On November 8, 2016, Prime Minister Narendra Modi announced his government's demonetisation exercise. On the following day, the government issued a press release, stating its reasons. "With a view to curb financing of terrorism through the proceeds of Fake Indian Currency Notes (FICN) and use of such funds for subversive activities such as espionage, smuggling of arms, drugs and other contraband into India, and for eliminating Black Money which casts a long shadow of parallel economy on our real economy, it has been decided to cancel the legal tender character of the High Denomination Bank Notes of Rs 500 and Rs 1000 denominations issued by RBI till now, "the government release said. Merely three months after the mammoth demonetisation exercise, intelligence and security forces including the Border Security Force and the National Investigation Agency have seized several fake Rs 2,000 notes. In a stunning expose, the Indian Express reported that these fake notes are being manufactured in Pakistan and delivered to India through its border with Bangladesh. One of those arrested last week with 40 fake Rs 2,000 notes told investigators that the notes were printed in Pakistan with the help of the country's Inter-Services Intelligence. Much to their dismay, investigators reportedly discovered that counterfeiters had successfully reproduced 11 of the 17 security features on the new notes. "There was no time to introduce additional security features in the remonetised Rs 2,000 and Rs 500 notes as the decision was taken only five months ago," said an official from the Securities Printing and Minting Corporation of India Limited (SPMCIL). This assertion points to a disturbing reality, which was first observed in an exclusive column for this newspaper by Moutussi Acharyya nearly three months ago. Instead of stemming the flow of counterfeit notes, the lack of preparation before demonetisation may have potentially worsened the situation.
The inexperience of our currency printers and the massive pressure which they worked under may have caused these serious breaches. In the days following the demonetisation announcement, printing presses were under tremendous pressure to churn out a sufficient number of Rs 2000 notes as no Rs 500 notes were being printed at the time. "Perhaps as a result of the enormous strain or due to some oversight by supervisors, security threads previously used in the old Rs 1000 notes were mistakenly embedded in massive amounts of new currency note paper that were to be printed as new Rs 2000 notes. The security thread is the sliver running through a currency note that changes colour and displays certain words when you hold it up to the light. Officials are tight-lipped on how this mistake occurred and whether these notes were ready to be released into the system or if some have already found their way into the market or whether the mistake was detected and the paper rejected mid-production stage," Acharyya reports in her exclusive column for this newspaper. As the recent discovery of counterfeit notes may indicate, this vital flaw was not detected. The report goes on to suggest that only when qualified staff examined the notes under powerful microscopes did the mistake finally come to light. Without even taking into account the great costs to our exchequer for this lack of oversight, the consequences of such mistakes have serious security repercussions. As these recent findings indicate, the ISI, for example, could just continue to embed similar security threads in forged Rs 2000 notes without the threat of detection. Everyday citizens and banks will now need to examine every Rs 2,000 note under a microscope to spot whether they are counterfeit or not, and they clearly have more urgent matters to address. More light will be shed on these mistakes once these notes land up at the RBI's coffers and are examined individually.
Taking these issues into account, it would be fair to ask whether the entire exercise was worth it. Demonetisation has left millions of migrant labourers without a livelihood and small businesses devastated. Despite the government's claims of supplying notes to rural areas, the situation is grave, and the cash-based trade in the countryside has collapsed. Since the entire rural economy supply chain has been disrupted, it will take time for the situation to normalise. This latest disruption in economic activity, especially in the countryside, has adversely impacted the growth process. Experts contend the impact of the demonetisation on the rural sector will be felt for an extended period beyond the start of the next financial year. Meanwhile, the flow of counterfeit currency continues unabated.