Perspective : Demonetisation Verdict | 02 January, 2023

Summary

The Supreme Court of India upheld the 2016 demonetization decision in a 4:1 majority verdict, asserting the process was not legally flawed. The court emphasized the separation of powers, stating that economic policies like demonetization are within the government's domain and not subject to judicial review on merits. The dissenting opinion argued for legislative action instead of a Gazette notification. Panelists discussed the ruling's significance, the impact on cash usage, digital payments, and the broader implications for policy-making and the economy.

Takeaways

• 🏛️ The Supreme Court of India upheld the government's decision to demonetize the 1500 denomination notes, ruling that the decision-making process was not flawed.
• 📜 The majority verdict (4:1) stated that the decision to scrap high-value currency notes was not legally or constitutionally flawed, emphasizing the consultation between the Reserve Bank of India and the government for six months.
• 🔄 Justice B. N. Srikrishna dissented, arguing that demonetization should have been implemented through legislation, not a Gazette notification, citing the need for parliamentary debate and representation.
• 🏦 The Supreme Court's decision is significant as it preserves the separation of powers between the judiciary, executive, and legislature, allowing the executive to govern without judicial review on economic policy merits.
• 💡 The court's focus was on the process of demonetization rather than its objectives or outcomes, highlighting the importance of the consultative process and the proportionality of the action taken.
• 🛡️ The judgment reinforces the idea that economic policies, especially transformative ones, should be within the domain of the government with limited scope for judicial review.
• 💼 Mr. Anand Singh Bell, former principal economic advisor, agreed that the government's monetary policy should be executed based on its consultations and expertise, without judicial intervention on policy specifics.
• 📊 AK Bhattacharya, editorial director of Business Standard, noted that while the Supreme Court validated the demonetization process, it did not address the outcomes or objectives, leaving the debate on effectiveness open.
• 📉 The demonetization exercise led to a significant impact on micro, small, and medium enterprises (MSMEs) that heavily relied on cash transactions, with many facing closure or disruption.
• 💡 The government claimed that the benefits of controlling black money, terror funding, and corruption outweighed the adverse effects on certain economic sectors, emphasizing the trade-offs inherent in economic policy decisions.
• 📈 Despite the intention to reduce cash usage, cash in circulation as a percentage of GDP has increased post-demonetization, suggesting that the objective of reducing cash prevalence was not met.

Q & A

What was the Supreme Court's verdict on the demonetization of 1500 denomination notes in India?

The Supreme Court upheld the decision to demonetize the 1500 denomination notes with a 4:1 majority verdict, stating that the decision-making process was not flawed and the procedure emanated from the government.

What were the main reasons for the Supreme Court to validate the demonetization process?

The Supreme Court validated the process due to the consultation between the Reserve Bank of India and the union government over six months, adherence to the RBI Act, and the proportionality of the action taken in relation to its objectives.

How did the dissenting judge, Justice B. N. Nagaratna, view the demonetization process?

Justice B. N. Nagaratna dissented from the majority judgment, arguing that demonetization should have been implemented through legislation rather than a Gazette notification.

What is the significance of the Supreme Court's judgment on the separation of powers in the context of demonetization?

The judgment is significant as it upholds the separation of powers enshrined in the constitution, allowing the executive to govern the country and make decisions on economic policies without judicial interference on the merits of the case.

What is the doctrine of proportionality mentioned in the script, and how did the Supreme Court apply it to the demonetization case?

The doctrine of proportionality suggests that the action taken should not be more drastic than necessary to achieve a particular result. The Supreme Court found the demonetization action to be proportional, considering the objectives it aimed to achieve.

What was the period of exchange given for the demonetized notes, and how did the Supreme Court view its reasonableness?

A 52-day period was given for the exchange of demonetized notes. The Supreme Court deemed this period to be reasonable and not flawed in terms of the process.

How did the panelists on the program view the impact of demonetization on micro, small, and medium enterprises (MSMEs)?

The panelists acknowledged that MSMEs, which heavily rely on cash transactions, were adversely affected by demonetization. However, the government believed that the benefits of controlling black money and corruption outweighed the negative impacts on these sectors.

What was the government's stance on the objectives of demonetization, according to the panelists?

The government claimed that the objectives of demonetization, such as controlling black money, terror funding, and tax evasion, were met, and the benefits of these outcomes outweighed the adverse impacts on certain economic sectors.

How did the Supreme Court approach the question of whether the objectives of demonetization were met?

The Supreme Court refrained from examining the objectives and outcomes of demonetization, focusing instead on the legality and procedural correctness of the decision-making process.

What was the dissenting judge's view on the process of demonetization, and how does it differ from the majority opinion?

The dissenting judge believed that demonetization should have been carried out through parliamentary legislation, arguing for a more formal legislative process rather than an executive decision.

What was the impact of demonetization on cash usage in the economy, as discussed in the script?

Despite the intention to reduce cash usage, the script mentions that cash in circulation has increased as a percentage of GDP, suggesting that the objective of reducing cash prevalence was not achieved.