New Delhi: New data from the National Crimes Record Bureau (NCRB) shows that fake Indian currency notes worth Rs 28.1 crore were seized in 2017, which is nearly double the value of counterfeit currency that was seized in 2016 (Rs 15.1 crore).

According to the ‘Crime in India – 2017’ report (pages 1261-to-1263), which was released this week, the total number of counterfeit notes that were seized in 2017 was 3.55 lakh. This is substantially higher than the number of fake notes that were seized by authorities in 2016 (2.81 lakh).

The report also comes with a region-wise analysis, which shows that Gujarat was the state in which the highest value of fake currency was seized (Rs 9 crore), followed by Delhi (Rs 6.7 crore), Uttar Pradesh (Rs 2.8 crore) and West Bengal (Rs 1.9 crore).

What does this tell us?

One of the several reasons that were offered by the NDA-II government in November 2016, when demonetisation was announced, was that the note ban would fight black money, corruption, fake currency and terror funding.

The last two have been linked on many occasions by government officials and media reports. In the aftermath of demonetisation, a string of reports claimed that Pakistani counterfeit presses had shut down because of notebandi and that terror financing had reduced.

The problem with analysing this claim is that we only have two sources of public data on fake notes.

The first is NCRB data, which talks about how much counterfeit currency has been seized by law enforcement authorities across the country.

The second is data from the Reserve Bank of India (RBI), which, through its annual reports, tells us how many fake notes are detected at the end of the funnel, that is after they enter the banking system.

While NCRB data indicates there is an ostensible rise in fake currency, RBI data shows that the number of counterfeit notes that were detected by the banking system have fallen over the last three years. While 7.62 lakh fake notes were detected in FY’17, this has fallen to 5.22 lakh notes in FY’18 and 3.17 lakh notes as of FY’19.

Also read: The Curious Case of Black Money and Cash Hoarding

A more granular analysis of the central bank data presents a nuanced picture, though. The fall is largely due to the scrapping of Rs 1,000 and old Rs 500 notes. While 2.56 lakh ‘Rs 1,000’ notes were detected in FY’17, this has fallen to a mere 717 in FY’19. Similarly, 3.17 lakh notes of the old Rs 500 design were found in FY’17, falling to less than a thousand in FY’19.

Over the last two years, there has been an uptick in how many fake Rs 2,000 notes have been detected – from 7,929 in FY’18 to 21,847 in FY’19, but it hasn’t reached the levels of fake Rs 1,000 notes that were being detected by the banking system in FY’17. It likely never will reach those levels, considering that the volume of Rs 2,000 notes currently in circulation is far less than how many Rs 1,000 notes were in the system as of FY’16 (the last financial year before demonetisation was announced).

The NCRB data can also be interpreted in multiple ways. Some critics could make the argument that more fake currency being seized is a sign that India’s authorities became more sensitive to the problem after November 2016. Or, it could be that there were a larger number of police raids aimed at countering this problem in the months after demonetisation, thus leading to more fake currency being seized.

What about high-quality fake notes?

Nevertheless, the proposition that demonetisation would solve the problem of fake or counterfeit currency is clearly false.

For instance, NCRB data shows that 74,498 pieces of fake Rs 2,000 notes were seized by authorities in 2017 alone.

The number of fake Rs 2,000 notes detected by the banking system in FY’19 (21, 847), is also not insignificant; indeed, the central bank data is more ominous because it implies those fake notes have been used in at least one ‘legitimate’ business transaction.

The second idea to grapple with is whether the new Rs 2,000 and Rs 500 notes have been harder to forge or counterfeit. NCRB and RBI data doesn’t completely help with this, but recent developments indicate that the idea is sketchy at best.

Also read: How Successful was Demonetisation? Four Takeaways From the RBI’s Annual Report

In July 2019, in response to reports that the flow of fake currency continued from the Indo-Bangladesh border, finance minister Nirmala Sitharaman, in a written reply in parliament, dismissed the inflow as being “low quality i.e. computer generated/manipulated”.

Sitharaman went on to confidently state that “there have been no reported cases of seizure of high-quality fake Indian currency notes of Rs 2,000 and Rs 500 denomination till early 2019”.

And yet, in October 2019, The Hindu effectively refuted Sitharaman’s claim while reporting that the National Investigation Agency had made a presentation in the presence of NSA Ajit Doval that “high-quality” fake currency notes had “resurfaced”, with Pakistan being the “main source”.