Window closes as Modi eyes key state poll

Indians yesterday rushed to change their bank notes before a deadline to deposit invalid rupee notes closed, as Prime Minister Modi defended his controversial move to reduce cash in use.

His shock November 8 announcement rendered 86 percent of India's currency void, giving customers until December 30 to swap their old 500 rupee ($7.30) and 1,000-rupee bills for new ones.

The Indian leader was widely hailed for his assault on tax evasion but long queues outside banks, a cash crunch and policy flip-flops quickly led to anger in some quarters.

"Technology has the power to empower the poorest of the poor," Modi said in a speech in Delhi. "This digital payment that I keep talking about, it will bring about a revolution."

Modi and the ruling Bharatiya Janata Party (BJP) will learn if his risky gamble has paid off when Uttar Pradesh (UP) holds the first of several 2017 state elections, likely in February.

"UP elections will be the first real test to see how people have judged the policy," said political analyst Devdan Chaudhuri, predicting that demonetisation will backfire for Modi at the ballot box.

"I cannot think that this will help BJP because the pain of (the) cash crunch is decimating the rural and the unorganised sectors. The repressed anger will come out soon. And the policy... will cost BJP dearly," he told AFP.

Modi, who came to power in 2014 pledging to tackle so-called "black" or undeclared money, was forced onto the defensive as frustration grew at the slow introduction of new notes.

There has been anger in rural areas where farmers have been unable to sell crops while small traders have reported a huge drop in earnings owing to a lack of paper currency in the system.