terror networks. ⁶ According to a Planning Commission Report, “the fake currency enables the adversary to obtain the services of individuals and groups in this country to act against our security interests at very low cost to itself. Once such conduits are established, they are used to push in drugs, explosives, weapons and trained terrorists.” ⁷ For instance, investigations reveal that Rs 50 million that was incurred by the terrorists to trigger blasts in Hyderabad in 2007 and Rs three million spent on the attack on the Indian Institute of Science, Bangalore, in 2005 were generated mainly through fake currency. ⁸ Apart from security, fake currency poses huge socio-economic problem. Its impact on general crime on society is serious as more and more educated unemployed youth are attracted towards the counterfeit racket. In short, this can be dubbed as a dangerous facet of ‘economic terrorism’ confronted by India.

Given the complexity of the problem, a multi-pronged approach is required to counter it:

1. At the outset, it is important to stay ahead of counterfeiters. The Reserve Bank of India should constantly upgrade both paper-based (security thread, water mark, fluorescent fibres and physical and chemical characteristics of the paper) and print-based (anti-photo copying feature, optically variable ink – OVI – see through effect, intaglio printing etc) security features of Indian currency. The public should be educated on these security features, which will enable them to easily distinguish fake from real notes. Since the security features introduced in 1996 and 2000 have already been compromised, these notes should be withdrawn from circulation with immediate effect. Note sorting machines should be installed at all bank branches to promptly detected fake notes as soon as they enter the banking channel.
2. It is important to create awareness among the people on various ways to identify a fake note. Some of the distinguishing features of original notes are:

a. a glowing 1.4 mm-wide security thread bearing ‘RBI’ in English and ‘Bharat’ in Hindi;

b. optically variable ink feature in Rs 1000 and Rs 500 notes where the color of the denominational value that appears in the center of notes appears green when the note is held flat but would change to blue when the note is held at an angle;

c. special feature (in intaglio) to the left of the watermark meant for the visually challenged in different shapes for various denominations: vertical rectangle for Rs 20, square for Rs 50, triangle for Rs 100, circle for Rs 500 and diamond for Rs 1000;

d. denominational value written in vertical position in watermark in the watermark window;

e. micro letters of RBI and denominational value in the space between Mahatma Gandhi portrait and the vertical band on the right side of the note;

f. intaglio (raised) printing of Mahatma Gandhi portrait, the RBI seal, guarantee and promise clause, Ashoka Pillar Emblem on the left, and RBI Governor's signature;

g. perfect alignment of series prefix and distinctive number of the note.

3. Use of credit/debit cards and online/digital transactions should be encouraged instead of cash transactions. In a country where more than 70 per cent of the population does not even have a bank account, this measure may take time, but achievable.
4. Effective cooperation among the concerned agencies is essential to address the threat. The Central Bureau of Investigation is the nodal agency for coordinating and monitor cases related to fake currency; Department of Revenue Intelligence is the lead operational body at the national level; respective state police is the lead operational agency for acting against counterfeits in that particular state; National Crime Records Bureau and Central Economic Intelligence Bureau hold all data pertaining to fake currencies. These apart, the state governments, central police organisations, intelligence agencies, the RBI, Enforcement Directorate, Ministry of External Affairs, Financial Investigation Unit, and Department of Legal Affairs are other concerned agencies. A holistic response should be formulated to avoid contradictions among these agencies in assessment, perception and counter-measures against the problem. Effective sharing of real time intelligence and relevant information among these agencies will go a long way in pushing them one step ahead of counterfeiters.
5. External dependence on security paper and ink should be reduced by increasing indigenous production. At the same time, India should use its diplomatic leverage to make sure that international companies contracted to supply India-specific paper maintain secrecy. Since most of the currency printing paper and inks are being imported from Europe, the European Union should be asked to keep a tight watch on importers of currency-related printing paper and ink based in Pakistan. New Delhi also should press relentlessly through INTERPOL for extradition of those criminal elements involved in the fake currency racket based in foreign countries.
6. India should offer to train Nepalese and Bangladeshi customs and immigration officials in identifying and keeping watch over frequent travellers to Dubai, Dhaka, Colombo and other neighbouring countries. New Delhi could also help the installation of hi-tech luggage scanners at the international airports of Nepal and Bangladesh so that the baggages of passengers are thoroughly checked for counterfeits before boarding.

Endnotes:

1. “Some Issues in Currency Management,” Remarks by Dr. D. Subbarao, Governor, Reserve Bank of India, at the Foundation Stone laying function for the Bank Note Paper Mill at Mysore on 22 March 2010.
2. “Fake money worth Rs 120,000,000,000,000 in India,” Rediff News, 26 October 2010.
3. Parliamentary Debates, Rajya Sabha, Monsoon Session, 03 August 2010.
4. B Srinivasulu, SP, Intelligence (Andhra Pradesh Police), “Pak ISI Sponsored Counterfeit Currency Circulation,” available at http://www.cidap.gov.in/documents/FAKE%20CURRENCY.pdf, accessed on 3 September 2010.
5. “Rs. 81 lakhs fake currency seized; gang busted in A.P.,” The Hindu, 6 September 2005.
6. “Fake currency threat to economy: FM,” The Indian Express, 22 March 2010.
7. See K Subrahmanyam, “External Security,” in India: Vision 2025 (New Delhi: Planning Commission,
   2003)
8. “How fake currency funds terror,” rediff business, 19 December 2008.