Herald View: The Demons of Demonetisation

A five-judge Constitution bench of the Supreme Court this week reserved its judgment on petitions challenging the legality of demonetisation. The bench overruled the Union government’s objections that Supreme Court had no jurisdiction to examine policies, that judges were not policy experts and that in any case six years after the event, the petitions had become infructuous. The Union government also argued that the demonetisation of 2016 was now of only academic interest and a waste of the court’s time.

The Attorney General claimed that the recommendation for demonetisation originated from the central bank and that the government was preparing for the move in consultation with the RBI since February that year. The RBI in an affidavit to the court claimed that demonetisation was an ‘integral part’ of nation-building. It also cited the RBI Act, which allows the central bank to recommend notifying currency of ‘any series’ of ‘any denomination’ as illegal tender. The court is now to adjudicate if ‘any series’ is the same as an ‘entire series’.

The government and the RBI, however, failed to produce documents in support of its pleas, despite the constitution bench repeatedly asking for them since October this year. The documents are being sought to find out if the then RBI Governor Raghuram Rajan had objected to the proposal to demonetise 86.4 per cent of the currency then in circulation. The files and copies of communication are also needed to see if the union government had sent a communication a day before November 8, 2016 seeking RBI’s recommendation.

They are also required to find out if the meeting of the RBI Board was called at short notice and whether all the board members attended it and whether the quorum was met. While reserving the judgment this week, the bench once again sought the documents to be placed before it. It remains to be seen if they are finally produced in ‘sealed covers’ for the court’s perusal and if they are placed in the public domain.

The dramatic act of declaring all currency notes of ₹1000 and ₹500 in circulation illegal from the midnight of November 8, 2016, announced on national TV four hours before the deadline, had caught people unawares. Restrictions were imposed on withdrawing cash from banks. The banks did not have adequate stock of new currency to replace the denotified currency. ATMs were not ready to dispense new currency either.

Transactions in old currency stopped overnight, bringing business, trade and industry to a halt. The poor and the marginalised lost their livelihood. The trauma was such that the Prime Minister was forced to plead for time and say that he would accept any punishment if the situation did not improve in fifty days. It did not.

The court’s judgment, whenever it comes, cannot of course undo either demonetisation or its consequences. It is equally true that the court cannot possibly address the real motive behind demonetisation, which some people and experts suspect to have been more political than economic. But if the judgment finds enough grounds to question departures from established procedure and calls the bluff that policies cannot be invalidated even if objectives are not met, it would at least draw a red line for the future. Demonetisation failed to put an end to terror funding, counterfeit currency or in unearthing black money—the stated objectives behind the move. With cash in circulation now `30.88 lakh crore, almost twice of `17.99 lakh crore in circulation in 2016, and the cash to GDP ratio also being higher, the later objective of less-cash economy too has not been met.

The claim that adequate preparations were in place is also not borne out by facts; or else 114 notifications carrying explanations and revised instructions would not have been issued between November 8 and December 31, 2016. Parliament was in session but the government did not take it into confidence. Barely `4,000 crore of unaccounted cash were identified while the cost of printing new currency notes and transporting them to bank branches, ATMs and post offices was put at `16,000 crore. The government clearly has a lot to answer for. But given its record in the last few years, one can only hope that the Supreme Court proves sceptics wrong and does not allow the government to get away on a technicality.