The Supreme Court’s 4:1 judgment on the Centre’s 2016 demonetisation decision settles the question of legality of a controversial move that has had major ramifications. The apex court said that “there has to be a great deal of restraint before interfering in matters of economic significance” and that it “cannot supplant such views with the judicial one.” The majority judgment held that the decision did not violate the RBI Act provisions. It also said that the decision was in keeping with the doctrine of proportionality—“no administrative action should be more drastic than is required to obtain the desired outcomes”—and that the period of 52 days for exchanging old notes was reasonable. However, Justice BV Nagarathna, who was part of the five-judge bench, has dissented, saying that the Centre wasn’t empowered by the RBI Act to take the demonetisation decision in the manner it did, and that if demonetisation is to be initiated by the Centre, “such power is derived from Entry 36 of List I of the Seventh Schedule to the Constitution which speaks of currency, coinage and legal tender, and foreign exchange” and is to be undertaken after the enactment of the relevant law by Parliament.
But much beyond legality, the real questions surrounding the demonetisation decision relate to the pain it inflicted on people when it was enforced and what ultimately was achieved. Even as the stated goal initially was to extinguish black money held in cash, from the larger pool of currency with the public at the time, very little cash actually met such a fate—over 99% of the demonetised notes got exchanged. There could have been some gain in terms of intelligence gathering for authorities policing the black economy, but whether the demonetisation exercise was the best method for this, remains an open debate. The overnight decision and the way it was communicated triggered panic, and the masses went through considerable pain in the 52-day period that the SC has deemed reasonable. Demonetisation, many economists contend, also broke the back of the informal economy, along with a host of other measures taken later. The government told the SC that the move was part of a policy push for formalisation of the nation’s economy. But many micro, small and medium enterprises failing to recover from it has meant even more complex, long-term challenges for the economy, in terms of employment, prices, etc.
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The goal-post was continually shifted by the government—from extinguishing black money to ending terror financing to pushing a ‘less cash’ economy to furthering penetration and adoption of digital transactions. Demonetisation, no doubt, was possibly the biggest impetus given to adoption of digital transactions in India. Another success that its proponents cite is the sharp increase in the number of taxpayers—from 61 million in 2015-16 to 85 million in the next two years. On the flip side, the currency with the public has risen from Rs 17.8 trillion on the eve of demonetisation to Rs 32.42 trillion now. Now that the legality of the move is beyond question, the least the government can do is to bring out a report on what the exercise had hoped to achieve, how it was implemented, and what the outcomes were—a truth and reconciliation move. This is necessary as there are doubts in many quarters whether the elaborate exercise to unearth black money—the stated and primary goal of demonetisation—was worth it.