November 11, 2016 3:15 am JST
KIRAN SHARMA, Nikkei staff writer
People throng a State Bank of India branch in New Delhi on Thursday to redeem old bank notes suddenly removed from circulation.
NEW DELHI — In a sudden move against India’s vast black economy, Prime Minister Narendra Modi’s government demonetized old 500 and 1,000 rupee banknotes — which account for about 86% of the cash in circulation — at midnight on Tuesday to flush out unaccountable wealth held in cash.
Along with a show of identity, the old banknotes can be deposited in accounts from Nov. 10 to Dec. 30 or changed into lower denominations in restricted amounts.
On Thursday, the government introduced new 500 and 2,000 rupee notes, worth about $7.50 and $30, and new 1,000 rupee notes will follow. The replacement notes will be introduced incrementally, and should be circulating fully in in four to six weeks.
Banks were shut on Wednesday, and reopened on Thursday to long queues of people wanting to change money. Most automated teller machines remained shut on Wednesday, waiting to be filled with the new banknotes.
Online shoppers meanwhile complained when delivery companies declined their cash payments, and traditional retailers across India were often left idle.
“I am happy that I reached my State Bank of India branch early in the morning and could withdraw new currency from my account,” said Shiv Singh, a New Delhi resident who like everybody else was limited initially to 10,000 rupees a day and maximum weekly withdrawals of 20,000 rupees.
Others were less fortunate. When Sushila Kukreti in neighboring Uttar Pradesh state saw over 100 people ahead of her in the queue at the bank, she went home.
“I have run out of smaller banknotes, and it has become very difficult to buy household essentials,” she said. “I’ll visit my bank again tomorrow and try to either withdraw cash or exchange the old notes with new ones.”
The taxman cometh
Authorities warned that cash deposits exceeding 250,000 rupees that do not match the declared income of the account holder may be treated as tax evasion and be liable to a penalty of 200%.