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WHAT WAS THE NECESSITY OF DEMONETIZATION, WHEN THE INDIAN ECONOMY WAS ALREADY DOING WELL AND GROWING AT 7.6% IN 2015-16 FISCAL YEAR ENDING IN MARCH AND IN 2019 IT IS GROWING AT 4.5% WELL AFTER OVER THREE YEARS OF DEMONETIZATION
Today after a lapse of about more than 3 years since November 8, 2016, when the present Modi government proclaimed the “Demonetization” of high denomination currency notes of the value of 500 and 1000 of Mahatma Gandhi series, every Indian citizen perhaps cannot forget the onslaughts of the government decision about demonetization that how everyone was virtually left with no money and whatever money in high currency the people possessed had to return to the banks. It pumped massive unemployment in the Country and its tremors are continuously shaking us even today.
Further the government had imposed limitations on the withdrawal of money from their own bank accounts and ATMs and one could see everywhere in the Country, the long ever increasing queues of people outside the banks and ATMs.
If one recollects many people died also. The demonetization had adversely affected the poors and middle class people and so far as the wealthy class was concerned was not affected by the demonetization.
In backdrop of this what I have explained above it becomes substantially important to analyze that what was the necessity of resorting to the process of demonetization by the Modi government when the Indian economy was doing very well in 2016, than today in 2019 (4.5%) at that point of time it was growing well at 7.6% according to the Economic Times. Click on the following link to see growth in 2015-16 ending fiscal year: https://economictimes.indiatimes.com/news/economy/indicators/indias-growth-at-7-6-in-2015-16-fastest-in-five-years/articleshow/52522153.cms?from=mdr
The Modi government in order to justify their decision on demonetization gave the following reasons:
- To stop terrorism;
- To remove black money from the economy;
- To curtail the use of counterfeit cash in the economy;
Substantially on the above three reasons the government of the day had proclaimed the demonetization of high denomination currency notes of Rs. 500 and 1000, which not only disrupted the life of a common man but disarrayed the whole system of the economy, which continues even today.
Now critically, the point to ponder before us is, whether the demonetization notified by the Modi government was in consonance with the objects of law enshrined in “The High Denomination Bank Notes (Demonetisation) Act, 1978.” I will particularly make reference to the statement of objects and reasons, which is the spirit of this law and is reproduced here for ready reference of the readers:
ACT NO. 11 OF 1978
[30th March, 1978.]
An Act to provide in the public interest for the demonetisation of certain high denomination bank notes and for matters connected therewith or incidental thereto.
WHEREAS the availability of high denomination bank notes facilitates the illicit transfer of money for financing transactions which are harmful to the national economy or which are for illegal purposes and it is therefore necessary in the public interest to demonetise high denomination bank notes;
Another law from where the Central government is empowered to declare certain high denomination currency to be ceased to a legal tender that is not accepted in payment is contained in section 26 (2) of The Resrve Bank of India Act, 1934 and for your reference is reproduced here:
26. Legal tender character of notes
(1) Subject to the provisions of sub-section (2), every bank note shall be legal tender at any place in India in payment or on account for the amount expressed therein, and shall be guaranteed by the Central Government.
(2) On recommendation of the Central Board the Central Government may, by notification in the Gazette of India, declare that, with effect from such date as may be specified in the notification, any series of bank notes of any denomination shall cease to be legal tender save at such office or agency of the Bank and to such extent as may be specified in the notification.
Now if these two provisions of law are meticulously and microscopically examined then it is very much apparent that the first step to initiate the process of demonetization of high denomination currency notes lies in the Demonetisation Act of 1978 that is, the Central Board of the RBI recommends to the Central Government to notify demonetization.
I have already elucidated above the objects behind demonetization by the Modi government which according to them the trouble shooter in economy is the high denomination currency bank notes which generates black economy and following this notion the currency notes of 500 and 1000 were demonetized. It is worthwhile to note that the currency notes of Rs. 500 were again reprinted and instead of Rs. 1000, the new higher denomination currency notes of Rs. 2000 were also printed by RBI and introduced in the economy for circulation.
It is bizarre to understand that while announcing the demonetization the argument tendered by the Government was that the high denomination currency generates black money in the economy and later again the higher denomination currency notes of Rs. 2000 were printed and introduced in the economy, will this step of the Modi Government not recur the same trouble of black money and facilitate illegal transactions as this government thought on November 8, 2016, while announcing the demonetization of high denominational currency of Rs. 500 and 1000.
Is the reprint of high denomination currency bank notes of Rs. 2000 justified by the Modi Government, when according to them the high denomination currency notes generates black money in the economy? The Government must explain to the public that how demonetization had benefited the Nation and the citizens of India.
The law mentioned above is very clear and specifically states the availability of high denomination bank notes facilitates the illicit transfer of money for transactions which are harmful to the national economy or which are for illegal purposes and it is therefore necessary in the public interest to demonetize high denomination bank notes and this is the underlying principle of the demonetization act.
Considering the mandate of law of demonetization, the first notifying by the government of high denomination bank notes ceased to be a legal tender and thereafter again introducing the high denomination bank notes of Rs. 500 and 2000 not justified and cast cloud on the intent of the government because when it was to reprint the high denomination currency of bank notes of Rs. 2000, then what was the urgency to demonetize the bank notes of Rs. 1000 and introducing the much higher denomination currency note of Rs. 2ooo for circulation in the economy.
Horribly, the tremors of Demonetisation continues to shake us and the economy even today.