The judgment on demonetisation is not unexpected but the Supreme Court missive giving unfettered freedom to all governments to act on economic issues is more than it could have bargained for.
The impact of note-ban is deeper and has apparently affected government finances as well as the overall economy, including employment generation as the latest CMIE figures indicate. The court may not discuss it, but the country would have tough moments dealing with the world economy, one-third of which, the IMF managing director Kristalina Georgieva says, faces recession.
Possibly no more any government decision on economy can ever be questioned or the apex court be approached for its opinion. The court says it has no knowledge of economy and it has taken the most sanguine approach of keeping off an area that is the domain of the government.
The majority judgment is withdrawal of courts powers in economic issues. The ruling says, \u201cit\u2019s not the function of courts to sit in judgment of economic policy and be left to govt\u201d.
Virtually the court, as per the judgement, recluses itself from all such future issues. Now no restrictions at all apparently.
Demonetisation is a ticklish issue and certainly beyond the comprehension of a layman. The SC accepts that they should not delve into such an area. Justice S Abdul Nazeer has acted wonderfully two days before his retirement.
It could not have been undone six years after the action. It is good academics. So rightfully the court has preferred not to consider it. The court on October 12 only decided to hear the case. It might have been wary of its political import. The cases were argued by Congress leader P Chidambaram and activist Prashant Bhushan.
The court has largely agreed with the Attorney General R Venkatramani who argued that even if it is assumed the demonetisation has not succeeded that cannot be the reason to invalidate decision judicially as it was taken in good faith. It also did not oblige Chidmabaram who sought laying down of norms so that \u201cno misadventures\u201d are carried out by a future government.
Justice Nagarathna, who dissented says, \u201cOn looking at the records (submitted by RBI), I find the use of the words and phrases there \u201cas desired by the Central Govt\u201d, \u201cGovt has recommended the withdrawal of legal tender of 500 and 1000 notes\u201d, \u201crecommendation has been obtained\u201d etc., are self-explanatory. \u201cThis demonstrates that there was no independent application of mind by the (Reserve) Bank. Neither was there any time for the RBI to apply its mind in such a serious issue. This observation is being made having regard to the fact that the entire exercise of demonetisation of all series of bank notes of Rs 500 and Rs 1000 was carried out in 24 hours,\u201d she observes.
Nagarathna notes that the Centre wrote to RBI on November 7, 2016 and that the recommendation did not originate from the bank under Section 26(2) of the RBI Act (that empowers RBI to demonetise the currency).
A proposal originating from the central government is not akin to a proposal originating from the Central Board of the Bank. The concurrence given by the RBI to such a proposal cannot be construed as a \u201crecommendation\u201d under Section 26(2) of the RBI Act, she said.
Her deviation is limited but significant. She also agrees with the other judges. \u201cDemonetisation was, beyond a pale of doubt, well-intentioned. Best intention and noble objects are not under question. The measure has been regarded as unlawful only on a purely legalistic analysis and not on the objects of demonetisation,\u201d she said.
Whenever currency is tinkered it impacts economy. Tughlaq\u2019s move had hit the economy for a hundred years. Even 1967 devaluation by Indira Gandhi under US pressure led to historic inflation. It led to a tumult, Navnirman movement, Total Revolution of Jayaprakash Narayan and the Emergency. That\u2019s not for the court certainly.
On Aug 8, 2022, Minister of State for Finance Pankaj Chaudhury told the Lok Sabha the value of the counterfeit currency in the banking system was Rs 43.47 crore as announced by RBI in 2016-17. In 2022, it was reported at about Rs 8.26 crore \u201camounting to a sharp decline of more than 80 percent. The number of counterfeit banknotes has come down from 7.62 lakh pieces in 2016-17 to 2.09 lakh pieces in 2020-21, not a small number.
In November 2016, then Attorney General Mukul Rohtagi told the Supreme Court that the estimate for the amount that will get wiped out is about Rs 4-5 lakh crore, or 25% of the total value of the banned at Rs 15.44 lakh crore (total value). It was later corrected to Rs 17.7 lakh crore.
But instead of 25 percent, the RBI, in 2017, said that only 1 percent of the cash did not return.
The demonetisation and slowdown affected government revenues according to CAG. The projections for tax revenues in 2019-20 were at 8 per cent (Rs16,74,523 crore) of GDP, which decreased to 7.36 per cent (Rs15,04,587 crore) of GDP.
The actual collections were lower at 6.77 per cent of Rs 13,59,382 crore of the GDP, due to a reduction in revenues of corporation tax, minimum alternate tax, etc. The government has also 1.69 percent lower dividend and profits at Rs 3.45 lakh crore.
Consequently, the government borrowings have substantially increased from Rs 61.84 lakh crore in December 2016 to Rs 139 lakh crore in March 2022 and estimated at Rs 155 lakh crore March 2023.
The unemployment figures remain at 8.3 percent, according to CMIE. It was 6.7 percent in October 2017. Interestingly enough, contrary to expectation of reducing currency circulation has almost doubled (83 percent rise) at Rs 32.4 crore as on Dec 23, 2022. Cash remains the king.
The redeeming feature is the core sector growth at 8 percent during April-November. Coal production at 12.3 percent and steel production at over 10.8 percent are significant pointer to a possible return of buoyancy.
However, the index for industrial production (IIP) shows contraction from 4.2 percent in October 2021 to 3.1 percent in September 2022. This almost conforms to the IMF world projections.
It may be noted that the note-ban started the lag in growth, it aggravated to -23.9 percent during the lockdown. The country has yet to come out of the twin shocks.<\/p>\n","protected":false},"excerpt":{"rendered":"
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