Why demonetisation verdict raises more questions than answers https://www.fortuneindia.com/opinion/why-demonetisation-verdict-raises-more-questions-answers/111008
By not questioning Centre’s contrarian economic wisdom, RBI’s acquiescence and its own delay of 6 years to decide the writs, the court has failed to bring checks and balances and prevent recurrence.
By Prasanna Mohanty, Jan 4, 2023
its economic “wisdom or soundness” (the evidence for the policy) and the “procedural” flaws (the decision-making process) which have been glossed over. These two latter aspects raise questions about accountability and transparency in governance, institutional integrity (also independence) and democratic checks and balances. The implication: It’s still hard to prevent such an event in the future.
there is no doubt that demonetisation caused a derailment of economy (India was the fastest growing major economy in 2015) by wiping out 86.9% of high-value currency notes (of ₹500 and ₹1,000) overnight from a cash-based economy. It caused massive and overnight loss of jobs and (small) businesses and none of its objectives were achieved.
The then Chief Economic Advisor Arvind Subramanian called it “a massive, draconian, monetary shock” which he said led to a fall of the GDP growth from 8% in the previous six quarters to 6.8% in subsequent seven quarters. The then IMF chief economist Gita Gopinath warned the world against attempting it. The Finance Ministry’s 2012 white paper on black money had specifically rejected the proposal to demonetise ₹500 and ₹1,000 currency notes to fight black money.
Why did it then approve demonetisation? The minutes revealed: “The Board was assured that the matter has been under discussion between the Central Government and RBI over the last six months during which most of these issues have been considered. Apart from the stated objectives, the proposed step also presents a big opportunity to take the process of financial inclusion and incentivising use of electronic modes of payment forward as people see the benefits of bank accounts and electronic means of payment over use of cash”.
Policy and policy-making as ‘fait accompli’ : Even while turning it into academic and fait accompli, the court verdict could have addressed important governance issues (short for rash policy making and undermining democratic checks and balances) to prevent recurrence: by fixing the Centre’s accountability and transparency and the RBI’s institutional integrity.