India’s sudden withdrawal of the 500 and 1000 rupee notes from circulation has caused chaos, with petrol stations and other retailers refusing to accept the larger notes and bank cash machines staying closed.
In a televised address to the nation last week, Narendra Modi, India’s prime minister, announced the notes would no longer be legal tender from midnight in order “to break the grip of corruption and black money”.
The 500 and 1000 notes, which are worth around $7.50 and $15, are the largest notes in use in India which is still a heavily cash-intensive economy.
All banks and cash machines were ordered to close on Wednesday in preparation for the turnaround, prompting a late-night rush by customers to withdraw smaller notes from ATMs.
Customers will be able to exchange their old notes for new ones or deposit them into their accounts but face the prospect of major scrutiny by tax authorities if they cannot account for a sudden swell in their balance.
Long queues built up outside cash machines before the midnight deadline as customers tried to withdraw 100 rupee notes.
While the move was praised by business leaders and commentators, Indian stocks plunged six percent in early trade – a fall also partially attributed to uncertainty caused by Donald Trump’s surprise strong showing in the US election.
About $439 billion left the country illicitly from 2003-2012, according to estimates from the Global Financial Integrity group in Washington DC.
Only 2.89 per cent of Indians pay any income tax at all, India’s previous finance minister told parliament in 2013.
Since coming to power in 2014, Modi has pledged to crack down on so-called black money with a series of new measures, including 10-year jail terms for evaders.
The latest announcement comes a little over a month after the government raised nearly $10 billion through a tax amnesty for Indians to report undeclared income and assets.