Demonetisation

Supreme Court decision to uphold demonetisation on technical grounds will haunt the nation

SC judgment may embolden future governments to act without regard for institutional norms and not be held accountable for the outcome as long as the action is technically permissible.

Praveen Chakravarty
January 2, 2023

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“My money is my private property. How can the government just take it away overnight? Isn’t that a violation of my property rights?” writes Praveen Chakravarty. (Express file photo by Prem Nath Pandey)

On the very first working day of 2023, the Supreme Court of India ruled that the controversial 2016 economic policy decision of demonetisation was “not unlawful”. It was a five-judge bench ruling in a 4-1 verdict.

My deliberate use of the double negative “not unlawful” to describe the SC verdict is emblematic of the technicality of the judgment. The SC did not pronounce any judgment on the economic merits of the policy of demonetisation. That is, the SC did not say that demonetisation was either a good or a bad economic policy, contrary to the duplicitous chest-thumping by supporters of the ruling establishment, claiming that the SC has “approved” of demonetisation.

On the very first working day of 2023, the Supreme Court of India ruled that the controversial 2016 economic policy decision of demonetisation was “not unlawful”. It was a five-judge bench ruling in a 4-1 verdict.

My deliberate use of the double negative “not unlawful” to describe the SC verdict is emblematic of the technicality of the judgment. The SC did not pronounce any judgment on the economic merits of the policy of demonetisation. That is, the SC did not say that demonetisation was either a good or a bad economic policy, contrary to the duplicitous chest-thumping by supporters of the ruling establishment, claiming that the SC has “approved” of demonetisation.

This is like saying, if the Narendra Modi government, without tabling a bill in Parliament, wants to unilaterally and arbitrarily abolish corporate taxes, regardless of how irrational the economic policy may be, they have the powers to do so.

Or wait, this already happened. When Parliament is the medium to legislate government finances, just two months after the finance minister presented a budget in July 2019, the Modi government announced in a surprise press conference (in Goa!) that it is slashing (thankfully, not abolishing) corporate tax rates, rendering the whole budget redundant and making a mockery of Parliament, notwithstanding the imprudent and senseless economics of such a decision. The nation is still paying for this intransigence.

All that the SC verdict on demonetisation reaffirms is that even if established norms call for the government to consult with the RBI and Parliament before enacting radical decisions on money supply, the Modi government does not care for such protocols, and it is well within its right to do so. But we already knew that, didn’t we?

My money is my private property. How can the government just take it away overnight? Isn’t that a violation of my property rights? We were told demonetisation would reduce black money and bring more tax revenues to the government. India’s overall tax to GDP is unchanged at 16 per cent from 2010 to 2022. Doesn’t this mean it did not achieve its primary stated objective?

The other argument made in demonetisation’s favour was that it would reduce the use of cash, which is a positive for the economy. Currency in circulation has increased from 12 per cent of GDP in 2010 to 14 per cent now, which means cash usage has not reduced post demonetisation. If cash use has not reduced, then surely, the ability to use cash for nefarious purposes of terrorism and money laundering has also not been curtailed. So, what did demonetisation achieve?

These are perhaps the questions that haunt most common people about the 2016 demonetisation decision, more than some technicality over who had the powers to initiate such a decision. To be clear, I am not insinuating any malevolence in the government’s decision. Why attribute to malice that which can be explained by stupidity, as Hanlon’s Razor goes. But alas, the SC verdict does not answer these questions. Apparently, it is now an academic exercise to indulge in such rear-view analysis.

Counterfactual analysis is important for the nation’s future. Had the government truly consulted RBI and Parliament and engaged in a serious discussion about how to minimise the use of cash, which is a laudable pursuit, perhaps we may have been able to prevent the destruction of nearly two lakh crores in economic output (GDP loss post demonetisation), saved millions of livelihoods and may have been able to actually reduce cash in the economy with all its positive externalities. By avoiding any discussion on the outcomes of demonetisation and merely blessing the technicality of the decision, the SC may have inadvertently established what economists call a “moral hazard”. This ruling can embolden future governments to act imprudently without regard for institutional norms and not be held accountable for the outcomes, as long as the action is technically permissible.

The claim that in a democracy it is only the electorate that can hold governments accountable for its actions through an election is intellectually lazy and dishonest. Electoral outcomes are a function of a complex multitude of factors and not a judgement on one specific government decision. Electoral victories cannot be a licence for governments to make rash decisions or ransack coffers.

“There was no independent application of the mind,” said the dissenting judge, Justice B V Nagarathna in this ruling. Justice Nagarathna was referring to the RBI but her observation can be extended to our larger civil society and the elite commentariat. Recall how in 2016, many corporate honchos to economists to media commentators to influencers engaged in a hasty, sometimes motivated, praise of demonetisation. While the judiciary may have upheld the technicality of demonetisation, the more profound ruling for the nation’s future is in Justice Nagarathna’s call for an “independent application of mind” by all sections of society that can collectively forbid bad — and encourage — good governance.

The writer is chairman of Data Analytics of the Congress Party

https://indianexpress.com/article/opinion/columns/supreme-court-demonetisation-decision-technical-grounds-haunt-nation-8356971/

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