New Delhi: Former Chief Economic Adviser Arvind Subramanian in his upcoming book has called the note ban exercise a “massive, draconian, monetary shock. He stated not only the poor faced hardship during demonetisation, the rich and the corrupt were also undergoing greater hardship.
In his book titled ‘Of Counsel: The Challenges of the Modi-Jaitley Economy’, claimed that increasing the hardship on the poor counter-intuitively has been the precise reason why the move yielded political benefits in the U.P. elections soon after.
Explaining why demonetisation was so popular politically and why it did not have a greater impact on economic growth, he writes, “I offer the controversial hypothesis that imposing large costs on a wide cross-section of people [and the fact that the ₹500 and not just the ₹1,000 note was demonetised increased the scope and scale of demonetisation’s impact], unexpected and unintentional though it may have been, could actually have been indispensable to achieve political success.”
Mr Subramanian writes that the collateral damage was avoidable. Other punitive actions such as taxation, appropriation, and raids that were targeted at just the corrupt rich could have been taken.
He further states, “Why entangle the innocent masses and impoverish them in the bargain? As I wrote in the Economic Survey of 2016–17, if subsidies are a highly inefficient way of transferring resources to the poor, demonetisation seemed a highly inefficient way of taking resources away from the rich.”