The Whiff Of Money

On 8 November, came the tsunami; since then, growth has been on a southward sojourn. Is demonetisation to be blamed, asks Raghu Mohan

- Raghu Mohan

IT’S HARD TO DRAW up a balance-sheet on demonetisation, especially when nothing comparable — wherein 86 per cent of the currency in circulation is pulled out at one go — has been done anywhere on this planet.

All kinds of reasons have been extended to justify it — to clean up the moral fabric of society; better tax compliance; an assault on black money; to tackle counterfeit notes and terrorism; to encourage lesser use of cash and boost digital payments. Of course, there’s no denying that these are all laudable goals. But what exactly have we achieved?

Was the timing of it right? That’s assuming it was a rational move in the first place. Growth in GDP had soared to an all-time high of 9.13 per cent in the fourth quarter of 2015-16, but had started to wane by the third quarter of 2016-17.

On 8 November, came the tsunami; since then, growth has been on a southward sojourn. Is demonetisation to be blamed? Ranen Banerjee, Partner- Public Finance, Economics and Urban at PwC (India) feels “It may or may not be”.

His point is that maybe the informal sector faced the brunt and economic activities were severely constrained as widely reported. But then, it’s also known that GDP captures the informal sector data in a roundabout way and the post-demonetisation effect on the informal sector may not be fully captured in the GDP data itself.