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SC has answered to demonetisation critics. Modi govt should now release a white paper

The nuances of demonetisation, the amount of hard work put in and the course corrections done during the implementation are known only to the govt. It's time to tell Indians about it.

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With the Supreme Court’s pat on its back for demonetisation, the Narendra Modi government can now hope that the doubts cast on its action are no longer valid. The Supreme Court’s Constitution Bench has upheld the government’s November 2016 decision to demonetise two denominations of currency notes to target black money and terror funding besides other reasons. In his appeal to the nation while announcing demonetisation, Prime Minister Modi blamed the slow pace of development on terrorism and unaccounted money in circulation. “For years, this country has felt that corruption, black money and terrorism are festering sores, holding us back in the race towards development,” he had said.

The critics of demonetisation seriously doubted the reasons behind the government’s action and questioned its intentions.

Eradication of corruption was one of the main planks on which the BJP had challenged the Congress and came to power in 2014. Modi, in his 8 November 2016 announcement, had suggested that “the evil of corruption has been spread by certain sections of society for their selfish interest [who]  have ignored the poor and cornered benefits.” Probably with a view to extend the banking facilities to a larger section of the people, the government announced Jan Dhan Yojana in August 2014 and appealed to the people to reduce cash transactions. Though this initiative became popular, it was doubtful if it alone could reduce the cash component in circulation and curb black money.

Another major step that the government introduced to curb unaccounted money was the Income Declaration Scheme (IDS) in 2016, which sought to give certain tax amnesties to those who voluntarily declared their unaccounted/undisclosed income. This was not the first time; many governments in the past had announced such schemes.

The IDS 2016 probably did not evoke expected response and fell short of meeting its target to identify those spreading corruption. It’s possible the government assessed the scheme and came out with the demonetisation announcement.

Also read: Justice Nagarathna’s dissent in demonetisation case — ‘well-intentioned but unlawful’

A white paper

Now that the Supreme Court has given a clean chit to the government, it would be in the fitness of things for the Modi government to bring out a white paper on demonetisation and explain the steps taken before and after the scheme was made public. The nuances of the scheme, the amount of hard work put in and the course corrections done during the implementation would be known only to the government.

The Supreme Court too has noted in its judgment that the decision-making process cannot be faulted merely because the proposal (of demonetisation) emanated from the central government. “There has to be great restraint in matters of economic policy. Court cannot supplant the wisdom of [the] executive with its wisdom,” the verdict said. Hence, while the wisdom of the government is not in doubt, a detailed paper on the process of tackling black money through banning certain denominations of the currency in circulation will be more educative to the people and those who are seriously concerned about curbing this menace.

One welcome result of the demonetisation was the use of digital platforms and banking transactions for commercial transactions. With the introduction of Unified Payments Interface (UPI) and other platforms and banks adopting the non-cash payment method, digital payment has increased tremendously to such an extent that smaller currency notes have lost their relevance and utility, not to speak of coins. The “no-human-touch” payment methods have gained immense popularity and acceptance especially after the pandemic. The Economic Survey 2016-17 (echap03.pdf Page 59-60 Impact of Demonetisation Table) also acknowledged this. The white paper could probably go into the details of increasing digital transactions (799 crore as of March 2022) but the corresponding increase in cash in circulation (CIC) as a proportion of GDP as well.

Also read: Modi faces no political costs for suffering he causes. He’s just like Iran’s Ali Khamenei

Managing criticisms

Although the Supreme Court has not gone into the merits and demerits of the demonetisation scheme, the government has been able to manage the negative fallouts of the scheme.

According to the Economic Survey 2016-17, the country’s private sector wealth actually declined because some high denomination notes were not returned and the real estate prices fell drastically. The survey also noted that there were job losses, decline in farm incomes and social disruption especially in cash-intensive sectors like agriculture, real estate and jewellery etc. Although government bodies and discoms showed sudden spurt in revenue it was more due to the need to dispose of the banned notes which were legal tender in these places. The Economic Survey also noted the increase in uncertainty due to concerns of economic impact and long-term implications. Going by its suggestion the government did bring about some complementary measures to remove initial misgivings about demonetisation.

The Modi government won the general election in 2019 with a greater number of seats thus answering critics politically. Now is the time to give an economic reply and logical reasoning for the decision taken in November 2016 and how the government has resolutely overcome the daunting challenges of demonetisation.

Seshadri Chari is the former editor of ‘Organiser’. He tweets @seshadrichari. Views are personal.

(Edited by Prashant)

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