India to scrap two biggest bank notes at midnight to tackle corruption

'On one hand, we are number one in economic growth and on the other we are ranked 100 in global corruption rankings,' Prime Minister says

Narendra Modi has promised to give money to poor people from funds illegally stashed overseas (Getty Images)

India will abolish the country’s largest currency notes in a fight against unaccounted wealth and corruption, Prime Minister Narendra Modi said in an unscheduled address to the nation.

The government will scrap 500 rupee and 1,000 rupee notes after midnight on Tuesday.

The notes in circulation will have to be deposited in banks by end of December, Mr Modi said in a late evening message broadcast on major national television networks.

Some concessions will be allowed for use of the currency notes in government-run hospitals until 11 November.

The step by Mr Modi, who is approaching the half-way mark of his term, is an attempt to fulfill his election promise of curbing tax evasion and recovering income stashed overseas after illegally evading taxation.

He had struck a chord with 1.3 billion Indians in the 2014 national polls by promising to give the impoverished as much as two million rupees each from such funds stashed abroad.

“On one hand, we are number one in economic growth and on the other we are ranked 100 in global corruption rankings,” Mr Modi said in his speech.

“Despite various steps, we have improved only to 76.”

The Reserve Bank of India will issue new currency notes of 2,000 and 500 rupees.

A one-time chance to come clean on unaccounted wealth led to declarations of only about 25 billion rupees in tax last year, while an income declaration scheme this year had met with a mixed response.

"It is a very powerful measure to curb black money,” said Nirmal Jain, chairman of IIFL Holdings Ltd.

"It will have a deflationary impact in general and more specifically on real estate prices and make homes affordable.”

Copyright Bloomberg