'Demonetisation decelerated economy at faster rate'

Demonetisation was a massive, draconian, monetary shock that fast decelerated Indian economy, Prime Minister Narendra Modi's only chief economic adviser Arvind Subramanian, who quit mid-way his tenure, has said in his new book that is yet to hit the stands.

“Growth had been slowing even before, but after demonetisation the slide accelerated. In the six quarters before demonetization growth averaged 8% and in the seven quarters after, it averaged about 6.8%,” Subramanian said, admitting that navigating the aftermath of demonetization was one of his bigger challenges.

His comments in the book 'Of Counsel: The Challenges of the Modi-Jaitley Economy' came a day after the government released the back series GDP data which showed NDA in a good light over 10 years of UPA rule.

He also sought to quell the perception that BJP's victory in last year's Uttar Pradesh Assembly election was a verdict on demonetisation, suggesting where there are “charismatic” leaders policy actions that adversely affect more people are more likely to succeed.

“..Why do poor white males vote for the Republican Party and President Trump when the policy agenda either has no benefits to them (tax cuts for the rich) or is positively harmful (undermining Obamacare and welfare benefits more broadly)? That same question seemed relevant after the resounding victory of the NDA government in the UP election,” Subramanian, who always reserved his comments while serving the government for a later day, said.

He said that the impact of demonetisation was so much on the informal economy and the small businesses that the Goods and Services Tax (GST) was started being perceived as the second shock on the economy.

“To be sure, implementation could have been significantly better but the GST’s public reception was surely contaminated by demonetization having preceded it,” he said.

Subramanian said he too like other learnt about demonetisation afresh.

“On 8 November, in a dramatic nationally televised speech that I watched in my room in North Block, the prime minister announced that the top two high-denomination currency notes of Rs 500 and Rs 1000 would cease to be legal tender; that is, they would no longer be accepted as a government-certified means of payment. It was an unprecedented move that no country in recent history had made in normal times,” he said in the book.