When India's central bank admitted discovering 400,000 fake notes in its currency reserves, many here woke up to the scale of the country's counterfeit money problems. Worse still, the embarrassing admission related to a survey from the last financial year to March 2009 and authorities say the problem has since got worse.
Police and the central bank have observed a tripling in the value of notes detected or seized in raids in recent years and authorities are convinced the source of the deluge is a familiar foe across the border: Pakistan.
"We have had some success in tracking the routes and will continue to counter it, but behind this racket is an organised effort in Pakistan and PoK (Azad Kashmir)," Home Minister P. Chidamabaram said recently.
"It's not just a cottage industry." Hardly a day passes without news of arrests of currency smugglers, but police say they are only catching the small-fry racketeers while the big fish printers act with impunity over the border.
Many locals here complain of withdrawing fake notes from bank machines and ever-vigilant shopkeepers routinely check the water marks that are meant to protect the larger denomination 500 and 1,000-rupee notes.
A report this year by the Directorate of Revenue Intelligence (DRI), a state body that tracks money flows, said counterfeit currency was brought in by militants from abroad and then moved through criminal networks.
The DRI said that 130 million high-quality counterfeit notes were being smuggled into India every year and only a fraction were detected. The security establishment is now clamouring for more scrutiny of India's banking system and the central bank, the Reserve Bank of India (RBI), has instructed nationalised banks to install sorting machines to weed out fakes.