Fourth of currency may be fake

But RBI disputes the Intelligence Bureau estimate of Rs1,69,000 crore counterfeit notes

NEW DLEHI: More than a quarter of the currency in the hands of the public in India currently may be counterfeit. According to an estimate made by the Intelligence Bureau (IB) a few months ago, fake currency amounting to a mind-boggling Rs1,69,000 crore is floating in India. Reserve Bank of India (RBI) sources, however, pooh-poohed the IB’s figures to be a gross overestimate.

RBI data show that the total currency with the public as of July 18, 2008, was Rs6,03,000 crore. If the IB’s numbers are right, it implies that an alarming 28% of the total currency with the public could be counterfeit. “It is probably the biggest threat to national stability,” a senior IPS officer said.

Worse, it appears that this fake currency is being pumped in through the official banking system. In Uttar Pradesh last week, fake currency amounting to nearly Rs3 crore was found stashed in chests of the SBI and ICICI Bank. An officer who has worked in economic intelligence for a long time characterised this as “absolutely brazen”.

At a meeting in New Delhi last week of senior police officers from states affected by terrorism, an officer from Uttar Pradesh said the banking system was now being used by insiders to circulate fake currency. “There is no better way to pump it into the system,” he said.

This was corroborated by what the suspects held in Uttar Pradesh had told police. They suggested that cashiers of some banks were bribed to join the racket. The police recovered Rs7.21 lakh from the residence of an SBI cashier, of which Rs5 lakh was counterfeit.

An RBI source said the IB was “grossly overestimating” the problem. While admitting that counterfeit currency is an issue that the central bank is grappling with, the source said its proportion in the economy was more like 0.0004 per cent.

But intelligence and security sources allege that the RBI may be underestimating the problem. The central bank, they say, has been largely ineffective in monitoring the banking system to check the circulation of counterfeit currency. “They have not been able to put in place any comprehensive mechanism to check the entry and spread of fake currency,” a senior officer said.  Turn to p16

The size of the problem may be underestimated because a big chunk of the fake currency is used in real estate transactions. Since the fake currency merely moves from one buyer to another, a large proportion of the big value notes may be out of circulation.

The Union finance ministry is taking the issue seriously. A source in the capital said the ministry had called a meeting of top banking officials and security officers to discuss the problem and possible remedies.

Intelligence sources told DNA they have significant inputs, mostly from the interrogation of arrested suspects, showing that at least one press operates in Pakistan under the Inter Services Intelligence exclusively for printing fake Indian currency.

Another input from Indian sources in Europe points to the large-scale purchase of special currency paper in recent years by individuals and firms linked to Pakistan. The amount of paper purchased is well beyond that country’s needs.

Officials said it is extremely difficult to detect this fake currency because of the level of sophistication in printing. “You cannot expect a local bank clerk to detect such sophisticated fakes,” an intelligence officer said.

The security establishment is now clamouring for intense scrutiny of India’s banking system and for measures to check black money transactions in sectors such as real estate.

With inputs from Joel Rebello in Mumbai