Senior advocate and former Union Minister P. Chidambaram. file. , Photo credit: Sudhakar Jain
Reserve Bank of India (RBI) figures show that India currently has ₹32.18 lakh crore currency in circulation, almost double the ₹17.97 lakh crore currency in use just before. Demonetization in November 2016Senior advocate P. Chidambaram presented before a constitution bench on Thursday.
Justice S. Appearing before a five-judge bench headed by Abdul Nazeer, Mr Chidambaram was opposing the government’s contention that demonetisation was a “transformational economic policy move” which led to an unprecedented increase in digital transactions.
The government claimed that the withdrawal of the ₹500 and ₹1,000 notes, which constituted over 80% of the currency in circulation at the time, was a “significant” part of a policy push to “expand the formal economy” and dilute the ranks. was a part informal cash based sector.
The ministry had said, post demonetisation, the volume of digital payment transactions had increased from 1.09 lakh transactions worth Rs 6,952 crore in the full year of 2016 to 730 crore transactions in a month worth over Rs 12 lakh crore. of October 2022.
Citing RBI data to make his point, Mr Chidambaram said, “people fall back on currency in times of crisis”.
He said, ‘It is completely wrong to say that developed countries have become cashless… Currency in circulation has increased. Since 2016, the currency represented an overwhelming or large share of payments. People have more cash…that is the economic logic,” the senior advocate led the submissions for the petitioners who challenged demonetisation in 2016.
He said that as the GDP increases, there will be people with more income. More money will be needed.
“That is why the power to issue currency has been given to an independent authority, the RBI, whose major body researches and decides what is the cash in circulation that people need to carry out their daily activities,” Mr Chidambaram Presented by
He added that the need to issue more currency will continue to grow.
“Just by demonetisation, you take back more than 80% of the currency… It doesn’t mean that people don’t need currency. They do. As you can see, ₹17.97 Lakh Crore increased to ₹32.18 lakh crores… With humility, I can predict that it will continue to grow and it should grow,” Mr Chidambaram said.
With the withdrawal of 86.4% of ₹500 and ₹1,000 denomination notes in 2016, people were left with only ₹2 lakh crore as legal tender in 2016, he added.
“Apparently, people were put into great hardship, ₹2 lakh crore was not enough to sustain the lives of 125 crore people… to buy, sell, take loans or give etc,” Mr Chidambaram said.
He said that the value of currency in circulation was determined only by the RBI. The government had the power to demonetise, but only if the RBI gave the go-ahead.
He said that the power to issue currency was not given to the executive government for a purpose.
“Any executive government can starve the people for cash and paralyze their daily activities by not putting enough cash in circulation. That is why the RBI Act in 1934 only empowered the RBI to issue currency…they Will decide,” Mr Chidambaram said.
But neither the Central Board of the Reserve Bank of India nor the Union Cabinet was fully informed about the monumental consequences of demonetisation. The documents were not placed in the public domain.
The stated objectives of demonetisation, curbing fake currency and ending terrorism were not achieved.
Justice BR Gavai, on the bench, said, “The effect of government action cannot have any bearing on its validity.”
“Government action can be tested on proportionality… If there is one major economic decision taken in about 10-20 years that has affected the lives of all citizens, it is demonetisation… Time cannot be turned back but an act can be declared unconstitutional,” Mr Chidambaram replied.