With the decision of the Supreme Court of India, all the questions regarding the constitutionality of the demonetisation of currency notes by the Indian government in 2016 are now settled forever. A 4:1 verdict establishes that due process was followed and the Reserve Bank of India was in the loop. However, the questions regarding the economic and social impact of demonetisation would never die down and should not. A fair and unbiased discussion, as well as an assessment of this key but knee-jerk policy decision, is necessary so that this episode of demonetisation could be used as a case study for future policymakers.
The Government of India demonetised ₹500 and ₹1,000 currency notes in 2016 with the stated objectives to clean illicit money and cashless economy which eventually proved to be a very costly affair for the economy. However, after six years of demonetisation, it can easily be said that ideally none of the stated objectives was ever achieved apart from the cleansing of the counterfeit currency notes from the market.
Interestingly, the currency circulation has increased to ₹32.42 Lakh crores in December 2022 from ₹17.74 Lakh crores in November 2016. The counterfeit currency notes are again getting traction in the economy slowly. However, the number of digital payment transactions in the Indian economy is increasing manifold every year along with increased numbers of individual taxpayers in the economy.
The decision to demonetise currency notes was indeed a knee-jerk policy decision with huge costs to the society and economy but calling it undemocratic or a complete failure wouldn’t be fair. Any policy decision is very complex and its dividends are also multifaceted. Not only the proliferation of counterfeit currency notes in the economy should be considered but other unstated benefits such as increasing the footprint of digital payments as well as the formalization of the economy, implementation of GST etc. should also be considered while assessing this decision.
Post the 4:1 verdict of the Supreme Court of India, many intellectuals are out to blame and reject the decision indirectly terming the decision biased and stage-managed. It is very unfortunate to see the intellectual class conveniently accept and reject the decision based on political ideologies than merit.
Instead of Economic reasons and rationales, intellectuals are judging it with prejudice based on political fault lines. Either they are blindly opposing or supporting the demonetisation decision without considering that such policy-level decisions (risky) are never destined to result in the same planned ways. Often such decisions give some unexpected dividends while bringing in new challenges and risks for the economy.
The Indian intellectual class cannot be blamed completely as it has been trained to think and react based on ideological lines only. They have confined themselves to the boundaries of the ideologies and are conditioned to these ideologies that those boundaries seem to be the limit of the evolution of ideas and reasons. The funny part of the whole story is that they still claim that they are democratic, secular and inclusive and support fair and transparent decisions. They cannot be held wrong as being biased is natural to them.
However, irrespective of the risks, it can never be argued that, because a policy decision may be risky with a lot of uncertainty, such policy decisions shouldn’t be taken and implemented by the governments. A developing economy like India can never afford to not take such decisions.
Interestingly, the currency circulation has increased to ₹32.42 Lakh crores in December 2022 from ₹17.74 Lakh crores in November 2016. The counterfeit currency notes are again getting traction in the economy slowly. However, the number of digital payment transactions in the Indian economy is increasing manifold every year along with increased numbers of individual taxpayers in the economy.
The decision to demonetise currency notes was indeed a knee-jerk policy decision with huge costs to the society and economy but calling it undemocratic or a complete failure wouldn’t be fair. Any policy decision is very complex and its dividends are also multifaceted. Not only the proliferation of counterfeit currency notes in the economy should be considered but other unstated benefits such as increasing the footprint of digital payments as well as the formalization of the economy, implementation of GST etc. should also be considered while assessing this decision.
Post the 4:1 verdict of the Supreme Court of India, many intellectuals are out to blame and reject the decision indirectly terming the decision biased and stage-managed. It is very unfortunate to see the intellectual class conveniently accept and reject the decision based on political ideologies than merit.
Instead of Economic reasons and rationales, intellectuals are judging it with prejudice based on political fault lines. Either they are blindly opposing or supporting the demonetisation decision without considering that such policy-level decisions (risky) are never destined to result in the same planned ways. Often such decisions give some unexpected dividends while bringing in new challenges and risks for the economy.
The Indian intellectual class cannot be blamed completely as it has been trained to think and react based on ideological lines only. They have confined themselves to the boundaries of the ideologies and are conditioned to these ideologies that those boundaries seem to be the limit of the evolution of ideas and reasons. The funny part of the whole story is that they still claim that they are democratic, secular and inclusive and support fair and transparent decisions. They cannot be held wrong as being biased is natural to them.
However, irrespective of the risks, it can never be argued that, because a policy decision may be risky with a lot of uncertainty, such policy decisions shouldn’t be taken and implemented by the governments. A developing economy like India can never afford to not take such decisions.
Rajeev K. Upadhyay
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