September 06, 2017

RBI Data Isn’t Enough: It’s Premature to Argue if Demonetisation was a Success or Failure

By Vivek Dehejia, Jagdish Bhagwati, Pravin Krishna

In this Print article, Jagdish Bhagwati, University Professor, Law and Economics, at Columbia University, Vivek Dehejia, Resident Senior Fellow at IDFC Institute and Pravin Krishna, Chung Ju Yung distinguished professor of international economics at Johns Hopkins University, take stock of the success and failures of demonetisation.


Key excerpt from their article can be seen below


"It remains to be added that when a policy which amounts to the greatest natural experiment in modern monetary history is undertaken, it will take many more years for its full impacts and possible upside gains, quite apart from its short-term costs, which are evident, to be realised and quantified, especially when assessed against a broader range of criteria. The widely-reported disruptions to existing supply chains and the failure of some small firms without access to non-cash credit are a short and perhaps even a long-lasting negative consequence. On the positive side, evidence suggests a jump in digitisation and formalisation of the economy and banking system due to demonetisation, but it remains to be seen if this is a transitory effect due to a period of liquidity crunch or represents a permanent change in behaviour, for which demonetisation may take credit. More broadly, as we have previously argued, by creating a disruption, demonetisation has revealed the urgency of completing the unfinished reforms agenda, the essence of which involves moving firms and jobs from the informal to the formal: this is at the heart of creating productive and well-paying jobs which will power growth and continue the attack on poverty."


Read full article here

Topic : Transitions / In : OP-EDS
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