The government has decided to phase out coins of 25 paise denomination and below from June 30, 2011.
So, 50 paise will be the only small coin in circulation now.
The finance ministry made this announcement on Thursday, a few hours after the soaring food inflation rate was made public.
Annual food inflation touched a high of 14.44% for the week ended December 18, from 12.13% a week ago, that got even finance minister Pranab Mukherjee worried. Although there’s no direct relation between the two developments, observers pointed at the futility of small coins at a time when prices were sky-rocketing.
Currently, small coins (including 50 paise) in circulation constitute over 50% of the total volume of coins.
As of March-end 2010, there were 54,738 million pieces of small coins in circulation.
The value of small coins stands at Rs1,455 crore, according to the Reserve Bank of India (RBI) annual report.
The total volume of coins, including small coins in circulation, increased 5.3% during 2009-10, compared with 4.7% the previous year, the apex bank has pointed out.
In value terms, the increase was 11.2% during 2009-10, as compared with 9.6% a year ago, according to the central bank.
Also, it said that both value and volume of banknotes in circulation increased during 2009-10, and the Rs 10 denomination showed the highest rate of growth in terms of both value and volume.
With coins below 50 paise getting called off, subscribers are likely to face a problem while making payments unless the pattern of pricing is altered.
From June 30, the small coins (25 paise and below) shall cease to be a legal tender for payment as well as on account, the finance ministry has said.
“The procedure for call in shall be notified separately by the Reserve Bank of India,” according to finmin.
Not only will these coins not be accepted in transactions, the minimum denomination coin acceptable for transaction will be 50 paise from that date. “Also, in accounting, the entries in books of accounts, pricing of products/services/taxes shall also be rounded off to 50 paise or whole rupee,” the finance ministry has pointed out.
A high level group on systems and procedures for currency management constituted by the RBI submitted a report in August 2009, to enhance the integrity and efficiency of the systems and procedures for stocking and distribution of currency notes. The group emphasised the use of technology as the prime imperative for the changes needed in currency management.
The group also suggested different measures for detecting counterfeit notes and maintaining good quality notes in circulation, and strengthening security systems.
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