Control Parallel Economy
Dumariaganj in Uttar Pradesh short into limelight in July 2008 for all wrong reasons; when cashier of a Nationalised Bank was found involved in a fake note racket. Investigation of RBI detected 75,000 pieces of fake notes worth of Rs 4.02 Crore and shortage of Rs.70 lakh in cash from the bank balance. RBI Governor subsequently constituted a high power committee headed by no less a person than Usha Throat, Deputy Governor to review the arrangement of supply chain management of stocking and distribution of currency notes. The objective of the exercise was limited to enhancing the integrity and efficiency of the systems and procedures. The committee has come out with sweeping recommendation to minimize the incidence of fake notes in the banking system. High level committee has advised RBI to encourage electronic transaction through cards and discourage cash transaction through appropriate charges for cash handling by commercial banks. For easy detection of counterfeit notes and maintaining circulation good quality notes committee has recommended use of Note Sorting Machines by bank branches and further advised to use “Cassette Swap System” to replenish ATM and to upgrade ATM with built in note detector. Committee has suggested for withdrawal of old series notes to replace with new series currency notes incorporating state of the art security features. Committee has also extensively dwelt upon extensive steps to be taken by the concerned department of RBI and commercial banks to prevent Systems Failure in arresting circulation of spurious currency notes inside the currency supply chain.
However, looking at the data released by the committee in its report about the scale and quantum of counterfeiting notes detected by the banking system could make any ordinary person insecure. Currently 48,963 million pieces of bonafied currency in circulation with total value of Rs. 6, 81,113 crore. And 3, 98,111 pieces of counterfeit currency notes have been detected during April’08 to March’09.The absolute number of counterfeit notes detected at bank branches and the Reserve Bank offices increased from 1, 02,687 in 2000-01 to 3, 98,111 in 2008-09.The detection of fake notes has grown from 3 to 8 per million pieces in the banking channel alone in just eight years. One would wonder how many fake notes go undetected in our financial system with what kind of impact? Undoubtedly the detected amount could be just the tip of iceberg and as popularly assumed parallel economy could have the same size as that of mainstream. Recent news stories have confirmed that ISI and Pakistan based terrorist networks are working over time to paralyze Indian financial system by pumping counterfeit currency notes through our pores borders with our neighboring countries like Pakistan, Nepal and Bangladesh.
Keeping above facts in mind the custodian of our financial system, Reserve Bank of
- Suitable Policy to Target 50% reduction in all cash transaction for at least three years.
- Appropriate policy to make use of Cheques as legal tender up to Rupees one lakh.
- Incentives for banks and bank customers to avoid cash transaction and opt for card transaction.
- Appropriate Law for high value transactions that are above Rs.1 lakh to be executed in cheque or demand draft.
- Policy for credit card holders to opt for electronic transactions
- All donations must be in Cheque or demand draft by suitable law.
- All bonafied currency must have encrypted electronic circuit for easy verification or similar technology.
Need less to emphasize, RBI has to make up its mind fast to control the parallel economy that would suck additional non bonafied liquidity from the system, stabilize the price level of commodities corresponding to actual supply and demand, plug the leakage in Govt. tax revenue, Arrive at genuine external value of Indian Rupee and start a reverse flow of the black, tainted and stagnant money into the mainstream system.
Author: Bikash Choudhury, Chief Executive of Strategy Consulting Firm based at
Email: streben.market@gmail.com & bikashchoudhury@sify.com
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