India’s cabinet approved an ordinance on Wednesday to penalize anyone found holding a large amount of scrapped banknotes in the ongoing battle against the shadow economy that has caused a cash crunch throughout the country.
After December 31, anyone found with a large amount of demonetized 500 rupee and 1,000 rupee banknotes will be liable to a jail term of up to four years and a fine of five times the value of the money they are caught with.
The Specified Bank Notes Cessation of Liabilities Ordinance still allows people to exchange up to 10,000 rupees worth of illegal banknotes at offices of the Reserve Bank of India until March 31, 2017.
However, “there will be strict monitoring of the source of the old notes exchanged after December 30 at RBI offices,” said a finance ministry official.
Sources said the ordinance was being introduced to prevent future law cases against the government for ditching the 500 rupee and 1,000 rupee notes in a shock announcement by Prime Minister Narendra Modi on November 8 that took 86% of the country’s money out of circulation.
The sudden change was an effort to fight corruption and black money — cash that dodges taxes or is illegally obtained, it has caused chaos in all sectors of society and business, with analysts predicting the disruption could knock 1% off India’s 7.3% growth rate.
Modi originally asked people to be patient for 50 days before punishing him for any shortcomings found in with the strategy. With the deadline passed, there are still large queues outside banks as people line up to deposit canceled notes or try to withdraw cash from ATMs which constantly run dry.
The government has been encouraging people to switch to electronic payment systems to create a “less-cash society,” but that is a huge change for a country where but as 90% of daily transactions in India are made using cash.
Latest reports say of the 15.4 trillion rupees worth of old notes, 14 trillion rupees worth of new notes have been returned to the system.