Fighting the Fake

Counterfeiting, unreliable suppliers of security features prompt the government to start moving towards complete indigenisation of currency production. Cabinet has given nod to corporatise all mints and security presses, and set up an R&D entity to develop novel features for the Rupee

Shahid Faridi

The Reserve bank of India floated a tender worth between $450-550 million for the supply of 42,000 tons of banknote paper. A substantial part of the value of the tender is in the security features that the paper manufacturers have to supply with the paper as per the specifications of the RBI. One of the security features is a thread with colour shifting effect. The Reserve Bank has signed a contract with a company called De La Rue of the United Kingdom for the supply this colour-shifting thread exclusively for Indian currency notes.

Doubts have now been raised by other foreign companies about the exclusivity of this security feature.

In a letter dated September 2, 2005, to Ashok Jha, secretary, department of economic affairs, ministry of finance, French company Arjo Wiggins Security said "De La Rue has claimed their clourshift thread will be exclusive to India, being a specific thread having a green to blue colour change, but this is not true. They do not have a patent for this thread; nor for the colour change."
Arjo Wiggins Security pointed out that there were other security thread producers, such as Hueck Folien of Germany, Mantegazza of Italy, Louisenthal of Germany and Crane-TGSP of the US. According to Arjo Wiggins, the security thread produced by these companies "have an identical visual appearance to that produced by De La Rue" and "they offer the same green-blue colour change that De La Rue claims will be exclusive to India". Besides, De La Rue does not have a patent for colour shifting effect. De La Rue claims some patents. But these are actually linked only to a specific manufacturing process. But other suppliers have their own manufacturing processes, which might be different from that of De La Rue, but give the same colour-shifting effect.

There is, however, one patent that applies to this thread, This patent is linked to the combination of clear text and magnetic properties. But this is owned by G&D of Germany and has been licensed to several thread suppliers, of which De La rue is one. De La Rue's competitors have asserted that the company can not claim any exclusive manufacturing rights for this feature.
Questions have also been raised about the price De La Rue has offered for the supply of this thread to India.

The decision by the RBI to sign a contract with De La Rue for the supply of the colourshift thread will now force all paper manufacturers who have participated in the tender for the supply of 42,000 tonnes of banknote paper to purchase the colourshif thread only from De La Rue. The RBI's contract has, therefore, eliminated competition for De la Rue, and given it a monopoly in the market.

Paper manufacturers who have participated in the RBI tender have informed the government that because of the contract with De La Rue, all of them are forced to buy the thread from that company at a higher price. They say that the same thread can be sourced about 50 per cent cheaper from other companies which could lead to a saving of between $55-80 million.
Chairman of Arjo Wiggins Security, Phillippe Gelblat, in a letter to the finance ministry said: "Without disclosing any business secrets, I can assure you that De La Rue's prices for India are ridiculously high. De La Rue themselves are currently quoting lower prices for lower quantities to other customers. It is important for me to draw your attention to the fact that the specific colour change of the thread has no impact on the pricing."

The finance ministry responded quickly by asking the RBI to clarify whether De La Rue had a patent for the colourshift thread or not. The finance ministry also sought an answer from the Reserve Bank to the accusations about the high price of the De La Rue thread.

The RBI has maintained silence on the price issue but informed the ministry of finance through a letter dated September 9, 2005, that "the selection of India exclusive security thread as one of the security features of the Indian banknotes of Rs 100, 500 and 1000 denominations was actually recommended by a high-level committee constituted by the ministry of finance."

On the question of exclusivity of the thread, the RBI says "..The issue relating to validity of the patent for the exclusivity, etc., was taken up by us with the Patent Facilitating Centre, Technology Information, Forecasting and Assessment Council (TIFAC), Department of Science and Technology, last year. Now that doubts have arisen about the validity of the patents (as informed in your letter under reference), we have once again taken up the matter with the TIFAC to advise us. We will revert back on the subject after receipt of TIFAC advice."

This is one specific instance of the problems faced by the Union government with regard to securing exclusive security features. The government has been struggling to prevent counterfeiting by continually introducing new security features in the banknotes.

But counterfeiting is continuing unabated. Security agencies have advised the government that to effectively combat counterfeiting, efforts should be made to move towards total indigenisation of security products. Security agencies have recommended that production of raw materials such as security paper, ink and security features should be completely indigenised. They have also suggested setting up of a separate research and development entity to develop novel security features for the Indian currency.

To move towards this goal of complete self-reliance in currency production, the government has decided to first corporatise the existing security presses, security paper mills and government mints.

The department of economic affairs of the ministry of finance has under its administrative
control four security presses, one security paper mill and four India government mints. Besides, these nine units, there are currency presses at Mysore (Karnataka) and Salboni (West Bengal) under the Bharatiya Reserve bank Note Mudran Pvt Ltd (BRBNMPL), a wholly owned subsidiary of the Reserve Bank of India.

The Union cabinet last month approved the proposal for corporatisation of the security presses, security paper mills and government mints.

The corporatisation move will follow the roadmap given by the Industrial finance Corporation of India, which was appointed as a consultant by the government. As per the IFCI proposal, the government will set up a wholly-owned corporation, which will be called Security Printing and Minting Corporation of India. This corporation will take over the assets and liabilities of nine of the eleven units. The currency presses at Mysore and Salboni will remain under the control of the Bharatiya Reserve Bank Note Mudran Pvt Ltd. The assets of the nine units will be transferred to the new corporation for Rs 3,700 crore. The government has been providing an annual grant of about Rs 1,000 crore to the mints and presses. As per the note approved by the cabinet on corporatisation, a one-time interest-free loan of Rs 700 crore will be given to the new corporate entity as working capital.

Besides this, the government has decided to inject between Rs 1,200-1,500 crore for the modernisation of the security paper mill for the indigenous production of security paper. The modernisation of the factory at Dewas, Madhya Pradesh, too is on the list. It will help produce forgery-proof ink. The new Security Printing and Minting Corporation of India will be managed by a board of directors, which will be headed by a full-time chairman and managing director who will be a man having experience and expertise in the field of minting, printing, banking or allied manufacturing areas.

Three of the directors will be part-time government nominees, two will be from the finance ministry and one from the home ministry. There will be three full-time professional directors, one each from the fields of finance and audit; personnel, HRD and vigilance; and technical management. Besides, there will one representative each from the Reserve Bank, the ministry of external affairs and the department of posts.

The government's seriousness about moving towards complete indigenisation of the currency became evident when it set up a committee of experts headed by Baldev Raj, director material group, Indira Gandhi Centre for Atmoic Research, to draw up a road map for the indigenisation of currency-making. Moving fast, Raj set up three sub-committees known as the technical evaluation committees on paper, ink and research and development.

These sub-committees have been asked to indicate a definite time schedule for the completion of
indigenisation of production of security paper, press, ink and development of security features.

The sub-committees have started working full-steam. Work on developing Intaglio ink based security features has already begun at the Dewas factory under the guidance of A N Ingle, convenor of a technical evaluation committee on inks. This sub-committee hopes to go in for final trials of Intaglio ink-based security features in the next few months. The raw material for making this ink has been found satisfactory in the initial trials.

The experts committe is examining the possibility of involving private sector players in currency production. There is a view in the government that the technology, once developed in the public sector, could be passed on to private players for production of currency. A final decision on this, however, is yet to be taken.

The government is likely to set up another group of experts within the department of economic affairs to oversee on a full-time basis the development of currency paper, inks, counterfeiting-resistant designs and the production of currency notes.

While the government has started moving towards complete indigenisation of currency and is focused on making time-bound progress in the areas concerned, it will be crucial not to undermine the importance of keeping a tight vigil on all the deals for procuring paper, inks and other security features till such time as India becomes self-reliant in respect of currency manufacturing