Demonetisation was a massive, draconian, monetary shock that accelerated economic slide, says Modi’s former Chief Economic Advisor Arvind Subramanian


Former Chief Economic Advisor Arvind Subramanian has said that the note ban decision of Prime Minister Narendra Modi was a massive, draconian, monetary shock that accelerated the downward slide in the Indian economy.

Arvind Subramanian
(PTI File Photo)

Subramanian had stepped down from his post in June this year.

He has criticised the demonetisation decision by Modi made on 8 November 2016 in his book Of Counsel: The Challenges of the Modi-Jaitley Economy, published by Penguin. Writing in a chapter called The Two Puzzles of Demonetisation — Political and Economic, Subramanian, according to news agency IANS, said, “Demonetisation was a massive, draconian, monetary shock: In one fell swoop, 86 per cent of the currency in circulation was withdrawn. The real GDP growth was affected by the demonetisation. Growth had been slowing even before, but after demonetisation, the slide accelerated.”

He went on to write that in the six quarters before demonetisation, growth had ‘averaged 8 per cent and in the seven quarters after, it averaged about 6.8 per cent (with a four quarter window, the relevant numbers are 8.1 per cent before and 6.2 per cent after).’

He added, “When a shock like demonetisation occurs, that primarily affects the informal sector, relying on formal indicators to measure overall activity will overstate GDP. This hypothesis goes only a small way towards explaining the puzzle since any squeeze in informal sector incomes would depress demand in the formal sector, and this effect should have been sizable.”

Modi had stunned people across India and globe by declaring 86% of the currency in flow illegal. This had led to widespread distress across India with nearly 200 people losing their lives. He had declared Rs 500 and Rs 1,000 notes illegal.

The prime minister has not yet apologised for his mistake that adversely impacted the country’s economy. He had famously said that if he was proved wrong on the demonetisation announcement, he was ready to face the punishment at any public crossings in India.



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