The Rise and Fall of India’s Coin Demand

by Richard Giedroyc

February 25, 2013 – Despite five mints working around the clock with recently updated equipment India has been struggling to keep up with the demand for coins. The situation has become such a problem that the Reserve Bank of India web site has a list of “measures to improve the supply of coins” and another list of “new initiatives for distribution.” An Appeal to the Public posted to the web site includes the statement, “Members of [the] public are requested to avoid holding on to coins and instead use them freely for transactions to ensure that there is a smooth circulation of coins. Voluntary agencies are requested to educate the public about the various facilities available in their areas for distribution of coins, exchange of soiled notes, and proper handling of notes.” The facilities of which the RBI speaks are 19 offices, 4,422 currency chest branches, and 3,784 small-coin depots throughout the country at which coins are issued directly to the public.

India demonetized its 25-paise coin or chavanni in August 2011, a move that logically appears to assist alleviating the chronic coinage shortage. The 50-paise coin or athanni remains as legal tender, but the coin represents so little value that many banks have programmed their software to round off to the nearest rupee. This too, appears to be favorable to ending India’s supply side coinage problems.
The demand for these, the two lowest denomination coins may be fading, however India has in recent years added 5- and 10-rupee coins to the mix. These denominations have become necessary for the same reasons the 25- and 50-paise are no longer necessary – inflationary pressures. It is less expensive to have these rupee denominations in coinage format than as bank notes since the coins will likely last 20 to 40 years while the bank notes might survive for as much as 18 months.
There is no arguing the use of the paise coins is in decline. According to Reserve Bank of India statistics, there were approximately 54.738 million 25- and 50-paise coins in circulation in March 2010, representing 52 percent of all coinage outstanding at that time. In March 2013 this number declined to approximately 14.788 million coins or 17.5 percent of all coins in use.
The inflationary impact on supply side logistics can be seen through other RBI figures. There were an estimated 29.461 million India 1-rupee coins representing 28 percent of all coins in circulation in 2010. This number has increased dramatically to about 35.884 million coins or 42 percent in 2013.
Overall the RBI estimated in March that there were approximately 84.727 million coins in circulation. (These are in denominations of 50 paise, 1, 2, 5, and 10 rupees.)
India’s coin shortage isn’t over. The demand for one denomination may be in decline, but demand for others is on the rise. Considering coins will serviceable for so much longer than are their paper bank note counterparts the number of new 10-rupee coins entering circulation may eventually solve the problem by itself.
In the mean time, the RBI continues to seek a solution for the immediate problem through opening single-window counters through which coins of various denominations are made available to the public in pouches, while mobile coin counters are being made available in commercial districts where there is a need to exchanged soiled bank notes for coins.

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