Notes ban a larger policy to expand formal economy: Here are 8 things Centre told SC on demonetisation
Notes ban a larger policy to expand formal economy: Here are 8 things Centre told SC on demonetisation
Over three dozen petitions have been filed against the Centre’s November 8, 2016, move to ban currency notes of Rs 500 and Rs 1,000 denominations, following which the apex court had asked the Centre and RBI to file their replies.
On November 8, 2016, PM Modi announced the decision to withdraw Rs 500 and Rs 1,000 denomination notes in a bid to reduce corruption and black money from the economy.
The Centre in its reply to the Supreme Court on Wednesday has said that the 2016 bank note demonetisation was a "well-considered" decision and part of a larger strategy to combat the menace of fake money, terror financing, black money and tax evasion.
On November 8, 2016, PM Narendra Modi announced the decision to withdraw Rs 500 and Rs 1,000 denomination notes with the ultimate aim of reducing corruption and black money from the economy.
As per news reports, over three dozen petitions have been filed against the Centre’s November 8, 2016 move to ban currency notes of Rs 500 and Rs 1,000 denominations alleging that the Centre had violated fundamental rights and being contrary to the law laid down under the RBI Act, 1934.
A five-judge constitutional bench had asked the Centre and the Reserve Bank of India (RBI) to file replies on the legality of the procedure adopted for the denomination, which had at the time (2016) formed more than 80 per cent of the currency in circulation. Earlier, the Centre had asked the apex court the proceedings by declaring it infructuous and an academic exercise.
Here are 8 major points the Centre made to defend its demonetisation move.
The Centre said that the decision to demonetise currency notes of Rs 500 and Rs 1,000 denominations was done in extensive consultation with the RBI, and advanced preparations were made for the step.
The Centre said that 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.
The Centre its affidavit said the RBI also proposed a draft scheme for the implementation of the recommendation. The recommendation and the draft scheme were duly considered by the Central Government and, based on that, the Notification was published in the Gazette of India declaring that the specified bank notes shall cease to be legal tender.
The government said that the “overall impact of the withdrawal of legal tender of the specified banknotes on economic growth was just “transient”.
In its affidavit, the Centre explained that the real growth rate being 8.2 per cent in FY 2016-17 and 6.8 per cent in FY 2017-18, both being more than the decadal growth rate of 6.6 per cent in the pre-pandemic years.
The Centre said that it exempted specified bank notes from ceasing to be legal tender for certain transactions such as booking bus, train and air tickets, treatment at Government Hospitals, purchase of LPG cylinders, etc.
It added that income tax authorities, who kept a keen eye on bank account deposits made between November 9 and December 30, 2016, detected a “significant amount of unaccounted income”.
The Centre said that “rooting out the menace of fake currency, black money and financing of subversive activities, expansion of the formal sector, digitalisation of transactions, expanding communication connectivity to enable last mile reach, broadening the tax base, enhancing tax compliance... were high on the economic policy agenda of the government".