India's Polymer Banknote Moment Should Begin at Home, Not Abroad

When the Reserve Bank of India Governor said after the June 5 Monetary Policy Committee meeting that the proposal to introduce polymer currency notes remained under consideration, it ended speculation that pilots for ₹10 and ₹20 notes were imminent. More importantly, it revived a debate that has surfaced repeatedly over the past two decades: should India replace paper currency with polymer banknotes?

This is not the RBI's first attempt. A proposal to introduce polymer notes was floated in 2009 but never took off. Legally, the decision rests with the central government under Section 25 of the RBI Act, 1934, after considering the recommendations of the RBI's Central Board. As recently as February 2024, the Minister of State for Finance told the Rajya Sabha that no decision had been taken to introduce plastic notes.

That may have been the official position then, but the issue is unlikely to disappear. For all the gains made by digital payments, India remains a cash intensive economy.

Despite the remarkable expansion of digital payments, cash usage remains resilient. An RBI survey on household payment behaviour found that both individuals and small retailers continue to display a strong preference for cash, even where digital alternatives are readily available.

Between 2017-18 and 2025-26, the value of banknotes in circulation grew at a compound annual rate of 17.6%, well ahead of the 11.4% growth in digital payments during the same period. It also outpaced the 13.8% growth recorded in the years preceding demonetisation.

Currency in circulation has climbed from ₹17.77 trillion after the November 2016 demonetisation to ₹42.55 trillion as of May 22, 2026. India also remains among the world's most cash dependent economies. According to the Bank for International Settlements, banknotes and coins in circulation were equivalent to 11.3% of nominal GDP in 2024, the third highest among 20 countries surveyed, compared with a median of 6.5%.

That dependence comes at a price. It keeps the RBI's expenditure on security printing high (Chart 1), complicates the management and disposal of soiled notes, and increases exposure to counterfeit currency.

 

Based on RBI data. # Lower than 2024-25 due to reduced indent during 2025-26.

Future Ready

Across the world, governments are moving to protect its continued use. Several countries have enacted or amended laws guaranteeing the right to pay in cash, while others require businesses to continue accepting cash as a valid means of payment. As demand for physical currency persists, central banks are seeking banknotes that last longer, are harder to counterfeit and require fewer replacements.

Polymer banknotes address many of the weaknesses of paper currency. They last longer in circulation, are much harder to tear or counterfeit, and withstand moisture, dirt and microbial contamination far better than cotton based notes. While they cost about twice as much to produce, their longer lifespan, typically 2.5 to four times that of paper notes, substantially lowers replacement costs over time. More than 70 countries are expected to have adopted polymer banknotes, either fully or partially, by 2030.

Australia's experience is particularly instructive. It introduced polymer banknotes in 1988 after two decades of research and development. The Reserve Bank of Australia estimates that it spent around AU$30 million on developing the technology between 1968 and 1988, along with AU$2 million on public awareness. At today's prices, that investment would be worth roughly AU$150 million.

Over the past 25 years, Australia estimates net savings of around AU$1 billion, with lower denomination notes accounting for most of the gains. The country also went on to become a global supplier of polymer substrates and printed banknotes.

The Indian Challenge

For India, the RBI's reported plan to begin with ₹10 and ₹20 notes appears sensible. Together, these denominations accounted for 24% of the total number of notes in circulation in 2025-26, making them an appropriate testing ground.

A successful transition could reduce long term currency management costs, improve security features and support broader environmental objectives by reducing the frequency with which notes need replacement.

However, replicating Australia's success will require much more than changing the material on which banknotes are printed.

India currently produces all its banknotes at four high security presses and has invested heavily, along with the RBI, in two banknote paper manufacturing facilities. A shift to polymer could leave parts of this infrastructure underutilised while requiring fresh investment in specialised presses and entirely new production capabilities.

More importantly, polymer substrate technology is not yet available domestically at scale. Any rapid transition would inevitably increase dependence on imported substrates and expensive equipment. Given that currency production is intrinsically linked to national security and monetary sovereignty, relying extensively on foreign suppliers would be strategically unwise. India's past experience with overseas currency printing contracts has not been free from controversy.

Any large scale replacement of currency could revive public anxieties associated with the 2016 demonetisation, even if the policy objectives are entirely different.

Technology cannot wait indefinitely for preparedness. Equally, preparedness cannot be sacrificed for speed.

A more prudent approach would be for the RBI to earmark around 1% of its annual surplus over the next two or three years to fund indigenous polymer banknote research. Working with leading Indian scientific institutions and industry, the country could develop its own substrate technology within five years.

If India is to embrace polymer currency, it should do so on its own technological foundations. That would make the next generation of banknotes not merely more durable, but genuinely Made in India.

Views expressed are personal.