Government approves introduction of one billion polymer banknotes of Rs 10 and 20
The government approved a proposal to introduce one billion polymer banknotes each of Rs 10 and Rs 20 denominations, to be issued initially for field trials and later for regular circulation if the trials succeed, alongside existing paper currency.
The proposal originated from the Reserve Bank of India (RBI), following a recommendation of its Central Board, and was communicated to Parliament in a written reply.
The procurement process is at an early stage; the launch date and total expenditure have not yet been finalised.
In the same set of Parliament replies, the government noted that average retail inflation remains below the RBI's medium-term target, aided by GST rate rationalisation and reductions in customs and excise duties, alongside rising disposable incomes supporting consumption.
Legal Basis of Currency Issuance in India
The Reserve Bank of India holds the sole right to issue currency notes in India under Section 22 of the RBI Act, 1934. Section 25 of the same Act provides that the design, form, and material of bank notes are decided by the Central Government, on consideration of recommendations made by the RBI's Central Board. This is why the polymer note proposal required Central Board recommendation followed by government approval before field trials could proceed. Polymer substrate notes are more durable, harder to counterfeit, and resistant to soiling compared to the cotton-based paper currently used for Indian banknotes.
Key Details
- Statutory basis: Section 22, RBI Act, 1934 — sole right of RBI to issue notes.
- Statutory basis: Section 25, RBI Act, 1934 — design/form/material approved by Central Government on RBI Central Board's recommendation.
- India has previously conducted limited field trials of plastic/polymer Rs 10 notes (in cities including Mysuru, Jaipur, Bhubaneswar, Kochi, and Shimla) without full national rollout; countries like Australia, Canada, and the UK have already switched substantially to polymer notes.
The current approval of one billion polymer notes each in Rs 10 and Rs 20 marks a scaled-up attempt at trials that, if successful, could lead to wider issuance of low-denomination polymer currency — a recurring UPSC-testable theme on currency management.
CPI Inflation Targeting Framework
India's flexible inflation targeting (FIT) framework, adopted in 2016 via an amendment to the RBI Act, 1934, mandates the RBI's Monetary Policy Committee (MPC) to maintain Consumer Price Index (CPI) combined inflation at 4%, with a tolerance band of +/-2% (i.e., 2%-6%). The CPI (Combined, Urban+Rural) is compiled monthly by the National Statistical Office under the Ministry of Statistics and Programme Implementation (MoSPI), currently on a 2012=100 base year.
Key Details
- Inflation target: 4% CPI, tolerance band 2%-6%, in force since August 2016 (statutory amendment to RBI Act, 1934, inserting Chapter III-F).
- CPI compiling authority: NSO/MoSPI; base year 2012=100 for the combined index.
- The government noted average inflation currently running below the 4% target, supporting the case for demand-boosting measures like duty cuts.
Low and stable inflation, cited alongside GST and duty reforms, forms the macroeconomic backdrop against which currency and consumption-related decisions such as the polymer note approval are being taken.
GST Rate Rationalisation (Two-Rate Structure)
The GST Council approved a rationalised two-slab rate structure — a standard rate of 18% and a merit rate of 5%, with a special de-merit rate of 40% for select goods (such as luxury and sin goods) — replacing the earlier four-slab structure (5%, 12%, 18%, 28%). This was aimed at simplifying compliance and reducing the tax burden on mass-consumption goods, thereby supporting disposable income and consumption.
Key Details
- New structure: 5% (merit), 18% (standard), plus 40% (special de-merit rate on select luxury/sin goods).
- Effected via a GST Council meeting (56th GST Council meeting), moving items previously taxed at 28% down to 18%, 18% down to 12%/5%, and 12% down to 5%/nil.
- GST Council functions under Article 279A of the Constitution, chaired by the Union Finance Minister with state finance ministers as members.
The government linked GST rationalisation and customs/excise duty cuts to higher disposable income and consumption growth, part of the same policy narrative under which the polymer note trial was announced.
- Polymer banknotes approved: 1 billion pieces each of Rs 10 and Rs 20 denominations, for field trials first.
- RBI's sole right to issue currency: Section 22, RBI Act, 1934; note design/material: Section 25.
- CPI inflation target: 4% (+/-2% band), in force since 2016; base year 2012=100.
- GST two-rate structure: 5% merit rate, 18% standard rate, 40% special de-merit rate (select goods).