Polymer Banknotes, Tax Transparency and Economic Growth: Emerging Implications for India Under GST 2.0

Abstract

India's financial and tax architecture is undergoing a continuing process of technological and institutional transformation. The evolution of Goods and Services Tax (GST), particularly the next-generation GST 2.0 framework, aims to simplify taxation, improve compliance, strengthen formalisation and enhance the transparency of economic transactions. At the same time, cash remains an important component of India's payment ecosystem, making the design, durability and security of banknotes economically relevant. This paper examines the emerging implications of polymer banknotes in India and develops a conceptual link between currency innovation, tax transparency and economic growth. Polymer banknotes can offer greater durability, enhanced security possibilities and potentially lower replacement requirements over their lifecycle. India's earlier policy experience is significant: the Government announced a field trial of plastic-substrate banknotes in five cities, primarily to extend banknote life. International evidence also suggests that polymer notes can have environmental and lifecycle advantages under suitable production and end-of-life conditions. The paper argues that polymer banknotes should not be viewed as a direct instrument of GST collection. Rather, they may complement GST-led formalisation by improving the efficiency and integrity of the physical-cash ecosystem while digital tax systems improve transaction-level traceability. Using secondary sources from the Reserve Bank of India, Government of India, GST Council, IMF and related literature, the paper proposes an integrated framework connecting currency efficiency, financial transparency, tax formalisation and sustainable economic growth. The study concludes with policy recommendations concerning pilot testing, lifecycle costing, recycling infrastructure, accessibility, security, public communication and coordination between currency-management and tax-policy institutions.

Keywords: Polymer Banknotes; GST 2.0; Tax Transparency; Economic Growth; Financial Formalisation; Currency Management; Counterfeit Risk; Sustainability; India