A notice outlining that Indian five hundred and one thousand rupee banknotes are no longer legal tender is displayed on the window of a jewellery store in New Delhi, India (Photographer: Anindito Mukherjee/Bloomberg)

Note Ban ‘Highly Disruptive’, Won’t Change Behaviour: Nobel Laureate Paul Krugman

Criticising the government’s demonetisation of old Rs 500 and Rs 1,000 notes, Nobel laureate Paul Krugman on Friday said it is "highly disruptive" and will not change behaviour of people who would become more careful and sophisticated in money laundering.

"I understand the motivation but it is highly disruptive way to do it...I would not think there will be prominent change in behaviour. People will be more careful and sophisticated in money laundering so that they will be protected next time," Krugman, Professor of Economics at City University of New York said at the HT Leadership Summit in New Delhi.

Krugman said it is an unusual step and there is good case for demonetisation of high value notes. He said launching Rs 2,000 currency is not outrageous but is an attempt to flush out hoarders.

On low wage labour intensive jobs being shifted elsewhere from China, he said India does have some low wage manufacturing possibilities, but there are a number of countries in that potential pool.

On India being turning a service export oriented economy, the noted economist said: " We have been talking a lot about rapid services growth and it has not still fully materialised but if it does, then India is the likely place." However, he pointed out poor infrastructure and said India still has a big problem with transportation infrastructure and that is a big problem for manufacturing and also for services that is one reason for direction of growth.