Is India doing enough to detect fake notes, cited by the Prime Minister Narendra Modi as a significant reason for withdrawing 86 percent of India's currency, a process popularly known as "demonetisation"?
Apparently not. In 2015-16, only 16 of every 250 fake notes were detected, according to an IndiaSpend analysis of government data.
Modi cited terrorism financed by fake Indian currency as a major reason for invalidating the Rs 500 and Rs 1,000 notes that made up 86 percent of money in circulation. On November 9, in response to Telugu filmstar Nagarjuna's tweet praising "demonetisation" -- Modi tweeted: "Dear @iamnagarjuna, this step will check corruption, black money and fake currency rackets that slow our progress."
Of the 90.26 billion Indian currency notes in circulation in 2015-16, no more than 0.63 million -- that is 0.0007%, or seven-millionths of 1 per cent, seven in every million -- were detected as fake, according to Reserve Bank of India (RBI) data. The value of these fake notes in 2015-16 was Rs 29.64 crore, which is 0.0018 per cent of the Rs 16.41 lakh crore currency in circulation.
In 2015, 0.88 million fake notes worth Rs 43.8 crore were seized, according to data from the National Crime Records Bureau tabled in the Lok Sabha on November 18. Rs 27.8 crore was seized until September 30, 2016, the data further reveal.
The value of fake currency in circulation at any given time is Rs 400 crore, and 250 in every million notes are fake, according to a 2015 joint study by the Indian Statistical Institute and National Investigation Agency, to analyse fake-currency trends, especially those originating across India's borders.
The study estimated that fake currency worth Rs 70 crore enters circulation every year, with agencies only being able to intercept one-third of it. The detection of fake currency is carried out primarily by commercial banks, but such reporting is irregular: Only three banks -- Axis, HDFC and ICICI -- report about 80 percent of fake currency detected.
In 2012, the then Finance Minister Pranab Mukherjee wrote a white paper on black money in India, which revealed that the cash component of undisclosed incomes ranged from 3.7 per cent to 7.4 per cent, based on searches conducted by the Central Board of Direct Taxes.
For instance, in the financial year 2011-12, of undisclosed admitted income of Rs 9,289 crore, no more than Rs 499 crore (5.4 per cent) was found in cash, according to the white paper.
On November 17, Sitaram Yechury, General Secretary, Communist Party of India (Marxist), tweeted: "Black economy is only 6% Cash, rest wired. Counterfeit currency 0.025% of total currency. So what is the Demonetisation move targeting?"
Yechury's claim was based on a Hindustan Times analysis of data from tax raids for the financial year 2012-13 onwards. Cash recovered was less than 6 percent of the undisclosed income seized from tax evaders, said the newspaper.
Data from income-tax investigations between April 1 and October 31, 2016, revealed that black-money holders accepted having Rs 7,700 crore worth of unaccounted assets; of this, Rs 408 crore, or 5 percent, was cash. The rest was invested in business, stocks, real estate and benami bank accounts, the data showed.
In 2015-16, a year that reported the largest detection of black-money, 6 percent was cash.
"While, in the public eye, piles of cash are synonymous with corruption, we should be careful about distinguishing between the three components of the black economy.
The first is the underlying source of corruption. An example of this would be the high stamp duties on real estate transactions that lead to payments in cash. The second is the methods adopted for storing unaccounted wealth. An example of this would be holding assets in gold. The third element is the method through which transactions are effected. This could involve cash," Vijay Kelkar and Ajay Shah wrote in the Mint.
"The black economy involves all three elements. Targeting unaccounted cash on one particular day is only a small part of the story."