As banknotes are the most common mode of payment in the retail market, the demand for currency has increased constantly with the growth of the economy. As of March 2010, there were 56,549 million banknotes worth Rs 7.88 lakh crore in circulation. The circulation of banknotes, both in value and volume, increased at an annual rate of 16% during 2009-10.
Cashless payment system in India?A roadmap, a study by Ashish Das and Rakhi Agarwal of the Department of Mathematics, IIT Mumbai, shows that the life span of banknotes is declining over the years for most denominations. The study ignores banknotes in currency chests that do not form part of the notes in circulation but are stocks for issue/reissue.
For the past four years, RBI has been spending over Rs 2,000 crore each year for security printing of currency notes. During 2009-10, it spent Rs 2,754 crore for printing currency notes, which was 33.5% more than the previous year. As part of the Clean Note policy, the central bank withdrew and destroyed 13,072 million banknotes in 2009-10 as compared to 11,962 million in 2008-09. The increase in expenditure on security printing was mainly on account of procurement of banknotes and increase in costs of banknotes in different denominations.
By making debit cards more attractive in the retail market, the study suggests that the burden of RBI?s currency management could be brought down. Card transactions at points of sale currently account for about 5% of retail sales in India. The study estimates that every additional 1% increase in the use of debit cards in retail sales can save Rs 28 crore in note-printing costs alone, excluding the huge costs incurred for secured transportation, counterfeit detection and prevention. The savings through use of card-based transactions could then be channelled to bring down expenditure incurred in card transactions and subsidise all switch charges, which will make the usage of plastic money more attractive at points of sale.