Government of India
Ministry of Finance
Department of Economic Affairs
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Press Release
With a view to curbing financing of terrorism through the proceeds of Fake
Indian Currency Notes (FICN) and use of such funds for subversive activities such
as espionage, smuggling of arms, drugs and other contrabands into India, and for
eliminating Black Money which casts a long shadow of parallel economy on our
real economy, it has been decided to cancel the legal tender character of the High
Denomination bank notes of Rs.500 and Rs.1000 denominations issued by RBI till
now. This will take effect from the expiry of the 8th November, 2016.
2. Fake Indian Currency Notes (FICN) in circulation in these denominations
are comparatively larger as compared to those in other denominations. For a
common person, the fake notes look similar to genuine notes. Use of FICN
facilitates financing of terrorism and drug trafficking. Use of high denomination
notes for storage of unaccounted wealth has been evident from cash recoveries
made by law enforcement agencies from time to time. High denomination notes are
known to facilitate generation of black money. In this connection, it may be noted
that while the total number of bank notes in circulation rose by 40% between 2011
and 2016, the increase in number of notes of Rs.500/- denomination was 76% and
for Rs.1,000/- denomination was 109% during this period. New Series bank notes
of Rs.500/- and Rs.2,000/- denominations will be introduced for circulation from
10th November, 2016. Infusion of Rs.2,000/- bank notes will be monitored and
regulated by RBI. Introduction of new series of banknotes which will be distinctly
different from the current ones in terms of look, design, size and colour has been
planned.
3. The World Bank in July, 2010 estimated the size of the shadow economy for
India at 20.7% of the GDP in 1999 and rising to 23.2% in 2007. There are similar
estimates made by other Indian and international agencies. A parallel shadow
economy corrodes and eats into the vitals of the country’s economy. It generates
inflation which adversely affects the poor and the middle classes more than others.
It deprives Government of its legitimate revenues which could have been otherwise
used for welfare and development activities.
