Demonetisation a critical steps in series of transformational economic policy: Govt tells SC

The Union government on Wednesday told the Supreme Court that the November 8, 2016 order to withdraw legal tender of Rs 500 and 1,000 currency notes was an economic policy decision, taken after extensive consultation with the RBI and advance preparations.

The withdrawal was one of "the critical steps in the series of transformational economic policy steps", it said.

It was also a part of a larger strategy for combating the menace of fake money, terror financing, black money, and tax evasion.

"Withdrawal of the legal tender character of the SBNs (specified bank notes) was by itself an effective measure and was also a part of a larger strategy for combating the menace of fake money, terror financing, black money, and tax evasion, but not confined to them alone," it said.

"It was an economic policy decision exercised in accordance with powers conferred by an Act of the Parliament (RBI Act, 1934), in conformity with the provisions of the said Act and was subsequently affirmatively taken note of by the Parliament in the Specified Bank Notes (Cessation of Liabilities) Act, 2017," it added.

The written response from the Finance Ministry was filed in a batch of PILs being heard by a five-judge Constitution bench. The court had asked the government to file a detailed reply.

The government said withdrawal should be seen in the context of the prevailing challenges which the economy faced and also from a larger perspective, it said.

It may also be seen in the context of the totality of measures taken with due consideration and relevance by the government.

It also enumerated a series of steps especially post-2014, including the creation of the Special Investigation Team in 2014, the Black Money and Imposition of Tax Act 2015, the Benami Transactions Act 2016, the information exchange agreements and changes in the tax treaties with select countries, the Income Disclosure Scheme, and enactment of the Fugitive Economic Offenders Act 2018.

The government claimed the number of fake currency notes and their values came down significantly, both in terms of the detection in the banks and seizures by the security agencies.

Besides, the volume of digital payment transactions increased manyfold from 1.09 lakh transactions of value Rs 6,952 crores in the entire year 2016 to more than 730 crore transactions of a value of more than Rs 12 lakh crores in a single month of October 2022.

"The overall impact of the withdrawal of the legal tender character of the SBNs on economic growth was transient, with the real growth rate being 8.2 per cent in FY 16-17 and 6.8 per cent in FY 17-18, both being more than the decadal growth rate of 6.6 per cent in the pre-pandemic years," it said.

The government also maintained that all possible measures were taken to mitigate inconvenience to the public and reduce the disruption of economic activities after the decision.