The scrapping of the existing Rs1,000 ($14.90) and Rs500 notes was an attempt to flush out the illicit cash piles held by tax evaders and bribe recipients. It is far the most aggressive move yet in Mr Modi’s popular drive to tackle corruption.
It could also help accelerate a shift in savings patterns towards formal financial products and away from physical assets — chiefly gold and real estate. These accounted for 58 per cent of household savings in the financial year ending in March, down from 68 per cent three years before, according to analysts at Kotak Institutional Equities.
The attachment to physical assets is explained in part by tradition and fears of inflation. But it also stems partly from the market in gold and real estate having long been driven largely by cash transactions, making such assets a convenient means of parking undisclosed “black money”.