A 27-page affidavit filed by the Centre in the Supreme Court said one of the chief reasons for demonetisation of over Rs. 14 lakh crore was to flush out counterfeit currency, estimated to be Rs. 400 crore, used to fuel terrorism, anti-national activities and communal riots.
Explaining why an entire high-denomination currency was scrapped to weed out Rs. 400 crore in fake notes, the government reasoned that fake currency — however small its value — used to fund terrorism had a “hugely disproportionate impact” on the economy.
Catastrophic impact
“A few hours of a terrorist attack in Mumbai or in any other city leads to loss of human lives apart from the catastrophic impact on the economy,” the Centre’s affidavit explained.
“The impact of each terror event is catastrophic and disproportionately higher than the amount of terror financing. The amount spent to sponsor a terrorist act may not be very large, but the impact and damage it causes to human lives and to the economy is catastrophic,” the government said.
The Supreme Court is scheduled to hear the affidavit on Friday.
The affidavit invoked the “constant skirmishes” at the northern and north-eastern border States to describe how black money funnelled through a “parallel shadow economy” had threatened to destabilise the country.
The affidavit provides a list of threats to national security, including “trans-border terrorism, left-wing extremism, espionage, sabotage, insurgencies, activities of organised crime syndicates, organised criminal groups, drugs syndicates, gun-running, human-trafficking, abetment of communal riots, etc.”
It said demonetisation was meant to eliminate a shadow economy which has grown unchallenged in the past decades. The government quotes a report by VISA to prove that a high volume of cash transaction actually boosts the percentage of shadow economy. Cash acts as conduit for black money and India has 26 per cent shadow economy, the Centre said.
Inflationary trend
The government at one point concedes that this steep rise in the circulation of high-denomination money may be due to inflation, but it insists that the trend also suggests “two major threats of infusion of fake currency and generation of black money.”
However, the same affidavit quotes from a Home Ministry-commissioned survey by the Indian Statistical Institute in 2016 showing that the number of fake Rs. 500 notes has actually decreased from 42.2 lakh pieces in 2011-12 to 37.5 lakh pieces in 2014-15.
The government heralds demonetisation as a “bold move to eradicate black money/slush money operating since the Independence.” It claimed that “no serious attempt at this scale has been attempted in the past.”
Demonetisation, the government said, would end the excessive use of cash and artificial rising of prices in the real estate sector.
