Demonetization enforced after extensive talks with RBI: Centre tells SC
What's the story
The Union government has informed the Supreme Court (SC) that the 2016 demonetization was a "well-considered" move and part of a bigger process to fight the menace of tax evasion, fake money, black money, and terror financing.
The Centre added that this decision was taken after referring to the Reserve Bank of India (RBI), and preparations were made before the note ban was imposed.
Context
Why does this story matter?
In 2016, the Narendra Modi-led government announced demonetization, saying it would eradicate counterfeit currency from India, along with terrorist funding. However, things went differently than planned.
Per government data, counterfeit Rs. 500 notes in circulation have increased by over 197 times since 2016.
Furthermore, fake Rs. 2,000 notes grew to 8,798 from 638 during 2020-21.
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Demonetization, a series of transformational economic policy steps
The Centre stated that withdrawing the Rs. 500 and Rs. 1,000 banknotes was one of the steps in the sequence of transformational economic policy measures.
"It was an economic policy decision exercised in accordance with powers conferred by an Act of the Parliament and was subsequently affirmatively taken note of by the Parliament in the Specified Bank Notes Act, 2017," it said.
Response
RBI suggested a draft scheme to execute recommendation: Centre
The government performed the demonetization decision after receiving RBI's specific recommendation. Reportedly, RBI had also suggested a draft scheme to execute the recommendation.
A five-judge constitution bench comprising Justices A S Bopanna, B V Nagarathna, B R Gavai, S A Nazeer and V Ramasubramanian has been hearing the matter and is set to take up the issue on November 24.
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Government justifies its demonetization move
The Centre justified its 2016 move by listing several pointers on its economic agenda.
"Rooting out the menace of fake currency, black money and financing of subversive activities, expansion of the formal sector, digitalization of transactions, expanding communication connectivity to enable last mile reach, broadening the tax base, enhancing tax compliance were high on the economic policy agenda of the government," the Centre said.
Information
Understanding the 1978 Demonetization Act
The 1978 High Denomination Bank Notes (Demonetization) Act was officially passed to demonetize specific high-denomination banknotes to check the illegitimate money transfer facilitated by high denominations, which is detrimental to the national economy.
Black money
Rs. 80,000 crore in black money detected since 2014: RTI
The Union government detected approximately Rs. 80,000 crores worth of black money since 2014 and has brought back nearly Rs 4,000 crores as taxes and penalties, as per information obtained under the Right to Information (RTI) Act.
It also revealed that the probe done by the International Consortium of Investigative Journalists resulted in the detection of over Rs. 11,010 crores in undisclosed foreign accounts.