Lok Sabha Question No. 4141 (UNSTARRED), answered on 2023-03-27
Subject: Assessment Over Impact of Demonetization on Business
Ministry: FINANCE
Asked by: Sukhbir Singh Badal

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF ECONOMIC AFFAIRS LOK SABHA UNSTARRED QUESTION NO.4141 TO BE ANSWERED ON 27.03.2023

## Assessment Over Impact of Demonetization on Business

## 4141 SHRI SUKHBIR SINGH BADAL:

## Will the Minister of FINANCE be pleased to state:

(a) whether the Government have assessed the recent judgement of the Hon'ble Supreme Court over demonetization and the dissenting judgement of one of the Judges of the Bench over the impact of demonetization on business, employment, agriculture and poverty and if so, the details and the outcomes thereof ;

(b) whether the Government plans to assess the views of the dissenting Judge in this matter and if so, the details thereof and if not, the reasons therefor; and

(c) whether any post-demonetization study has been done by the Government to assess the effectiveness of the demonetization policy and if so, the details and the outcomes thereof?

## ANSWER

## MINISTER  OF  STATE  IN  THE  MINISTRY  OF  FINANCE  (SHRI  PANKAJ CHAUDHARY)

(a)  &  (b)  Vide  majority  Judgment  (4:1)  dated  January  02,  2023  in  the  Vivek  Narayan Sharma case [Writ Petition (Civil) No. 906 of 2016], the Constitutional Bench of Hon'ble Supreme Court  after  due  hearing  of  all  parties  has  replied  the  references  on  reframed questions as follows:

(i) The power available to the Central Government under sub-section (2) of Section 26 of the RBI Act cannot be restricted to mean that it can be exercised only for 'one' or 'some' series of bank notes and not for 'all' series of bank notes. The power can be exercised for all  series  of  bank  notes.  Merely  because  on  two  earlier  occasions,  the  demonetization exercise  was  by  plenary  legislation,  it  cannot  be  held  that  such  a  power  would  not  be available to the Central Government under sub-section (2) of Section 26 of the RBI Act;

(ii) Sub-section (2) of Section 26 of the RBI Act does not provide for excessive delegation inasmuch as there is an inbuilt safeguard that such a power has to be exercised on the recommendation of the Central Board. As such, sub-section (2) of Section 26 of the RBI Act is not liable to be struck down on the said ground;

(iii) The impugned Notification dated 8th November 2016 does not suffer from any flaws in the decision-making process;

(iv) The impugned Notification S.O. 3407 (E) dated 8 th  November 2016 satisfies the test of proportionality and, as such, cannot be struck down on the said ground;

(v) The period provided for exchange of notes vide the impugned Notification dated 8 th November 2016 cannot be said to unreasonable; and

(vi) The RBI does not possess independent power under sub-section (2) of Section 4 of the 2017  Act  in  isolation  of  the  provisions  of  Sections  3  and  4(1)  thereof  to  accept  the demonetized notes beyond the period specified in notifications issued under sub-section (1) of Section 4 of the 2017 Act.

In the dissenting Judgment, the Hon'ble Judge has also observed that 'it cannot be denied that demonetisation in the instant case was a well-intentioned proposal'.

Government has accepted the majority judgment.

(c) No study on effect of withdrawal of legal tender character of the Specified Bank Notes (SBNs)  on  Indian  economy  has  been  done  by  the  Government.  However,  RBI  has published  a  Study  titled  'Macroeconomic  Impact  of  Demonetization  -  A  Preliminary Assessment' in March, 2017, which is available on the website of RBI.

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