Indians will no longer be able to exchange expired currency for new notes after midnight on Friday as severe cash shortages continue to disrupt daily life across the country.

The prime minister, Narendra Modi, gave Indians a 50-day window to declare and deposit their 1,000- and 500-rupee notes after a surprise announcement on 8 November that both denominations would become invalid that evening.

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The scheme, kept secret even from the Indian cabinet until the day it was announced, was intended to drain the finances of terrorists and criminal groups and to widen the tax base in a country where just 1% pay any income tax.

But it has suffered from poor planning and implementation, with only about one-third of the cash removed from the system replenished by the end of December, and just 40% of the country’s 220,000 ATMs able to regularly distribute cash.

Digital payments have boomed in the past seven weeks but India’s rural economy and its vast informal sector – said to employ 80% of Indians and contribute 45% of the country’s GDP – have been suffocated by cash shortages.

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The Delhi government estimates up to 60% of migrant workers, almost all of them working for cash, have returned home to their villages to ride out the crunch.

Economists have also downgraded the country’s October to December growth forecast from 7.8% to 6.5%.

The most recent figures released by the Reserve Bank of India show that about 12.6tn rupees have been deposited since the rupee recall was announced, far more than the Modi government had predicted, indicating that it may have underestimated the amount of untaxed wealth being hoarded by citizens.

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Defending the scheme, the finance minister, Arun Jaitley, said on Thursday there had been a 14.4% increase in the value of income tax collected since the policy was introduced, while indirect tax collection had grown by 26%.

The life insurance, tourism and air travel industries had also shown strong growth, he added.

Modi had promised that cash supplies would have returned to normal by 30 December, and has scheduled a televised address on Saturday during which he is expected to outline the next steps.

The Guardian

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