Modi’s cash ban was legal, court rules amid faint dissent

A customer counts Indian rupee banknotes at a stall at a vegetable wholesale market in Mumbai, India, on Saturday, Nov. 19, 2016. India’s top court refused to stay petitions filed against Prime Minister Narendra Modis surprise decision last week to ban high value bank notes to eliminate unaccounted money. (MUST CREDIT: Bloomberg photo by Dhiraj Singh)

India’s Supreme Court upheld Prime Minister Narendra Modi’s 2016 decision to overnight invalidate high-value currency notes, a decision that could provide firepower to the ruling party ahead of a series of elections in coming months.

A five-judge panel in a majority verdict Monday, January 2, 2023, said the government’s move satisfied the test of “proportionality” and the court cannot supplant the wisdom of the executive on the matter. Justice B.V. Nagarathna offered faint dissent in calling the decision to withdraw 500 ($6) and 1,000 rupee notes an “exercise of power contrary to the law” – albeit “well-intentioned” – that should have been discussed in parliament and conducted through legislation.

Demonetization, pitched by Modi as a fight against corruption, hurt businesses and livelihoods across the country and had become a political flash-point between the opposition and ruling party. Monday’s verdict could help Modi build momentum for several state elections this year and a national vote in 2024.

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The shock move to ban 86% of India’s cash caused much hardship, with limited benefits. It didn’t weed out black money or cash gained through illegal means. However, there’s been an increase in digital payments, a drop in fake notes, and an improvement in tax , collections.

Former Finance Minister P. Chidambaram tweeted Monday that the court’s majority decision “steered clear of the question whether the objectives were achieved.”

Almost five dozen petitions had challenged the demonetization move. The government argued that it was a “well-considered” decision and part of a strategy to combat menace of black money, terror financing and tax evasion. The petitioners said that there were procedural lapses and due process was not followed.

The opposition parties organized nationwide protests and said that the action was a political move. But the country’s rural poor, who bore the brunt of the sufferings, supported the policy as they believed that the action would reduce inequality and cut corruption. Modi’s Bharatiya Janata Party managed to retain power after elections in 2019.

Modi is trying to build momentum for a third term following the party’s win in his home state of Gujarat in December despite high living costs and rising unemployment. He will also face assembly elections in several states, including Karnataka, Madhya Pradesh and Rajasthan, this year.

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