By Akansha Dubey
The Opposition and the public have had a mixed reaction to the Government of India’s demonetisation decision. Widespread public inconvenience has triggered a panic rush to banks. Many are questioning the planning, implementation and execution of the measure. Numerous Public Interest Litigation petitions have already been filed in the Supreme Court of India.
The legal argument against demonetisation
Firstly, the Government has provided no evidence of an independent evaluation of the Central Board recommending such economic steps. Mere consultation may not be sufficient to fulfil this legal procedural requirement. Secondly, the Supreme Court has previously upheld that such demonetisation of currency is an extinguishment of a public debt owed by the Government to the holder of old notes. This then amounts to a deprivation of movable property in the Jayantilal Shah v RBI case. It violates the constitutional right enshrined in Article 300A of the Constitution of India, which only a law can restrict. Thirdly, a restriction of inalienable rights, such as the right to carry out any occupation, trade or business and the right to livelihood, requires a strong force of the law enacted in public interest. The changing limits on withdrawal, lack of sufficient currency circulation and weak infrastructure for a cashless economy is hampering trade and living standards of the individuals in India.
This scenario may indicate a case of excessive delegation of power to the Government to bypass an essential law-making function for any restriction on fundamental and constitutional rights under the Indian Constitution. India has previously undertaken demonetisation of currency in 1956 through an amendment to the RBI Act, and in 1978 through the enactment of a legislation. This evidently emphasises the need for the intervention of the Legislature for a measure that has a wide-ranging impact. Many may defend this action by drawing a technical distinction between the demonetisation of currency and de-recognition of legal tender. The demonetisation measure will require a legislation and make the possession of illegal tender an offence. While the de-recognition allows the public to exchange or deposit the illegal tender.
The need for policy analysis
However, these technical legal arguments fail to address the ground reality. Any policymaking function is within the domain of the Executive as correctly ascertained by the Supreme Court. The process of policy analysis can complement a legal action as well. In this case, the measure will succeed in reducing unaccounted wealth, weeding out fake currency and disrupting cash flow for criminal activities. But at a cost. There will be low economic activity during the transition period leading to low GDP growth. Printing new currency will add to the costs of the Government. Since the poor in India transact through cash, they will be harassed. The informal sector will be hit which forms the majority of the employment space in India.
Given the deficit of infrastructure and the inability of the rural population, the government could have taken alternative measures. Measures like police stings to prevent gold dealings or transparency in land transactions might have worked better. The gradual change of old currency to new notes could tackle the black money problem in a less disruptive fashion. This ‘shock-therapy’ questions the foundations of legal tenets, social welfare and economic development.
Grounding policy in evidence
This case is an example of a narrow-minded approach to policymaking in India. Policies have the potential to not only influence but become a criterion for evaluating an Executive action. Where the limitations on the power of the Executive come into question, legal actions must be pre-tested with evidence-based policy analysis.
A thorough cost-benefit policy analysis will ensure that either the least harmful alternative is taken or the requisite legal safeguards are applied.
This analysis would prove to be a preliminary test for any action before it is subjected to legal or social standards. Today, evidence-based policy analysis has become a cornerstone of democratic governance to protect the public interest. In other words, it is the foundation for any Government of the people, for the people and by the people.