Demonetisation is ‘legal’ but bigger debate rages on
It is good that the tortuous debate on the legality of the demonetisation notification on November 8, 2016, by the Modi government is finally settled. By a 4:1 split verdict, a Constitution bench of the Supreme Court rejected as many as 58 petitions. It held the demonetisation of Rs 500 and Rs 1,000 notes via a gazette notification was not legally flawed. The judgment said there was consultation between the government and the Reserve Bank (RBI) for six months and that the notification passed the test of ‘proportionality’—that the measure of demonetisation was proportional to the outcome sought, like eradicating black money and terror financing. Significantly, the decision was not unanimous. Justice B V Nagarathna held that the notification issued under Section 26 (2) of the RBI Act was unlawful as the RBI should have initiated the demonetisation process and not the Centre.
With hindsight, it can also be said now that deciding on the ‘legality’ of the measure six years later is academic simply because it cannot be reversed. The decision has played out, and the country has moved on. That is why even the dissenting judge has concurred with her colleagues that demonetisation cannot be rolled back. It must also be pointed out that the Supreme Court has limited itself to deciding on the legality of demonetisation. It has deftly avoided expressing an opinion on whether the measure was correct or prudent. Nor has it delved into whether the government’s objectives were ever met.
Therefore, the broader demonetisation debate is bound to rage on, and rightly so. The main objective—to unearth black money—was a failure, with as much as 99.3% of the currency in Rs 500 and Rs 1,000 notes returned to the RBI’s vaults. This belied the projection that around Rs 3 lakh crore, or almost 20%, would be culled out as ill-gotten black money. Digital transactions initially got a boost, but we are now back to a ‘cash economy’. On the other hand, was it worth the nation’s pain? Millions of small bread earners spent days and nights in queues to exchange money. Thousands of small and medium enterprises sank without a trace as they only knew how to deal in cash. Did the government lend an ear to those bankers who advised it to abort the measure? These questions will linger on and must be answered so that similar mistakes are not repeated.