File photo of customers waiting to exchange banned Rs 500 and Rs 1,000 notes at a bank in Dadri, Uttar Pradesh. (Photographer: Anindito Mukherjee/Bloomberg)

Why Arvind Subramanian Refuses To Judge Demonetisation

Arvind Subramanian doesn’t want to pass judgement on demonetisation—announced by the government in November 2016 that extinguished over 86 percent of India’s currency—as he said it wouldn’t add anything to the debate.

The former chief economic adviser said his job was to provide the cost and benefits of any exercise—and not get the final reductive number. “In the book (‘Of Counsel: The Challenges of the Modi-Jaitley Economy’, authored by Subramanian), I didn’t want to do who knew what and when as that's for the historians," he said at an event to promote his new book. “It’s water under the bridge.”

He said the key takeaway from the experiment was the political phenomenon of “why people validated the move by voting against their self-interest”.

Watch The Full Interaction Here:

Also read: The Two Puzzles Of Demonetisation - An Excerpt From Arvind Subramanian’s Book ‘Of Counsel’ 

Here’s the edited excerpts from the conversation:

There was so much written about demonetisation in your book. You included a chapter in your book—Speaking Truth To Power. Why have you asked several questions of the impact of demonetisation? You have not yet passed a judgement if it was a good thing to the economy or a bad thing.

In 2016, Raghuram Rajan and I wrote a paper on foreign capital flows, and we were on the flight back with Kenneth Rogoff, who had been a chief economist to the International Monetary Fund. I remember then Rogoff telling Rajan that being a former chief economist adviser of IMF is much better than being a chief economist adviser of IMF because you can say whatever you want. I found this to be so untrue. I believe that if you are a CEA, you never become a former CEA. There are some responsibilities and maintenance of trust that comes with being a CEA. A former CEA is more CEA than former. That’s the one a CEA always need and continuing it.

Here’s an excerpt from your book—“A CEA must be fully supportive of the government without spinning on its behalf. He must combine fidelity to the government and fealty to the larger good. In short, he must try to be both Karan and Arjun.” You’re being none right now. In several parts of your book, you raise the issue on why people don’t speak the truth, whether they are analysts, economists, people from within the government. You have also written about the why officials are not candid about their views on government policy.

I think in terms of being Karan and Arjun, I think that the opportunity my team and I got to do that was in the Economic Survey. In the Economic Survey, I hadn’t spoken about demonetisation. What we did in the survey was actually as an absolutely cold-blooded economist, if you want to be both Karan and Arjun, you have to point out both sides of the argument. The survey talks about on short-term costs and long-term benefits, but that final You present the cost and you present the benefits. But that one final waiting to give one reductive number is something that I was not willing to do and partly because I think that these are decisions taken for whatever reason. What I wanted to do in the book is all that is water under the bridge. On political phenomenon, I do want people to think about why do voters apparently vote against their political interest? Implicitly, I think we all recognise that the huge short-term cost imposed, especially on the informal sector and yet soon after in a very salient way, I think people certainly didn’t go against and if anything they did, they validated that action.

A genuinely important thing is we know that the growth were decelerating aggravated by the demonetisation and the GST. We will never be able to say on how much demonetisation led to the growth slowdown and how much did the GST did. I think that people should try to put in orders of magnitude less puzzling and less important than the fact that you cut 86 percent of the cash in circulation, which I call it draconian, and yet you see the impact measure on GDP was fairly minimal. When I met an American economist Paul Krugman, he said, which any reasonable economists would have said there has to be a massive recession in the economy and not just slower growth, which did not happen. The question is what does it say about the whole phenomenon, it is completely not capturing informal sector in our GDP, is it that we don’t understand how cash works in the economy? Is it that we have a resilient economy? There are informal social arrangements, credit has extended and people have tied over these things. I think that I would certainly like to understand these things better.