Amid Central Govt's Delay In Filing Affidavit, Petitioner Says Demonetisation Transformed Indian Economy

Ever since the Modi Government implemented the demonetisation drive in 2016, economists and legal experts are divided on whether Prime Minister Modi’s demonetisation scheme was able to eliminate black money and terror financing from the system.

Six years down the road, the Indian economy is growing but the challenge to the central government’s move to devalue Rs 500 and Rs 1000 bank notes for curbing black money is still on from a policy and legal standpoint.

Modi Government seeks more time to file affidavit

As many as 58 pleas challenging the demonetization scheme are pending in the Supreme Court and the central government on Wednesday sought more time to file an affidavit on whether it was successful in achieving the demonetisation objective. It is pertinent to mention that the government's delay in filing the affidavit in the case has attracted criticism from the top court. 

Although the challenge to the demonetisation scheme assails the government’s government's move and points out the consequent hardships the people had to face because of the sudden policy change, the government has maintained that things have settled since 2016 and the debate is merely an academic one.

How far has demonetization helped in curtailing terror financing

Back in 2016, when demonetisation was implemented, the Modi Government's big promise to the nation was that the drive is directed towards clearing black money and eliminating sources of terror financing. A large part of winning the debate on whether the government's demonetisation master plan was successful or not rests on passing this crucial litmus test. And if numbers tell a story, a 2013 report of the Financial Action Task Force had made it clear that demonetised 500 and 1000-rupee bank notes were the most widely counterfeited among all Indian notes with their usage linked to terror financing. And turning the dial back by a year before the demonetization drive was implemented, RBI's annual report in 2015 had said that Indian authorities had traced 60,00,000 counterfeit notes. Terrorists have on previous occasions confessed to using counterfeit notes for their illegal activities.

In this context, a report published by the U.S. Department of State in 2021 brings out the efficacy of the Indian government's demonetisation scheme. As per the report cited by the petitioner, Vivek Narayan Sharma, India has managed to reduce terrorist incidents by more than 30 percent against the global rise of such incidents by 15 per cent. The report delves deeper and presents a decline in the number of terrorist activities as a consequence of the 2016 demonetization drive. According to the country-wise report, the terrorist attacks reduced from 927 in 2016 to 673 in 2018, 655 in 2019 and 679 in 2020. 

And while the move was aimed at eliminating black money and terror financing, demonetization is credited for ushering in a new dawn for the Indian economy.

Demonetization, a move towards a cashless economy says, petitioner

Advocate Vivek Narayan Sharma who had filed the petition seeking additional measures to minimise the hardships people had faced owing to the demonetisation drive back in 2016, stated that the genesis of any argument that India lost more than it gained through the step of Demonetisation is reactionary, insular, short-sighted and prejudiced.

In his note on the matter, Sharma says that the demonetisation drive not only helped in curbing black money but also aided India to become a cashless economy. 

“In November 2016, the month the Demonetisation scheme was introduced by Prime Minister India had 30 Banks live on UPI with 0.29 million financial transactions being carried out for a total value of nearly Rs. 100.46 crores. By January 2017, India had 36 Banks live on UPI with 4.46 million financial transactions being carried out for a total value of nearly Rs. 1696.22 crores. According to the latest data released by the National Payments Corporation of India (NPCI), the UPI platform had 358 banks live on the app and recorded 6,780.80 million transactions in September, amounting to Rs 11,16,438.10 crores as per a report published by Business Standard,” the plea moved by Sharma states.

Besides this, Sharma’s plea also gives references to how demonetization has helped in economic growth and created more digital infrastructure and smart cities.

Senior Lawyers point out loopholes

On the flip side, Senior Advocates P. Chidambaram and Shyam Divan in a previous hearing had argued that only a negligible amount of black money was eliminated from the system citing RBI’s Annual Report. The seasoned lawyers had also questioned the fast-tracking of the major economic and policy decision by passing just a notification. 

To put things in perspective, the Janata Government in 1978 had carried a similar drive. The difference, however, lay in the fact that the government back then had passed a law to give effect to the demonetisation scheme. 

While time will tell the judiciary’s stand on the 2016 demonetization move by the government, to what extent can the judiciary intervene in the government’s economic and fiscal decisions is a question that seeks answers. The matter is expected to be taken up for hearing on November 24.