December 1, 2011 – Small Indian rupees were made of stainless steel. Due to this fact people made profit melting down the coins and transforming them into razor blades. From a 5 rupee coin you would get five razor blades each worth a couple of rupees. For years enormous masses of coins disappeared and most of them were smuggled into Bangladesh.
Especially in the north-eastern border regions of India change became so rare that people used alternative money. BBC journalists report that inside of an Assam tea garden cardboard coin-slips were used instead of legal currency. People dragged coins out of circulation quicker than India’s Central Bank could produce them.
Therefore this year the Indian government took legal steps introducing new coins. In June 2011 the smallest coins were completely abandoned, the higher denominations are no longer made of stainless steel but other alloys which are not so easy to transform. India now uses cupro-nickel, nickel brass and similar metal alloys.
An interesting BBC article on this topic you can find here.
The official press release of the Reserve Bank of India concerning the new issues is online here.