Millennium Post

Note ban a massive draconian monetary shock: Subramanian

NEW DELHI: Demonetisation was a massive, draconian, monetary shock that accelerated economic slide to 6.8 per cent in the seven quarters after it against the 8 per cent recorded before the notes ban, says former Chief Economic Advisor or CEA Arvind Subramanian.

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 continued to keep a studied silence on whether he was consulted in the decision-making process of demonetisation.

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was a massive, draconian, monetary shock: In one fell swoop, 86 per cent of the currency in circulation was withdrawn.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

The former CEA says he does not think anyone disputes that demonetisation slowed growth. Instead, the debate has been about the size of the effect - whether it was 2 per cent points, or much less.

Meanwhile, Finance Minister Arun Jaitley Thursday defended the revision in India's GDP growth rate during the previous UPA era, saying it was done by a "highly credible" organisation, the Central Statistics Office, which maintains an arm's length distance from the finance ministry.

He said the revised numbers, based on a new formula with 2011-12 as the base year, are globally more comparable as they take into account a far greater representation of the Indian economy and are more reflective of its real state.

Taking on opposition Congress for criticising the revision, he said the Congress had welcomed the upward revision in growth numbers of the last two years of the UPA regime by the same CSO and had gone to the extent of saying that the "the new GDP series has conclusively established that we did not mismanage the economy".

Later in a blog post, Jaitley said the revised economic growth data has taken away Congress party's last surviving argument "my GDP growth was higher than yours".

The new numbers show India's economic growth rate averaged 6.7 per cent during the Congress-led UPA regime as compared to 7.3 per cent under the present government. Previous numbers had put the average growth rate during the 10-year UPA rule at 7.75 per cent.

Former Finance Minister P Chidambaram had Wednesday called the revision a "bad joke."

"Niti Aayog's revised GDP numbers are a joke. They are a bad joke," he had tweeted.

Niti Aayog Vice-Chairman Rajiv Kumar Thursday accepted the challenge of former finance minister P Chidambaram for a debate on the revised GDP data which showed economic growth during the current NDA regime was better than that in the UPA rule.

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