Govt to print plastic currency to foil counterfeiting; scraps all Rs500 notes

The government is working on the introduction of plastic currency notes in its bid to stop counterfeiting of banknotes, even as an abrupt demonetisation drive failed to completely drive out bad money from the economy.

The government also today announced the complete scrapping of old Rs500 notes that were allowed to be used in select transactions involving services offered by government and public sector units.

Minister of state for finance Arjun Ram Meghwal informed Parliament today that the government has taken a decision to print plastic currency notes and that it is in the process of procuring material for printing of plastic notes.

"It has been decided to print banknotes based on plastic or polymer substrate. The process of procurement has been initiated," Meghwal stated in a written reply in the Lok Sabha today.

He said the Reserve Bank of India has for long been planning to launch plastic currency notes after field trials. In fact, the government had, in February 2014, informed Parliament that one billion plastic notes of Rs10 denomination would be introduced in a field trial in five cities selected for their geographical and climatic diversity.

It had also selected cities like Kochi, Mysore, Jaipur, Shimla and Bhubaneswar for the initial float.

Plastic notes have an average life span of about five years and are difficult to imitate. Also, currency notes made of plastic are cleaner than paper ones. Such notes were first introduced in Australia to safeguard against counterfeiting.

Replying to another question, Meghwal said it was informed by RBI in December 2015 that they have received some banknotes of Rs1,000 without having security thread which were printed at Currency Note Press (CNP), Nashik, on paper supplied by Security Paper Mill (SPM), Hoshangabad.

An enquiry has been initiated by Security Printing and Minting Corporation (SPMCIL) and the units involved (SPM and CNP).

"Major penalty/chargesheet has been issued to the personnel concerned. Disciplinary proceedings have been initiated as per departmental rules," the minister said.

Meghwal further said action has been taken to strengthen quality procedure and online inspection system in manufacturing process and special training has been given to the persons concerned to avoid such types of mistakes in future.

"Additional inspections have been introduced to ensure defect-free production," he said.

Old Rs500 notes dead from midnight
The government has withdrawn all exemptions given for the use of Rs500 old notes, from the midnight of 9 December 2016, for making payments at railway ticketing counters, ticket counters of government or buses run by public sector undertakings for purchase of tickets, for making payments to catering services on trains and for making payments for purchasing tickets for travel by suburban and metro rail services.

Government said it has been reviewing the different operational aspects of the matters related to the cancellation of the legal tender character of old high denomination notes of Rs500 and Rs1,000 and that there has been a declining trend in the receipt of these old currency notes. Further, a number of steps have been taken for promoting digital transactions.

Keeping the above in view, the exemptions that have been given for use of old Rs500 notes, were re-examined by the Government and the following exemptions are, therefore, being withdrawn from the mid night of 9 December 2016.