India unveils bold measures to curb undeclared money

Replacement of high denomination notes comes with improved security features.

In an unexpected major crackdown against the stock of undeclared money, the government and the Reserve Bank of India (RBI) have jointly announced a plan to replace high denomination banknotes with fresh notes with better security features.

Banknotes of INR 500 will be replaced from circulation during 10 November- 30 December. A new INR 2000 note will be introduced from 10 November. INR 1000 notes will stop being legal tender from midnight of 8 November (except for essential services such as medical care, fuel stations and railway travel, for which existing notes will be accepted until 11 November) and its replacement will be issued over an unspecified period of time.

According to Standard Chartered, the surprise move is likely to further bolster investor confidence in the government's reform agenda. However, in the short term it could cause hardship for the population.

"Withdrawing legal tender notes and keeping banks closed on the next day, 9 November, to make arrangements, could be inconvenient. Also, old notes have to be deposited at banks/post offices, with ID cards required. Thus, individuals might have to queue up to exchange cash in these denominations," it said.

SC added that though the government has taken measures such as limits on cash withdrawal from ATMs to ensure a more uniform withdrawal for various segments of the population, the initial few days have the potential to be frustrating.