January 08, 2023

Supreme Court Verdict on Demonetisation

CPI(M) Polit Bureau has issued the following statement January 2

THE verdict of the five member constitution bench on the 2016 demonetisation cannot be interpreted as upholding this move.

In the majority judgment, the Supreme Court has exclusively dealt with the legal right of the central government to take such a decision and that it does not violate Section 26(2) of RBI Act 1934. The dissenting opinion of one of the honourable judges maintained that this section of the RBI Act says that the RBI must recommend to the government to initiate demonetisation. In this case, the decision was taken by the central government which sought the opinion of the RBI. Hence, the approval of the parliament should have been taken before this decision was executed. 

The majority judgement noted that demonetisation had “reasonable nexus” with the objectives it sought to achieve and that it is “not relevant whether the objective was achieved or not”.

This majority verdict while upholding the government’s legal right to take such a decision says nothing about the impact of such a decision. Demonetisation resulted in the destruction of India’s informal economy that employs crores of people. It paralysed the small-scale industrial sector, the MSMEs, destroying crores of livelihoods.  Reports noted that in one month since the decision in 2016, 82 people lost their lives.

Further, none of the objectives justifying this disastrous decision of unearthing black money and bringing this back from foreign banks; ending counterfeit currency; ending terror funding, corruption and reducing cash flows in the economy have been achieved. On the contrary, according to RBI, currency with public has gone up from Rs 17.7 lakh crores, on the eve of demonetisation to Rs 30.88 lakh crore now, i.e., an increase of 71.84 per cent.

The Supreme Court majority judgement merely upholds the right of the government to take such a decision and in no way endorses the consequences of such a decision.