On 2nd January 2023, a 5-member Supreme Court bench in a 4-1 majority verdict rejected the petitions challenging demonetization, and upheld its legality, with the majority concluding that there was no flaw in the decision-making process. The majority judgment noted that the move, which came six years ago, had ‘reasonable nexus’ with the objectives it sought to achieve and that it is ‘not relevant whether the objective was achieved or not.’ However, Justice Nagarathna dissented from the majority judgment on the point of the Union government’s powers under Section 26(2) of the Reserve Bank of India (RBI) Act and said the scrapping of the Rs 500 and Rs 1,000 series notes had to be done through legislation and not through a notification. ‘
‘Parliament should have discussed the law on demonetization, the process should not have been done through a gazette notification. Parliament cannot be left aloof on an issue of such critical importance for the country,’’ she said. She also said there was no independent application of mind by the RBI and only its opinion was sought, which cannot be said to be a ‘‘recommendation’’. So, even on procedural aspect, unanimity was not arrived at. It is pertinent to recall that on 28 December 2022, both the central government and the RBI omitted from their respective affidavits submitted to the Supreme Court that the RBI’s recommendation for the note ban— a procedural requirement—came after the central bank critiqued many of the government’s justifications. Earlier also, the same Bench questioned whether the government and the RBI realized their stated objectives of choking black money, terror financing and fake currency through the policy to demonetize Rs 500 and Rs 1,000 notes in 2016. However, the government side parried those questions and only submitted to examine maintainability of the petitions challenging note ban. So, in no way, this Apex Court pronouncement validates the justifiability of demonetization.
Changing positions on objective of demonetization
It is also on record that the government went on shifting goal posts about the objective of demonetization. In his speech of 8 November 2016 announcing demonetization, the Prime Minister only spoke of unearthing black money, curb terror-funding and immobilize fake currencies. In this particular speech, Modi used the phrase ‘‘black money’’ 18 times. A digital or cashless economy had found nomention at all in that speech.
On 27 November 2017, the PM first said, ‘‘Scrapping these notes has opened other avenues to make payments. Download apps of banks and e-payment options. Shopkeepers can keep card swiping facilities and everyone can ensure they pay safe using their credit and debit cards. If not a 100% cashless society, I request you to make India ‘less-cash society’.’’ In that speech, he had used the phrase ‘‘digital/cashless’’ thrice as much as ‘‘black money’’, while there was no mention of ‘‘fake currency’’. The then finance minister late Arun Jaitley later said that ‘‘confiscation of money’’ was not an objective and the government only expected all the SBNs [specified bank notes] to come back to the banking system to become effectively usable currency. This was indeed disingenuous. If that were the case, the rationale behind the various stop-go announcements that followed in the wake of the decision are hard to fathom. On 11 January 2017, he told a parliamentary panel that ‘‘Targeted verification of suspect substantial deposits is likely to widen and deepen the tax base’’ after demonetization. He also added, ‘‘Along with other measures for increasing transparency and strengthening enforcement, the demonetization will pave the way for sustainable faster economic growth.’’ On 13 February 2017, Arun Jaitley said, ‘‘Demonetization was a bold and decisive strike in a series of measures to arrive at a bigger, cleaner and real GDP.’’ ‘‘Demonetization coupled with the implementation of Goods and Services Tax (GST) regime will make generation of cash a lot more difficult, help towards the objective by creating greater compliance and increasing digitization,’’ he said on 23 July 2017.
On 25 November 2017, at a rally in Bhatinda, Punjab, the PM said, ‘‘I want to protect the rights of poor and middle class. People are forced to pay bribe in schools, hospitals and when they want to buy land. I am thankful for the support of people in the fight against black money and corruption.’’ Arvind Subramaniam, Chief Economic adviser to the government, pointed out on 31 January 2017 that ‘‘aim of the demonetization is to bring down real estate prices,’’ In April 2017, late Jetliji claimed higher digitization and behavioural change was the big objective and not confiscation of black money.
Was then demonetization aimed at curbing corruption, hitting the black economy and recovering black money? Was it to force India into the digital economy era? Was it a way to tackle terrorism, trafficking and other such crimes? Or, was it all part of efforts to herald change in India’s economic and political funding landscape? There is no clarity on that. In fact, the frequent change in official goal posts bedevilled an objective assessment of what did demonetization really achieve.
How far true are claims of success
On 27 December 2016, PM Modi said in a rally in Dehradun, Uttarakhand, that ‘‘With just one move on 8 November, the worlds of terrorism, drug mafia, human trafficking and fake note smuggling were destroyed.’’ In an interview two days later, he observed: ‘‘Cash held by terrorists, Maoists and other extremists has also been neutralized. There has been a crippling impact on dangerous and highly damaging illegal activities, such as human trafficking and narcotics’’. A fact-check proves, however, that none of the claims is true.
Demonetization did not have any discernible impact on currency in circulation in the country, which has soared by almost 83% since 8 November 2016. PTI, citing Reserve Bank data, has reported that the currency in circulation, in value terms, soared from Rs 17.74 lakh crore on 4 November 2016, to Rs 32.42 lakh crore on 23 December 2022. Even currency circulation on 23 December was higher than that of Rs 31.33 lakh crore as on 31 March 2022. Even Nirmala Sitharaman, the present finance minister informed Parliament on 19 December last that in March 2017, value of currency in circulation was Rs 13.1 lakh crore i.e., 20% less than what it was in November 2016, the time of demonetization. But in March 2018, it jumped by 37.67% to reach Rs 18.03 lakh crores.
On the government’s reasoning that the move would have ‘‘eliminated counterfeit notes’’. But RBI has recently said estimated Rs 400 crore worth of fake notes are in circulation. as a percentage of the total quantum of currency in circulation in the country. RBI data also showed that digital transactions fell 27% in April this year compared to the previous month. Unofficial sources show that human trafficking has soared considerably. 2 to 6.5crore Indians, men, women and children, are trafficked in India for diverse reasons. As regards phenomenal spurt in corruption, pages of daily newspapers would vouch in no uncertain a term. In 2021, the country was ranked 85th out of 180 in the Corruption Perceptions Index. Just in the arena of bourgeois parliamentarian politics, corruption is galore. For example, use of black money in elections to win at any cost (breaching statutory spending limits) as well as enormous spending for engineering defections creates the need for the recovery of that cost through large scale malpractices. Election funding is not transparent making it prone to the usage of black money and funding based on quid pro quo. Unholy nexus between power-monger politicians and profit-hungry corporates is another face of corruption. Criminalization of politics is now an established fact in the country.
Under Modi Government, terror incidents reportedly went up by 176%. On 31 December last, Jammu and Kashmir Police has called the year 2022 a very successful one in anti-terror operations in the Kashmir region. The police informed that 172 terrorists have been killed in over 90 operations in the Kashmir Valley. Then where is the claimed dip in terrorism? Cash remained the most preferred mode of transactions even as digital payments gathered pace in a country of more than a billion people, according to a pilot survey by RBI. Secondly, there is spurt in cybercrime at such a level that banks and governments have to continuously warn the people. Debit and Credit card frauds are maximum. Then whither digital India? People continue to pay bribes to get their children admitted in good schools. A survey revealed that in rural areas, 37% of the children are not going to school. Real estate prices across top six cities are set to jump 6-10 per cent this fiscal year and 3-5 per cent in the next financial year because of a steep rise in raw material, labour and land costs.
So, though the decision of demonetization might have cleared legal scrutiny of technical grounds and that too not without dissent, the move is distinctively proved to be totally illegitimate, if not sinister and fraudulent. That is the reason, the BJP top brass is now tight-lipped over outcome of demonetization which took away over 150 precious lives, wrought havoc in people’s life, doomed daily wagers, MSMEs and small traders to ruination and made a mockery of ‘crusade against corruption and terrorism’.
It is worth to recall that honourable Prime Minister had said on 13 November 2016: ‘‘I have asked the country for just 50 days. If after December 30, there are shortcomings in my work or there are mistakes or a bad intention found in my work, I will be prepared for the punishment that the country decides for me. Hang me if so necessary’’ What do you say Sir now?