Warning Issued To Private Jets Over Being Misused To Fly Banned Notes

India has threatened to punish private jet operators that fly to small and remote airports without police clearance as Prime Minister Narendra Modi tries to plug loopholes in his campaign against unaccounted money.

A group of private jet operators, which counts tycoon Anand Mahindra's Mahindra & Mahindra Ltd. and the billionaire Poonawalla family's aviation firm as members, said the move came after an "isolated case" of not following procedure, and aircraft owned by its members follow standard rules for security checks.

Modi stunned the nation on Nov. 8 by invalidating 500 rupee ($7.3) and 1,000 rupee notes in an effort to force unaccounted cash into the formal economy, setting a Dec. 30 deadline for the money to be deposited with banks. Two weeks later, India Today reported that a private jet was used to transport banned currency to the country's northeast, where residents enjoy certain tax benefits. The Huffington Post reported that at least four private jets stuffed with cash flew to a small town in the northeastern state of Nagaland.

"It has been reported that some of the non-scheduled operator permit holders have been engaged to carry demonetized currency from one part of the country to another, particularly from the uncontrolled airfields where there are no arrangements for screening of passenger baggage," the aviation regulator said in a notification on Tuesday. Any private jets operating to or from such airports would need police approval and have to ensure screening of passengers and their baggage "failing which strict action as deemed appropriate shall be initiated," it said.

For a Bloomberg View piece on the motivation behind the move, click here

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Modi's decision has been lauded for its intent to stamp out graft and tax evasion, though its implementation has been criticized as 86 percent of currency in circulation was sucked out of the economy overnight. The severe cash crunch that followed has meant snaking lines outside banks and ATM machines and hardship for many in a nation dependent on cash. Innovative ways of skirting the ban have also emerged.

Only 75 out of India's 450 airfields have scheduled commercial operations as carriers shy away from flying to remote areas. Private jets fly to such airports with minimal security as industrialists visit their factories and hold meetings, and air-ambulances transport patients.

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"The reported incident of large amounts of currency being carried in the aircraft, appears to be an isolated case of not following the standard operating procedure," R. K. Bali, managing director of Business Aircraft Operators Association, said in an e-mailed statement. All non-scheduled airlines and private jets follow standard norms "in the best interest of the safety and security of aircraft as well as the passenger," he said.

© 2016 Bloomberg L.P.