How secure is our currency?

The Economic Affairs Secretary, Shaktikanta Das, has claimed in a press conference the new Rs 2000 and Rs 500 notes have been printed in India with indigenous technology. This triumph of Indian engineering is heightened, he claims, by the fact that these notes are much more secure compared to the Rs 500 and Rs 1000 demonetised currency notes as our indigenous designs are much harder to counterfeit. Presumably, he is implying that the Modi Government's Make In India Policy has added another feather to its cap through these new designs with innovative security features which will make them foolproof against forgers.

Both these assertions and several others made by Das are open to challenge. He claims that 50 per cent of the withdrawn currency has been released back into the system in new notes. He says the amount of withdrawn currency is Rs 15.4 lakh crore. But a little later he says that the amount released into the system is about Rs 5 lakh crore. Not only is the figure he claims itself open to examination, but no way is also Rs 5 lakh crore fifty per cent of Rs 15.4 lakh crore. Also, the complacency of the government concerning the security or lack thereof of our new notes will have grave implications in the years to come.

Mr Das is being quite economical with the truth when he says the new notes are completely indigenous with no foreign inputs. Equally doubtful is his assertion that these notes are forgery proof as they have completely new indigenous designs. The only indigenous part of the exercise is the people running the presses and the government mandarins and RBI officials exerting pressure on them and therein lies the crux of the problem. The implicit allegation is that while foreign companies, through their sins of omission and commission could play havoc with our monetary stability by knowingly and unknowingly causing mischief with our currency as they will not have the same level of patriotism or even efficiency in ensuring that our notes are secure compared to our own diligent and loyal Indian printers, and may even sell this technology to our enemies, the opposite may be true. It could be the inexperience of our currency printers and huge pressures that they are working under that could cause serious security breaches in our currency which we may be paying for, for quite sometime to come.

Let us examine all these claims for what they are worth. In an extremely disturbing report recently, the news website, The Mysuru press, which was the first to begin printing the Rs 2000 note, at the beginning of October, has been under tremendous pressure to churn out sufficient number of Rs 2000 notes as no Rs 500 notes were being printed at the time, and it had to work round the clock in three shifts to meet targets of printing 5 to 6 million notes daily. 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 huge 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. Either way, it has caused huge loss to the exchequer, to the tune of Rs 10,000 crore, as 200 metric tonnes of special paper used in printing the Rs 2000 notes has had to be rejected. One tonne of paper costs Rs 5 lakh, not to mention the cost of the ink, the loss of manhours and the cost of running the machines, etc.

This blunder is even more costly in light of the fact that the loss of this paper, manufactured indigenously in India, cannot be replaced from vendors abroad, and may cause a serious shortage in Rs 2000 notes in the near future, at a time when we are already suffering from a serious cash crunch, which cannot be made up by simply printing Rs 500 notes at the same speed, as we will have to print four times the amount of Rs 2000 notes at the same period for parity to be maintained. How such a mistake was allowed to occur is still not clear. Conjecture is that either new stock of security thread used in the printing of Rs 2000 note was exhausted due to the huge rush to print millions of notes a day and the security thread stock leftover from printing the Rs 1000 note was mistakenly or otherwise used instead, or even that old, now invalid currency paper used in printing the old Rs 1000 note was instead used for printing the new note, though this seems less likely. Strangest of all, in a clear refutation of Shaktikanta Das' claims, that notes printed in India are more secure, this vital flaw was not detected in several stages of printing and cross-checking.

The mistake was overlooked in all the crucial stages of offset printing, intaglio printing and colour examination of the notes. None of the supervisors or workers on the various line machines detected the flaw. In fact, so similar is the security thread to the one previously used in the Rs 1000 note that a careful visual examination of the notes also did not reveal anything out of the ordinary. Only when qualified staff examined the notes under powerful microscopes did the mistake finally come to light. This has grave repercussions for the monetary stability in our country.

This means our neighbour Pakistan can theoretically continue to embed similar security threads in forged Rs 2000 notes without threat of detection, as it is obvious we will not be carrying powerful microscopes in our pockets to whip out and examine every Rs 2000 note we receive, nor can banks physically examine every note under a microscope, which means the mistake will only become evident once these notes land up at the RBI's coffers and are examined individually.

Such mistakes are bound to happen again in the future because of the duress the employees in all the printing presses are functioning under, and also because the pressure applied by RBI and Finance Ministry officials for timely delivery of notes has resulted in often skipping vital stages in the vetting process. One shudders to think what other blunders lie in store as the RBI's two presses have also taken on the responsibility for printing Rs 500 notes right now instead of the Rs 2000 notes. At least 25 days are needed to realign the machines in the RBI's Mysuru and Salboni presses before it starts to print the Rs 500 note, but can the RBI afford such a protracted shutdown?

So when will the new Rs 2000 note start to be printed again at RBI presses is the burning question as there are not yet sufficient Rs 2000 notes in circulation and how will the security thread then be checked. It is worth mentioning that far from all the features in the new notes being indigenous, the security thread in both the Rs 500 and Rs 2000 note is being supplied by two foreign companies, the Italian Fabriano Security and the American-Swedish Crane. In addition, both the threads are generic, that is they have no special features exclusively created for the new notes, but these are supplied from common stock which can also be sold to many other countries.

Ironically, the UK-based Thomas De La Rue, the world's largest currency paper manufacturer and printer, which supplied the security threads for the Rs 1000 and old Rs 500 note, had created threads unique to these note alone, for which it held a patent and which could not be embedded in any other note printed or manufactured either in India or anywhere else in the world. In contrast, the new threads do not have any individual features solely created for the Rs 2000 or Rs 500 note and is much less foolproof than the old Rs 1000 or Rs 500 security thread and can be more easily forged. Thomas De La Rue was blacklisted for a number of reasons but was removed from the blacklist in 2015, but the Finance Ministry, and RBI decided to go for the generic security threads instead. The Fabriano supplied security threads were not tested according to officials at SPMCIL.

The RBI's printing facility in Mysuru (of Bhartiya Reserve Bank Note Mudran Private Ltd (BRBNMPL) was set up with De La Rue Giori (now KBA Giori, Switzerland). Its other facility at Salboni was set up with technology from Komori Corporation, Japan. Besides the printing machines, there are many components of our banknotes which are not indigenous but for which our government is still reliant on foreign vendors. India imports bank note papers from European companies like Louisenthal in Germany, De la Rue in the United Kingdom, Crane in Sweden and Arjo Wiggins in France and Netherlands. But for the Rs 2000 notes, it was decided that all the raw notes would be produced in India itself and the Bank Note Paper Mill India Private Limited (BNPMIPL) in Mysuru, which started functioning in 2015, was given the task. It has a capacity of 12000 MT per year. It has now selected four foreign firms to supply three kinds of smaller denomination banknotes. Besides imported machines, ink and paper, other imports include magnetic security thread and "M Feature" (to ascertain genuineness of currency paper by chemical analysis). The work on designing and producing our new high-value currency has been hampered by the absence of an ink chemist in RBI's presses, although there is one at SPMCIL's Dewas Bank Note Press.

One is already aware that the RBI was in such a tearing hurry to release the Rs 2000 notes that it did not even allow the ink to dry properly on the notes, a process which requires a mandatory 72 hours. Whether due to the leakage, the quality of the ink or a quirk of the printing process, there are some variations in the shade of the pink colour in some Rs 2000 notes. Strangely, Economic Affairs Secretary Shaktikanta Das had claimed earlier that it is "common for new currency notes to lose some colour and that if notes do not lose colour they might be a sign of being fake currency." RBI Governor Urjit Patel had announced that the "new notes will have enhanced security features that will be difficult to forge." But soon we saw that there were several printing errors on the Rs 500 notes, which were being printed at the Nashik and Dewas presses of the Security Printing and Minting Corporation of India Ltd (SPMCIL). Also, on the orders of the Finance Ministry, the "colour examination" phase was done away with for the new Rs 500 notes, possibly to save time, leaving ,the new high-value note also vulnerable to counterfeiting. Millions of defective new Rs 500 notes are now in circulation even as the RBI callously allowed them to be declared them legal tender initially. In later batches, millions of notes were scrapped, again causing a loss to the exchequer.

The optically variable ink used in printing the Rs 500 note is imported from Swiss firm, SICPA, which gives the Rs 500 currency another of its anti-counterfeiting features. SPMCIL has put in an urgent order for a large quantity of ink as the ink in stock will soon be exhausted, and without which no new notes can be printed. SPMCIL also uses imported paper for the Rs 500 note, and the Indian government has already made enquiries with nine foreign firms to supply 20,000 tonnes of currency printing paper on an urgent basis, though it might well take 3 months for this consignment to reach India. This type of paper cannot be manufactured in India at present. SPMCIL also prints the new Rs 500 note on machines primarily imported the Lausanne-based KBA-Giori, which collaborated with the UK-based Thomas De La Rue to form De La Rue Giori. The machine, bought for Rs 400 crore, was claimed to be old and prone to several breakdowns and also did not meet tender specifications because it printed much less than the manufacturers claimed -- 378 bundles per hour rather than the required 470 bundles. This has significantly slowed down the printing of the new Rs 500 notes at SPMCIL presses. SPMCIL is headless ever since its head, Rana was removed for irregularities in the procurement of the above-mentioned machine and also questioned in the procurement of the Algerian security thread used in the Rs 10 note. Praveen Garg, who is a Joint Secretary in Ministry of Finance, has been given temporary charge. There is an ongoing 'silent war' between RBI and SPMCIL officials ever since RBI encroached on SPMCIL's turf and decided to go in for printing banknotes itself by opening two new presses in Salboni and Mysuru.

It takes 25 days for one lot of Rs 500 notes to be printed, but since production was rushed in this case, it led to errors in many of the Rs 500 notes. Cause of the machine breakdowns, which occur daily on several occasions and in 10-30 minutes' duration, is attributed to jamming of the currency paper and overflow of inks at the time that "plates and blankets" are cleaned. Since the machines imported from various countries are running 24 hours, non-stop, and maintenance crews are having a tough time fixing the faults, officials feel errors and breakdowns will keep occurring. Some of the errors are human as some "untrained and unskilled" workers, besides retired employees, have been drafted to expedite work during this national emergency.

SPMCIL was also asked to bypass the "colour examination" step in the five-stage process involving the printing of the new Rs 500 notes at Dewas and Nashik. It has been deliberately skipped because of the tremendous pressure that the printing unit has faced since production of the new note. The decision to skip the crucial phase was taken by senior Finance Ministry bureaucrats and conveyed to the Dewas unit. Skipping this vital process leaves banknotes vulnerable to counterfeiting, easy drainage, bleeding and removal of inks from the banknotes, enabling easier colour-by-colour reproductions and/or over-printing of higher denominations. More importantly, the colour examination phase helps detect defective notes, which was not being done at the Dewas unit. Since the printing of the new Rs 500 notes began, 2-5 percent of defective notes have also been printed but were not segregated from the normal ones. Consequently, they are now among the new notes in circulation. Experts also say that only the design of the new notes has changed but no additional or new security features have been created indigenously or exclusively for the new notes by companies abroad so they are as vulnerable to counterfeiting as the demonetized notes. Adding new security features would be a mammoth exercise and take more than five to six years. Water marks, security threads, fibre, latent image, etc. comprise some of the security features and these require several representations, evaluations and finally a Cabinet nod. Since the decision to introduce the new notes was taken only six months ago, there was only time to alter the design and not the security features.

Also, there has been a six-year push towards greater indigenisation, specially on the insistence of the PMO after Narendra Modi came to power. During the 80th annual RBI celebrations last year, Modi argued that the "paper and ink to print currency" should be manufactured domestically."Mahatma Gandhi fought for Swadeshi," said Modi at the time. "Does it behove us to print his photograph on imported paper? Does India not have the entrepreneurs to make the paper in India?" Modi may be bitterly regretting his decision of late. Thomas De La Rue has immense experience in creating exclusive designs with innovative security features for currencies supplied to numerous countries across the world. It may be said to be the leader in its field. But it was on the Finance Ministry's insistence, followed by directives, that Fabriano and Crane were favoured over De La Rue whose international patent, or exclusive rights, over security threads had ended in March 2015. Besides officials in the Finance Ministry, two other individuals pushed for the Fabriano and Crane security threads – SP Gupta, an international steel tycoon who owns Liberty House and who was named in the Panama Papers, and Mumbai-based Vijay Raja of Standard Trading Corporation De La Rue and a German company, Papierfabrik Louisenthal GmBH, which is also into manufacturing and selling an "extensive range of security features", including exclusive features incorporated in security threads for Indian banknotes, had earlier been barred by the Home Ministry for selling to Pakistan the same currency printing paper that it sold to India.

De la Rue was also blacklisted for allegedly selling paper found to be defective by SPMCIL and also for trying to influence RBI officials. But "exigencies of the situation" forced the Narendra Modi government to remove De La Rue from the blacklist in 2015. "These companies are in the business for 150 years; they will not hamper their trade by passing on information of one country to another. Some of these firms even print currency notes for smaller countries. After the investigations, it was found that the two firms had not compromised the security features and the ban was lifted," one official had explained. Now there are even plans for De la Rue to set up a security paper mill and a research and development centre for identity software dealing with Adhaar cards and passports in Madhya Pradesh.

If this is the case, one wonders why a company with such extensive experience and which has its fingers in every part of the currency printing pie, was not utilised by the Modi Government to oversee the quality and security standards of this mammoth currency printing exercise with such ramifications for the economic security of our nation. Ironically, Narendra Modi made the fight against counterfeit notes one of the main planks for the demonetization exercise. But in spite of crores of rupees being recovered by the IT department (on instructions from the PMO and the Revenue Secretary) in raids across the country, very few of them seem to be stashes of counterfeit notes. Now the RBI has again issued orders on December 4 that a new series of Rs 50 notes should be printed without a vital step, intaglio printing, making counterfeiting it relatively easy. The SPMCIL's Dewas unit had also encountered a major breakdown involving malfunctioning of the security thread in the Rs 100 notes, seriously affecting production. One wonders what other disasters lie in store before the whole sorry saga of the demonetisation drive plods to an inglorious end.