‘Notes ban was draconian and monetary shock’

NEW DELHI: Arvind Subramanian kept a studied silence on demonetisation as long as he was Chief Economic Adviser but six months after quitting the job he has described the note ban as a massive, draconian, monetary shock that accelerated economic slide to 6.8 per cent in the seven quarters after the decision against the 8 per cent recorded prior to it.

Breaking his silence on the November 8, 2016 decision of Prime Minister Narendra Modi, he says that he does not have a strongly-backed empirical view apart from the fact that the welfare costs, especially on the informal sector, were substantial.

Though Subramanian, who quit the post earlier this year after a four-year tenure, has devoted a chapter in the upcoming book “Of Counsel: The Challenges of the Modi-jaitley Economy,” published by Penguin, has kept to himself on whether he was consulted in the decision-making process of demonetisation.

The detractors of the government had said that the Prime Minister had not consulted the CEA on the crucial decision.

“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was a massive, draconian, monetary shock: In one fell swoop, 86 per cent of the currency in circulation was withdrawn.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.

“In the six quarters before demonetisation, growth 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),” Subramanian says in the chapter “The Two Puzzles of Demonetisation − Political and Economic.”