‘Notes ban was dra­co­nian and mone­tary shock’

The Gulf Today - - ASIA -

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.”

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