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Cashing in on India's Black Economy

Nov 20, 2016 | 14:00 GMT
In a new effort to reclaim the revenues lost to India's massive informal economy, Prime Minister Narendra Modi announced Nov. 8 that 500- and 1,000-rupee notes -- 86 percent of the cash in circulation -- would become null and void overnight.
(ARUN SANKAR/AFP/Getty Images)

India has one of the world's most cash-heavy economies. An A.T. Kearney study found that 90 percent of the country's consumer transactions are conducted in cash, a trend that extends to the country's labor market. But many of these transactions go unrecorded. In fact, by some estimates, India's so-called "black economy," which covers a number of furtive activities, from under-the-table wage payments to racketeering, accounts for roughly 25 percent of the country's gross domestic product. (Meanwhile, only an estimated 1-3 percent of the population pays income tax.) Now, New Delhi is undertaking a bold measure to reclaim the revenue it has lost to the black economy. On Nov. 8 Indian Prime Minister Narendra Modi surprised his country with the announcement that all 500- and 1,000-rupee notes -- 86 percent of the cash in circulation -- would become null and void overnight. Indians will have until Dec. 30 to redeem the notes...

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