"Demonetisation Was A Massive Draconian Monetary Shock", Says Former CEA Arvind Subramanian, Critiquing The Note-ban In New Book

Written By Ankit Prasad | Mumbai | Published:

Former Chief Economic Advisor Arvind Subramanian has called Demonetisation a "massive, draconian, monetary shock" in his new book, stating that in withdrawing 86% of the currency in circulation in one move, real GDP growth was affected.

Subramanian, who demitted the office of the Chief Economic Advisor a few months earlier to return to the US, has reportedly devoted a chapter to the November 8, 2016 currency swap move in his upcoming book titled 'Of Counsel: The Challenges of the Modi-Jaitley Economy'. He has, however, apparently not gone into details of whether he was consulted in the decision-making process.

The Demonetisation chapter is called "The Two Puzzles of Demonetisation -- Political and Economic" and reportedly goes into its impact on GDP. Subramanian says that growth was slowing even before November 2016 but Demonetisation hastened the slide. 

Subramanian, who succeeded former RBI Governor Raghuram Rajan as CEA, states that nobody is in doubt that demonetisation slowed the economy down, and goes on to attempt to quantify the slowdown -- whether it was 2% or more than that. He also cites other factors from the time as having played a role in GDP growth slowing down, such as GST implementation, oil prices and higher interest rates.

He criticises demonetisation specifically, however, calling it a shock that affected the informal sector leading to a decrease in demand in the formal sector, hypothesising that this effect would have been sizeable. He refers to the extension of informal credit as a possible workaround that people used to tide over the effects of demonetisation, which he calls one of the unlikeliest economic experiments in modern Indian history. Subramanian does concede, however, that it would have bolstered digitisation of the economy and payments.

He also speaks about the political aspect from that time, where the BJP won a stunning victory in Uttar Pradesh with the voters seemingly backing the stated goal of Demonetisation to curb black money and corruption.

Trinamool Congress MP Derek O'Brien has tweeted on the matter:

Ladies & Gentlemen He is not an official spokesperson of @AITCofficial or @INCIndia or @arivalayam DMK or @JaiTDP or @RJDforIndia or @AamAadmiParty or BSP/SP or Left.”Demonetisation was draconian, massive shock for Indian economy” says Arvind Subramanian