Tuesday, February 27, 2024

Demonetisation is never considered a part of monetary policy: Chidambaram

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Advocate P Chidambaram told the Supreme Court that the documents revealing how the 2016 demonetisation exercise was approved should be disclosed by the Central government so that the top court can decide the legal validity of the move. 

The former Union Minister told the Constitution Bench comprising of Justice S Abdul Nazeer,Justice BR Gavai, Justice AS Bopanna, Justice V Ramasubramanian and Justice BV Nagarathna that Reserve Bank of India (RBI) surrendered before the decision of Central government’s decision on demonetisation.

The advocate said that it is only when the Central Board of the RBI proposes demonetisation that a Union government can act on the same whereas in he case the RBI meekly surrendered after deliberating for only an hour.

Chidambaram added that even the central government has not not considered the enormity of demonetisation before going ahead with it.

He said if there is no lapse then why are they holding the minutes back? These documents are absolutely necessary to decide the issue.

The advocate said that it is not the decision that is been considered but the the process of decision making. He added that the enormity and proportionality of the decision should be put before everyone. Without it, it is blind leading the blind.

The top court is currently hearing a batch of pleas challenging the move, specifically on eleven questions of law.

The petitioners have raised the following broad grounds in the past 6 years;

  • Section 26(2) of the Reserve Bank of India (RBI) Act which alowed government to declare all series no longer legal tender is too wide;
  • it was a deeply flawed decision-making process ;
  • The recommendation did not consider relevant factors;
  • The stated objectives were not reached by demonetisation ;
  • The move fails the test of proportionality;
  • The Court has powers to mould and grant declaratory relief.

Advocate Jaideep Gupta, who appeared for the RBI said the arguments by the petitioners on hasty decision will only apply to the final decision to implement demonetisation, and not the procedure behind it.

The RBI counsel said that the principle of proportionality would not apply in a ‘full-blown’ manner to a decision of economic policy.

Talking about the delay in exchanging the old notes for new ones, the counsel apprised that the remonetisation cannot be planned, unless demonetisation was in a big way much prior.

All the notes cannot be exchanged the very next day. Can it be said that 86% cash being wiped out has to be considered? I respectfully submit that these questions should not be gone into.”

Attorney General R Venkataramani, who appeared for the Central government, said that just like the country transitioned from a controlled economy to a market-driven one, demonetisation was done to enable moving from one framework to the other.

He added that the essence of the policy would be weakened on questioning the intent behind it.

“The AG submitted that the Union government cannot look in a myopic way. as it has to look at national security, ridding the economy of black money etc, can they not initiate the demonetisation process?”

Chidambaram responded that RBI Governors have in the past made it clear that those two objectives cannot be achieved by demonetisation.

Chidambaram said that if the government plans for National Security and rid from black money, they have to then do so by plenary power of legislation.

Chidambaram added that the demonetisation is never considered a part of monetary policy, and only deals with price stability and supporting growth.”

The verdict in the matter is likely to be reserved tomorrow

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