NEWS HIGHLIGHT
Theme : Indian Economy, monetary policy, issues related to planning, growth and development etc.
Paper:GS-2 and GS-3
The Supreme Court in a 4:1 majority verdict on Monday upheld the government’s 2016 decision to demonetise the ?1,000 and ?500 denomination notes, saying the decision-making process was not flawed.
TABLE OF CONTENT
- Context
- Demonetisation
- Objectives of Demonetisation
- Advantages & Disadvantages of Monetisation
- Issues between Central Bank & Government on the Demonetisation
- Divergent Comments in 4:1 Judgment.
- Road Ahead
Context : The Supreme Court in a 4:1 majority verdict on Monday upheld the government’s 2016 decision to demonetise the ?1,000 and ?500 denomination notes, saying the decision-making process was not flawed.
Demonetisation :
- It is the act of stripping a currency unit of its status as legal tender.
- Change in currency/money pulled from circulation: It occurs whenever there is a change of national currency and the current form or forms of money is pulled from circulation and retired, often to be replaced with new notes or coins.
Objectives of Demonetisation :
Addressing the Issues like:
- Practices of hoarding “black” money
- Counterfeiting
- Terror funding
- Drug trafficking
- Emergence of a parallel economy
- Money laundering including hawala transactions.
Advantages & Disadvantages of Monetisation :
Issues between Central Bank & Government on the Demonetisation :
- Sub-sec(2) of section 26: The central government cannot demonetise bank notes by issuance of a gazette notification as if it is exercising power under sub-section (2) of Section 26 of the Act.
- Opinion of the central bank: Government must seek the opinion of the central board of the bank.A bank is the sole authority to regulate circulation of bank notes and secure monetary stability.
- Non binding: On receipt of a negative opinion from the central board of the bank.
- Central government may still intend to go ahead with the said process after weighing the pros and cons.
- By means of an ordinance and/or parliamentary legislation.
- If the central board of the bank concurs with the proposal of the central government: Central government has to undertake a legislative process and not carry out the measure by simply issuing a gazette notification.
Divergent Comments in 4:1 Judgment. :
- Issuance of a notification as contemplated under subsection (2) of Section 26 of the Act: such provision would not apply in cases where the proposal for demonetisation has originated from the central government.
- The bank acted at the behest of the central government: It did not render an independent opinion to the central government.
- Notification dated November 8, 2016: issued under subsection (2) of Section 26 of the Act is unlawful.Subsequent Ordinance of 2016 and Act of 2017 incorporating are also unlawful.
Road Ahead :
- The measure was reflective of concern for the economic health and security of the country and demonstrates foresight.
- The measure has been regarded as unlawful only on a purely legalistic analysis of the relevant provisions of the Act and not on the objects of demonetisation.
- Demonetisation was an expeditious move to boldly counter the black money and parallel economy, with visible impact on how the government’s policies are perceived in international circles of economic power.
FAQs :
-
What is Demonetisation ?
ANS.
- It is the act of stripping a currency unit of its status as legal tender.
- Change in currency/money pulled from circulation: It occurs whenever there is a change of national currency and the current form or forms of money is pulled from circulation and retired, often to be replaced with new notes or coins.
-
What are the Objectives of Demonetization ?
ANS. Addressing the Issues like:
- Practices of hoarding “black” money
- Counterfeiting
- Terror funding
- Drug trafficking
- Emergence of a parallel economy
- Money laundering including hawala transactions.