I have already told the meaning of seigniorage term. It means earning of government for issuing new notes. It is the indirect way for collecting money without telling public. In public finance, this is done due to increase of fiscal deficit. But now Indian Financial Media has changed seignorage term with new simple term. It means inflation tax.
Why is Seignorage being Used as Inflation Tax
Suppose, govt. makes a Rs. 500 notes by paying just Rs. 100 total cost and earns Rs. 400 from public. So, to attach tax word with inflation is most suited instead of saying seignorage it. I always say it as to rob public because there is no any provision of any Indian Law to get money through this hidden tax.
Provision of Inflation Tax in Budget 2011
In FY11's budget, the central govt. will get money 0.3% of total GDP. Suppose if India's GDP is at US$1.3 trillion, it means central govt. will get revenue of its 0.3% through inflation tax. This will also useful for govt. to reduce fiscal deficit. After this, govt. will cover fiscal deficit by issuing new notes' cost.