Last November 8th, the same day the United States elected a kleptocrat to its highest office, an executive on the other side of the world—Indian Prime Minister Narendra Modi—launched what Larry Summers called “the most sweeping change in currency policy that has occurred anywhere in the world for decades.” Prime Minister Modi’s surprise “demonetization” drive gave citizens fifty days to exchange all 500 and 1000 rupee notes (valued at about 8 and 15 USD respectively). Modi’s radical move, which will remove approximately 86% of all currency in circulation, is an attempt to combat endemic petty corruption, money laundering, terrorist financing, and tax evasion (only 2% of Indians pay income tax). Prime Minister Modi was elected on an anticorruption platform in 2014, and pledged during his campaign to target hidden cash (so-called “black money”). Yet the demonetization campaign came as a surprise. Indeed, it probably had to be a surprise, lest those hiding fortunes in cash would have been able to prepare for the policy change.
While the Indian public generally supports aggressive anticorruption efforts, it would be hard to exaggerate the disruption resulting from demonetization. The real estate and wedding industries run largely on cash, as do most small businesses. And the demonetization program has hit regular citizens hard: People have been waiting in lines for hours to exchange their cash, which can be especially difficult for the four-fifths of women who don’t have a bank account. In the short term, consumption, the stock market, and growth forecasts have all plummeted and the agricultural sector is expected to suffer as well. Prime Minister Modi acknowledged the campaign would cause pain for many honest people, but believed it was worth it, stating that black money and “corruption are the biggest obstacles in eradicating poverty.” (Since then, the official justification for the campaign appears to have shifted to an attack on the cash economy as a whole, rather than a campaign against black money specifically.)
The fate of the demonetization program now lies with India’s judiciary:
Just two days after the demonetization program was announced, four petitions were filed directly to the Supreme Court, challenging the abruptness of demonetization and the collateral suffering it has caused. The petitioners sought to halt the demonetization process due to the impending chaos. While the Court did not order a stop to the policy, it did ignore Prime Minister Modi’s appeals and refused to block lower court cases challenging demonetization, noting the judiciary could not accurately measure the magnitude of the crisis if access to the courts were limited. In late November, the Supreme Court described demonetization as “carpet bombing” but gave the government time to file an affidavit justifying the campaign. On December 9th, the Attorney General once again went before the Court to argue that it should not interfere with policy and the government was taking all necessary measures to ease inconveniences while bringing to light the illegal, parallel economy. On December 16th, a three-Justice bench chose not to order a pause to demonetization, but referred nine questions on the constitutionality of demonetization to a five-judge bench and consolidated all other, pending demonetization cases in the lower courts. Since the deadline for exchanging old bills has recently passed (December 31st), it is unclear how a future court decision would provide relief.
The referral order and nine constitutional questions are striking in their breadth. Some of the questions concern equality before the law, no doubt because of allegations that some were tipped off before the official announcement. Another challenge asserts that the program represents an unconstitutional taking of private property. A third asks whether political parties have the right to constitutional remedies. But the most significant question, at least for anticorruption advocates, concerns the relationship between the judiciary and the political branches. At multiple stages, Modi’s Attorney General has argued that demonetization is a matter of monetary policy and is therefore beyond the scope of judicial review. Thus, while the Court decision will not settle the debate over whether demonetization decreases systemic corruption, the case presents a fundamental issue regarding the relationship between the court and the government, and the Supreme Court may ultimately have to decide whether the constitution limits the ability of the political branches to undertake aggressive anticorruption initiatives. The Court faces a difficult balancing act: it must interpret constitutional provisions to protect citizens, give the elected branches some freedom to fight corruption, and also set some limit on what counts as anticorruption policy.
As the Supreme Court deliberates on demonetization’s constitutionality, it should keep in mind that it is balancing multiple public interests: to check petty corruption and to limit public suffering. On the one hand, the demonetization campaign seems to be a legitimate, although perhaps ill-advised, effort to combat systemic corruption, and the Court should be reluctant to interfere. As long as demonetization did not unconstitutionally trample citizens’ rights, the court should not declare the old bills to be legal tender. On the other hand, the Court should not agree with the Attorney General and find that demonetization is a monetary policy entirely beyond judicial consideration. Often, powerful parties and individuals have a tendency to wield accusations of corruption in order to take out opponents. Therefore, the court should confirm the motivation of the campaign, even if it cannot accurately weigh its long-term effectiveness. If the Court were to decide that monetary decisions, labeled as anticorruption measures, are categorically beyond its jurisdictional reach, the Court might set the stage to allow future governing parties, shielded by anticorruption rhetoric, to seize opponents’ assets.
The Court can provide balance to the radical campaign with a measured response, and allow political checks to play their proper role. If the citizenry deems demonetization to be overly aggressive, they will vote Modi out. However, to the surprise of many, the general population has been remarkably accepting of the campaign, a testament to the importance they ascribe to anticorruption efforts, even such poorly executed ones.