Opinion: Was Demonetisation Right Or Wrong?

Demonetisation did not achieve its objective of eradicating black money. But BJP argues that the black money was brought out from the cellars and into the banks thus the economy benefited.

Opinion: Was Demonetisation Right Or Wrong?

THE SUPREME Court on its first working day of 2023 upheld the Centre's 2016 decision to demonetise Rs 1,000 and Rs 500 denomination currency notes, saying the “decision-making process was neither flawed nor hasty”. In a 5-judge bench, 4 judges voted in favour of upholding the note ban whereas one judge dissented. The top court also declared that 52 days window for the exchange of notes cannot be said to be unreasonable and can't be extended now.

What is the verdict of the three courts, the law court, the people’s court, and the economic court on demonetisation?

Law court

The five-judge constitutional bench of the Supreme court said with a 4-1 majority that demonetisation was valid and satisfied the test of proportionality. Justice B V Nagarathna, though dissenting with the majority, said, “Demonetisation was, beyond a pale of doubt, well-intentioned. Best intention and noble objects are not under question.” She added that the measure was well-intentioned to target evils plaguing the nation’s economy such as black money, terror funding and counterfeit currency.

People’s court

Demonetisation was announced on 08 November 2016. In the Vidhan Sabha elections held just three months later, in February 2017, the people gave a thumping majority to BJP. In the UP election on 11 February 2017, BJP won 312/403 (77.4%) seats, 265 (664%) seats more than it had in the previous assembly.

In the Uttarakhand election on 15 February 2017, BJP won 57/70 (81.7%) seats, 26 (84%) more seats than it had in the previous assembly. In the general election 2019, BJP won 303/545 (55.6%) seats, twenty-one more seats than it had won in 2014. The valid question is if demonetisation brought immense misery to people as is argued, then why did the people give a thumping majority to the BJP which had heaped the misery on them?

Economic court

Six years after demonetisation, the jury is still out on its impact on people and on the economy. Merits of demonetisation were checked on food inflation, reduction of fake currency, reduction in Hawala transactions, the surge in cash deposits, clearance of overdue, push towards digitization, better tax compliance, and cleansing of the real estate sector.

Demonetisation did not achieve its objective of eradicating black money. But BJP argues that the black money was brought out from the cellars and into the banks thus the economy benefited.

Demerits of demonetisation were deep hurt economic sentiments and consequently to economic activity (production, consumption, exchange, and investment), economic slowdown, a high layoff in the unorganised sector which employs about ninety per cent of the workforce, and a slump in real estate sector which is one of the prime drivers of GDP growth. Former prime minister Manmohan Singh says that the GDP growth declined by two per cent.

The government says that the merits of demonetisation far outweigh the demerits and the long-term benefits will more than makeup for the short-term suffering and agony of people.

KV Subramanian, the chief economic adviser to the government, has pointed out to increase in direct tax collections as a proportion of GDP, and the sharp, persistent rise in digital payments, as two of the several benefits of demonetisation. But Raghuram Rajan former Governor of RBI says that the short-term impacts of demonetisation will outweigh the long-term gains.

Heads I win, tails you lose

The law court and the people’s court have given the thumbs up to demonetisation. The economic court’s verdict can be interpreted in any which way. One is free to take whatever side appeals to him. Or one can take the position, as the Opposition has done, heads I win, tails you lose.

(Note: Dr. (Prof) Sadhana Kala is a USA-trained robotic & laparoscopic surgeon, Uppsala University, Sweden, trained fertility specialist, Icon Endoscopic Surgeon of North India, and National Icon Endoscopic Surgeon of India. She is rated as India's Best Gynecologist by Google.)

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