The power to demonetise India’s currency is controlled by statutes and subject to the Constitution. All exercises of such power are controlled by democratic discourse. No policy, large or small, including demonetisation is immune from the judicial review of the rule of law. No exercise of power can escape the control of parliamentary and people’s discourse or the strict scrutiny of the rule of law. These are the street anchors on India’s democracy. The government pretends that demonetisation is a secret weapon which can elude a full discussion in Parliament or rigorous examination by the Supreme Court and High Courts.
The facts will show that its policy is full of holes. After the Reserve Bank Act in 1934, demonetisation was done on 31 January 1946. Under Section 22 of the RBI Act, the Bank shall have the right to issue currency notes on the recommendation of its RBI’s Central Board supplied by the Central government. The Central government shall have no power to issue currency notes (Section 22 [2]). The Central Board may recommend the discontinuance of legal tender as prescribed (Section 26 [2]). Strangely, Section 26A introduced in 1956, made the grand declaration that Rs 500, Rs 1,000 and Rs 10,000 will be discontinued from 13 January 1946. A statutory provision was passed by Parliament under Section 28A (introduced in 1959) that the Bank could issue notes of 5, 10 and 100 rupees and the government would recommend Re 1 notes and coins. The Nehru government understood the issuance of notes to be a parliamentary issue especially as moneys were guaranteed by gold bullion and other securities (Section 33). The demonetisation of 1946 was reversed in 1954. The next demonetisation was in 1978 (the Janata initiative was clumsy and ill thought out). In October 1987, the Rs 500 was back and the Rs 1000 in 2000—all for regulatory reasons without hurting the public.
The Modi government inaugurated the aatishbazi of surgical strike. Post Uri followed a minor operation against Pakistan, which it called a surgical strike. “Wah! Wah!” the people clapped as if India had captured Pakistan. Pakistanis promised retaliation. India, further counter retaliation. But a bigger event was needed to impress the nation of the fight against black money.
In fact there was no real crisis for the second demonetisation surgical strike. Let the abysmal facts speak for themselves. The demonetised Rs 500 and Rs 1,000 make 85% of the 17.97 trillion economies. On 5 August, Minister of State states that the Fake Indian Currency Notes (FICN) was Rs 400 crore. So the fake currency argument was silly (0.022 of the circulation. 0.00281% Rs 1000 notes were fake; and 0.00191% of Rs 500s). The justification was to sift out black money. Did you really expect a clean out? The white money in Rs 500 and Rs 1,000 was considerable well over 75%. The target of black money was that the rich and powerful who had already invested in buildings, lands, assets, consumption and payments. Shopkeepers organised and disorganised labour. This is India’s vibrant black money. Who was being flushed out? The rich? Hardly. Your ordinary person that stood in line and over 50 or more of whom committed suicide. I want to introduce a legal term here called “direct and inevitable effect”. The government is responsible for the direct and inevitable effect of its actions. The government paid no notice to the tragedy it had perpetuated. Then the government changed its goalposts to aim for a cashless economy for 1.2 billion people with half below the poverty line. The logo: own a phone become cashless:
There is no policy or law of the government that cannot be discussed in Parliament. Secrecy before 8 November to prevent currency trade was obvious. But what about after 8 November? It was the duty of the government to offer a full fledged debate informed by all information—past, present and future? At least an adjournment debate? Demonetisation was on a major policy on which the government could win or fall. Don’t blame the opposition for demanding a debate even if its actions were unruly. Throwing paper darts at the Speaker is unforgiveable. But why not a full fledged debate? There was and is no reason. This was the stuff of confidence motions. After all the politicking a clear legislative debate was not permitted to emerge. Democracy was subverted.
India is governed by the rule of law. Earlier, India copied England to say (1) ministerial decisions cannot be judicially reviewed; (2) courts should not review policy decisions. Both these limitations have been bombarded by Indian constitutionalism. In 1968, the English denuded the “unofficial” ministerial protection. This was followed in India to the detriment of many Chief Ministers. In 1977, the Supreme Court smashed the view that the courts would not go into “political” questions. As long as there was a constitutional transgression, “political question” is not a defence. The third trajectory was respect to “policy” was the domain of the exemption. The latter are allowed some play in the joints, but not immunity from the judicial examination. Not to examine such a fractious policy is to abandon the Constitution.
Apply this to demonetisation. All factors were not taken into account (Wednesbury), the doctrine of proportionality was thrown to the winds (Teri Oates). The entire concept of constitutional reasonableness was ignored (V.G. Row), the policy was manifestly unjust and arbitrary. The direct and inevitable effect of the policy affected and hurt millions.
The saddest part of demonetisation is that it has not been tested by democracy or the rule of law; and, therefore, the scrutiny of constitutional democracy.