This gets worse and worse.

Now, a new RBI (Reserve Bank of India) ordinance (the 61st on this issue) proclaims that people who hang onto the old notes after the deadline of December 30, will be faced with a minimum penalty of Rs. 50,000 (half a lakh or about 735$) – a sum that is enormous in terms of Indian per capita income…..and will be guilty of a crime punishable at the municipal level.

What’s the real reason for this?

Well, since one of the main reasons for this ban was to ensure that Indian banks, especially the State Bank of India (now one of the top 50 largest banks in the world), were sufficiently recapitalized so that the loans could start flowing again. This, after the ratio of non-performing loans (mostly to rich industrialists and developers whom Modi shows not signs of penalizing) rose too high for comfort.

Since most of the money declared illegal has been deposited appropriately, demonstrating that they were all largely legitimate cash holdings, Modi has had to find a way to make this bizarre financial experiment/attack look at least faintly rational.

He also has to make sure any remaining notes do not find their way back into the system and constitute a claim against it.  Penalizing old-note-holders and making their holding itself contraband is the solution, it looks like.