Demonetisation: Three Dimensions, The Debate Is Not Over Yet

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demonetisation

demonetisation
– Photo: Amar Ujala

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There can be no doubt that the central government has won the legal battle over demonetisation. A Constitution Bench of the Hon’ble Supreme Court in its judgment of 4:1 rejected all the arguments of the petitioners. When the Supreme Court declares a law, all citizens are bound to follow the findings of the court. The dissenting judgment is merely an appeal that ‘sometime in future the suggestive spirit of the law will look into it’.

legal dimension
What did the court say on the six questions framed by it?
1. The powers conferred on the Central Government under sub-section (2) of Section 26 of the RBI Act can be used to demonetize all categories of bank notes (of one or more denominations).
2. Section 26, sub-section (2) is valid and cannot be struck down as excessive delegation.
3. The decision making process in the present case was not deficient.
4. The impugned demonetisation satisfies the test of proportionality.
5. The period given for exchange of notes was reasonable.
6. RBI does not have the power to accept demonetised notes (for exchange) after the stipulated period

On the central government’s power to ban notes, the court said it was equivalent to the power of Parliament, provided there is a recommendation from the RBI to that effect. Regarding the decision-making process, the Court noted that the Central Board of RBI had considered all relevant factors and the Cabinet had also considered all relevant factors.
The Court has made some observations, which the reader will find interesting: On the question of whether the objectives of demonetisation have been met or not, the Court said that it does not have the expertise to know the answer to this question. On the difficulties faced by the people, the Court said that merely because some citizens faced difficulties, it would not be a ground to make the decision wrong in the eyes of law.
Thus the legal issues were decided in favor of the government.

political dimension
The answers to the legal questions may have put an end to those debates, but debate has already begun on two other dimensions.
On two occasions in the past, in 1946 and 1978, high denomination bank notes were demonetised through an ordinance, which was later replaced by an Act of Parliament. It was an exercise of absolute legislative power. The then governor of the Reserve Bank refused to support demonetisation. So the Parliament passed an act. Whatever the consequences, good or bad, and whatever problems the people suffered (then it was very less) was the responsibility of the parliamentarians who passed this law. It was then debated in Parliament and probably all aspects were considered by the representatives of the public before ratifying the decision.

Can the same be said about the demonetisation done on November 8, 2016 through the exercise of the delegated executive power? Parliament had no role in this. Logically, the people’s representatives cannot be blamed for the failure of its objectives or the economic consequences.

Cash in circulation to increase from Rs 17.2 lakh crore in 2016 to Rs 32 lakh crore in 2022. As far as black money is concerned, the Income Tax Department or other investigative agencies often keep on making recoveries and have forgotten the count. Fake notes are recovered daily, including new Rs 500 notes and Rs 2,000 notes. Incidents of terrorism—killing of innocent civilians by terrorists and terrorists being killed—are being reported every week. The financing of terrorism is unabated and the Government of India has offered to set up a permanent secretariat for the Ministerial Conference on NMFT (No Money for Terror). Which objective of demonetisation was fulfilled? None. These issues should be debated in the Parliament.

There is another question of utmost importance. Is the delegated executive power of the government equal to the full legislative power of the Parliament? The question relating to sub-section (2) of Section 26 of the RBI Act has been resolved in favor of the Government. But if similar questions are raised regarding other Acts, will they get the same answer? Parliament has an opportunity to debate this important question.

economic dimension
The Court refused to consider the seriousness of demonetisation or whether there was any link between the objectives of demonetisation and its economic consequences and sufferings caused to the people. The court postponed the government’s decision while exercising restraint.

However, what matters most as far as people are concerned is the thought behind this decision, and the economic hardships caused to the middle class and the poor, 30 crore daily wage workers, MSMEs and farmers, who found That the prices of agricultural produce fell. Moreover, after the third quarter of 2016-17 (when demonetisation happened), the annual GDP growth rate declined every year in 2017-18, 2018-19 and 2019-20. Then, the pandemic struck and exacerbated the economic woes. People will keep debating these issues.

On the legal argument, the government won comprehensively. On political grounds, the debate is not over and Parliament should get involved. The government has long been defeated on economic logic, but it will not accept it.

Expansion

There can be no doubt that the central government has won the legal battle over demonetisation. A Constitution Bench of the Hon’ble Supreme Court in its judgment of 4:1 rejected all the arguments of the petitioners. When the Supreme Court declares a law, all citizens are bound to follow the findings of the court. The dissenting judgment is merely an appeal that ‘sometime in future the suggestive spirit of the law will look into it’.

legal dimension

What did the court say on the six questions framed by it?

1. The powers conferred on the Central Government under sub-section (2) of Section 26 of the RBI Act can be used to demonetize all categories of bank notes (of one or more denominations).

2. Section 26, sub-section (2) is valid and cannot be struck down as excessive delegation.

3. The decision making process in the present case was not deficient.

4. The impugned demonetisation satisfies the test of proportionality.

5. The period given for exchange of notes was reasonable.

6. RBI does not have the power to accept demonetised notes (for exchange) after the stipulated period

On the central government’s power to ban notes, the court said it was equivalent to the power of Parliament, provided there is a recommendation from the RBI to that effect. Regarding the decision-making process, the Court noted that the Central Board of RBI had considered all relevant factors and the Cabinet had also considered all relevant factors.

The Court has made some observations, which the reader will find interesting: On the question of whether the objectives of demonetisation have been met or not, the Court said that it does not have the expertise to know the answer to this question. On the difficulties faced by the people, the Court said that merely because some citizens faced difficulties, it would not be a ground to make the decision wrong in the eyes of law.

Thus the legal issues were decided in favor of the government.

political dimension

The answers to the legal questions may have put an end to those debates, but debate has already begun on two other dimensions.

On two occasions in the past, in 1946 and 1978, high denomination bank notes were demonetised through an ordinance, which was later replaced by an Act of Parliament. It was an exercise of absolute legislative power. The then governor of the Reserve Bank refused to support demonetisation. So the Parliament passed an act. Whatever the consequences, good or bad, and whatever problems the people suffered (then it was very less) was the responsibility of the parliamentarians who passed this law. It was then debated in Parliament and probably all aspects were considered by the representatives of the public before ratifying the decision.

Can the same be said about the demonetisation done on November 8, 2016 through the exercise of the delegated executive power? Parliament had no role in this. Logically, the people’s representatives cannot be blamed for the failure of its objectives or the economic consequences.

Cash in circulation to increase from Rs 17.2 lakh crore in 2016 to Rs 32 lakh crore in 2022. As far as black money is concerned, the Income Tax Department or other investigative agencies often keep on making recoveries and have forgotten the count. Fake notes are recovered daily, including new Rs 500 notes and Rs 2,000 notes. Incidents of terrorism—killing of innocent civilians by terrorists and terrorists being killed—are being reported every week. The financing of terrorism is unabated and the Government of India has offered to set up a permanent secretariat for the Ministerial Conference on NMFT (No Money for Terror). Which objective of demonetisation was fulfilled? None. These issues should be debated in the Parliament.

There is another question of utmost importance. Is the delegated executive power of the government equal to the full legislative power of the Parliament? The question relating to sub-section (2) of Section 26 of the RBI Act has been resolved in favor of the Government. But if similar questions are raised regarding other Acts, will they get the same answer? Parliament has an opportunity to debate this important question.

economic dimension

The court refused to consider the seriousness of demonetisation or whether there was any link between the objectives of demonetisation and its economic consequences and sufferings caused to the people. The court postponed the government’s decision while exercising restraint.

However, what matters most as far as people are concerned is the thought behind this decision, and the economic hardships caused to the middle class and the poor, 30 crore daily wage workers, MSMEs and farmers, who found That the prices of agricultural produce fell. Moreover, after the third quarter of 2016-17 (when demonetisation happened), the annual GDP growth rate declined every year in 2017-18, 2018-19 and 2019-20. Then, the pandemic struck and exacerbated the economic woes. People will keep debating these issues.

On the legal argument, the government won comprehensively. On political grounds, the debate is not over and Parliament should get involved. The government has long been defeated on economic logic, but it will not accept it.