New Delhi/ Mumbai: Four in every 1,000 currency notes in circulation in India are fake, amounting to as much as Rs 3,200 crore in 2010, a confidential government report has found in a first-ever attempt to estimate the quantum of counterfeit notes in the country.
The so-called white paper on the status of fake Indian currency notes, prepared jointly by the Intelligence Bureau, Research and Analysis Wing, Directorate of Revenue Intelligence and the Central Bureau of Investigation, says this seriously affects the “credibility of the rupee as legal tender”.
Mint has reviewed a copy of the report that was submitted to the government in June.
Fake currency is 0.0004-0.0012% of bank notes in circulation, it cites the Reserve Bank of India (RBI) as saying, which is four in every one million, much lower than the white paper estimate.
The central bank does not have an estimate of fake currency notes circulating in the country, an RBI spokesman said in an emailed response, adding that the banking regulator is not aware of the existence of any white paper on the subject. Indian bank notes are secure, RBI asserted.
The report, which is not in the public domain, also points a finger at Pakistan, saying its government officials are directly involved in the process of making and distributing large numbers of fake notes.
The Pakistan high commission in New Delhi declined to comment on the matter.
Fake notes that flowed into India in 2010 from abroad were “in the range of Rs 1,500-1,700 crore”, the white paper said. Total counterfeit currency in circulation amounted to Rs 3,200 crore in 2010, it added.
Experts said the amount of fake notes in circulation is a cause for concern.
“From a monetary policy perspective, if growth in fake currency becomes too rampant, then it reduces the control of monetary policy over inflation by making the monetary actions less effective,” said D.K. Joshi, principal economist at rating agency Crisil Ltd. “This can have a destabilizing impact on the overall economy.”
The incidence of fake notes in various countries has typically been lower than what the white paper has found in India.
In Australia, counterfeit notes detected were around seven pieces per million notes in circulation in 2008-09, and in Canada, it was 76 per million in 2008, according to RBI data. As for the euro, there was roughly about one counterfeit detected for every 14,600 bank notes in circulation in 2008.
“The importance of curbing fake currency is even more important in the current scenario, when RBI is fighting inflation and striving to curb growth in money supply,” said Saurabh Tripathi, a partner at Boston Consulting Group.
India’s vulnerability to fake notes was highlighted in the 2011 International Narcotics Control Strategy Report prepared by the US state department.
“India also faces an increasing inflow of high-quality counterfeit currency, which is produced primarily in Pakistan… (and) represents a threat to the Indian economy,” the report had said.
The paper used for fake notes is made of 100% cotton rag and a security thread is inserted during the manufacturing process that replicates several other sophisticated features, making the currency nearly impossible to detect, the report said.
“We are approaching international forums to make counterfeit notes equivalent to terror financing,” a government official in the cabinet secretariat said, requesting anonymity. “We have already approached FATF (Financial Action Task Force) and shared this report with the US and other countries that are helping us to fight acts of terrorism.”
FATF is an international organization that combats money laundering and terrorist financing.