The government’s argument is that demonetization has led to phenomenal growth in digital transactions. | Photo credit: Getty Images/iStockphoto
Reserve Bank of India (RBI) figures show that ₹32.18 lakh crore is currently in circulation in India, nearly double the ₹17.97 lakh crore of currency used just before demonetization in November 2016, said Senior Counsel P. Chidambaram in front of a Constitution bench on Thursday. .
Appearing before a five-judge bench headed by Justice S. Abdul Nazeer, Mr. Chidambaram contradicted the government’s argument that demonetization was a “transformational economic policy step” that led to phenomenal growth in digital transactions.
The government claimed that the withdrawal of the ₹500 and ₹1,000 notes, which at the time formed more than 80% of the currency in circulation, was an “essential” part of a policy aimed at “broadening the economy formal” and to thin the ranks. of the informal monetary sector.
The ministry had said that after demonetization, the volume of digital payment transactions increased from 1.09 lakh transactions worth ₹6,952 crore in the year 2016 to 730 crore transactions worth a worth more than 12 lakh crore in a single month. from October 2022.
Citing RBI figures to make his point, Mr Chidambaram said “in times of distress, people fall back on currency”.
“It is completely wrong to say that advanced countries have become cashless…currency in circulation has increased. Since 2016, currency has accounted for an overwhelming or large share of payments. There’s more money with the people… That’s the economic logic,” the lead attorney told petitioners who challenged demonetization in 2016.
He said that as the GDP increases, there will be more people with more income. We need more currencies.
“That’s why the right to issue money is given to an independent authority, the RBI, which has a huge section that researches and decides the money in circulation that people need to carry out their daily activities. “said Mr. Chidambaram.
He said the need to issue more currency would continue to grow.
“Just by demonetizing you take out more than 80% of the currency… it doesn’t mean that people don’t need currency. They do. As you can see, ₹17.97 lakh crore has ballooned to ₹ 32.18 lakh crore…the prediction that it will continue to grow and is expected to grow,” Mr. Chidambaram said.
He said the withdrawal of 86.4% of the currency from the ₹500 and ₹1,000 denominations in 2016 left people with only about ₹2 lakh crore as legal tender in 2016.
“Obviously people were put under tremendous hardship, ₹2 lakh crore was not enough to support 125 crore people…to buy, sell, take or give loans etc.”, Mr. Chidambaram said.
He said the value of the currency in circulation was only determined by the RBI. The government had the power to demonetize, but only if the RBI gave the green light.
He said the power to issue currency was not given to the executive government for any specific purpose.
“Any executive government can deprive people of money and cripple their daily activities by not putting enough money into circulation. That is why the RBI Act of 1934 gave the right to issue currency only to the RBI … They will decide,” Mr. Chidambaram said.
But neither the Central Board of the Reserve Bank of India nor the Cabinet of the Union had complete information on the monumental consequences of demonetization. The documents had not been released into the public domain.
The stated goals of demonetization, anti-counterfeiting, and ending terrorism have not been achieved.
“The impact of a government action cannot have any bearing on its legality,” Judge BR Gavai said from the bench.
“Government action can be tested on proportionality…If there is one major economic decision taken in about 10 to 20 years that has affected the lives of all citizens, it is demonetization…The time cannot be rolled back, but an act can be declared unreasonable,” Mr Chidambaram replied.