Supreme Court Went Wrong In Saying Demonetisation Had Reasonable Nexus With Eradicating Black Money : Professor Arun Kumar|Interview

Economist Professor Arun Kumar has opined that the Supreme Court went wrong in holding that the demonetisation had a "reasonable nexus" with the objective of eradicating black money.On January 3, the Supreme Court, by a majority of 4:1, had upheld demonetisation as a legal and valid exercise. While holding the measure as satisfying the test of proportionality, the majority judgment authored by Justice BR Gavai had held that "there is a reasonable nexus between the measure of demonetisation with the purposes of addressing issues of fake currency bank notes, black money, drug trafficking and terror financing".In an interview with Manu Sebastian, Managing Editor of LiveLaw, Professor Kumar - who is known for his extensive research on the black economy and demonetisation- questioned the rationale of the Supreme Court's finding."I think this idea that there is a nexus between demonetisation and ending black income generation is not a reasonable thing at all. Even the dissenting judgment said that the decision to demonetize was well intentioned. How can we judge a policy on the basis of somebody's intention? It has to be on the basis of whether it could at all have achieved the purposes", he said.Black money does not mean cash, demonetisation does not affect black income generation"The premise itself that demonetisation could remove black income or black money is incorrect. That's based on the wrong premise that black means cash. Black money is only one part of the black wealth of a person, because you can hold your black wealth in a variety of ways and you'll hold it minimum amount in the form of black money, because on money, you don't get a return. So you would like to invest it. So my estimate is that, less than one percent of the black wealth is in the form of cash. So you would have got rid of only one percent of the black wealth and the remaining 99 would still be there. We know that all the cash got returned. As the annual report of the RBI, 99.3 percent of the cash came back to the banks and the remaining 0.7 must have been in foreign countries or with old people or others who could not exchange. So none of the black got removed, it got converted into new notes. Therefore not even point zero zero one percent of the black wealth got affected by this measure of demonetisation".The fact that demonetisation will not eradicate blackmoney was very well known from the experience of the 1978 demonetisation, he added. At that time, the then RBI Governor IG Patel had given in writing that demonetisation would not have the intended effect. Therefore, had the government consulted independent economic experts, it would have been cautioned against the move."Now the the government says that we have consulted the RBI over six months eight months. But Mr. Raghuram Rajan(who was the RBI Governor til September 2016) is on record saying that he has advised the government not to go in for this measure because it would not achieve the target of removing black money", he said.Black money not the same as black economyHe added that black money is not the same as black economy. "Black economy means black income generation. So how do I generate black income? I do under invoicing and over invoicing. Suppose I'm a doctor, I see 50 patients I declare the income of 30 but not of the remaining 20. So neither black income generation stopped nor black money got out of the circulation"."Therefore, it was a complete failure and this was known. I've been writing on this since 1984. In my book in 1999, I've written that why this would not work and why it would damage the economy. If you do it suddenly without full preparation, it would damage the economy. So in other words, this idea that black means cash is completely erroneous and the idea that demonetisation would get rid of black money is also completely erroneous. So how could it be well intentioned? How could it be that there's a nexus between what the policy was and what the objective was. There was no nexus. It wasn't well intentioned and we cannot have policies based on intentions. Otherwise I can do something wrong as a policy maker and then say my intention was good and therefore it was all right".Democratic process underminedProfessor Kumar also spoke about how the decision had the result of undermining democratic processes and the autonomy of institutions."The other point that I think needs to be made in this context is that the process in democracy is very important. What is the process by which you have arrived at a decision? It should not undermine democracy, it should not undermine institutions. I can say for the sake of a form that I've consulted but you know the consultation does not mean concurrence. If you undermine the process, you undermine democracy also and you undermine RBI. Because RBI's credibility went down when all the money came back and I had written an article in Economic and Political Weekly in June 2017 showing that by January 10 itself, 98.8...

Supreme Court Went Wrong In Saying Demonetisation Had Reasonable Nexus With Eradicating Black Money : Professor Arun Kumar|Interview

Manu Sebastian

Tags