The Power of the Indian Prime Minister to Demonetize Currency Without Presidential Approval

Demonetization is not a novel concept in the Indian context. The country has experienced two instances before, in 1946 and 1978. These precedents, along with a robust body of Indian case law, have established the necessity of certain legal frameworks for demonetization. According to these legal precedents, while a government can issue a notification, a Presidential Ordinance or Parliamentary Act is required for crucial steps such as:

Prohibiting the transfer or receipt of demonetized banknotes to ensure they no longer reflect as a liability on the Reserve Bank of India (RBI). Restricting the RBI’s obligation to exchange old notes for new ones.

These steps cannot be achieved through a simple notification. They necessitate the support of a Presidential Ordinance or a Parliamentary Act. Hence, the Indian Prime Minister, while taking the lead, must work in tandem with the RBI and certain legal requirements.

Role of the Prime Minister and the Council of Ministers

The Prime Minister advises the Council of Ministers, which is binding on the President. However, demonetization is not within the purview of such exceptions. The cabinet meeting was held exactly before 8 PM on 8th November 2016, and the decision was promptly conveyed to the President. This exemplifies the coordination between the government and the President in such critical matters.

Government's Role and Constitutional Implications

The government holds the power to demonetize notes once the Reserve Bank of India (RBI) sends a proposal to this effect. The RBI, known for its independence and expertise, initiates these discussions. Both the government and the RBI mutually decide on this course of action.

During wartime, the government can act without the need for specific permissions. Similarly, in a scenario like demonetization—a situation akin to an economic war—the Prime Minister can take necessary actions without requiring presidential approval to safeguard the nation's economy.

Constitutional Considerations and RBI's Role

According to the Reserve Bank of India Act 1934, the RBI has exclusive rights to issue currency notes. It also has the authority to issue notes up to Rs. 10,000. Given these exclusive rights, it can be argued that the RBI also has the authority to demonetize currency.

There is no need for a bill to be passed in Parliament regarding demonetization, as it is primarily a policy decision. Constitutionally, there is no mandate to take the President's approval for such actions. However, formal consultations are necessary. Before the cabinet meeting, the President was informed, and the RBI board's approval was sought. The board members were kept in the meeting room until the PM's speech was made public, further emphasizing the need for coordination between these key institutions.

In conclusion, while the Prime Minister can take the lead in demonetization, there are legal and constitutional requirements to ensure the process is conducted in a robust and transparent manner, requiring both the RBI and the President's inputs, even if the final decision can be made without explicit presidential approval.