Note Ban: Weak Imported Security Threads In Rs 2,000 & 500 Notes

Using generic and not exclusive security threads in new notes leaves them open to foregry, reports Chandan Nandy.

Discontinuing import of security threads from a British firm compromises the safety of the new notes. (Photo: Lijumol Joseph/ The Quint)

The security threads used in the new Rs 2,000 and Rs 500 notes are “generic” and were supplied by two foreign companies – one Italian and the other American-Swedish. They may not be as foolproof as the one supplied by a British firm, which held a patent for the variant the Security Printing and Minting Company of India Ltd used earlier.

Senior officials in the Reserve Bank of India (RBI) said that the new security threads were procured in January 2016 from Fabriano Security, headquartered in Verona, Italy, and Crane Currency, with American and Swedish “heritage”. The procurement came after the then Finance Secretary Rajiv Mehershi took a firm decision to discontinue the years-old practice of importing the security threads for high-value currency notes from the British Thomas De La Rue which had been blacklisted in 2011.

Finance Ministry sources admitted that it was on the Finance Ministry’s insistence, followed by directives, that Fabriano and Crane were favoured over De La Rue whose international patent, or exclusive rights, over security threads had ended in March 2015. The Finance Ministry’s relationship with Fabriano goes back a long time, especially when it began supplying security threads for the Rs 10 notes.

Also Read: RBI Ensures Future Rs 50 Notes Will Be Poor on Quality, Security

(Infographic: Rhythum Seth/ The Quint)

Blacklisting of Foreign Suppliers

A German company, Papierfabrik Louisenthal GmBH, which is also into manufacturing and selling an “extensive range of security features”, including security threads for Indian banknotes, had earlier been barred by the Home Ministry for selling to Pakistan the same currency printing paper that it sold to India. So was De La Rue, which had to forfeit about Rs 100 crore of security deposit made earlier with the Indian authorities. The decision to forfeit this amount was taken after the Finance Ministry took legal opinion, with Bimal Julka, the then Additional Secretary and Director General, Currency, issuing the necessary directives.

The other reason why De La Rue was blacklisted by the Home Ministry was because it had supplied currency printing paper (worth about Rs 300 crore), which was found to be defective by the Security Printing and Minting Corporation of India Ltd (SPMCIL) following tests. But “exigencies of the situation” forced the Narendra Modi government to remove De La Rue from the blacklist in 2015.

Also Read: Demonetisation: Corrupt Deal Disrupted Printing of Rs 500 Notes

Previous Exclusive Features

Both De La Rue and Louisenthal sold exclusive features that went with the security threads they supplied, with the former using “machine readable earthly metals” in the thin strips used on high-value Indian banknotes, such as the Rs 100 and the recently banned Rs 1,000 and Rs 500 notes.

Besides Mehershi on behalf of the government, two other individuals pushed for the Fabriano and Crane security threads – SP Gupta, an international steel tycoon who owns Liberty House and who was named in the Panama Papers, and Mumbai-based Vijay Raja of Standard Trading Corporation – on behalf of the two foreign companies.

SPMCIL sources, however, said that while Fabriano supplied the security threads, its products were not tested. In this context, sources recalled the supply and use of Algerian security threads in October 2011 by an Indian company, Arsitocraft, for the Rs 10 notes. This led to an investigation by the CBI.

Also Read: Costly Botch-Up: Rajan Was RBI Guv, But Notes Had Subbarao’s Sign

(Infographic: Rhythum Seth/ The Quint)

Cost of Security Threads

The government incurs a cost of nearly Rs 200 crore annually for the purchase of banknote security threads from foreign firms. This is based on a basic calculation: 10 kg of security threads are required for printing 1 metric tonne (MT) of currency paper. The cost of 1 kg of security thread is Rs 10,000. With the combined currency note production at the Hoshangabad Security Paper Mill and the Mysuru-based joint venture, Bank Note Paper Mill India Ltd, at 18,000 MT, the total cost of security threads is about Rs 200 crore.

But after years of being in the “total grip” of a British company that controlled 95 percent of the global business in production of currency notes, the Indian Finance Ministry has taken only baby steps towards indigenisation which, according to Jaitley (in a speech in May 2015), would lead to combined savings of Rs 1,500 crore in the future.

Also Read: Security Scandal: New Rs 500 Note Is Vulnerable to Counterfeiting

Continuing Reliance on Foreign Firms

However, the RBI and the Finance Ministry’s reliance on exclusive security features, which are “obtained through exclusivity contracts” from foreign firms, will continue, sources said. For two of the most exclusive security features – magnetic security thread and “M Feature” (to ascertain genuineness of currency paper by chemical analysis) – the RBI and Finance Ministry is “completely dependent” on foreign suppliers.

The work on designing and producing high-value currency has been hampered by the absence of an ink chemist in RBI, although there is one at SPMCIL’s Dewas Bank Note Press. Sources familiar with the designing and production of Indian banknotes said that colour running from the new Rs 2,000 notes was “real” and was caused because the “viscous ink did not go through the mandatory 72-hour drying process.”

The sources said that Economic Affairs Secretary Shaktikanta Das was “misleading” when he said that it is “common for new currency notes to lose some colour and that if notes do not lose colour they might be a sign of being fake currency.” Scoffing at Das’ explanation, the sources said that the draining of colour from the new Rs 2,000 notes was the result of not allowing the three days for the ink to dry up.

Also Read:
Govt Denies Rs 500 Note Printing Halted Amid Massive Shortfall
Note Ban: Rs 200, NOT Rs 2,000 Notes Would’ve Ensured Cash Flow
‘Extinguished Cash’ Now Meaningless to Judge Modi’s Demonetisation