Ex-chief economic advisor calls demonetisation a monetary shock

“In one fell swoop, 86 per cent of the currency in circulation was withdrawn. The real GDP growth was affected by the demonetisation. Growth had been slowing even before, but after demonetisation, the slide accelerated," Subramanian says in his book Of Counsel: The Challenges of the Modi-Jaitley Economy.

“In the six quarters before demonetisation, growth averaged 8 per cent and in the seven quarters after, it averaged about 6.8 per cent (with a four quarter window, the relevant numbers are 8.1 per cent before and 6.2 per cent after),” Subramanian says.

Stating that he does not think anyone disputes that demonetisation slowed growth, the former chief economic advisor, who quit the post following the four-year tenure, says, "In the six quarters before demonetisation, growth averaged 8 per cent and in the seven quarters after, it averaged about 6.8 per cent (with a four quarter window, the relevant numbers are 8.1 per cent before and 6.2 per cent after)."

Subramainan says demonetisation was an unprecedented move that no country in recent history had made in normal times. It only occurs in extreme circumstances of war, hyperinflation, currency crises or political turmoil (Venezuela in 2016).

He said it the BJP’s victory in Uttar Pradesh Assembly elections shortly after demonetisation was widely seen as a verdict on the note ban.