India is on the cusp of seeing the end to a long-running cash crunch that has claimed hundreds of millions of rupees in losses, as a crackdown on black money has brought back a measure of stability to the economy.
The government on Monday said that a new “black money” tax will be levied on the cash in circulation.
This comes amid growing fears that the cash hoarded by Indians could fall into the wrong hands.
The government’s announcement comes amid a new wave of cash-hoarding that has been targeting Indians in recent months.
The Indian economy was hit by a massive collapse in black money in 2014-15 that was followed by the country’s first major economic crisis in almost 70 years.
The central bank, which has been pushing for a clampdown on black cash, said the country has seen a surge in black-market activity in recent weeks, with cash seized by the authorities growing in value.
Read moreThe Reserve Bank of India has forecast a loss of around 1.4 trillion rupees ($2.1 trillion) in the current financial year, and said that black money could be used to generate at least 6 trillion rupee in profit.
While there has been a significant slowdown in the economy since November last year, the economy has still shrunk at a faster rate than it did in 2014, when it grew at a solid 3.4 per cent.
With inflation now at 7.3 per cent, and a trade deficit that is projected to hit 6.7 per cent of gross domestic product, the government is hoping to attract foreign investors to invest in the sector, and is looking to expand its infrastructure.