‘CRITICAL STEP’: CENTRE DEFENDS 2016 NOTE BAN
NEW DELHI: The 2016 demonetisation policy was a critical step in a series of transformational economic policies which helped to not only combat the menace of counterfeit currency, terror financing, black money and tax evasion, but also nudged large sections of the informal economy to become part of the formal economy, the Union government told the Supreme Court on Wednesday.
The Reserve Bank of India, in a separate affidavit, too justified the move.
NEW DELHI: The 2016 demonetisation policy was a critical step in a series of transformational economic policies which helped to not only combat the menace of counterfeit currency, terror financing, black money and tax evasion, but also nudged large sections of the informal economy to become part of the formal economy, the Union government told the Supreme Court on Wednesday.
The Reserve Bank of India (RBI), in its affidavit filed separately before the top court, too justified the move to take currency notes of ₹500 and ₹1,000 denominations out of circulation, contending that the inconvenience caused to the public cannot be a ground to challenge the validity of demonetisation when the decision was taken in “national economic interest”.
Defending the move before a Constitution bench, the government said that while the demonetisation decision resulted in several “perceptible benefits” in the form of checking counterfeit currency and significant increase in digital transactions and income tax compliance, its impact on India’s economic growth was “transient”.
“The overall impact of the withdrawal of the legal tender character of the SBNS (specified bank notes) on economic growth was transient, with the real growth rate being 8.2% in FY 16-17 and 6.8% in FY 17-18 --both being more than the decadal growth rate of 6.6% in the pre-pandemic years,” stated the Centre’s affidavit.
To be sure, many economists have flagged demonetistion (2016) and Goods and Services Tax (GST; 2017) as the reasons for the economy slowing. Former RBI governor Raghuram Rajan, at a public event in November 2018, said: “Two successive shocks of demonetisation and the GST had a serious impact on growth in India.”
Over three dozen petitions have been filed against the Centre’s November 8, 2016, decision, accusing it of violating fundamental rights and being contrary to the law laid down under the RBI Act, 1934.
A Constitution bench, on October 12, asked the Centre and RBI to submit their affidavits in the matter, explicating the decision-making process behind the policy.
The five-judge bench, on that day, turned down the government’s plea to shut the proceedings by declaring them infructuous and an academic exercise, saying it was a “serious matter”. Submitting its affidavit, the government called demonetisation “a major step to fight the menace of fake currency notes, storage of unaccounted wealth and financing of subversive activities”. according to the Centre, “the withdrawal of the legal tender character was one of the significant steps in the enhanced formalisation of the economy with the aim of expanding opportunities for the millions living on the periphery of the economy.”