India has been facing the menace of fake currency for quite a long time. It is known that Pakistan's external intelligence agency, Inter Services Intelligence (ISI), is the major supplier of FICNs in India, and partly underpins its proxy war with counterfeit currency, which is also seen as an instrument for destabilising the Indian economy.
The Government of India has introduced several initiatives to tackle the problem of FICN. A Terror Funding and Fake Currency Cell (TFFC) was established in 2010 under National Investigation Agency (NIA), to detect and interdict terrorist funding and FICN. 
As Bangladesh is a major route for the transfer of FICN into India, New Delhi and Dhaka inked a memorandum of understanding (MoU) for full cooperation to tackle the problem of fake currency smuggling, at a meeting of the Joint Task Force on Fake Currency Notes (JTFFC) in Dhaka held on August 12 and 13, 2015. 
In a 'major step' to deal with the problem of black money and FICN networks the Government decided, on November 8, 2017, to demonetize old notes of INR 500 and INR 1000 and replaced them with new INR 500 and INR 2,000 notes. Prime Minister Narendra Modi thus announced, 
.But have you ever thought about how these terrorists get their money? Enemies from across the border run their operations using fake currency notes. This has been going on for years. Honest citizens want this fight against corruption, black money, benami property, terrorism and counterfeiting to continue. This step will strengthen the hands of the common man in the fight against corruption, black money and fake currency.
Though the actual benefits of the demonetization process are yet to be quantified, reports suggest that this step has not brought the desired result in stemming the FICN flow to as large an extent as projected by the Government.
Indeed, after a short span of just three months after the demonetisation process, it was reported that 'high quality' FICNs of new INR 2,000 were again being pushed into India across borders, especially through Bangladesh. FICNs of INR 2000 denomination pumped into India through the bordering districts of West Bengal - Malda and Murshidabad - demonstrate that, in some cases, the 'agencies involved' have managed to copy 11 out of the 17 security features of the new notes printed by the Reserve Bank of India. Sources indicate that these FICNs look more like the original than those recovered during earlier raids in Bengaluru, Gujarat and Haryana, which were essentially colour copies printed on laser or inkjet printers.
Crucially most of the cases related to FICNs after the demonetisation have been traced to Bangladeshi borders, especially along the Malda and Murshidabad Districts of West Bengal, and the East Khasi and South Garo Hills of Meghalaya, among other points. On April 5, 2017, Union Minister of State for Home Affairs, Kiren Rijiju informed the Rajya Sabha (Upper House of Indian Parliament):
.within six months of introducing new currency notes of Rs 2,000 and Rs 500 denominations, fake currency in both denominations worth Rs 6.2 crores [INR 6,20,00,000"> has been recovered. The fake currency peddlers are also using a new route now. Most of the money has been routed via the porous Indo-Bangladesh border. Over Rs 30 lakh [INR 30,00,000"> were recovered from West Bengal alone and another Rs 4.68 lakh [INR 4,68,000"> from Assam. Only Rs 2.52 lakh [INR 2,52,000"> were recovered from Jammu and Kashmir, another Rs 4.4 lakh [INR 4,40,000"> from Punjab and Rs 2.3 lakh [INR 2,30,000"> from Himachal Pradesh.
According to partial data compiled by the South Asia Terrorism Portal (SATP), a total of 122 persons were arrested along with FICNs with a face value of INR 48,076,090 from different parts of the country after the demonetization on November 8, 2016 (data till June 29, 2017). Among them, 21 persons were arrested from Gujarat along with FICNs worth of INR 15,253,500 and 17 persons were arrested from West Bengal along with FICNs worth of INR 6,766,000. 
Investigations related to most of the FICN cases in Gujarat revealed their 'Malda (West Bengal) connection'. Moreover, several Bengalis and even Bangladeshi citizens have been arrested in connection with these cases in Gujarat. In some cases, Police also recovered Bangladeshi currency. Police suspect that labourers from West Bengal who work in Gujarat were being used as 'mules' to circulate FICN in Gujarat. In addition, Bangladeshi law-enforcement agencies identified and neutralized a FICN racket in Dhaka on April 17, 2017, and discovered that Inter Services Intelligence (ISI) operatives trained local Bangladeshis and provided them with FICN-printing technologies, enabling their production within Bangladesh.
A June 22, 2017, report revealed that the National Investigation Agency (NIA) had warned the Uttar Pradesh (UP) Anti-Terrorist Squad (ATS) about 80 Bangladeshi women in Agra and Firozabad in UP, who were suspected to be engaged in FICN dealings. Most of these women are believed to pose as grocery vendors, while their real business is dealing in fake currency. According to the report, the activities of these women, whose identities have not yet been disclosed, are being monitored by NIA.
Though FICNs are principled pumped in through the India-Bangladesh border, large quantities have recovered in Gujarat. However, their source and origin remains Pakistan. Worryingly, in February 2017, Intelligence inputs confirmed that the Inter Services Intelligence (ISI) had activated its networks in Bangladesh and Nepal, once again to transfer FICN into India. Reports indicate that ISI has roped in gang lord Dawood Ibrahim's network - the principal 1993 Mumbai serial bombings accused - and are using his men, who also function in Mumbai. 
While FICNs of the denomination INR 100 are also in circulation, ISI started printing high quality INR 2,000 and INR 500 notes almost immediately after the release of the new currencies. Intelligence Bureau (IB) officials also suspect that the 'Rawalpindi module' may have printed at least INR 1,000 crore worth of FICN in January 2017. According to sources, the notes are printed in Rawalpindi and transferred to Dubai (UAE) through flights, from where they are transported to Dhaka in Bangladesh, again by air, after which 'mules' (couriers) are hired to drop off consignments at Malda in West Bengal, which has become a major hub of FICN and illegal narcotics smuggling. Unsurprisingly, the Bangladeshi media has reported several instances of FICN recovery by their authorities, and all the arrested FICN smugglers were seen to have a direct link with Pakistan. 
According to the Government of India, high quality FICNs are printed in sophisticated presses located in Pakistan, and are distributed through a self sustaining criminal network in the South and South East Asian Region, transferring fake notes to via Nepal, Bangladesh, Thailand, Malaysia, Sri Lanka and the United Arab Emirates (UAE). The Gujarat Police suspects that the FICN have been pumped into the State as part of an international racket originating from Pakistan and Dubai and coming to India, and especially Gujarat, via Bangladesh and Nepal.
India's administrative and security measures have evidently failed, thus far, to stem the flow of FICNs across borders, and this constitutes a major obstacle to dealing with the threat of terrorism as well. According to a June June 20, 2017, report citing intelligence sources), terrorist outfits such as Lashkar-e-Toiba (LeT), Jaish-e-Mohammed (JeM) and Indian Mujahideen (IM), which were in relative hibernation for the preceding three to four years in the southern States, were now reviving their 'sleeper modules' for subversive activities, including pushing FICNs of the newly-issued INR 2,000 and INR 500 denominations into these States to finance their activities and trigger unrest. An unnamed senior intelligence officer was cited as stating, `To avoid detection, these modules are suspected to be using proxies to push through the FICN to Tamil Nadu, Kerala and Karnataka. These currencies are brought in from neighbouring countries via West Bengal, Assam and Punjab.` The report further stated that intelligence agencies were monitoring the flow of INR 2,000 and INR 500 FICNs to southern states post demonetisation, and had found that the maximum flows were reported from Gujarat, West Bengal, Assam and Punjab.
Absent failsafe security features and continuously renewed designs, counterfeiters appear slated to stay ahead of enforcement agencies seeking to check the flow of FICN into and across the country.