India currency bombshell

Simon Jack
Business editor

image copyrightAFP/Getty

Watching an Indian news channel I was intrigued to see a newsflash that Prime Minister Narendra Modi was about to address the nation.

As I am in Delhi to report on the UK Prime Ministers trade mission to India, I assumed it was an announcement in some way connected to the UK and India's future trade relationship.

It was much much bigger than that. The Indian PM announced the withdrawal of 500 (£6.50) and 1,000 (£13) notes from circulation from midnight tonight. Wow.

The waiters at the restaurant where i was enjoying a Mutton Rogan Josh were open mouthed in astonishment - but totally supportive.

We have too much "black money" in the economy - one told me. According to the chef who emerged from the kitchen to watch the news Mr Modi is doing the right thing - cracking down on an unmanageable, untaxable illegal economy.

"Lots of people who come in here pay in bundles of cash that is unknown to the government. It is good what Mr Modi is doing."

Caught off guard

Not a single news agency seemed to know this was coming. The news anchor I am watching as we speak produced a wad of 500s from his own pocket on air wondering whether these were now just pieces of paper - and also wondering if the bars of Delhi would see a sudden surge of business.

It has caught the country completely off guard. There will also be limits on cash point withdrawals over the next couple of weeks.

Financial officials like the economic affairs secretary are taking to the airwaves right now to assure that the authorities are there to help cushion the shock this will cause to a cash based economy.

The news channels are trying hard to interpret the news for viewers who are worried that they will not be able to get a cab, buy milk, or even have their life savings in cash. It feels they are scrambling right now.

Mr Modi has set his stall out as a modernising, anti-corruption crusader. Scrapping notes that are very, very common is his biggest offensive yet. Most transactions in daily life are in cash and 45% of those are in notes in denominations of 500 rupees and over.

There is a cashpoint downstairs and I need a cab in the morning - do I take out enough for my fare - the waiters are divided on whether they will be usable, the news channels don't appear to know and big queues are forming at the petrol station I can see from my window.

There are global financial shocks which ripple through the world economy for years. This is much more immediate and unexpected. Right now I'm not sure how I'm going to get back to the airport.

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