Indian rupee banknotes of various denominations sit in a cash register at at the checkout counter of a Big Bazaar hypermarket, operated by Future Retail Ltd., in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Brace For More Fake Note Discoveries, SBI Report Warns

Despite Reserve Bank of India’s claims that the newly introduced rupee notes are more secure, currency counterfeiters seem to have found a way around it. That could mean more fake note discoveries, a State Bank of India report said today.

“The promise of RBI that new currency notes of Rs 200 and Rs 500 (post demonetisation) are more secure and less prone to counterfeit is not entirely correct,” SBI's house economists said in a report released after the central bank came out with its annual report.

The SBI study said there was a “noticeable increase” in counterfeit notes detected in the denomination of new Rs 500 (up by 4,178 percent) and Rs 2,000 (up 2,710 percent), according to data in the annual report. It added that given the trend, “it is expected that the number of counterfeit notes in the denomination of Rs 500 (new) and Rs 2,000 may increase further and RBI/banks/public should pay more attention to that”.

The annual report said almost all the 500 and 1,000 currency notes that were made illegal on Nov. 8, 2016 have returned to the banking system, prompting the opposition to question efficacy of demonetisation in curbing black money. Banks received Rs 15.31 lakh crore, or 99.3 percent of the Rs 15.41 lakh crore worth Rs 500 and Rs 1,000 notes in circulation on Nov. 8, 2016, when the note ban was announced, RBI said.

This meant just about Rs 10,720 crore of the junked currency did not return to the banking system as against initial estimates of about Rs 3 lakh crore.

The SBI report said that demonetisation and the introduction of the new notes has also aided a sharp decline in counterfeit notes by 31.4 percent to 5.23 lakh pieces in fiscal year 2017-18. It also noted the positive impact on revenues because of the formalisation in the economy started due to the demonetisation and added that at least Rs 30,000 crore will come from the widened tax base.

If we assume a trend 30 percent growth over financial year 2018 numbers then at least around 2 crore new tax payers will file their return in current fiscal. Assuming that 75 percent of such have filed with zero income and only 25 percent paying a minimal Rs 5,000 tax per month then Government will earn extra tax revenue of around Rs 300 billion over and above the trend estimates
SBI Ecowrap

It added that this is the minimum revenue the government will garner as most of the newly added taxpayers in the system are from the higher tax brackets. SBI economists also welcomed the shift in RBI communication strategies, noting that there is more focus on rigorous research now from the earlier strategy of public speeches.