Editorial 1: Two views on six issues: What the Supreme Court’s demonetisation verdict says
Recent Context:
- In the Supreme Court’s majority opinion 4:1 majority verdict upholds decision to demonetise the Rs 1,000 and Rs 500 denomination notes of November 8, 2016, Justice B R Gavai — writing for himself and Justices S Abdul Nazeer, A S Bopanna, and V Ramasubramanian reframed the questions referred to the Constitution Bench into six issues.
- In her dissenting judgment, Justice B V Nagarathna disagreed with the reasoning and conclusions in the majority opinion.
Point of discussion during the judgment:
- Whether the power available to the Central Government under sub-section (2) of Section 26 of the RBI Act can be restricted to mean that it can be exercised only for “one” or “some” series of bank notes and not “all” series in view of the word “any” appearing before the word “series” in the said sub-section, specifically so, when on earlier two occasions, the demonetisation exercise was done through the plenary legislation?
- Majority view: Section 26(2) of the RBI Act states that “on recommendation of the Central Board (of the RBI) the Central Government may, by notification in the Gazette of India,
- declare that, with effect from such date as may be specified in the notification, any series of bank notes of any denomination shall cease to be legal tender.”
- The petitioners argued that the word “any” would have to be given a restricted meaning to mean “some” and not “all” legal tender of a given denomination
- majority view disagreed, and held that the term has to be given a purposive interpretation as leaving one series of the said denomination to continue to be a legal tender, which would lead to a chaotic situation.”
- Dissenting view: Justice Nagarathna held that if the word “any” could mean “all”, it would confer excessive and arbitrary powers on the RBI. In her view, “the contention of the Union of India that the Central Government has the power to demonetise “all” series of bank notes
- Such an extensive power cannot be exercised by issuance of a simple gazette notification in exercise of an executive power of the Central Government as if it is one under sub-section (2) of Section 26 of the Act. The same can only be through a plenary legislation, by way of an enactment following a meaningful debate in Parliament, on the proposal of the Central Government
- Is the power under sub-section (2) of Section 26 of the RBI Act is construed to mean that it can be exercised in respect of “all” series of bank notes, whether the power vested with the Central Government under the said sub-section would amount to conferring excessive delegation and as such, liable to be struck down?
- Majority view: On the issue of whether the RBI Act delegates excessive power to make law to the Centre, and is therefore unconstitutional, the majority view disagreed with the petitioners
- “Insofar as the decision to be taken by the Central Government under sub-section (2) of Section 26 of the RBI Act is concerned, it is to be taken on the recommendation of the Central Board. We, therefore, find that there is an inbuilt safeguard in sub-section (2) of Section 26 of the RBI Act inasmuch as the Central Government is required to take a decision on the recommendation of the RBI,”
- It also said that the delegation of power is in any case to the central government, which is answerable to Parliament.
- Dissenting view: Since Justice Nagarathna held that Section 26(2) gives excessive powers to the Centre to demonetise currency by just issuing a gazette notification, it follows that the Centre’s 2016 decision was unconstitutional.
- As to whether the impugned Notification dated 8th November 2016 is liable to be struck down on the ground that the decision-making process is flawed in law?
- Majority view: The majority view relied on the government’s argument that merely because the process was initiated by the Centre, it could not be struck down.
- The ruling notes that the minutes of the RBI Central Board meeting that recommended demonetisation on November 8, 2016 itself stated that the RBI and the Centre had discussed the idea for over six months before it was notified.
- On the merits and soundness of the decision, the majority stated that the court cannot determine the effectiveness of economic policy. However, it agreed with the Centre’s contention that the decision had to be made in secrecy and in haste for it to be effective.
- Dissenting view: Justice Nagarathna held that it is in violation of Section 26(2) RBI Act that the recommendation for demonetisation originated from the Centre and not the RBI’s Central Board.
- The dissenting view also states that if the Centre indeed initiated the proposal, then it ought to have brought in legislation in Parliament
- As to whether the impugned notification dated 8th November 2016 is liable to be struck down applying the test of proportionality?
- The majority decision applies a four-pronged test of proportionality to the constitutionality of the decision.
- The four ingredients of the test to be satisfied are:
- i) legitimate purpose
- (ii) rational connection with the purpose
- (iii) necessity
- (iv) whether the action taken is proportional or balanced.
- Majority view: The majority verdict states that curbing fake currency, black money and terror funding are legitimate interests of the state and have a rational nexus with demonetisation.
- For the third aspect (Necessity), the court has to determine if the decision was necessary, and that there were no alternative measures that could have achieved a similar purpose with a lesser degree of harm for citizens.
- On the fourth aspect, the court said “what alternate measure could have been undertaken with a lesser degree of limitation is very difficult to define”.
- Dissenting view: Justice Nagarathna said that since she had already held the demonetisation decision unlawful, this question need not be answered.
- Whether the period provided for exchange of notes vide the impugned notification dated 8th November 2016 can be said to be unreasonable?
- Majority view: The court cited an earlier instance of demonetisation in 1978 where a three-day period was provided for exchanging the demonetised notes.
- This was upheld by a Constitution Bench of the court. Relying on this decision, the majority view said, “we fail to understand as to how the said period of 52 days could be construed to be unreasonable, unjust and violative of the petitioners’ fundamental rights.”
- Dissenting view: Since the dissent had already held the demonetisation decision unlawful, it did not answer this question.
- whether the RBI has independent power under sub-section (2) of Section 4 of the 2017 Act in isolation of provisions of Section 3 and Section 4(1) thereof to accept the demonetised notes beyond the period specified in notifications issued under sub- section (1) of Section 4?
- The petitioners argued that RBI had no independent powers to allow that when the 2017 Act had been passed by Parliament.
- Majority view:
- The earlier notifications have to be read as part of the 2017 law, giving it a “contextual and harmonious construction”.
- The Specified Bank Notes (Cessation of Liabilities) Act, 2017 prohibits and penalises holding, transferring, or receiving demonetised currency.
- However, some earlier notifications allowed a grace period for certain individuals, like those who were abroad when demonetisation was notified, to exchange their old currency.
Editorial 2: Govt announces free foodgrains in 2023, but what’s the economics and politics underlying the promise?
Recent Context:
- Recently, government announced that it would provide free foodgrains to eligible beneficiaries under the National Food Security Act (NFSA), 2013, for all of the new year.
- The Union Cabinet’s December 24 decision came amid a debate over freebies to voters in the country.
- On the other hand, Government discontinued, The Pradhan Mantri Garib Kalyan Anna Yojana (PM-GKAY) — launched in April 2020 as a pandemic relief measure under which 5 kg of free foodgrains were provided to NFSA beneficiaries in addition to their monthly entitlement (35 kg to a Antyodaya household and 5kg per person in a Priority Household) of subsidised foodgrains under at Act .
Food security law
- The NFSA, which was enacted by the UPA-2 government and came into effect on July 5, 2013, entitles 67 per cent of households ; 50 per cent urban and 75 per cent rural in India to subsidised grains under the Targeted Public Distribution System (TPDS). About 81.35 crore people around the country are covered under the NFSA.
- The subsidised prices are specified in Schedule-1 of the Act which the government can change by executive order.
- In fact, the government issued a notification on December 30, 2022 to provide free foodgrains under the NFSA from January 1. The quantity of grains to which a beneficiary is entitled is also laid down, and cannot be changed without Parliament’s approval.
- As of now, NFSA beneficiaries pay Rs 3, Rs 2, and Re 1 per kilogram of rice, wheat, and nutri-cereals (millets) respectively.
- These prices were initially fixed for three years. Thereafter, the grains were to be supplied “at such price, as may be fixed by the Central Government, from time to time, not exceeding,(i) the minimum support price for wheat and coarse grains; and (ii) the derived minimum support price for rice, as the case may be”
- While the three years ended on July 5, 2016, prices have remained constant despite the steady rise in the Economic Cost of the foodgrains, and the government’s growing food subsidy bill.
Rising financial burden
- The Economic Cost has four main components
- Pooled Cost of Grain,
- Procurement Incidentals,
- Acquisition Cost, and
- Distribution Cost
- which have increased over the years. The Economic Cost of rice has risen from Rs 2,615.51 per quintal in 2013-14 to Rs 3,104.96 in 2016-17 to 3,670.04 in the current financial year.
- The Economic Cost of wheat has risen from Rs 1,908.32 per quintal in 2013-14 to Rs 2,196.98 in 2016-17 to Rs 2,588.70 in 2022-23.
- The government’s food subsidy bill too has increased apace. It peaked at Rs 5,41,330.14 crore in 2020-21 before falling to Rs 2,86,469.11 crore in 2021-22. For 2022-23, the government has budgeted a subsidy bill of Rs 2,06,831.09 crore, but this may rise further. The government has said that the cost of distributing free foodgrains under the NFSA would be around Rs 2 lakh crore.
PM-GKAY and NFSA
- On September 28 last year, ahead of Assembly elections in Gujarat and Himachal Pradesh, the government had announced the seventh phase of PM-GKAY, extending the Covid-19 relief measure until the end of December.
- According to official data, the government had spent about Rs 3.45 lakh crore up to the sixth phase of PM-GKAY, and expected the total cost at the end of the seventh phase to reach Rs 3.91 lakh crore.
- The total foodgrains allocation under the scheme stood at 1,121 lakh metric tonnes (LMT). The discontinuation of PM-GKAY after December 31, 2022 is significant in view of the depletion of the country’s foodgrain stocks in recent months. As of November 30 last year, the combined stock of rice (115.42 LMT) and wheat (190.27 LMT) was 305.69 LMT, which was lower than the 591.56 LMT (213.03 LMT rice and 378.53 LMT wheat) of stock on the same day in 2021. While the rice stock position is comfortable, wheat stocks are just above the buffer stock requirement.
- The government’s expenditure on the PM-GKAY was about Rs 15,000 crore per month.
How much is enough?
- Announcing the Cabinet decision on December 24, Food Minister Piyush Goyal said, “Adhik quantity ki awashyakta nahin hai. (Additional quantity is not required.)” This was different from the thinking in the government when the PM-GKAY was launched.
Free grains economics
- The December 24 decision will put an additional financial burden of Rs 13,900 crore on the exchequer, and the total food security bill for the 2023 calendar year will be around Rs 2 lakh crore.
- However, it will bring some savings to NFSA beneficiaries. For Antyodaya Anna Yojana (AAY) families, who are entitled to 35 kg of foodgrains per month, the government has allocated 99.75 LMT (71.07 LMT rice and 28.68 LMT wheat) for the financial year 2022-23.
- This means AAY families will save about a total of Rs 2,705 crore for the entire year.
- However, if AAY families need to buy extra quantities of foodgrains (equal to what they were receiving under the PM-GKAY) from the open market, they will have to pay more.
- Similarly, for PHHs, the government has allocated 423.86 LMT foodgrains (272.8 LMT rice, 144.76 LMT wheat, and 6.3 LMT nutri-cereals), enabling them to together save about Rs 11,142 crore in the year. Like the AAY families, the PHHs will also be required to shell out more to buy additional food grains at the market rate.
Conclusion
- Providing food grains to vulnerable section at subsidies rate of society is need of hour to upliftment them from the menace of poverty, hunger and malnutrition.
- However, scheme such as free food grain should be with ‘sunset clause’ and based of required situation such as pandemic, on the other hand government should more focus on capacity building of people so that they can becaome self-capable and earn their livelihood.