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Indian illegal cash crackdown failed

BBC News logo BBC News 30/08/2017

I An Indian supporter of the Chief Minister of the state of West Bengal and leader of the opposition Trinamul Congress (TMC) party Mamata Banerjee holds a placard as she delivers a speech during a protest against demonetisation in New Delhi on November 23, 201: The opposition criticised the move, but failed to dent government popularity © AFP The opposition criticised the move, but failed to dent government popularity
Indians returned almost all of the high-currency notes banned in last year's shock government crackdown on illegal cash, the central bank says.

It said 15.28tn rupees ($242bn) - or 99% - of the money had made its way back into the banking system.

Ministers had hoped the move would make it difficult for hoarders of undeclared wealth to exchange it for legal tender.

The news that it did not will raise questions about the policy, which brought chaotic scenes across India.

Banks ran out of cash after the ban on 500 ($7) and 1,000 rupee notes, which accounted for about 85% of the money in circulation.

At others, police were called in to manage long queues of anxious customers hoping to change their savings.

Many low-income Indians, traders and ordinary savers who rely on the cash economy were badly hit.

Politicians, analysts and ordinary Indians have argued for months over whether so-called Prime Minister Narendra Modi's demonetisation gamble was a success or failure.

Now the data finally provides the answer, on page 195 of the Reserve Bank of India (RBI) annual report.

"As per the RBI data released in the annual report, it is safe to say that demonetisation has been a failure of epic proportions," economic analyst Vivek Kaul told the BBC.

Agriculture, the rural economy and property - which rely largely on cash transactions - were sectors hit by the ban.

It also contributed to a slowdown in economic growth.

But some analysts did point out the policy did have some positive aspects, including injecting cash into the banking system which had brought the cost of loans down.

"While this shows that demonetisation exercise has not yielded a large one-time gain, it has led to financialisation of dormant savings and helped bring down lending rates," one economist in Mumbai told Reuters.

Few observers think the bank figures will damage the government, which has fended off criticism of its cash crackdown while making electoral gains, including a sweeping victory in crucial Uttar Pradesh state in March.

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