India’s top court upholds legality of 2016 currency ban

NEW DELHI (AP) — India’s top court said Monday that the government’s surprise 2016 decision to demonetize high-value bills was legal and made after consultation with India’s central bank.

The five-judge constitutional bench was hearing petitions challenging the currency ban that rendered 86% of India’s currency invalid without warning. They argued that this decision was not a considered decision by the government and should be overturned by the court.

Four judges from the five-member bench said the government made the decision after consulting the Reserve Bank of India and said there were no flaws in the decision-making process.

Judge BV Nagarathna, however, issued a dissenting judgment, calling the decision “unlawful” and an “exercise of power, contrary to law”. She said the currency ban could have been enforced by an Act of Parliament, not the government.

In November 2016, Prime Minister Narendra Modi made a surprise announcement on television that all 500 and 1,000 rupee notes would be withdrawn from circulation immediately. The government defended the decision saying it would eliminate illegally hoarded money, fight corruption and crack down on money laundering and terrorist financing.

The government eventually issued new banknotes worth 500 and 2000 rupees. However, the sudden decision caused losses to small businesses and manufacturers, leading to an economic crisis and months of financial chaos for ordinary cash-dependent Indians who lined up at banks and ATMs. for days as the money ran out.

According to the Center for Monitoring the Indian Economy, a Mumbai-based research firm, India lost 3.5 million jobs in the year following demonetization.

The economy suffered another blow in 2017 when the government replaced a complex system of cascading federal and state taxes with a single goods and services tax. Many small businesses – the backbone of much of India’s economy – were unable to comply with the new law and closed their doors.

India’s main opposition Congress party said on Monday that the highest court ruling said nothing about the impact of demonetization and whether its goals had been achieved, calling the ban on the currency a “singularly disastrous move”.

“The Supreme Court’s majority verdict deals with the limited issue of the decision-making process, not its outcome,” party spokesman Jairam Ramesh said in a statement.


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