In big demonetisation blow to Narendra Modi government, almost all Rs 500, Rs 1000 notes deposited in banks

Indians have deposited nearly all the currency bills outlawed at the end of the deadline last year, according to people with knowledge of the matter, dealing a blow to Prime Minister Narendra Modi’s drive to unearth unaccounted wealth and fight corruption, reports Bloomberg.

Banks have received R14.97 lakh crore as of December 30, the deadline for handing in the old bank notes, the people said, asking not to be identified citing rules for speaking with the media. The government had initially estimated about R5 lakh crore of the R15.4 lakh crore rendered worthless by the sudden move on November 8 to remain undeclared as it may have escaped the tax net illegally.

A full validation of the banknotes is a setback for Modi who had been relying on this move to burnish his administration’s corruption fighting credentials and boost its popularity ahead of key state elections. The anti-corruption measure has dented economic growth and forced millions into lengthy bank queues, though it remains broadly popular.

“The prime minister had been ill advised and the government was not prepared to handle the situation,” said Nilakantha Rath, honorary fellow at the Indian School of Political Economy. “The government expectation has been belied.”

Private indicators published over the past week signal that the $2-trillion economy will be hurt by the cash clampdown, raising fears that a continued slowdown will strip India of its position as one of the world’s fastest-growing major economies.

Banks have disbursed about Rs 8 lakh crore in new currency bills, the people with knowledge of the matter said. The figures of banknotes deposited are provisional and may change, they added. Finance ministry’s spokesman DS Malik didn’t respond to a call and a message sent to his mobile phone.

Although Modi’s credibility has been dented, the jury is out on the long-term economic and political fallout. So far his public support remains strong, with some standing in lines waiting to access cash still voicing their approval of his decision to target unaccounted wealth.