Supreme Court ruling on demonetisation should not be interpreted as judicial endorsement of success of banknote ban
Post Date – 12:30 AM, Tuesday – 1/3/23
Supreme Court ruling on demonetisation should not be interpreted as judicial endorsement of success of banknote ban
It would be a mistake for the NDA government to view the Supreme Court ruling on demonetization as some sort of political victory worthy of being used as an electoral weapon. A five-member constitutional judge approved the 2016 ban on 500-rupee and 1,000-rupee banknotes by a 4-1 majority. However, the Supreme Court’s after-the-fact ruling is currently of academic significance and should not be interpreted as a judicial endorsement of the success of the bill ban. In fact, the entire country suffered tremendous pain and suffering from an idea that was poorly conceived and hastily implemented, which turned out to be a colossal disaster that disrupted the economy and left millions out of work. It must be noted that the SC did not delve into the outcome of the demonetization exercise but only examined the decision-making process and whether there was consultation between the Central and the RBI. In dealing with a batch of 58 petitions attacking the government’s move, the court found that the process adopted by the central government was not flawed and also rejected the argument that the banknote ban decision should be issued by the central bank. However, in a dissenting opinion, Justice Nagarathna called the decision “invalid and unlawful” and said the move could have been implemented through an act of parliament. She pointed out that the Nov. 8, 2016 demonetization circular was an “exercise of power against the law” and the RBI did not apply the idea independently.
A key argument put forward by governments for demonetization is that the amount of cash in circulation (CIC) is directly related to the level of corruption. In the five financial years from 2011-12 to 2015-16, the CIC accounted for 11 percent of GDP or more, according to an affidavit filed by the center with the court. According to some, this is much higher than in the US (7.74%). However, it must be noted that CIC as a percentage of GDP jumped back to pre-demonetization levels within three years. The Reserve Bank of India’s 2019-20 annual report noted that the money-to-GDP ratio rose further to 14.4% in 2020-21. India’s use of cash as a percentage of GDP is among the highest of any major economy, ranging from 3% in developed countries to 5-7% in developing countries such as Bangladesh and Indonesia. If the government thought that banning high-value currencies overnight would deter the use of cash, it turned out to be completely wrong. It was packaged as a bold move to mine black money, reduce counterfeit currency and curb terror financing, but it failed to achieve any of its goals. This is probably the worst economic folly of an independent India.
