Demonetisation is mainly a policy issue, and an impartial examination of the details will show that it was done without much forethought
The Supreme Court should not have considered the entire question of demonetisation, and its validity or otherwise, in the first place. It was a policy decision by the executive, and the court should have followed its own precedent when it refused to look into the Rafale defence deal. Justice B.R. Gavai, delivering the majority judgment of four of the five judges -- the dissenting judgment of Justice B.V. Nagarathna deserves to be discussed separately because it addresses several important issues of governmental decision-making -- confessed: “The court cannot supplant the wisdom of the executive with its wisdom.” It is an ambiguous statement because there are times when the court is called upon to check the wrongdoing of the executive and that of the legislature through judicial review. The court then examined whether the procedures were followed and they concluded that they were. The merits of the decision of demonetisation has been left aside, whether it was right or wrong. The court said that it believes that there was enough consultation between the Reserve Bank of India and the government – of six months or so -- before demonetisation decision was taken. The majority judgment also felt that the law pertaining to procedure should not interpreted narrowly.
On all these issues, however, Justice Nagarathna felt otherwise. She felt that the government took the decision on its own and the central bank simply acquiesced, and that it would be wrong to say the government acted on the recommendation of the bank. She also observed that the RBI did not apply its mind. But she too felt that the legal invalidity of the decision implied in her judgment did not matter because the deed was done and it can’t be revoked. She said that it could only have prospective effect. But she too was less than forthright. She said: “The measure has been regarded as unlawful only on a purely legalistic analysis of the relevant provisions of the Act, and not on the objects of demonetisation.”
What is, however, at stake is the bad faith of the political executive behind the move and its ineffectiveness. It would have been better if the court had not taken up the issue in the first place. The petitions were filed in December 2016, and the court took it up only this year. But the Madurai bench of the Madras high court had disposed of a similar petition without much ado. In Seeni M. Ahamed vs The Union of India on November 10, 2016, Justices S. Nagamuthu and M.V. Muralidaran had stated well and wisely: “It is not for the courts to consider relative merits of different economic policies and consider whether a wiser or better one can be evolved. For testing the correctness of a policy, the appropriate forum is Parliament and not the courts.”
But the Supreme Court’s majority verdict has left too many loose ends, starting with the issue whether the objectives for which demonetisation was implemented were met or not, because that is where the bona fide of the decision lies. But the court seems to have abdicated this grave responsibility. The majority verdict says: “We do not wish to go into the question as to whether the object with which demonetisation was effected is served or not or as to whether it has resulted in huge direct and indirect benefits or not. We do not possess the expertise to go into that question and it is best that it should remain in the domain of the experts.” The court is indeed called upon to decide on difficult questions which are quite often technical, even recondite. The court has to summon the experts to understand the complexities and arrive at a fair decision.
Demonetisation is mainly a policy issue, and an impartial examination of the details will show that it was done without much forethought. Justice Nagarathna, in her dissent, has rightly pointed out that the Reserve Bank of India “did not apply its mind”. It has not shown the independence that the statute gives it. But this is a matter of judgment, and it cannot be legally liable. Second, demonetisation has not shown any decrease in the extent of the black money in circulation -- and this is the problem of black money that it can’t be accounted for and all the experts know that there are only estimates of black money -- or that it has helped increase tax compliance and therefore increase in tax collections. It is a claim made by the government to justify its decision, but there is no evidence to establish a direct link between the two. And it is a fact that the court cannot fault the government for telling a lie if it is proved that the objectives of demonetisation have not been met. Anyone can do the most devious things without breaking the law. Demonetisation was a devious policy move, and Prime Minister Narendra Modi had timed it well in the run-up to the Uttar Pradesh Assembly election of early 2017. It is beyond adjudication.
Unfortunately, economic experts, the people who should know better about these matters, have not articulated matters well enough, to show that demonetisation was an ill-thought and ill-advised move with disastrous effects because it has damaged the cash-backed informal economy where the largest number of people are engaged. The Narendra Modi government has been a tax predator, and its main intention was to bring small businesses into the tax dragnet, while the contribution of the big corporations to tax collections remains abysmally below par. The Modi government’s greed for tax revenue is indeed a political evil, but it is not illegal unless Parliament enacts legislation that tax greed on the part of governments is a cognisable offence!
Unfortunately, most of us knock at the doors of the courts for every kind of grievance, and the courts remains helpless. Demonetisation was a political issue, and the people should have punished the Narendra Modi government in the 2019 Lok Sabha election. That they did not does not mean that they did not consider it a stupid step, but they had other, more pressing questions on mind. Thanks to the Pulwama terrorist strike, and India’s counter-strike in Balakot, the follies of the first Modi government got clouded, of which demonetisation was a prime instance.