Demonetisation, a footnote of hoarding in legal tender

86% of the cash was taken out of circulation raising several critical legal issues-excessive delegation, lack of legislation, ultra vires of the constitution, validity of RBI’s ‘recommendation’ and test of reasonableness. The issue is before the Supreme Court.

Informed public soon turned sceptical of the entire exercise. It was felt that there was a hidden objective, to bail out Non Performing Assets (NPA)- infested (Rs 6 to Rs 7 lakh crore) banks with crores of white money from the general public, many of whom held Rs 500 currency notes.

Within weeks of the drive, many felt that the real objective was to thrust ‘digital economy’ on people, but with very poor infrastructure. Central Government-Prime Minister downwards, all departments, RBI and commercial banks are marketing ‘cashless business’. On December 8, Finance Minister Arun Jaitley said, “RBI has been releasing currency as per schedule. The aim of demonetisation has been to move towards digital transactions.” 

Also a high-level Committee of Chief Ministers and Central Ministers to implement digital-cashless payment systems through Aadhaar card based transactions.

The PMO has directed linking of all savings bank accounts with customers’ Aadhaar numbers to enable digital transactions by 30 crore people without phone. This is defiance of the Supreme Court Order of 11 August 2015. Modi in fact flaunted a smart phone at a public meeting in Kanpur saying, “Bank is now in your hands.” However, this can hardly reach 25- 30 per cent of the population.

In what can be termed as a significant move, ₹2, 000 notes were made available the very first day while RBI did not even start printing ₹500 notes. Interestingly, many of these notes surfaced outside the banking system! ATMs were shut down in the guise of recalibration and most of ₹100 notes supplied were soiled and hence rejected by the counting machines. 

We have also seen contradictions between GoI and RBI, conflicting spate of RBI directives (52 so far) to Banks, one reversing the other. (Reverse Bank of India). Clearly, demonetisation has been done in a hurry through an executive order that has no authority to place restrictions on drawing of own money from the banks. These cannot be considered ‘implementation failures’ but deliberate attempt to spread panic among the public forcing them to stand in serpentine queues and surrender their cash to the state as fast as possible.

The Central government has coerced the RBI to renege from its “promise to pay the bearer the sum of 1000 and 500 Rupees.” RBI is extinguishing liability and enriching itself. These violate Article 300A (right to property) and Articles 14, 19, 20 and 21 (fundamental rights) of the Constitution. Serious breach of trust. This is expropriation, not demonetisation.

Expropriation is taking-over of items or goods by the government by refusing to honour the property rights of those holding such items or goods. This need not be an absolute. Even a high degree of restriction/interference with property rights can be expropriatory. Through this ‘act of expropriation’ government has imposed a phenomenal burden of loss of purchasing power.

It is too early to say whether demonetisation has eliminated black money. But it has certainly created a ‘black-market’ in legal tender, the hoarding of which is being raided with all fanfare. As far as corruption is concerned the colour of the currency makes no difference. Neither is it a one-time activity to be put an end to through such one-time measure. The roots are much deeper, none of which are being addressed by this government including electoral corruption which is the grandmother of all corruption.