Besides black money, the other reason for the current drive of demonetisation is the scourge of fake currency, which is also feared to be funding cross-border terror in India; but,13 painful days into the process, the Government hasn't made any claim of widespread detection of counterfeit notes by the banks except one in Kerala.
According to official estimates, at any point in time, about ₹400 crore of fake currency--about 250 pieces out of every 100,000 notes--circulates in India and the law enforcement agencies have been able to intercept only a third of it. The government considers the problem so serious that since 2013, smuggling and circulation of fake currency has been deemed an act of terror under the Unlawful Activities (Prevention) Act.
If the estimates are true, the banks should have detected at least ₹100 crore in fake currency by now, given that they have already got about five lakh crore rupees in deposits since 8 November. The counterfeiting is mostly done in ₹500 and ₹1,000 notes and according to the RBI, the total worth of these notes is ₹14.18 lakh crore. If 400 crore of this is estimated to be fake, in five lakh crore rupees, more than ₹100 crore should have been fake and the tellers in the bank should have found them.
Here, the reference is not to the fake currency that is printed, smuggled or hoarded by counterfeiters or terrorists, but the money that's in circulation because the general public do not always distinguish between the good and the bad. The counterfeit-criminals certainly would hold back, but not the public because they wouldn't know that part of the money they handle is fake. The only reported case of detection was from Kerala, where an old woman was caught with about ₹30,000.
So, where has all the fake money gone? There could be only two possibilities--one, the banks haven't detected them when they passed through their hands, or there isn't much. If the former is the case, then clearly one of the objectives of demonetisation has failed. If the situation is the latter, then the problem of fake currency is too exaggerated. Could the prestigious Indian Statistical Institute (which reportedly made the estimate) have gone wrong?
This is indeed a serious proposition because security agencies regularly seize fake currency and bust rackets. Till June this year, about ₹12 crore had been seized. In the previous years, it had been in the range of ₹35-40 crore a year. It cannot be possible that all the counterfeit notes get seized at source because the government itself estimates that ten times that much is in circulation and that a lot of it is printed in Pakistan and smuggled in through the borders as well as through Bangladesh. A few days ago, a fake currency kingpin was arrested in Malda.
Interestingly, whether the drive to sift counterfeit through the bank chambers worked or not, home minister Kiren Rijiju has made a tall claim that fake currency worth about ₹400 crore has been stopped since Prime Minister Narendra Modi announced demonetisation. According to him, "smuggling of fake Indian currency notes from three international borders--Pakistan, Bangladesh and Nepal--has completely halted after the announcement of Prime Minister Narendra Modi." Rijiju, however, didn't say how he arrived at such a ballpark figure. A preemptive statement?
It may not be as big a threat to the Indian economy as it's imagined to be, given its size; but even a fraction of it's good enough to spread terror and cause destruction.
It's really perplexing as to what could have prevented its detection by the banks so far? If it's in circulation, a proportional part of it should have certainly showed up at the banks. Have the tellers failed in distinguishing them? Aren't they trained well to tell the bad from the good?
One has to assume that the bank staff are certainly trained in detecting fake currency and if they have failed, it's because of the overwhelming pressure that they are presently under. Since 8 November, banks have been literally invaded by irate people and in their hurry to mitigate the pressure, the staff could have made mistakes. The riotous situation that the bank counters experienced so far is not normal, but extraordinary and possibly it's conduces the bad note creeping back in.
Had there been a longer window and better organised process, and probably some additional training to detect fake currency for the banking staff, this could have worked better. The rollout of the process so far shows that it's one of the most ill-conceived and ill-implemented national drives independent India has undertaken. Many well-known economists have no doubt that demonetisation was a bad idea because the costs to the lives of the people and the Indian economy are immense compared to the fraction of the black money it might unearth. However, there were no two opinions about its potential efficacy against fake currency.
Now that no significant amounts of fake currency haven't been detected--unless the government is holding back information--the drive seems to have failed on that count too.
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