The government has approved the Reserve Bank of India’s proposal to release one billion pieces each of Rs 10 and Rs 20 polymer banknotes for field trials, Finance Minister Nirmala Sitharaman said in a written reply to the Rajya Sabha. The proposal, submitted by the RBI’s central board under Section 25 of the Reserve Bank of India Act, 1934, seeks to introduce the notes initially for field trials, with regular issuance proposed after the successful completion of the trials. "The proposal has been approved by the government. As per the RBI, these polymer banknotes are proposed to be issued along with paper substrate-based banknotes," Sitharaman told parliament.
Field-trial scope and timeline
The government has authorised the RBI to print up to 2 billion polymer banknotes for the field trials — 1 billion each in the Rs 10 and Rs 20 denominations. The RBI said the procurement process is at an initial stage, so the exact timeline for introducing the notes and the expenditure involved cannot be determined at present. The central bank is targeting circulation of the polymer notes from the beginning of the next financial year, "if everything goes as per plan," RBI Governor Sanjay Malhotra said earlier. The plan is not to replace paper currency completely; polymer and paper-based notes will continue to circulate together as legal tender.
Why the RBI is testing polymer notes
Malhotra said the move towards polymer notes is aimed at improving durability, particularly for lower denominations that have a higher velocity of circulation and therefore a shorter lifespan. "One is that it enhances the durability. This is relevant especially for lower denomination notes where the velocity is higher, and so therefore the lifespan is lower," he said. He also pointed to the experience of other countries, where polymer notes have been in circulation for more than 30 years. "These notes have been in circulation for more than 30 years in various countries, and one finds that the life is much more - two to four times the life of the paper substrate," he added.
Inflation and tax measures in parliament reply
Sitharaman told parliament that average retail inflation fell from 5.4 per cent in 2023-24 to 4.6 per cent in 2024-25 and then to 2.1 per cent in 2025-26. The downward trend was followed by a rise to 3.9 per cent in the first quarter of 2026-27, driven by the commodity price shock and elevated global energy prices resulting from the Middle East crisis, a seasonal increase in vegetable prices and expected unfavourable El Niño conditions. Despite the rise, retail inflation remained below the RBI's 4 per cent target, she said.
| Period | Average retail inflation |
|---|---|
| 2023-24 | 5.4% |
| 2024-25 | 4.6% |
| 2025-26 | 2.1% |
| Q1 2026-27 | 3.9% |
On taxation, the minister noted that the 56th meeting of the Goods and Services Tax (GST) Council brought in a two-rate structure with a standard rate of 18 per cent, a merit rate of 5 per cent and a special de-merit rate of 40 per cent for a select few goods and services, inclusive of the earlier compensation cess rate and hence with no increase in overall tax burden. Following the GST changes, rates were rationalised — reductions from 28 per cent to 18 per cent, from 18 per cent to 12 or 5 per cent, and from 12 per cent to 5 per cent or nil. Alongside indirect tax measures, the government has raised the disposable income of individuals, Sitharaman added.
What the approvals mean for business and treasury
For corporate and treasury teams, the polymer-note trial introduces a defined timeline for cash-cycle management for the Rs 10 and Rs 20 denominations. The RBI's durability rationale implies lower replacement frequency for high-velocity notes, potentially reducing cash-handling and logistics costs for banks and businesses that process large volumes of lower-denomination currency. The government's inflation and tax messaging also matters for cost of capital and pricing: retail inflation running below the RBI's 4 per cent target, combined with GST rate rationalisation across multiple slabs, points to contained input-cost pressure and a consumption-supportive tax environment, while the stated increase in disposable incomes feeds into demand forecasts. The approval also confirms that polymer and paper notes will coexist as legal tender, so treasury systems must be ready to accept both substrates once the notes enter circulation at the beginning of the next financial year.
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