Landmark Judgment Puts an End to Long-Standing Debate on Currency Ban
New Delhi, India:In a historic ruling, theSupreme Court of Indiahas upheld the central government’s controversial2016 demonetization policy, which involved the withdrawal of ₹500 and ₹1,000 currency notes from circulation. The decision, issued by a5-judge Constitution Bench, validates the policy as a legitimate exercise of executive power aimed at combating black money, counterfeiting, and terror financing.
The judgment, delivered with a4:1 majority, acknowledges the unprecedented economic disruption caused by demonetization but concludes that the decision adhered to constitutional and procedural requirements.
Key Highlights of the Supreme Court Ruling
1. Adherence to Due Process
- The majority opinion affirmed that the government followed the provisions of Section 26(2) of the Reserve Bank of India Act, 1934, which allows the withdrawal of legal tender with RBI’s recommendation.
2. Legislative and Executive Balance
- The court emphasized that demonetization was a decision of the Union Cabinet, following consultations with the Reserve Bank of India (RBI), underscoring the procedural sanctity of the move.
3. Dissenting Opinion
- Justice BV Nagarathna, the lone dissenter, argued that demonetization required parliamentary approval and termed the policy “well-intentioned but poorly implemented.”
Impact of Demonetization: A Mixed Bag
Economic and Social Disruption
- The sudden move led to widespread cash shortages, long queues outside banks, and disruptions in daily life, particularly for rural and informal sectors.
- The All-India Manufacturers’ Organization (AIMO) reported that nearly 35% of small businesses faced financial difficulties post-demonetization.
Claims of Success
- The government claimed successes in areas such as a 58% increase in digital payments by 2017 and the formalization of over 1 crore businesses through Goods and Services Tax (GST) registrations.
- According to RBI data, ₹15.31 lakh crore (99.3%) of demonetized currency returned to the banking system, sparking debate over its effectiveness in curbing black money.
Political and Public Reactions
Government’s Stance
- The central government welcomed the verdict as a “validation of a bold economic reform,” with Finance Minister Nirmala Sitharaman stating that the policy laid the foundation for a more transparent and digitized economy.
Opposition Criticism
- The Congress and other opposition parties criticized the ruling, arguing that the policy caused undue hardship without achieving its stated goals. They reiterated concerns about job losses and the unaccounted wealth that escaped scrutiny.
What Lies Ahead?
The Supreme Court’s judgment provides closure to the long-standing legal challenges surrounding demonetization but does little to quell its political and economic controversies. While the ruling may bolster the government’s defense of its economic policies, questions about the implementation and broader impact of demonetization will likely remain part of India’s public discourse.
As India continues its transition to a digital economy, the lessons from the 2016 currency ban will serve as a critical reference point for future policy decisions.
