On November 8, 2016, the Indian government announced the demonetisation of the Mahatma Gandhi series of Rs 500 and Rs 1,000 banknotes and the release of new Rs 500 and Rs 2,000 notes. The government claimed that this move was intended to reduce the shadow economy, increase cashless transactions, and decrease the use of illegal or undeclared money. However, the actual effects of demonetisation have been different. On January 2, 2023, the Supreme Court announced its verdict on all the pleas that challenged the government's decision and upheld the decision to demonetize.
What was the verdict?
Today, January 2, the Supreme Court announced its verdict on the Indian government's demonetization decision. The five-judge Constitution Bench upheld the move by a 4:1 majority, stating that the validity of the decision should not be based on whether its goals were achieved or not, but rather on the action itself. Among the five judges, Justice BV Nagarathna argued in her dissenting opinion that the demonetization of the entire series of notes should have been carried out through legislation, rather than a gazette notification, and therefore was "unlawful."
"Parliament is a miniature of the country. Parliament which is the centre of democracy cannot be left aloof in a matter of such critical importance," says Justice Nagarathna. However, she notes that no relief can be given at this point and says, "...status quo ante cannot be restored at this point. What relief can be given now? Relief needs to be moulded."
What is demonetisation?
Demonetisation refers to the removal of a currency unit's status as legal tender. This means that demonetised notes are no longer accepted as a form of payment in transactions. Demonetisation is often followed by the replacement of the old currency with the new currency, and the effects of this change can greatly impact a country's economic activities. Demonetisation can either worsen economic problems or help to stabilize them. India has experienced demonetisation three times: in 1946, 1978, and 2016.
What was the effect of the 2016 demonetisation in India?
The weeks after the announcement of demonetisation was followed by cash shortages and caused severe economic upheavals. People had to stand in long queues to exchange notes. The frenzy that had unfurled in the process of this exchange was also blamed for several fatalities.
According to reports, 99.3% of the demonetised bank notes were deposited, leading analysts to conclude that the goal of eliminating illegal or undeclared money from the economy had not been achieved. Demonetisation also resulted in a decrease in the country's GDP growth rate and caused millions of job losses. The decision faced widespread protests, legal challenges, and strikes across the country. However, it did lead to an increase in digital transactions in India.
