New Delhi, Nov 16.
The central government told the Supreme Court on Wednesday that demonetisation was part of a series of economic measures intended to shore up the formal economy and nudge a huge section of the informal economy to the formal economy so that they could reap its benefits.
The policy push has yielded the desired results, the government claimed. It urged the court not to further engage in dealing with the legality of the government notification of Nov 8, 2016, on demonetisation.
The top court is hearing a slew of petitions which had been filed in court challenging the legality of the move. At the last hearing, the court had given the government a last chance to defend its 2016 policy decision which was immediately challenged in court.
Today the Finance Ministry finally filed a response to the court notice on the issue.
Explaining its decision, the government claimed that the policy decision was taken in consultation with the RBI only the consultations and decision-making process was kept confidential. All steps were also taken to ensure that the general public did not face any harassment, the affidavit said.
“Rooting out the menace of fake currency, black money and financing of subversive activities, expansion of the formal sector, digitalisation of the payment transactions, expanding communication connectivity to enable last mile reach, broadening the tax base, enhancing tax compliance, lowering the cost of doing business, facilitating financial inclusion and removal of long-term perennial distortions on the informal sector side were high on the economic policy agenda of the government,” an affidavit filed in court said.
Withdrawal of specified notes i.e., Rs 500 and 1000 was not an isolated policy measure, but a part of a series of measures to improve the lot working in the informal sector, the Finance Ministry claimed.
In the five years preceding the demonetisation, the RBI had reported a jump of 76.4% and 109% in the circulation of Rs 500 and 1000 notes as compared to Rs 50 and Rs 100 notes.
This had prompted the RBI and the government to consider introducing a new series of notes to tackle the menace of black money, counterfeiting and illegal financing by simultaneously withdrawing the legal tender denominations of Rs 500 and Rs 1000, it said.
The government summed up the benefits of withdrawing these bank notes as follows:
- Number of fake currency notes and their value came down significantly, both in terms of detection in banks and seizures by the security agencies
- The volume of digital payment transactions increased many-fold from 1.09 lakh transactions of value of Rs 6952 cr in 2016 to 730 cr transactions of value of more than Rs 12 lakh crore in the single month of Oct, 2022.
- Information regarding deposits in bank accounts between Nov 9, 2016, to Nov 30, 2016, enabled IT authorities to detect a significant amount of unaccounted income and nudged the public to be tax compliant.
- PAN applications, tax returns and persons paying income tax increased significantly.
- Enrolment with EPFO and ESIC saw a larger increase than in the past.
- Impact of withdrawal of legal tender character of specified bank notes on economic growth was transient; with the real growth rate being 8.2 per cent in 2016-17 and 6.8 in 2017-18, both being more than the decadal growth of 6.6 per cent in the pre-pandemic years.
In any case, the government pointed out, courts do not generally sit on judicial review over economic decisions. Withdrawal of the specified bank notes was an economic policy decision exercised in accordance with the powers conferred by an Act of Parliament (RBI Act, 1934) in conformity of the provisions of the Act and was subsequently affirmatively taken note of by Parliament in the Specified Bank Notes (Cessation of Liabilities) Act, 2017.
