Total volume of `actual' counterfeits may be high

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Sudhanshu Ranade

Chennai, Sept. 13

ARE Rs 42 crore worth of counterfeits in circulation?

Rs 2.44 crore worth of counterfeit notes were detected in the year 2004-5 as compared with Rs 2.76 crore in 2003-4.

This allows the latest RBI Annual Report to note with satisfaction that the value of counterfeit currency detected has come down, though the report goes on to add that while detection of Rs 500 and Rs 100 denominations declined considerably, there was a three-fold increase in the number of Rs 1,000 denomination notes that were detected, from 248 in 2003-4 to 759 in 2004-5.

The question of course is, if such number of counterfeits was detected, what can be said about the number and value of circulating counterfeits that escaped detection.

Though the RBI report does not comment on this aspect, it was explicitly addressed by two US Department of Treasury reports, though of course these sought to relate the detection of counterfeit dollars to the probable number and value of counterfeits in circulation.

The procedure involved releasing a given number of marked notes of various denominations into circulation and then comparing this figure with the number of marked notes that got detected.

For example, if the Fed put 100,000 bank notes into circulation and only 20,000 of these were detected within the next year or so, then this would mean a detection rate of about 1 in 5 for that particular denomination.

The number of counterfeits in circulation, for any given denomination, is then obtained by multiplying the detected counterfeits by this `scale-up' factor, and then aggregating across various denominations, in order to get an idea of the number and value of counterfeit notes that have remained undetected.

As a rule of thumb we could use for India the figure for the US, where it was estimated that 1.2 counterfeits for every 10,000 notes in circulation at any given time.

Since the number of notes of various denominations in circulation in India is known, this gives us a rough and ready way of estimating the number and value of counterfeits that have gone undetected.

These calculations yield the result that as against the Rs 2.43 crore worth of notes actually detected, the total volume of counterfeits actually in circulation is likely to be about Rs 41.8 crore.

There is no reason for alarm though. The rate of counterfeit notes per 10,000 in India is unlikely to exceed the US figure of 1.2 notes per 10,000 by a very large amount.

Though it may be easier to get away with counterfeits in India, this advantage for the counterfeiters is offset by the lower (dollar) value of the counterfeited denominations, which would put a threshold on the amount of money that anyone is willing to put into the business.

(This article was published in the Business Line print edition dated September 14, 2005)
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